Metrics that Measure Up

Imagine having access to the metrics and benchmarks over an entire decade for 200+ B2B Cloud and SaaS private companies as they scaled from $0 to $100M ARR.That is precisely the data Mary D'Onofrio, Partner at Bessemer Venture Partners (BVP) has access to as the Growth Stage investing partner since 2018.  Mary published her findings in the Scaling to $100M ARR report and joined us to share the insights from her research.Mary also maintains the BVP Emerging  Cloud 100 Index,  is the author of the "10 Laws of Cloud".   Mary was often approached by BVP portfolio companies and by other partners within BVP, asking for stage-appropriate benchmarks for metrics such as growth rate, retention rates, and gross margins, to name just a few. So,  Mary thought, why not analyze the data over the last decade across the entire BVP B2B Cloud portfolio.The first finding was that Committed Annual Recurring Revenue (CARR) growth is the main metric to determine the enterprise value of a private B2B Cloud/SaaS company at every stage of growth.  ARR growth captures variables that GAAP revenue alone does not capture.CARR growth is a multivariate metric, as it includes not only ARR growth from new customers but also ARR growth from existing customers. Simply stated,  CARR includes New Customer Acquisition ARR + Existing Customer Retention ARR + Existing Customer Expansion ARR.Net Dollar Retention, the amount of ARR from customers that is available to renew versus the same cohort of customers 12 months prior to the current accounting period. This metric was included as part of the "CARR Growth" benchmark.When looking at the decade long data,  Mary shared the following average enterprise value to revenue multiples (EV:REV)at each stage of growth under the "Know Your Worth" lesson #3< $10M ARR = 31X EV:REV multiple$10M - $50M ARR = 17X EV:REV multiple> $50M ARR = 13-14X EV:REV multipleThe B2B Cloud market and the associated enterprise valuations continue to increase, with the latest data in 2021 showing the following multiples: 2021* = 34x enterprise value to revenue multiple (up from 9x in 2016)*2021 Cloud 100 Benchmarks Report (Top 100 Private Cloud Companies)Across the BVP portfolio, the EV:REV multiple is closer to 20xGrowth Endurance is a metric that BVP has recently introduced. Growth Endurance is defined as the sustained growth year over year and is fairly consistent across all B2B Cloud companies.  Growth rate decay is typically 30% annually for private Cloud companies and 20% for public companies.  Public company's growth endurance is stronger primarily due to the leverage they gain, including pricing power, new products to drive revenue, and enhanced access to talent. Growth Endurace is a heuristic and not a deterministic metric. The second lesson Mary shared in the Scaling to $100M ARR report was "Win by wide Margins".  The effective point is to optimize gross margin to the average of 65% - 70% regardless of ARR. The middle 50% distribution increases in range to  60% - 80%.Next we pivoted to where Customer Success costs should be allocated - COGS or Operating Expenses.  The simple answer is that whatever the percentage of CS time is invested in revenue-centric activities should go to OPEX and the percentage of CS time on support goes to COGS.Another area of "Win by Wide Margins" includes CAC Payback Period.  CAC Payback Period is the measure of time it takes to repay the costs of acquiring a new customer after factoring in Gross Margin.BVP.com/scale is a great resource to learn more about Scaling to $100M ARR and download templates to see how your Cloud company measures up to the benchmarks.'See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Lauren Kelley, Founder and CEO of OPEX Engine, shares her expertise in B2B technology benchmarking. She discusses the recent acquisition by Bain & Company, underscoring the growing value of industry benchmarks. Kelley explains how businesses can leverage operational metrics for strategic decision-making, contrasting one-time versus ongoing benchmarking practices. The conversation also highlights the importance of standardized metrics for board communication and the role of meditation in personal growth, offering valuable advice for aspiring B2B SaaS founders.

The B2B Cloud industry is projected to grow from $350B in 2021 to $800B+ in 2025.  This will mean a lot of new companies and the need for many more VP Sales to lead the revenue team.Brendon Cassidy has been part of early-stage B2B enterprise sales organizations as the VP Sales for companies including LinkedIn, EchoSign (acquired by Adobe), Talkdesk, and then as a founding advisor to Gong.  Now Brendon is the co-founder and co-CEO at CoSell.io.Based upon Brendon's tenure and success at leading B2B SaaS companies, who better to discuss the journey and keys to success for an early-stage B2B SaaS VP Sales.First, we discussed any common themes or trends that Brendon has identified over his start-up journey experiences.  A very common theme, at up to 80% of companies Brendon has worked with is that companies have a hard time defining the "problem they are solving".  This is critical before you can start to build the messaging the sales team will use to explain who they are, what problem they address, and the benefits of solving the problem.Establishing Product Market Fit requires every company to understand and market validate the problem they are solving and why a company will invest time and money to solve it.Next, we move from what is required to acquire the first few customers to the next one-hundred and beyond.  Brendon recommends that the founder lead the first 5-15 deals as the "sales lead" and then hire 2 salespeople BEFORE they hire the VP Sales.  Hiring the right "FIRST" VP Sales is a common challenge that the majority of start-up CEO's face. In fact, Brendon believes that over 90% of companies do not hire the right VP Sales the first time.  Hiring a "hybrid" VP Sales who manages a small team, but also is responsible for direct sales with their own quota is a mistake that many first-time founders make. Why is the average tenure of a B2B Tech VP Sales only 14-18 months? One factor is the belief that hiring someone from an established, successful company like Salesforce is the best approach.  Unfortunately, 95% of the job of an early stage VP Sales is not an experience gains at an established, larger company.  Secondly, finding a VP Sales that actually has experience and success in growing a company from the very early days to some level of scale is quite rare.  Four potential early-stage B2B Cloud VP Sales profiles that a founder will need to interview:-Been there done that with success- Been there, done that but not successful- Been there done some of that- Big company experience, not done that Defining how much pipeline is required to close "x" deals is one of the first metrics that an early stage VP Sales should measure, understand and act upon.  Input metrics to this will include average contact value, sales cycle time and win rate are critical to determining the required pipeline.Other metrics, such as CAC Payback Period, CAC Ratio, Customer Lifetime Value, etc. are not valuable metrics for early-stage VP Sales, as there is not enough operating history to make these metrics valuable or insightful for decision making.If you are responsible for driving sales in an early stage B2B Cloud company,  are considering hiring your first VP Sales, or have a goal to become a first-time VP Sales in an early-stage start-up, this conversation with Brendon Cassidy is a great listen.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Jeremey Donovan is the epitome of the phrase "Always Be Learning".Jeremey started his career as a semiconductor engineer, transitioned to be an analyst covering the industry, then transitioned to product development, then to product management, product marketing, and finally to sales.  To say he is a continuous learner is an understatement!Most recently, Jeremey started his pursuit as a Masters of Data Science while serving in the role of Senior Vice President of Revenue Strategy at SaleLoft.What is Revenue Strategy?  First, it's about the people, programs, processes and technology in pursuit of meeting company goals.  As the SVP Sales has evolved to the Chief Revenue Officer, and integrated the responsibility for pre-sales, sales and post-sales, the need for an operations function and strategy that reflects the entire customer lifecycle has evolved.One strategy that impacted revenue growth was moving the inbound Sales Development organization into marketing.  By moving the team to Marketing, it created more incentive for marketing to generate leads and create a better feedback loop into marketing on what the market was saying.  Jeremey thinks that having a CMO and a CRO that are peers is a better model for larger organizations.Jeremey's perspective on Revenue Operations is different He sees value in having marketing operations, sales operations, and customer success operations report into the COO or CFO versus sales or marketing.What is the segmentation of Revenue Operations versus Revenue Strategy?  Jeremey's role is unique, and more of a general corporate strategy resource (think Chief of Staff). In fact, the Chief of Staff is a trending new role in the B2B SaaS industry, and one of the four roles that Jeremey serves for the SalesLoft CEO.Jeremey sees the operations team primarily working "IN" the business and Revenue Strategy works "ON" the business.   Revenue Strategy is responsible for coming up with strategic initiatives, Go-To-Market strategies, etc., and then initially collaborating with the Revenue Operations team to deploy the strategy and then over time Revenue Operations takes primary responsibility to measure, manage and refine the program as feedback requires.When asked about the top lagging and leading indicators (metrics) that he uses to measure the return on a particular revenue strategy,  his answer included an "Issue Tree" which is a process to deconstruct higher-level metrics into their component parts.  The example was "Net Dollar Retention" metrics break down into Gross Dollar Retention + Expansion, and then the next level breaks down into metrics such as Customer Success team productivity.We next discussed leading indicators and their correlation to the top-level, outcome metrics like Net Dollar Retention.   Jeremey highlights adoption, configuration, and customer sentiment (CSAT and NPS) as part of a composite health score that directly impacts Net Dollar Retention.  Analyzing the correlation, using logistic regression is used to predict retention, using the composite inputs of the sentiment score, per the above. They also use similar models to predict the probability of winning an opportunity. Using Bayesian logic, they analyze predict the likelihood of an opportunity closing using inputs such as activity, time, events, and historical trends that predicted opportunity closure.  In fact, this customer engagement score (opportunity score) is even available as part of the SalesLoft platform.Every metric may matter, but  they may not always matter at the same time or have the same predictive value.  Figure out which are "out of kilter" and which enable "decisions and prescriptive actions".Jeremey is a great listen for any B2B SaaS revenue and/or revenue operations professional!See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Chris Walker, Founder and CEO of Refine Labs, Host of Demand Gen Live, and a Top LinkedIn Influencer is a B2B Marketing contrarian - that is a primary reason I have been a fan of Chris's for a long time.Chris was a B2B marketing practitioner for 8 years, and his experience told him B2B marketing organizations were executing marketing programs the wrong way!  The market had changed, the buyers had changed and the buying process had changed...yet marketing programs were the same, using the same vanity metrics and fake measurements systems.Chris decided he had been provided a gift, and it allowed him to build a marketing agency that was built for demand generation in 2020 and aligned with his vision for the modern B2B marketer.  His foundational belief is that B2B buyers are looking to buy things in places that cannot be tracked by current marketing attribution. Those locations included LinkedIn, YouTube,  Instagram, Twitter, communities,  groups on social networks, podcasts, direct word of mouth, and referrals by peers.  These are the locations that people in 2021 and beyond are sharing ideas, looking for experiences, and starting the buying journey.Traditional media such as SEO, SEM,  display ads, and content syndication are great to show "vanity metrics" and "attribution" but are not delivering the ultimate outcomes - pipeline and revenue.  In fact, often the tracking stops at "attribution by channel" but do not track the ultimate ROI down to revenue, CAC Ratio and CAC Payback Period.Brand Awareness - this is not the major issue for many companies, but "RELEVANCE" to the target buyer is an issue for many - such as Salesforce is toomarketing.  Logo awareness does not directly impact the way a target buyer feels about a company's value to them as a potential buyer.Chris's goal is to be in the places where buyers "establish" consideration for a product category or content, and not wait until first-party intent at the bottom of the funnel when 70% of the buying process has already been completed. Content that is value-based, customer-focused, and made available as non-gated assets are key to help to shape the buying discussion at the start of the buyer journey versus reacting to the buyer demands.Chris's first key metric is to measure the close rate of inbound leads, that may not be attributed to a specific marketing program, versus the close rate of outbound generated leads.  Chris's perspective is that less than 10% of companies measure the close rate and sales cycle time of inbound leads versus outbound generated leads.Chris optimizes for "peak intent conversions" which reflects the serious intent of buyers who put up their hand to speak with a salesperson (1st party intent data) versus buying 3rd party intent signals from external websites, content syndication vendors, and review sites.Next,  I asked Chris what specific metrics that a modern B2B marketer should measure and manage.   His response: "Blended Marketing CAC and/or Blended Advertising CAC".  This metric measures the total marketing expenses divided by the total amount of revenue closed from inbound marketing leads or inbound leads from paid advertising.  Chris sees the cost per dollar of revenue closed from "outbound leads" vs the cost per dollar of revenue closed from "inbound leads"  being very different.  Chris sees an average of 50% lower CAC for inbound leads that close as compared to outbound generated leads that close (for the mid-market). When you factor in the higher close rate for inbound leads, the CAC Ratio can be 50% - 67% lower than traditional outbound lead generation programs.Revenue, Pipeline, and Customer Acquisition Cost are the TOP THREE metrics that every modern B2B marketer should use as their NORTH STAR!!!See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Bijan Moallemi, Mosaic CEO and former financial leader at Qualcomm and Palantir, discusses challenges faced by finance teams in hypergrowth B2B companies and the importance of building a strong foundation and systems. He emphasizes the need for CFOs to track B2B SaaS metrics, interpret data through storytelling, and make timely decisions using real-time data. Advice for recent college graduates includes gaining experience in startups and larger companies, as well as developing technical skills in SQL and Python for the future of finance.

Being the CEO of a B2B SaaS company that creates a new market category, grows the company to >$100M ARR, and then purchased for over $1B by a top tier Private Equity firm may be the ultimate goal of many entrepreneurs - but for Nick Mehta and Gainsight, it is just the beginning.Nick Mehta, joined Gainsight as CEO in 2013.  Back then, Gainsight had just changed its name, launched its first user conference, and initiated the strategy to build a new market category for B2B SaaS - Customer Success Platform and a community for the recently created profession of Customer Success Manager (CSM).The decision to create a new category + a community was necessary because the evolving role of CSM's were not only the Gainsight users but also the target buyers.  Building a category is associated but different from building a community.  Creating a community of future platform customers was a core requirement to increase the target addressable market of potential buyers.  Pulse was the Customer Success community, and it had to go beyond "customers".  It became a forum and community for customer success professionals to discuss topics of interest including compensations, roles/ responsibilities, and best practices for Customer Success professionals.Nick highlighted that building a new category is probably not the best approach if a category currently exists (think Snowflake and Zoom Video).  If the market category does not currently exist, think carefully about the steps, and resources required to build a new category and how a community can amplify the category.When I asked Nick about how Product-Led Growth (PLG) would impact Customer Success , Nick started with his belief that PLG will fundamentally change the B2B Cloud Go-To-Market motion.  The control and power will accelerate its shift to the customer, and as a result Sales and Customer Success alignment, even integration will be even critical.The Cloud infrastructure companies are the most advanced in the PLG + Customer Success model.  Their Customer Success (CS) team works very closely with the customer to ensure they are receiving maximum value and expanding their use of the product.  Nick highlighted two approaches to sales and customer success alignment: 1) relay race model where sales hands off the customer to CS to ensure they are successful; 2) Sales and Customer Success work collaboratively across the entire customer journey to ensure engagement, adoption, value, customer satisfaction, expansion and share the related goals and measurements.When asked the top metrics to measure Customer Success, Nick highlighted both leading and lagging indicators.  For Customer Success, Nick highlighted the top lagging indicators as renewals (GrossDollar Retention Rate) and expansion (Net Dollar Retention Rate).  In fact, recent research conducted by both Gainsight and by RevOps Squared independently, showed that NDR was the number one factor impacting Enterprise Value:Revenue multiples. The Gainsight framework for leading indicators is called DEAR: 1) Deployment; 2) Engagement; 3) Adoption; 4) ROI.  Next is the experience side including Net Promoter Score, Customer Satisfaction, and even support case trends.Lastly, we discussed the role of product analytics in the PLG model, in concert with how Customer Success will require deeper and broader insights into the customer's product utilization. Insights including which paths most customers follow, which paths end in user frustration and abandonment, and in the WOW category, how to build Customer Success directly into the product!Nick Mehta is a great listen for any founder, CEO, and/or operating executive who shares the belief is that customer value = customer success and the added vision of building a "Human First" company!See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

B2B SaaS founders continue to find new financing options to both grow their business and/or be rewarded for their sweat equity investment.Akeel Jabber's journey from petroleum engineer, to gym founder, to real estate investor and now "micro private equity" investor has one common thread - entrepreneurship focused on how to generate cash flowAkeel's first area of focus to generate returns +  cash flow was investing in the stock market.  He quickly identified that the large institutional investors on Wall Street had an unfair advantage as measured by technology, access, and sophistication.  As he searched for alternative avenues to build cash flow, he identified technology assets with recurring revenue streams as an attractive investment area - especially for the less than $5M ARR B2B SaaS companies that were not growing  50%+ per year.Akeel's first experience at $99 Social highlighted that with the right focus on go-to-market programs, processes, and operational excellence, smaller B2B SaaS companies could accelerate growth, and thus cash flow + enterprise value for founders and investors alike.  This experience led to the founding of Horizen Capital.  Horizen Capital is focused on investing in <$5M ARR B2B SaaS companies with 10% - 30% growth rates, and then applying their operational and go-to-market expertise to unlock 50%+ growth rates, resulting in increased returns for founder and investor alike.Akeel defines the early stage B2B SaaS market that they invest in three segments:Pre Seed Stage (pre-revenue)     - Raised friends and family investments    - prove they are the best team to tackle this problem/opportunitySeed Stage ($120K - $1M ARR)     -  Product built     - Market and user feedback received     - Money charged to and received from customersSeries A ($1M - $10M)Built good productEstablished Product Market Fit (PMF)Built out initial marketing channelsThe metrics that Akeel and Horizen Capital focuses primarily on when making micro private equity investments include:Historic Growth Rates (10% - 30%)Greater than 30% - 50% founders should evaluate VC investorsChurn< 5% month over month SMB market< 2% per monthCommercial/Mid-MarketCLTV$1,500 - $2,000 at leastSize of company is used to conduct cohort-based CLTV analysis5 Users (higher churn)> 5 Users have different CLTV (lower churn)Blended hides realityWhen asked how does a founder know if it's time to sell or just fund their company, Akeel suggested to ask these two questions:      #1: Am I still enjoying running my company?     #2: What am I trying to achieve by taking micro PE money?                       - Exit and go do something new                      - Accelerate my company growth rate Akeel shared the top sites and companies that a B2B SaaS founder looking for a potential exit/acquisition should know about:1. M&A Advisory Firms2. Empire Flippers3, MicroAcquire4. FlippaIf you are an entrepreneur, especially one in the B2B SaaS business looking for strategic investment and growth support, this Metrics that Measure Up episode with Akeel Jabber is a great listen...as is the SaaS District Podcast that Akeel hosts!See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.