Category Archives: SaaS

Pulse 2021 Slides: Net Dollar Retention (NDR) Benchmarks and Thoughts

This is a quick post to share the slides I presented today at the GainSight Pulse Everywhere 2021 conference in a session entitled Net Dollar Retention, Key Benchmarks at $50M, $200M, and $1B in annual recurring revenue (ARR).

In the session we discuss:

  • The answer, which is 104%.  (Median NDR which is surprisingly invariant across size.  Exception:  public company NDR median is 111%.)
  • Problems with historical installed-base valuation metrics such as churn, customer lifetime (CLT), and lifetime value (LTV), building on my SaaStr 2020 presentation, Churn is Dead, Long Live NDR.
  • The rise of NDR as the SaaS metric of choice.
  • How NDR is currently the most powerful predictor (among common alternatives) of a company’s revenue multiple (EV/R).
  • The “dollar” in net dollar retention and why global companies should look at NDR using constant currencies, not dollars converted at a spot rate.
  • How NDR should vary as a function of stage, expansion model, business model, target market, sales motion, and pricing model.
  • How usage-based (aka, consumption-based) pricing models will be as transformation to subscription SaaS as subscription SaaS was to perpetual license software.

The deck has an rich appendix with interesting information clipped from a variety of my favorite sources, including RevOps^2, Meritech Enterprise Public Comps, OpenView Expansion SaaS Benchmarks, OpenView Usage-Based Playbook, Bessemer State of the Cloud, KeyBanc SaaS Survey (PDF), SEC filings, and others.

Here are the slides, which I’ve also embedded below:

 

I’d like to thank Ray Rike at RevOps^2 for giving me early access to his upcoming FY20 B2B SaaS Benchmarks report.

If GainSight makes a video available online, I’ll add a link to it, here.  Meantime, thanks to GainSight for having me and hope you enjoy the presentation.

Product Power Breakfast with Chris McLaughlin on Big/Small, US/Euro, and Marketing/Product

This week’s episode of the SaaS Product Power Breakfast is Thursday, June 10th, at 8am Pacific and we welcome a special friend and unique guest, Chris McLaughlin, currently CMO at France-based powerhouse LumApps, a collaboration and communications platform backed by top European investors including Idinvest and Goldman Sachs.

I got to know Chris by working together in his prior gig as joint CMO and CPO at Nuxeo, a France-based content services platform that had a great exit earlier this year to Thoma Bravo / Hyland Software, and where I sat on the board of directors for the past 4 years.

Chris has a unique background because of its dualities, working:

  • As a senior executive for both US-based and European-based companies.
  • At both growth startups and large megavendors (e.g., EMC/Documentum, IBM/FileNet)
  • In leadership roles on both the Product and the Marketing side.

In this week’s episode we — and the audience — will ask Chris many questions, including:

  • How to get product and marketing working together, especially when they aren’t under a common boss.
  • How European startups should organize their go-to-market functions to enter and grow in the US market
  • The role of both the product and marketing leaders in startups with either a technical founder or business founder
  • When is the right time to hire your first CPO and/or CMO
  • How to align product, marketing, and sales around a strategy — and dealing with the normal challenges in focusing that strategy

See you there, Thursday 6/10 at 8 am Pacific — and bring a friend.

As always, the room will be recorded and posted.  We think of the show as a podcast recorded in front of a live, studio audience.

Private Equity Funcast: A Board Perspective on Peopleops

I’m back for my second appearance on the ParkerGale Private Equity Funcast, this time speaking with Jimmy Holloran on topics related to Peopleops and the Chief People Officer (CPO) in a session entitled A Board Perspective on Peopleops.

Topic we cover include:

  • The role of HR and my mantra:  help managers manage
  • What help means and taking pride in a supporting role
  • Help who?  (Managers or employees)
  • Hiring and recruiting
  • Conflict aversion
  • The three golden rules of feedback
  • 9-box models
  • Giving a successful People update at board meetings
  • Scorecards and the infamous “it’s all green” story
  • How to tell if the CPO is helping (hint: ask)

The episode is available on the ParkerGale site, Apple Podcasts, and Spotify.  For those interested, my first appearance — a romp that contrasts the PE and VC worlds with my old friend Jim Milbery — is available here.

SaaS Product Power Breakfast: AMA with Me

Last week’s episode of the SaaS Product Power Breakfast was, to paraphrase Jerry Garcia, “crackling with energy” as we interviewed Stephanie McReynolds on category creation.

In this week’s episode, Thomas is out (I guess he’s getting another degree as a result of his latest mid-life crisis), so I’ll be flying the room solo.  Moreover, I haven’t lined up a guest (see How’s Work Going for an indication on why), so I’ll be doing an Ask Me Anything Session on strategy, product marketing, and product management.

I’ll open the room with a few opening comments on:

  • What I think makes for greatness in product management
  • What most often interferes with that
  • What to do about it — i.e., how to execute a strategic job strategically

And then we’ll cut to an open mike Q&A / AMA.  Please don’t leave me alone — and please do bring some questions!  We’ve not yet run the room in this format — and a big part of this project is to experiment with and understand Clubhouse as a new medium — so I’m excited to give it a try.  Please join in and learn with us (or, in this case, me).

Fear not, by the way, in response to some outreach I have been doing, I have some great candidate guests in the pipeline, including:

  • Andy MacMillan, CEO of UserTesting
  • Evan Kaplan, CEO of InfluxDB
  • Nick Mehta, CEO of GainSight
  • Heidi Vasconi, noted Analyst Relations consultant
  • Chris McGlaughlin, CMO and CPO of Nuxeo

Several folks have requested Lelya Seka (don’t let it go to your head), but last I checked with her that might have to wait until (and if) we ever move to Spaces.

I know Thomas has a great pipeline as well.  So, tell a friend, block your calendar Thursday mornings at 8:00 am (pacific) and join in the fun!

See you Thursday for the AMA session with me on product.

SaaS Product Power Breakfast with Stephanie McReynolds on Category Creation

Please join us for our next episode of the SaaS Product Power Breakfast at 8am Pacific on 5/20/21 as we have a discussion with former Alation CMO Stephanie McReynolds on the topic of category creation and her learnings as she helped drive the creation of the data catalog category and establish Alation as the leader in it [1].

In addition to her gig at Alation, Stephanie’s had a great career at many leading and/or category-defining vendors including E.piphany, Business Objects, PeopleSoft, Oracle, Aster Data, ClearStory, and Trifacta.

Questions we’ll address include:

  • Does a vendor create a category or do market forces?
  • In creating a category do you lead with product or solution?
  • How do you know if you should try to create a category?
  • What role do industry analysts play in category creation?
  • What happens once you’ve successfully created a category?  What next?

This should be great session on a hot topic.  See you there.  And if you can’t make it, the session will be available in podcast form.  We think of our show, like Dr. Phil, as a podcast recorded before a live (Clubhouse) studio audience.

# # #

[1] I am an angel investor in and member of the board of directors at Alation.

Appearance on the Metrics That Measure Up Podcast

“Measure or measure not.  There is no try.”

— My response to being called the Yoda of SaaS metrics.

Just a quick post to highlight my recent appearance on the Metrics That Measure Up podcast, hosted by Ray Rike, founder and CEO of RevOps^2, a firm focused on SaaS metrics and benchmarking.

Ray’s a great guy, passionate about metrics, unafraid of diving into the details, and the producer of a great metrics-focused podcast that has featured many quality guests including Bryon Deeter, Tom Reilly, David Appel, Elay Cohen, Mark Petruzzi / Paul Melchiorre, Sally Duby, Amy Volas, and M.R. Rangaswami.

In the episode, Ray and I discuss:

  • Top SaaS metrics — e.g., annual recurring revenue (ARR), ARR growth, net dollar retention (NDR), net promoter score (NPS), employee NPS, and customer acquisition cost (CAC) ratio
  • How metrics vary with scale
  • Avoiding survivor bias, both in calculating churn rates and in comparisons to public comparison benchmarks (comps) [1]
  • How different metrics impact the enterprise value to revenue (EV/R) multiple — and a quick place to examine those correlations (i.e., the Meritech comps microsite).
  • Win rates and milestone vs. cohort analysis
  • Segmenting metrics, such as CAC and LTV/CAC, and looking at sales CAC vs. marketing CAC.
  • Blind adherence to metrics and benchmarks
  • Consumption-based pricing (aka, usage-based pricing)
  • Career advice for would-be founders

If you enjoy this episode I’m sure you’ll enjoy Ray’s whole podcast, which you can find here.

# # #

Notes

[1] Perhaps more availability bias (or, as Ray calls it, selection bias) than survivor bias, but either way, a bias to understand.

Navel Gazing, Market Research, and the Hypothesis File

Ask most startups about their go-to-market (GTM) these days and they’ll give you lots of numbers.  Funnel metrics.  MQLs, SQLs, demos, and associated funnel conversion rates.  Seen over time, cut by segment.  Win/loss rates and close rates as well, similarly sliced.  Maybe an ABM scorecard, if applicable.

Or maybe more financial metrics like customer acquisition cost (CAC) ratio, lifetime value (LTV) or net dollar retention (NDR) rate.  Maybe a Rule of 40 score to show how they’re balancing growth and profitability.

And then you’ll have a growth strategy conversation and you’ll hear things like:

  • People don’t know who we are
  • But the people who know us love us
  • We’re just not seeing enough deals
  • Actually, we are seeing enough deals, but we’re not making the short list enough
  • Or, we’re making the short list enough, but not winning enough.

And there are always reasons offered:

  • We’re not showing enough value
  • We’re not speaking to the economic buyer
  • We’re a vitamin, not a pain killer
  • We’re not aligned with their business priorities
  • People don’t know you can solve problem X with our solution
  • Prospects can’t see any differentiation among the offerings; we all sound the same [3]
  • They don’t see us as a leader
  • They don’t know they need one
  • They know they need one but need to finish higher priorities first

It’s an odd situation.  We are literally drowning in funnel data, but when it comes to actually understanding what’s happening, we know almost nothing.  Every one of the above explanatory assertions are assumptions.   They’re aggregated anecdotes [4].  The CRM system can tell us a lot about what happens to prospects once they’re in our funnel, but

  1. We’re navel gazing.  We’re only looking at that portion of the market we engaged with.  It’s humbling to take those assertions and mentally preface them with:  “In that slice of the market who found us and engaged with us, we see XYZ.”  We’re assuming our slice is representative.  If you’re a early-stage or mid-stage startup, there’s no reason to assume that.  It’s probably not.
  2. Quantitative funnel analysis is far better at telling you what happened than why it happened.  If only 8% of our stage 2 opportunities close within 6 quarters, well, that’s a fact [5].  But companies don’t even attempt to address most of the above explanatory assertions in their CRM, and even those times when they do (e.g., reason codes for lost deals), the data is, in my experience, usually junk [6].  And even on the rare occasion when it’s not junk, it’s still the salesrep’s opinion as to what happened and the salesrep is not exactly an unbiased observer [7].

What’s the fix here?  We need to go old school.  Let’s complement that wonderful data we have from the CRM with custom market research, that costs maybe $30K to $50K, and that we run maybe 1-2x/year and ideally right before our strategic planning process starts [8].  Better yet, as we go about our business, every time someone says something that sounds like a fact but is really an assumption, let’s put it into a “hypothesis file” that becomes a list of a questions that we want answered headed into our strategic and growth planning.

After all, market research can tell us:

  • If people are aware of us, but perhaps don’t pick us for the long list because they have a negative opinion of us
  • How many deals are happening per quarter and what percent of those deals we are in
  • Who the economic buyer is and ergo if we are speaking to them
  • What the economic buyer’s priorities are and if we are aligning to them
  • When features are most important to customers shopping in the category
  • What problems-to-be-solved (or use-cases) they associate with the category
  • Perceived differences among offerings in the category
  • Satisfaction with various offerings with the category
  • If and when they intend to purchase in the category
  • And much more

Net — I think companies should:

  • Keep instilling rigor and discipline around their pipeline and funnel
  • Complement that information with custom market research, run maybe 1-2x/year
  • Drive that research from a list of questions, captured as they appear in real time and prompted by observing that many of these assertions are hypotheses, not facts — and that we can and should test them with market research.

 

# # #

Notes

[1] As many people use “demo” as a sales process stage.  Not one I’m particularly fond of [2], I might add, but I do see a lot of companies using demo as an intermediate checkpoint between sales-accepted opportunity and closed deal — e.g., “our demo-to-close rate is X%”

[2] I’m not fond of using demo as a stage for two reasons:  it’s vendor-out, not customer-in and it assumes demo (or worse yet, a labor-intensive custom demo) is what’s required as proof for the customer when many alternatives may be what they want — e.g., a deep dive, customer references, etc.  The stage, looking outside-in, is typically where the customer is trying to answer either (a) can this solve my problem or (b) of those that can solve my problem is this the one I want to use?

[3] This is likely true, by the way.  In most markets, the products effectively all look the same to the buyer!  Marketing tries to accentuate differentiation and sales tries to make that accentuated differentiation relevant to the problem at hand, but my guess is more often than not product differentiation is the explanation for the selection, but not the actual driver — which might rather be things like safety / mistake aversion, desire to work with a particular vendor / relationship, word of mouth recommendations, belief that success is more likely with vendor X than vendor Y even if vendor X may (perhaps, for now) have an inferior product)

[4] As the saying goes, the plural of anecdote is not data.

[5] And a potentially meaningless one if you don’t have good discipline around stages and pipeline.

[6] I don’t want to be defeatist here, but most startups barely have their act together on defining and enforcing / scrubbing basics like stages and close dates.  Few have well thought-out reason codes.

[7] If one is the loneliest number, salespersonship is the loneliest loss reason code.

[8] The biggest overlooked secret in making market research relevant to your organization — by acting on it — is strategically timing its arrival.  For example, win/loss reports that arrive just in time for a QBR are way more relevant than those that arrive off-operational-cycle.