Getting to Initial Scale

Themes in SaaS in ’16

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Jason Lemkin

I have no great predictions to offer in SaaS in ’16, no profound insights, no epic thoughts on how BlockChain, VR and Uber-for-the-Enterprise will change the world.

hatBut … I do see a lot of stuff, and a lot of start-ups, and am at least in a position to reflect on some more tactical and practical themes coming together for this year and beyond.

A few here:

  • Mobile First is Still Murky as a Primary Revenue Generator in SaaS.  I would have thought by 2016, we’d have more eight and nine figure SaaS plays that were “mobile first”.  Back in the early days of SaaStr, we thought 2016 would be the big year of Mobile First in SaaS.  Enterprise tends to lag consumer by 3-4 years, and so it seemed by ’16 Mobile would rule the Enterprise.

And what happened?  Well, 2 of the biggest and flashiest SaaS Unicorns of ’15 were (SaaStr Annual speakers) Slack and Zenefits.  And both are essentially desktop-first apps.  Yes, I know Slack has 50 mobile apps and we all use them.  But the core experience is still architected around the desktop browser (and in many cases, around building software).  And Zenefits?  Same.

It’s not like mobile doesn’t matter.   There are pre-nicorns from ServiceMax to DoubleDutch to Showpad and more that, because of the very nature of their app, are Mobile-first or first-ish for sure.  And many platforms and B2D apps from Twilio to Stripe and more have seen mobile fuel a large part of their growth.

But most business process apps require data entry, and mobile often remains merely a critical extension of that from data viewing and modest data entry.  Important, but still an extension.  See, e.g., Salesforce, Workday, etc. etc.

It’s still happening.  It’s just an even more extended transition than many of us had anticipated.

  • ERPs for Everything.  As the market size and penetration of SaaS has accelerated, every business and vertical is now ready for a SaaS ERP.   So we’re seeing more and more “systems of record” for every vertical, from window blinds to parasailing operations.  Every vertical, every business, can standardize around one SaaS ERP-cum-project management-cum CRM in the coming years.  As they do, many nine-figure businesses will grow from this.
  • slowclapACVs are Going Up – Not Down.  Because We’re Getting Better At Delivering True Solutions.  Almost all of the companies I see and work with have driven ACVs (Annual Contract Values, or deal sizes) way, way up.  Founders and CEOs are getting much, much better at understanding how to deliver true value to the enterprise, and true solutions — and charge for it.  And along with that, customers are getting better at understanding value, and when and where to pay for it.  We don’t need ROI calculators anymore, folks.  A corollary of this is the very best SaaS solutions can charge more and more.
  • The Bar Keeps Going Up.   I know we’ve talked about it before, so apologies.  But the bar for what a “great” SaaS company is keeps going up.  $1m to $10m in 6 quarters or less used to be a crazy outlier, as we discussed here.  Now it’s becoming more and more common.   The reason is a combination of the above factors — bigger markets, and often, higher ACVs — make the basic math of hyper-growth easier to achieve.  Not easy by any stretch — just easier.
  • Ignore the Fallen-Corn and Dead-a-Corn and Debbie Downer Talk.  Things have cooled down from Peak FOMO of Summer ’15.  But — So what?  True SaaS companies never shrink.  They never do.  Upgrades and upsells alone should fuel 30% year-over-year growth.  Sales will add more.  It’s pretty predictable, at least, after $5-$6m ARR or so.  If it’s real SaaS.  So good SaaS companies, once they approach Initial Scale — they just don’t fail.  Or at least, it should take the better part of a decade to really fail if you have net negative churn.  So look, Nasdaq may crash.  I dunno.  Valuations may fall further.  But ignore all the Tweets and blogs about fallen unicorns in SaaS at least.  Because either those companies aren’t real SaaS.  Or the pundits don’t know SaaS.
Published on January 6, 2016
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