SaaStr 739: The Three SaaS Metrics That Matter in 2024 and Will IPOs Be Back? with SaaStr Founder and CEO Jason Lemkin

Jason Lemkin
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I've actually got I'm in the barrier this week and have four board meetings or investor meetings this week and everyone talks about ARR and growth and to some extent NP's and others. But we are under discussing some metrics that in 2024 especially matter for SAS executives and founders. So I just wanted to talk about three things that I think are important and under discussed here and the first one that I put this together on Saster in the last week or two. You can find it on what I think the most important metric in SAS is today. This is not discussed enough and I encourage all of you, especially those of you who maybe have seen growth slow over the last year or two, to be laser focused on this.

I see very few founders put net new customer count as their top KPI. Everyone talks about revenue growth. Everyone talks about revenue growth. And look, your first year, your first two years, you dont have any customers to renew at first youre adding new logos on a percentage basis at high rates, theres no real goal for net new customer growth. But what we are seeing today is that anyone with any scale, even from four to 5 million, narrow to four to 5 billion, obviously thats a wide range.

I am seeing folks whose new customer growth is anemic. And if you look at most of the public SaaS companies, you will have seen that in many cases NR has come down. But if NR was really high at a snowflake or a cloudflare or a HubSpot, it's come down. But it hasn't plummeted to zero. So the top leaders in SaaS and cloud still have triple digit NRR.

They still have triple digit NRR. And so even if you bring in no new customers, you'll still grow. At the bottom of this table is the worst defenders. And again, these are great companies. So I don't mean to pick on anybody.

These are all top, they're all in the NBA. It's like picking on somebody because they're not LeBron James and realistically, but this is the world we play in, right? Or golf in the NBA of Sas. So probably the biggest offender at the bottom is fastly. And fastly is a pretty enterprise.

CDN at 500 million in revenue. It still gets more money out of its customers as they route more content through their network. But they're only growing customers 1%, 1%. So they can look, it doesn't look all bad if you breeze through the numbers. Revenue growth up 18%.

That's not great. But it's okay at 500 million but only 1%. Page duty similarly, has done a big tilt up market to the enterprise. If folks have been around for a while, you remember when pager duty was like a grab and grab and go app for tech folks and SMBs. Now it's very enterprise.

And thats worked because theyre growing. Their nr is high enough that they are growing, still growing 60%, only 1% customer count. And I just see too many founders when times are more challenging, even when growth is just okay but not great. Hiding from this. Theyre hiding from this.

Oh, we grew 48% this last year. Thats great. But if your new customers didnt grow at least half of that, if its not at least half of your top line revenue growth, your future is not secure. Your future is not secure. Youre hiding an NRR.

So you have to tweak that ratio based on how enterprise or SMB you are. But roughly speaking, if your new customer growth is not growing, half of your top line, your revenue growth, you are shrinking in relevance, you are shrinking in market share and your future is at risk. I would much rather, and weve really made this mistake even worse the last 1824 months where we try and ring every dollar out of the customer base, we try and force people to renew early, we jam price increases up. All that stuff is financial engineering and it might work for a year, but jamming your customers to pay more, that doesn't increase your net new customer account, does it? It doesn't increase the number of new customers.

If you have a great team and we can talk about this in the AMA after, but if you have a great team, they will over time figure out how to drive up your deal size, how to drive up your acv, how to drive up all of these pieces. As long as youre growing your customer count, your future is assured. Your future is assured. And thats why of this list I would say the most impressive are the top three sprout social, which a lot of folks dont talk about in the social media space. Cloudflare, which is I think has the highest multiple revenue, multiple of any public SaaS or cloud company in HubSpot.

For those of you who think youve exhausted your market, for those of you who think you running out of customers to sell to, HubSpot has 205,000 customers and is still growing its new customer count 23%. Its still going to add 50,000 customers a year. So this is your job. This is your job. And I know especially if you have investors and team members, yes of course revenue growth at the end of the day is what matters for a while in SaaS and then as well talk about next.

Revenue growth and profitability ultimately matter, but your future is growing your customer count. I would challenge you in your team meetings and your investor meetings, whatever. I would make this your number, your first slide. This I think is the core health of your company. Now if youre under some pressure for renewals or under some pressure for pricing, so be it.

But if customers arent growing, and again, to me thats the canary in the coal mine, especially if your nr is decent. And I just, I see way too much discussion about other metrics and not enough about if were growing our customer base. The next less discussed metric. I wanted to just touch on it. I've really only got three and then we'll open up questions and this chart's a little complicated.

You don't have to read it, but I'll explain it to you and I'll show you some examples. Next is growth versus efficiency. And the single biggest mistake, error, confusion that I hear from founders today, founders in general, founders that are venture back founders that are bootstrapped, vangels that have raised a little bit of money wherever you are, is that this is the era of profitability. It's not. It is not.

Profitability is not your key to success. What has changed is efficiency. You have to be more efficient. You can't go public not growing. Too many startups are not growing or growing.

10%, 15%, 20% but hooray. We're break even. But it actually turns out to be pretty efficient. If you don't close any customers, you don't have to pay the sales team that much, your marketing costs go down. Its actually fairly easy to be efficient.

If you have a few million or more in revenue and you dont grow at all, you often actually can be cash flow positive. Its really not that hard. Just fire the whole sales and marketing team or dont do any of it. Thats not what its all about. What has changed, and this is what confuses social media advice.

Its all terrible. What has changed is now you have to do both. You have to both grow and you ultimately have to be profitable at scale. But profitability is not enough. And Im going to show you an example next that will be more helpful on this slide.

But both Bessemer and Maritech, you can. I'll put them up on Saster in a week or two. But they both did their own over overly complicated analysis of this. This is Bessemers. But they both come down to the same conclusion.

Looking at all the public SaaS companies and cloud companies in 2021, all that mattered was growth. As we know, all that mattered was growth in 2021. No, forget about startups and unicorns. No one actually cared if public SaaS companies were even profitable. Literally no one cared.

In 2021. In 2024, profitability matters. But growth is twice as important. Its twice as important. So let that be your guiding light.

Your guiding principle is this ratio of growth to profitability. You can calculate it however you want. You dont have this rule of x that Bessemer did. I love it, but its super complicated. Its a little bit too nerdy unless youre pre ipo.

But growth is twice as important as profitability. So track both. But profitability is not the goal. It is an end state ultimately that you need to get to. The goal is to grow almost as fast as we did in 2021, but without burning all the cash.

Its hard, but thats the real goal. We dont get a pass on growth because youre profitable. You dont get a pass on growth because your cash flow breakeven it doesnt get you anywhere. So let me show you oh sorry. This slide, this is an interesting example I pulled up.

Theres a series on saster called five interesting learnings. Its publishes every Wednesday. If you dont read it you should. I think its pretty good. I write it though so I guess im biased.

But we look at all the complicated metrics from a leading public company and we break it down to just five, five ish things that actually matter for founders. And I pulled up three of the latest ones, HubSpot, Viva and Dropbox. And you know what's interesting, Viva, you might not have heard of. Viva is probably the largest vertical SaaS company. It is CRM and a little bit more but CRM for life sciences, it is for life science.

In fact, Viva was founded by the VP of engineering, CTO at Salesforce who wanted to build a salesforce for pharma and it ended up becoming this huge platform. Platform, CRM platform for live sciences, verticals. Asked anyhow, convergent evolution, HubSpot for SMBs, Viva, everyone's a million to $10 million contract and Dropbox is at the edge of consumer. But they're all 2.5 billion in ARR today. They're all doing 2.5 billion in revenue.

But what they're worth and how they're doing it is very different. Let's look at HubSpot and Viva first. It's super. They're actually both worth 33 billion. This is both in the top 10%, these are top deciled, these are the LeBron James and Steph Curry's of SaaS, HubSpot and Viva.

So that's growing twice as fast at 24% was 17% profit margin, 17% of each dollar goes into profit, non gaap profit, but profit. And so that combination and add them together, 24 and 17 is 41, the so called rule of 40, they're worth 33 billion. That's 13 x ARR after you take out the cash. Pretty darn good. Now, Viva, this is the line where if you fall below this line, not as a startup but as a public company, you become interesting.

But Viva is just a moment. Their growth is, is barely in the growth stage. It's in the double digits. It's 12% at two and a half billion, although they are guiding to 15% next year. So importantly, they're telling Wall street, hey, we're going to accelerate rather than decelerate.

Almost 40% margins, almost forty cents of every dollar comes in is goes to the bottom line. So Viva is actually sitting on $4 billion of cash. Viva only raised $8 million in capital before its ipo. It hasnt spent anything thats built up $4 billion in cash. Its so efficient and add twelve and 39 you get to 51.

So thats wildly efficient and it trades at the same as HubSpot, a tiny bit lower when you back out the cash. So both of them profitable or depending on your both of them have high margins but vivas margins are insane which can make up for good but not great growth. HubSpot is very good growth at 2.5 million and it still has to be profitable. Dropbox 2.5 billion growing 6%. Thats not a growth company anymore is it?

Its fallen to the single digits. Thats 33% margins. It generates almost a billion of cash. But Wall street doesnt care back out all of its cash. Its only trading at two x ARR a six a 6th.

The valuation of HubSpot and Viva Dropbox is the example of, hey, a tiny bit of growth in tons of cash is not good enough. No matter what you read on Twitter, no matter what everyone says, the mantra is getting profitable. Its not. The reason people are all, especially VC's are saying get profitable is because theyre worried their portfolio companys going to run out of money. Theres no more money to go into the engine so theyre telling them to get profitable but its necessary but not sufficient.

Necessary but not sufficient. So super interesting set of case studies. Take some more time studying this if this doesnt make intuitive sense to you, but this is the world were living in today, uh, you got to grow and you got to be profitable. And I think this is under, the combination is under discussed and that growth is twice as important as profitability. As we can see when we compare Viva and Dropbox, right, it's just Viva is 33 billion and Dropbox is 8 billion back out.

Its cash only two x ar. No one wants to be worth two x AR folks, especially after all that work and getting over 2 billion in revenue. So related to that one last slide and this one frankly is slightly discouraging, but I'm going to show it anyway because we're among friends.

This is much debated among VC's today. So I'm going to take out the debate and just summarize the facts. What does it take to go public today? What does it take to go public? Because at some point, if your founders look, most of us aren't going to go IPO.

Most of us. But it's good to know. But at least it's good to know where to skate the puck to, right? So that if you're a little bit on that path, someone might buy you for 10 million, 50 million, 100 million, 500 million, a billion. What does it look like?

What do you ultimately have to. Even if youre not there today, what do you have to build to? And when I started in SaaS, the bar was 100 million in revenue, 100 million ish, growing maybe 50%. Thats where HubSpot and box looked like as they ipo ed a decade ago, as they came to the first couple saster annuals. The bar and everythings gone up for a variety of reasons.

Its not a hundred million or 150 million. No one knows what the bar is today to ipo per se. But what we can look at is there've only been two SaaS ipos since the crash of December of 2021. There's only been two. In fact, there's only been 1.1.5 because Rubrik is in process of going ipo.

They'll ipo shortly, but they actually haven't gone out, at least as of today. What does it look like? This is a. It's a big bar. So, Klaviyo ipod late last year.

If you don't know Klaviyo, we have a great interview with the CEO on Saster. Look at. It's one of my favorites. Klaviyo owns marketing for e commerce. It owns marketing for e commerce.

If you're not in e commerce, you've never heard of Klaviyo. You use HubSpot, other apps.

Sorry, can we mute that guy? You got it. Okay, good. Sorry. Klaviyo owns marketing.

About almost 70% of everyone on Shopify uses Klaviyo. It's insane. It's an insane. It's one of the highest partner attaches there is Klavo to shopify and a beloved app. Literally.

I haven't seen a product that folks love more for marketing automation. IPod. At the end of last year, after that drought, like the two year drought, 600 million in ARR growing 57%. 57%, right. And profitable.

50%. 600 million. It's only worth 6 billion. It's only worth ten times that. All that work is only worth ten times that.

Rubric's the next one. Rubrics. AR is really confusing. You can read. We put it up last week on SAS.

Really confusing. Because they went from a. From a hardware on Prem to SaaS model. And frankly, I think they flatter their metrics. A little bit by confusing them.

But put that aside for purposes of today. Lets simplify it. Rubiks going public at about $780 million in revenue, growing maybe 47%. It might be a little less because of the metrics are confusing, but lets call it the most optimistic version, 47%. And we dont know what theyre going to trade at, but it looks like about 6 billion to 7 billion.

This is the bar. This is the bar and a lot. And I don't think this is bad, but I think most startups today are living in a bubble, in a glass house. And I think, I'm not criticizing, I actually think it's a good thing. It is a good thing, but way too many startups are getting venture funded.

Way too much is happening for companies that are good companies but have no hope of. These are high bars growing more than 50%, not where you are today, but it's 600 million and more. It probably if you back into what is the equivalent of growing 57% at 600 million, for most of you, that might be tripling this year, quadrupling quintupling. That's probably what it should take to raise venture capital, go through this cycle, do all this stuff, and that's just to trade at ten times revenue. So if you've raised any capital at ten times revenue or more, you're living in a bubble.

You're living in the glass house and do it like hide from it, hide from the real world. Like it's like living at home with mom and dad for a while. If your room's nice, stay as long as you can. Don't be in a rush to get at a mom and dad's house. If the room is nice and they have a car for you and they pay for your Apple Pay.

Maybe stay at home until you're 22, 25, 26. I don't know, maybe there's a bad analogy, but I don't mean to. But there is an argument to staying in a bubble where everything's great because the real world is tough. Now, now maybe. Well see, Maritech had a good analysis saying they think therell be plenty of ipos at 200 million, 300 million.

But even thats a lot, right? Even thats a lot. But if you want my tough concern, my tough worry today under discussed is what is this bar and how do we get to it? And I know quite a few SaaS companies that are in the 150 to 200 million ARR range. Okay.

Because I got to know the founders or even invested in them, all different reasons over the last decade. Many are now at 100, 5200 million or so, 250 million in that range, big range. But the growth isnt at this level. The growth isnt at this level. Now you can blame macro and this and that, but macro isnt stopping rubric.

Macro isnt stopping Klaviyo. Theres good macros too out there. Theyre not all bad macros. And I dont mean to be discouraging, but as founders, even if you dont, maybe you dont show the slide to your teams, maybe just keep this quietly among yourselves and only talk about it a quarter. But understand that as hard as it is to do what youre doing today, you may actually have to do even better.

The IPo window is open, but the bar is pretty tough today, guys. And so those are just a tough fact to be aware of when youre trying to understand it. So anyhow, to summarize, track your net new customers after churn, track this as your, to me, the North Star metric. A team will fix everything. You'll figure out more products for them.

You'll figure out how to drive your deal size up. You'll figure out how to do all these things if you have happy customers and a good team. But if you're not growing your new customer account, it's trouble. So especially invest in your long tail. Don't give up on your smaller customers, don't give up on your champions cause they can grow big.

Two, profitability isn't everything. Growth still matters twice as much. You just have to do both. It's harder. And three, just quietly be aware of the bar to IPO.

So how all that cascades back to your stage, at least your, at least your self aware out of it. So thanks for that for everybody. And I'll open up to any, it doesn't have to be on this topic, anything anybody wants to ask. Thank you, Jason. We do have a couple questions that came through.

AJ, you have a question for Jason. I can bring you up. Jason, good reminder. And anchoring on the, on the growth. And I love the anchoring of the growth versus the rule of 40.

AJ
A lot of people get caught up in it. So I think it's a really good reminder that growth is, growth is still gain. Question for you on the growth specifically. So I'm seeing a lot of insistent on sales and marketing efficiency in the startup world and especially smaller. And you dont have the brand like Octavio or a snowflake or anyone like that.

What kind of sales and marketing efficiency should we expect given that right now im seeing a lot of chatter on social media that the overall buying environment has changed drastically because of no more. Zero interest, right, zero interest rate. So they're buying in much more slower manner. They're more cautious. They make you go through many hoops in that environment.

What kind of sales and marketing efficiency metrics should we expect? Has there been a calibration one, a medic comment? And then we asked your question about sales and marketing efficiency. I would say in my career in SaaS, which is going back quite a while now, folks that are saying that on social media are missing the point. They're missing the point.

Jason Lemkin
Sales is much harder than 2021. It is exactly as hard as it always used to be. It is exactly as hard as it always used to be. How it used to be until the second half of 2020 is almost every company had enough apps no one was looking for on their own to spend even more. If they had a real need or you created radical efficiency in the organization.

There was always budget, but no one was trying to add. Double their app stack. People doubled the number of apps they had in the boom. That will never, if you think about it for a moment, that was insane. That could never last forever.

You can't go from 100 apps to 200 to 400 to 800 to 1600 to 3200 to 6400, and then they all double their pricing. There's not enough. The global domestic product, the global world product doesn't account. There's not enough money. So 2021 made no sense in terms of the budgeting and therefore the sales and marketing practices in 2020 made no sense.

They werent crazy. They were just attuned to buying patterns that weve never seen before and may never see again for a decade or more, then im going to ask your question, and this is the toughest thing to say, but the folks on social media that have been around and that are complaining about how hard the market is and how impossible is, most of them, you can't hire. They're broken. The easy it was never easy, but the easier times lasted too long. They lasted from the summer of 2020 until about Q one Q two of 2022.

Even as the public markets crashed in 2021, people kept buying. Actually, the growth was pretty good until Q two Q three of 2022, there was a whole new generation of kids out of school and senior folks who got promoted or whatever who have don't even know what it was like. It was over two years of buying. That wasn't easy, but so much easier than we've ever seen, that they're unable to work or unwilling, not unable. Unwilling to work in the current environment, they're unwilling, they're blaming the world, they're blaming macro factors, they're blaming customers.

But it's supposed to be hard. We all have enough software, we all already have a CRM and a marketing solution and an ERP, and half of this stuff can be done in office. Excel is a pretty good piece of software. Google Sheets is great. Google Sheets is like free canvas, almost free.

We dont need anything. The bar was always supposed to be insanely high for software. You had to change the world and there was so much money invested on just on enablement in the boom that we lost track that you have to be utterly disruptive to succeed in business software. If you do, theres a lot of markets. Ive written this before and I know its tough to say, but I believe theres genuinely a lost generation.

There is a generation of folks that grew up in 2020 through mid 2022. Half of them may no longer be willing to work in SaaS companies today. And as executives, whoevers here, founders, CEO's, CROs, cmOs, Dont hire, Im not judging, Im judging them a little bit, but dont judge them too much. Just dont hire them. They're broken.

They cannot work in this world, they cannot work with a smaller team, they cannot work with a smaller budget, they cannot work with the level of efficiency we have today. It's broken. Okay, so let's step back. So let me ask your question of sales and market vision, and we can then we can back into it. The reality is, if you're comparing your company to two years ago, you have to be twice as efficient.

That's just the math. That's just the math. And I wrote it up on Saster a little while ago in terms of revenue per employee, but the average public company has over 300 subs, over 300,000 in revenue per employee. In 2021, it was just over 100,000. So do quick math in your head.

That means the average public SaaS company is twice as efficient and it's got to ripple through startups too. You've got to be just twice as efficient. It's just the facts. And is there going to be some trade off in growth? Yeah, that's the slide we looked at, right?

Snowflake is not growing at the insane rate it was. HubSpot's growth is great, but down there's some trade off. There's some trade off, but you got to hit it. So the final point I'll make, I know it's not a full answer to your question, but then we can take the next one. How do you budget this?

How do you budget this? And we have to go back to what we always used to do. Even the best companies did this until maybe 2019 or so when capital got easier. You have to do, at the end of the day, zero burn, zero cost budgeting. You just have to say, look guys, this is how much money we have this year.

That's all we got. And we got to let's figure out what's the absolute best we can do with our budget. And that's how well you do. That's how well you do. And we had, the truth is we had tons of sales folks that were marginally efficient in 2021 and we ran marketing campaigns that maybe worked in 2021 and don't work today.

So you just can't do them. You just can't do them. It's not that complicated. And I'll go even further and then I'll break. I think it's funny, I just had, I'll say finally, one last point.

I dont think that in most startups, even your payback time, your magic number, none of that matters if youre tracking the top and the bottom line. I was at a board meeting yesterday of a startup I invested in very early, five k in revenue. Theyre just crossed 60 million and their CAC payback time is 26 months. So thats not fast, is it? But theyre break even at 60 million, theyre break even.

Theyre not even burning any cash. So does it matter? The growth is hitting the plan and theyre break even. So these cap metrics, these payback metrics, all these numbers, theyre good, theyre important, Preston. But back in the old days, they were devised by a lot of vcs.

And Byron Dieter Bessemer did a ton of this in the early days so that VC's could understand how to invest in SaaS companies. If im going to give these guys 10 million, 20 million, 40 million, I want it to be an engine, I want it to be a flywheel and how much am I going to get out of it? These payback metrics are really important for investing. I think for startups just the bottom line matters. So do zero cost budgeting.

How much can I spend this year? How many can I hire? And then lastly, I know there's a lot of points, but I think they're important. If you have a good sales team and a good marketing team, they will respond. They will respond.

A great sales team is almost always accretive. They almost always bring in more money than they take out and marketers will focus, they won't just hide and spend nothing. They will focus their spend on what works and they will rise to the occasion and they will work within the budget they have. And that's how you do it. So anyhow, zero cost budget, it's the best we can do.

It's, it's back to reality. So thanks for the question. Thanks, Jason. Okay, we have a couple others that I'm going to ask for folks. So from Paul, when it comes to go to market efficiency, what do you think are the most meaningful leading indicator metrics to manage new revenue per head sales velocity or some third metric?

I don't think anything's changed. I think I just did a great one. It's really worth watching. I did a great podcast, video podcast with the cmos of HubSpot and Zapier who used to work together at HubSpot. They have a new pod called against the grain and it was like all, all about marketing.

This one was pretty good. I think you guys would enjoy it if you watch it for marketing and HubSpot. It's the biggest zapiers nine figures but smaller. But anyhow, I think the whole point of the conversation was at the end of the day theres too much noise in marketing and marketing job is to accelerate top of funnel. So what matters?

It matters. First of all, you have to figure out what type of marketer do you have? Assuming its not you as the founder, what are you good at? Are you good at generating leads, opportunities, what piece of the funnel you have and just focus your energy there on growing that at least 20% a quarter if you can grow whatever layer of the funnel that marketers good at. Most marketers are only good at one or two things.

So asking them to do motions they don't know how to do, asking digital marketer to do enterprise stuff and field events and webinars is not going to work too good. Asking an enterprise field marketer to spool up Facebook ads? Not going to, it's not going to work too good. So figure out what level of the pipe they're optimal at, measure it consistently and just drive it up 20%. It's just, that's just the goal.

It's just that simple. So Jason, thank you for sharing that one. Another question. So I'm going to turn it over. Giovanni, you had a question about metrics.

I'm going to bring you up to ask a question like, so Jason, in. Terms of efficiency, what do you think should be the expected return on investment on your marketing spend? Number one example two x, three x and on your sales team as an example, five x on ote or what is the best. I think those, youll see those metrics. I think theyre not practical for startups.

Jason Lemkin
Let me step back for a minute. Number one is your bottom line manage to your bottom line. Okay, you have to have a budget. You have to start from the budget, not the metrics. But lets step back for a minute.

Lets talk about marketing efficiency and lets talk about sales efficiency. Marketing efficiency. People come to the dumbest conclusions, the worst conclusion. Okay folks, we literally had, so we have about 200 sponsors at Saster annual each year and but we learn, I actually keep fresh in some of the zeitgeist just talking to some of them. We had one last year.

Theyre a startup, theyre doing 15 million, growing about 60% and they have budget and theyre not renewing for Sastra annual this year which happens, its a marketing spend. Okay. It happens, its okay. But we asked them why are you not renewing? They said we only made about three x our money.

Thats great. Their target but they said our targets gone up to ten x this year. Heres the thing. In startups, one x is good enough. Youre trying to grow, youre trying to put points on the board box growing 6% a year.

You're trying to put the way marketing works in startups is and you have to be careful to measure where the money is going. Anything that gets you a customer is worth it. Especially what if that customer stays ten years? Yeah. What if you get that customer and what if you don't get it and your competitor gets it and you never get it back?

Okay, what we forget is because it doesn't feel this way in the early days, okay. But as you get, you don't have to be HubSpot stage. Even as you get to a few million in revenue, you, I've talked many times over the years about a mini brand, okay, people will start to hear about you and what will happen as you cross just a couple million revenue is you will get at least some zero cost leads. You will get at least some people that say I heard about you or I used you at my last company, right, or I saw you on twitter that the cost of that lead will be very low and it may even be zero depending on how you measure it. Okay.

You got to blend that with your paid. Ultimately all the top software companies, the number one source of customers is word of mouth. The real job of marketing is to accelerate word of mouth. That's the real job of marketing. So my point is just one x is enough.

And if you let's say you get half, let's say you get half, your marketing initiatives get you one x and half your customers cost zero because they came from word of mouth of reality, your marketing costs pretty low, rambly way. And then you can ask the follow up. But let me then ask your sales question. Rambling way is I get that if you're at scale and you're deploying 50 million, 100 million, 200 million, you've got to get every sell right. And you have to know the RoI of every Facebook ad and every insta post and everything.

But what actually I find almost all SaaS marketers get wrong is they just don't slow it down and say, hey, what performs at all? What perform? Most stuff won't work at all. You'll dump a bunch of money into some partnership, you'll bunch a dump of money into a channel, you'll dump a bunch of money into digital and it won't work at all. Like you won't get one customer.

Don't take a pause on that until you have new DNA in the company. But if you have any ROI, what you want to actually do is not do less of it, you want to do more of it and just get better and better and better. Right? Get better and better. And so my summary summarize all of this is SaaS marketing.

Do anything that works, anything that gets you customers, do more of it. As much as you can. As much as you know how, you will often run out of ideas on how to deploy more capital into that channel rather than the opposite. So anything that performs usually is a gift from heavens. Especially if your ACV is high enough.

If your ACV is in the especially if its in the five figures on the sales one. Heres the thing. Like the class, we lost a little bit of the picture in 2021. But for all of eternity and software, there have been actually used to be even higher in the old days of true enterprise offer. But we've had these three x, four x, five x multiple.

What do sales folks need to bring in as a multiple of their earnings? It's pretty much always been three x for SMBs, four x for mid market and five x for enterprise. That's pretty much what it has been. Do some folks do much better? Yeah, I've invested in two SMB folks that are well north of five x.

It's possible. But even when they do, usually as you scale, it's hard to maintain. It's hard to maintain as you hire more reps and enter new categories. The folks that are at that six x ten x for SMB usually isn't. It's not sustainable infinitely so those three x four x five x remain the right yardsticks.

It's just like the marketing thing. As leaders, as founders, that's how you should build your spreadsheet. That's how you should hire your team. But slow it down and understand is it being measured properly and is that reprieve profitable and are the leads going to the right people? And figure out what is the most you can do without breaking the team.

The most destructive, for sure, the most destructive thing we're seeing across startups today. A lot of folks know this is too low a quota attainment. It's just a cancer on the sales team. No, forget about all the metrics out there. You need the majority of your sales team hitting quota or people don't feel good, they get negative, they start to not believe.

They, they start to believe the competition's better than them. They start to believe they can't do it. You need the majority. You need one or two folks making a ton of money on a bigger sales team and you need the majority at least hitting quota. And so three x four x five x is you got to get there.

That's efficiency. You have to skate there. If it's harder for you and there's stress in the system and you can cut that back a bit, still meet your financial goals, your bottom line goals, but get half the team over into quota, I would do that. I would do two x, three x four x or whatever. If I had the means and everyone was hitting 50% quota.

You will end up making more money than if 30. There's just a downward spiral. When 20 or 30% of folks are hitting quota, it's just people quit, they get negative. And you find that when people lose faith in sales, they get worse and worse. So it becomes this self defeating prophecy.

So thanks for the questions, Jason. We'll probably close it out here with our last question from Tyler has some questions about and some of your best recommendations in this situation. So Tyler, I'm going to bring you up now. Jason, thanks. I came across you about six months ago and your stuff has become viable for me.

Paul
So I appreciate it. So I'm about, we're about seven years in booth for a founder. Haven't raised any outside capital. Hopefully this question applies to some other people. It's a little bit more of a broad stroke here, but I'm constantly focused on metrics like net new customer account.

Customer growth is critical. NR is critical, obviously, to make sure we're paying our bills, though with limited resources. I'm talking to 95% of my peers that are venture backed. How can I effectively approach the growth of my business? Look, I can only tell you one thing that is slightly helpful.

Jason Lemkin
There is a point and it depends on your margins and it depends on your industry and your situation. But there's a point somewhere between ten and 20 million of ARR, which maybe you're not at today, but there's a point where it doesn't matter. There's a point where it doesn't matter. Software, assuming you have 80 90% gross margins in software, your revenue is venture funding. Right?

Because it's funding. There is a point where let's say you're at 20 million in revenue. We do call it customer funded. So yeah, unless you're building OpenAI or anthropic or something that's incredibly engineering and resource intensive, at some point $20 million a year of financing is enough for most b, two b companies. Its enough and you dont need it.

And im not saying there isnt value to capital, especially one round of capital can be transformational. If you could raise four or $5 million right now, im not saying you can, but now you can see how just one round actually could take a lot of stress out of your system. And a lot of the real issue, which ill chat about before we break, is that a lot of bootstrap companies fail what I call the balance sheet test, which ill talk about, which adds stress. But when you get, and I know sometimes it seems far away, but there is a point at eight figures in revenue where it doesn't matter whether you are bootstrapped or not. And if you there, I think two years ago at Sastra annual, I did an interview with Ben Chestnut at Mailchimp.

I thought it was pretty good. I thought it was better than most people do interviews with Ben Chestnut. That was pretty good for bootstrap folks. You're watching one. We were bootstrapped because no one would fund us.

That's why we were bootstrapped. And then by the time the VC's would fund us, we had enough cash, we didn't need them anymore. So it's a simplistic way of saying what I said is there is a crossover point where it doesn't matter. And when we did this with Michael Cannon, Brooks from Atlassian, and he talked about this crossover point too. Now interestingly, what Michael said was Atlassian wouldn't work without venture today because the space had become too competitive.

When Atlassian started, there were three companies. I'm mixing up my timings a little bit. There's 37 signals which is still bootstrapped. There was Atlassian and there was fog Creek software which built Trello and stack overflows. And that was it.

You had two competitors and everything was so slow you could do. It wasn't anything like today that they had four years to get it off the ground. Uipath had ten years. You get killed as a bootstrapper if it's too competitive, because you need that extra three to four years to build up that momentum. But within you cross a point and the Atlassians and the qualtrics and everyone grow just as fast as their peers.

But when you look back and there's an old sasser post on, it takes four years longer. You can search for it on the homepage. It really does take four years longer bootstrapping, and then at some point it does normalize. So thats the best. I know its not a magic, but thats the best buck up advice I can give you the stressor.

And this is why raising some money now wherever youre at, is most helpful. What I learned, this was the lesson I learned early on from Josh Stein, who was the first investor in box. And then I realized it was very right as I looked at other startups, is that if you dont have about half your error on your balance sheet, you underinvest. I thought this was too simplistic, but now ive run this with so many startups, its about right. If youre at 7 million and bootstrapped.

But Brymany, youve only got half a million in the bank. You cant hire that vp, even though that vp of sales would help, or that vp of marketing or product or Cs, you cant. If youre at 7 million and you have 4 million in the bank, you can afford to hire any vp. Thats great. You dont want to blow all the money.

If theres any way possible that you can get half your ARR on your balance sheet, it de stresses SaaS, because once you have more than half, you can invest not ten years out, but you can invest the year out. And it happened to me as the founder, I wasnt bootstrapped. But back in the day, I raised 8 million, spent six, and then got profitable. But I spent almost all of it. I got it down, and then we slowly built up our cash position.

When we got closer to the balance sheet test, I told all my vps and executives, just hire anyone. Great. Not hire anybody. I didn't even have a budget, but anyone that was accretive. Once we had 4 million of cash in the bank, I trusted my vp of sales for sure.

My CTO was a little cranky but one of the best engineers ever. Hes one of the senior scientists at Adobe today. My VP of CS loved him. So as long as they promised me, Pinky promised that this hire, this engineer or sales exec or CS was going to make us money, was going to be accretive. I didnt even need to look at a budget with 4 million in the bank, but with half a million you can't you ever, you got to scrutinize if anyone wasn't a racer.

So if I know these two things may not be actionable, try to get to that eight figures. It will get easier because you'll have the cash. And the reason it gets easier in part is this balance sheet test and if you can somehow. I usually hate debt, but for bootstrap starters, if you can do debt or a little bit of money, or even angel money or friends and money, so you can get 50% of your balance sheet, trust me, your life will be less stressed. Great advice.

Cool. All right, good luck. Thanks man. All right sir, thank you. Thanks Tyler.

And thanks everyone for your amazing questions. We are wrapping up for today. Jason, thanks for an awesome session. Really informative and everyone had amazing questions so we really appreciate everyone. Thanks everybody.

Jason Lemkin
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SaaStr 739: The Three SaaS Metrics That Matter in 2024 and Will IPOs Be Back? with SaaStr Founder and CEO Jason Lemkin

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1: Introduction

2: Deep Dive into Metrics

3: Growth and Efficiency

4: IPO Outlook

5: Closing Thoughts

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