At a recent Workshop Wednesday, SaaStr founder and CEO Jason Lemkin answered the community’s most pressing questions about SaaS — from investor appetites and IPOs in 2024 to managing and hiring a Head of Sales as a solo founder to AI and the future of customer success.
Let’s jump right into part one.
Q: What will the early and mid-investor appetite for SaaS startups in sales look like in 2024?
“For now, there is very little investor appetite for anything that isn’t true AI,” Jason says. Why is that?
We’re in a world today where NASDAQ is at a record (great growth), S&P is at a record, but startups have the lowest growth overall. Investors are looking for outliers, mainly in AI, true AI that can grow at such large rates that your jaw drops.
So, in general, there’s no appetite for “pretty good” growth. For folks at later stages, there is absolutely no appetite. Almost every founder who has raised a seed or A round thinks the next round will be easier, which is unrealistic because public multiples are 6x. No growth rounds are happening north of $200M valuations.
This ripples all the way down except in Seed since there are still optimists who believe they can be a Datadog or Canva. And every year, there will be one of those, which is good for folks.
But unless you’re growth is crazy, and you’re in AI, there’s just no oxygen. Over 80% of investor money is in AI. When you add sales and marketing, you can see they were the most impacted category in many ways. We explored this a lot more in the recent What’s New at ZoomInfo with CEO Henry Schuck, but these next two reasons are why sales and marketing were impacted the most:
- Folks cut every seat that wasn’t being used.
- Account utilization has become a way to cut sales and marketing spend (ie – Cutting back 10 seats for everyone on your team, down to just one)
It’s a tough category, and there’s relatively little interest from investors unless it’s AI. Yet the interesting thing about the sales category specifically, is how much interest is in it from a professional and personal standpoint. People build more products in sales, which spurs more innovation. So, on the one hand, if it’s not AI, it’s tough. But on the other hand, even though sales is an impacted category, so many more people are passionate about it, that innovation will continually happen there in a way that doesn’t naturally evolve in other categories.
Q: Are folks ready to buy Enterprise-level apps that are pre-tailored to a vertical?
“Vertical software is nothing new,” Jason says. There has been niche software for bookkeepers, dentist offices, and veterinarians. Maybe not a $10B outcome, but they’ve been written for years.
Look at Toast doing it for restaurants and Klaviyo for e-commerce. “I don’t think vertical SaaS is anything new, but by adding more value and running payroll and payments and doing more stuff for verticals, the categories can be 10x to 100x larger,” he continues.
HVAC was a pretty small category once, but now look at Service Titan, the next potential IPO of 2024.
It’s an example that illustrates how every industry with 100k or more customers needs a system of record, a core operating system. If the market is too small, you can’t get enough scale because SaaS is too hard to build. But anything with 100k or more customers, you can support a $10k or more ACV if you add $100k of value to the industry and be number one.
There isn’t room for 20 vendors, but there is room for two or one big one with an ACV of up to $10k. Below that, there are not enough customers in vertical SaaS to get there, but 10k or above it’s a pretty good business.
Q: What are your thoughts on platforms like ServiceNow or Salesforce bringing partner apps to extend that platform?
There are huge power laws when at least ten vendors are in an ecosystem that can build massive ecosystems. It gets confusing when you look at all the folks out there.
Look at Shopify, for example, with thousands and thousands of Shopify partner apps. The number one is Klaviyo, the only SaaS IPO in two years. They’re coming up on a billion in ARR and 50% growth. Klaviyo is Shopify for marketing, and the top ten Shopify apps are continuing to break out.
Gorgias is Shopify for contact centers with revenue crossing $50M ARR. So number one Klaviyo is around $800M ARR, and Number 10 is at $50M, and number 20 is … probably getting steak knives. The 100th likely doesn’t have enough oxygen or revenue.
So, when you look at these ecosystems, you can see that you need to be in the top ten if you’re going broad. Sometimes, you need a Klaviyo to make Shopify work, but you don’t always need support agents at Gorgias on day one. The rest will struggle, but it doesn’t mean you shouldn’t do them. They just shouldn’t be everything for you.
Q: So, you’ve hired a great VP of Sales, but you’re still doing a lot of the heavy lifting. How do you handle this?
As a solo founder at a million in ARR, one of the community members had just hired a great VP of Sales. The problem is that there are a thousand aha moments, product opportunities, and pivots at every sales meeting, and just one founder. The question he asked Jason was, “What do you recommend for the solo founder getting all of the gems from that first million in ARR?”
It sounds like the product is pretty complicated and technical, so Jason had bad news.
“You have to be in every deal, or you’ll lose them all.”
Unless hiring a VP of Sales that was an engineer or smarter than the founder in the industry, the customer will ask questions that the new hire can’t answer. So, if the founder isn’t in every deal, they’ll lose it.
Jason invested in a company that reached $20M last year. They brought in a complicated Enterprise workflow and a seasoned VP of Sales. The CEO stopped doing sales calls and lost every single deal to competitors when he wasn’t in them. A VP of Sales can do pricing tables and discounts and taglines on the website, but the morale here is that a complicated product can’t be sales-driven alone.
The only way to save a founder more time with a new hire is by hiring an incredible Head of Product better than them and, once in a while, an incredible Head of Success.
It’ll get worse as far as freeing up time goes when hiring the VP of Sales because now, all of the time you spent throughout the deal will be compressed into the middle. And the only way it’ll get better is if you hire a VP of Sales whose last product was harder or more technical than the one you’re having them sell.
As an aside for solo founders, it’s probably more worthwhile to find a late co-founder or almost founder or someone crazy enough to care almost as much as you to help carry the load. Nearly every founder does this at some point. So how do you find that partner?
By meeting as many great people as you can and building relationships with them. Ask them to introduce you to more great people — the best Head of Product and the best marketer. It’s 10x more work, but meeting in person is 10x better, too. There’s no magic solution.
Key Takeaways
- There is very little investor appetite for SaaS startups that aren’t disruptive in the market or AI.
- There’s always room for a vertical SaaS app that is number one or two in the market and can support a $10k or more ACV with 100k or more customers.
- If you’re bringing products to extend a platform like Shopify, you need to be in the top ten to have enough oxygen. If you aren’t in the top ten, it doesn’t mean you shouldn’t do it. It just shouldn’t be everything for you.
- If you’re a solo founder with a complicated product and hiring a VP of Sales, you still need to be in every deal, or you’ll lose all of them to competitors.
- As a solo founder, find a great partner at a later stage by building relationships with great people and meeting people in person.
