In part one of this week’s Ask-Me-Anything (AMA) with SaaStr founder and CEO Jason Lemkin, he answered the community’s questions about whether all anyone cares about is AI anymore, investor appetites going into 2024, vertical SaaS, and thriving as a solo founder. Catch up on the first half here if you missed it.
In part two we head into IPO waters, how to incorporate AI into your products, the best way to drive employee performance, pricing models, and much more.
Q: How do you stand out in terms of customer acquisition against large competitors who aren’t incorporating AI?
“There’s no question that AI at the vendor level is a force of nature,” Jason says. MaestroQA, for example, does contact center QA, and a year or two from now, it won’t resemble anything like it does now.
Before, humans graded the outcome of customer support. Now, everyone wants AI to do it. Intercom’s homepage says AI will automate 50% of support interactions, that is disruptive, but that’s adding AI to an existing product.
There’s no answer to the question above, except you have to be in the game today. There’s so much demand for AI, even if all of it isn’t understood.
If you go into Enterprise or more sophisticated parts of tech and don’t have AI in your product, you’ll lose deals. Some folks have fallen behind because they:
- Don’t have strong enough tech teams to add AI
- Resist it
Those companies will struggle because everyone expects innovation from AI. Whether it’s pure AI or “true AI” or whatever AI, it’ll all probably shake itself out by the end of next year. VCs want to fund truly disruptive things, and customers just want a dramatically better product that does more with less humans.
AI can be disruptive in two major ways:
- With customers, it can mean better outcomes, which is great and takes work.
- It can replace humans for those companies that can’t find someone to send emails, update the website, or do sales.
If you’re behind in your segment, fix it in Q1, or you won’t pass in 2024. The market wants it.
Q: As you scale, how metrics-oriented should the company be?
A seed stage founder of a construction tech company at $1.5M ARR asks Jason how he sees the best companies steering into metrics and KPIs to drive performance at a leadership level. Some of his team are more metrics-oriented while others aren’t.
“Fire anyone that isn’t metrics-oriented. Literally,” Jason says. He doesn’t think you should hire anyone who isn’t metrics-oriented. It’s usually a sign they shouldn’t be a VP or should be somewhere much larger.
At this stage, you want everyone to ruthlessly embrace metrics. You want every person in your leadership team to have a dashboard they present weekly at e-staff meetings and send out weekly across all departments — Here’s how we did in lead gen, pipeline, etc.
Actionable item: Force every VP to come to whatever staff meeting and come with a dashboard. Don’t tell them what should be on it. Let them compress all their metrics into 3-5 metrics that ideally tie to the goals. No one should have more than five goals. The company has five goals, and each department has five goals.
The ones who show up with one, teach them how to improve it. The ones who can’t or won’t? Fire them.
Of course, this doesn’t mean being unkind, blaming, or humiliating them. Because ultimately, it’s the founder’s failure for hiring someone who isn’t a fit for the job.
The dashboard is the greatest trick because folks who can’t get that email out are hopeless at this stage and probably hopeless at any stage. The best leaders will report progress against their goals and how each weekly dashboard rolls up into them. Others will make excuses and hide from the metrics when they aren’t doing well.
Q: Do you think later-stage SaaS companies might consider going public as the IPO market opens up?
“It’s a misnomer that the IPO window is closed,” Jason says. Canva is at $2B ARR and profitable and could IPO this afternoon if they wanted to. It only opens and closes for marginal ones. What’s happening is that companies at or above $200M ARR are waiting to IPO.
There are some companies who can and are ready to IPO when they want, but they’ve waited because the last two years weren’t great. In 2024, will they stop waiting? Jason thinks so.
ServiceTitan will likely be the first SaaS IPO of 2024 at $500M ARR and growing at 40%. By the second half of 2024, he believes people who want liquidity or think it’s time will suck it up. Either valuations will reflate, and everyone rushes to IPO, or they won’t, and we’ll be waiting another year.
The multiples fell off a cliff in 2022 for SaaS and remained crummy in 2023. So, maybe there’s an uptick in 2024. “Do I think there will be bubbly AI IPOs who can IPO without traditional metrics?” Jason asks. “I doubt it.”
When we squint at deals like Klaviyo or Instacart, especially on the B2B side, there wasn’t a lot of demand. If you haven’t been through an IPO live, there are not that many people who invest in IPOs outside of the frothy times. It’s a thin asset class, but it’s time to get back to business.
Q: Where do you see customer success pullback and refocusing that labor to sales and renewals for 2024?
“I don’t know,” Jason says. What he’s learned this year is those functions like customer success, SDRs, and AEs are leaving one era behind and going into the next evolution.
We’re leaving behind how we did customer success, which was already changing. The quality of customer success has declined in the last few years, but it was accelerated by the downturn, forcing people to focus on upsells from the base.
Customer success was pushed into a sales role and that has changed permanently. CS reporting to revenue is a terrible idea, but that ship has already sailed. When customer success reports to sales, they just try to get more money out of you.
No one thinks the age of the SDR is dead, but AI will radically change what the role looks like. The traditional SDR role is dead, however. Hopefully, we enter a new ERA where SDRs slow down, and instead of sending generic emails to 10k people each week, they connect with 50 great prospects, which always works. AI should allow SDRs to be more of a value add and hopefully make the company more money.
But it’s all in flux.
This year, every public SaaS company and below got more efficient. But, what didn’t get more efficient was the sales and marketing expense. CAC for sales and marketing didn’t go down – at all, it actually went up. What happened was everyone started trading off growth for the bottom line. So if you sell less but instead of investing money to grow 60%, you grow 40% but mostly rely on your base, you get more efficient, but CAC doesn’t go down.
“That is the last reckoning,” Jason explains. “We haven’t really had a reckoning in sales. We’ve shrunk our sales teams or we’ve kept them flat. So it’s felt like a reckoning. The layoffs have felt like a reckoning, but we actually hid in our NRR and we didn’t solve the fact that it remains extremely expensive to acquire new customers in SaaS. We haven’t gotten any better at that. So that’s the next frontier that we’ll see if we tackle or if the markets get better and we just pretend our CACs are lower than they are. We’ll see.”
Q: What will change in marketing spend and pricing models in 2024?
“We all have to spend more on marketing next year,” Jason says. If you cut your spend this year to gain efficiencies but didn’t grow your marketing base, you were unsuccessful.
Sometime around November of 2022, marketing spend seemed to just stop. Everyone was focused on very short-term pipeline and ROI, spend got cut in half, and everyone got much more efficient. But they only put dollars into efficient activities. The easy part of marketing is to shrink the spend to the inner circle of marketing. The hard part of marketing is spending on the outer circle and the things that might or might not pay off in 18 months.
“We’ve got to actually spend more on marketing next year,” Jason advises. “Because we ended up with the lowest growth in the history of SaaS this year in the public companies. The lowest growth ever because we didn’t spend on marketing. That’s not where any of us want to be. We don’t want to be in a low growth, but more efficient market. We want to be in high growth, high efficiency.”
In terms of pricing models, stick to what people know unless the market is calling for a change. If AI pricing remains expensive, we may see new pricing models. But in general, copy other people who are like you and are bigger than you. It removes friction. And the best way to close a customer is to remove every bit of friction along the entire process, from discovery to renewals.
You want the value of your product to be so high that automation can do renewals for you. “If humans are in renewal, you have failed your customer,” Jason says. It doesn’t mean you don’t need help at the margin, but if 80% can’t sell themselves, it’s not valuable enough.
- You need to be in the AI game today. If you aren’t, fix it in Q1, or you’ll lose deals. The market demands it.
- Fire anyone within your company who isn’t metrics-oriented, especially on leadership. Have them create a dashboard of metrics and performance weekly and present it at e-staff meetings and in an email across the organization.
- The IPO window was never closed for companies like Canva. Many companies will likely IPO in 2024, and it’s time to get back to business.
- Customer success, SDRs, and AE functions will likely transform entirely over the next year or two.
- Everyone has to spend more on marketing next year.
- Stick to pricing models of people like you who are bigger than you unless the market calls for a change.
- Remove friction from your process, from discovery to renewal.