Metrics that Measure Up

In Episode #1 of this 2-episode conversation, Ray discusses the key findings from the Bessemer Venture Partners (BVP) annual "State of the Cloud" report for 2023 with Janelle Teng, Vice President and co-author of this year's report.Janelle is involved in many different research programs at BVP, including the "State of the Cloud" and the "Scaling to $100M ARR" reports.In this first episode of the "State of the Cloud 2023" report, we focus on the change in B2B Cloud company valuations in 2022 and the current state of the industry.Public cloud companies experienced the "SaaSacre" of 2022. Interest rates shocked the cloud industry in 2022 resulting in a greater than 40% reduction in public cloud company value. The forward trading multiple of public cloud companies is now below the long-term average and were halved in 2022.There are glimmers of hope from the Q123 timeframe. One example is Microsoft reported better than expected earnings in Q1, fueled by the interest in AI. These large tech companies are a great index for the smaller, private Cloud companies. The Cloud index is up about 5% in Q123, which provides hope for the re-emergence of Cloud valuations.Even with the aggressive pullback in public cloud company valuations, the average BVP Index cloud company has grown 50% faster than a traditional company - over a 10-year horizon.When will "Venture Capital" funding return to a more normalized state? Janelle asked the 60 investment professionals at BVP when will be the best time for a founder to raise VC money? The top timeframe forecasted was 2H24' with 1H24' being the second forecasted period for raising a round from Venture Capital. However, 1H23' was still in the running - highlighting the excitement around the current AI boom.The number of VC deals and the amount of VC funding in Q123 was down from the previous year and the previous quarter, so the turnaround in VC deal velocity is still in front of us.In the second half of my conversation, Episode 2 with Janelle, she shares the TOP 5 predictions for the Cloud in 2023!See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Former VP of Marketing at Hopin and event industry thought leader Julius Solaris joined me on the latest episode of the Metrics that Measure Up Podcast. Julius has been involved in the event industry for over two decades, and has been involved in the creation and successful exits of two different event technology platforms - so provides a very unique perspective on where the event industry has been and where it is headed...First, we discussed the evolution of events in B2B Marketing. Events are often the first variable marketing program to be reduced during uncertain economic times. Covid introduced a new dynamic, with the growth of virtual events as the only way for people to gather. This created a tidal wave of virtual event platforms, events, and associated content. In 2023, the pendulum is aggressively swinging back to in-person events, including over $6.2B of acquisitions of event companies in the first quarter of 2023 alone.The definition of "events" has never been more fluid, with virtual, hybrid, physical, asynchronous, and recorded events. Then we introduced the concept of "Event-Led Growth", which Julius defines as a Go-to-Market strategy that sees the full spectrum of events at the core of your GTM and customer engagement strategy. This concept is gaining speed because the future of social media is in flux around the world, AI is a new and unknown factor, and events are the most personal, human mode of interacting with a brand and engagement at the individual level.Event-Led growth also provides an opportunity for "content creation" to take the forefront of target market engagement. Where does "community" play in the event-led growth model? Professional associations are a great example of an industry community, and they often come together once a year at an event. Today, virtual communities can form quickly, as exhibited by the grassroots "AI Community" of 1,000+ people that came together in San Francisco - all stimulated by one tweet from an AI thought leader. In fact, in strong communities, event marketing is not a large requirement, as those community members will attend based on the strength of the community bonds that form from previous in-person and virtual events.Julius mentioned the importance of ongoing virtual gatherings, like the SaaStr weekly webinar to build upon and nurture the relationships developed at the annual in-person event - a case study of the importance of continuous community engagement through a combinate of virtual and in-person events.Over time, Julius believes that the event industry will evolve to "company-owned events" versus the larger, mega-industry events that defined the previous generation of events. Due to the saturation of "content" available on digital media, people are craving an opportunity for connection that is only achieved at events with a shared asset - communities with a common interest.One topic we discussed was what happens when events become "too big" to foster intimate, personal interactions. Mass customization becomes harder over time, which is why satellite events and vendor-sponsored satellite events become the "smaller, intimate" venue for personal relationships to be formed and nurtured. One strategy for vendors is to secure a small booth at the event itself and create a satellite experience outside of the main venue.Julius provided advice on how to be a company's event-led growth strategy. Virtual events provide a low-cost way to being building a community through events. This is especially attractive due to the availability of technology platforms for virtual events. This creates the foundation for building a community and then provides a platform for creating multiple "individual digital assets" that can be re-purposed across multiple channels to maximize reach and engagement from a single virtual event.I had to ask Julius about how to engage virtual event attendees in tactics, like virtual booths and lounges. This has not worked very well in the early days of virtual events, primarily because event sponsors did not invest enough time on this topic. Activation of virtual event attendees needs to be "content-led", supported by a strategic communications strategy, pre, and post-event by the event host and the sponsors.If you are considering leveraging an "event-led" strategy to create awareness, build engagement, and develop a community of your own, this conversation with Julius Solaris is chalked full of great insights and ideas.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Excel is the #1 tool B2B SaaS companies use for many financial tasks, including calculating SaaS metrics to surface insights for operating decisions and investor updates.Ali started his career in tech as an auditor at Ernst and Young, with a priority focus on revenue recognition and reporting. While auditing a top tier B2B SaaS company, he was provided multiple spreadsheets with thousands of rows of data, and it even required almost 10 minutes to just open the Excel file, and almost 6 months to complete the audit. The primary challenge, finding all of the data required for the audit in an extremely large and poorly structured Excel model.What are the top signs that a founder/CEO will see to know it might be time to move beyond Excel? Ali suggests at $1M and above that Quickbooks is a fine General Ledger, but the initial issues are associated with revenue recognition and the associated reporting. Often, this is due to not having the right human resources who truly understand revenue recognition policy, and then the manual required to create a model and the appropriate formulas for revenue recognition.One sign that Excel might not be doing the job, is if revenue is being recognized on a cash basis. Another sign might be when an investor asks what your "MRR or ARR" is, and you realize it includes professional services or one-time fees. Why is getting revenue recognition important to an early-stage company? It becomes important when external stakeholders, like existing or potential investors, ask for things like GAAP revenue growth rates, and ARR growth rates and you cannot provide the answers because the financial foundation and reporting infrastructure have not been established.Inevitably if you are quickly heading to $1M ARR or already above that level, founders and CEOs are expected to know their numbers. One common tactic is to hire an external accountant, and ask them to set up revenue recognition and other financial reporting in Excel - the challenge with this is that it is not scalable, and if the "rent an accountant" goes away, it is hard for the next resource to understand the excel model.Next, we discussed the reality of ASC 606 (GAAP accounting policy), and how it impacts the need for more advanced financial reporting capabilities. ASC 606 includes very complex and nuanced accounting rules that Excel is just not well positioned to be the primary solution for modeling and reporting GAAP revenue and the associated financial metrics such as Gross Profit, EBITDA, and Net Income.The most important initial SaaS metric is Contracted ARR, and ARR including growth rates. Quickly following is the ability to understand Sales and Marketing expenses and the associated customer acquisition cost efficiency metrics including Customer Acquisition Cost, and CAC Payback Period. Cash burn and cash runway are other critical insights that a founder/CEO needs to ensure are available and accurate early on.When I asked Ali about other SaaS Metrics, he highlighted a recent example where a company wanted to start reporting their CARR and ARR, and they close a majority of deals mid-month. They were confused about how they report ARR for the month the contract was signed, and how those decisions impact the associated recognized revenue (GAAP revenue).If you are an early-stage SaaS company and are having challenges with Excel to capture, calculate and report basis SaaS financials including GAAP revenue, CARR, ARR and the associated SaaS performance metrics the conversation with Ali Rizvi is highly informative.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

The Alexander Group works with many of the leading companies in the B2B SaaS industry, and I was recently joined by Ted Grossman, their co-lead of the technology industry practice, and Davis Giedt, Director of Research and Analytics.Based upon Ted and Davis' unique insights and understanding of B2B SaaS due to the discussions and data from over one hundred customers, coupled with their historic Sales Compensation research and benchmarks with has become an industry standard.My first question was how has the use of SaaS metrics evolved. Ted's perspective is the core metrics have not changed that much over the past few years - rather it is the weight that is placed on specific metrics, especially growth vs profitability. As an example in 2021 and the first half of 2022, the weight was much higher on growth rate versus profitability metrics. One example is the Rule of 40 has increased in importance as measured by R-Squared by 3x over the last 6 months. As such "Margin + Growth" is much more balanced in 2023.Ted highlighted "expense to revenue" as a top priority at the macro level. This is also a very easy metric to benchmark against the industry. Then you can dive down into more granular revenue growth efficiency metrics such as "Profitability by Sales rep. Other things like the CAC Payback Period which measures the amount of time to pay back the acquisition of a new customer. Net and Gross Retention Rates are also high-priority metrics to understand the efficacy of retaining and expanding revenue with existing customers.What about the importance of changing the mix of revenue growth from new customers versus existing customers? The story varies in every company and depends on company-specific attributes such as do they have multiple products, or do they have a product that can expand usage to additional users, departments, or business units within an existing customer.When I asked Davis the "top" metrics he prefers, they included:Sales and Marketing expense to revenue which tests for every dollar invested in revenue growth, how much is returned on both a new and top-line revenue basis. Davis shared a 35% - 40% S&M expense to revenue as a good benchmark for growth companiesCost of Growth, sometimes known as the SaaS Magic number measures the top-line revenue growth versus Sales and Marketing investment, which has a range of .5 (poor), .75 - 1 (good), and > 1 (best)CLTV:CAC measures the amount of Gross Profit (or Revenue minus Cost of Goods Sold) generated against the revenue a new customer generates over the life of a customer. A CLTV:CAC ratio of 3x is good, though has been increasing over the past 2-3 years. CLTV:CAC ratio is a long-term ROI measurementNext, we discussed the topic of "consistency of metric calculation" when using industry benchmarks. Davis highlighted that for their clients they use one standard metric calculation formula to ensure when they are benchmarking it is an apples-to-apples comparison. One specific example was if you are trying to measure the efficiency of growing new customer ARR versus existing customer growth ARR, things like a "time study" may need to be conducted to properly allocate expenses to the pursuit of each growth ARR type.If you are a B2B SaaS company leader, the discussion with Ted and Davis provides some unique insights and perspectives that only come with the unique visibility they have across hundreds of leading B2B companies.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Matt Wolach is the founder of Xsellus and host of the Scale your SaaS podcast. Matt is one of those guests that have taken over a year to be on the Metrics that Measure Up podcast. Matt has hosted over 250 episodes of "Scale your SaaS" and was one of the inspirations for this podcast.The first question I asked Matt was about the common attributes that successful SaaS founders exhibited. By being a podcast host, Matt found he often learned more than he shares. However, one of the common themes of the most successful founders was the amount of time they invest in getting to know and understand their potential customers. Those discussions to dive into the mind of their potential customers was a key to success, and Matt recommends the goal should be to have about 50 of those discussions, versus the 3-5 that far too many founders conduct.What are the top three challenges that Matt sees early-stage companies face:1) Lead generation/Pipeline which often early-stage companies over-index on one or two channels. Matt recommends finding 4 - 5 channels that work, and then continuously optimize each channel. Matt says there are 18 ways to generate leads in a B2B Saa company, including commonly missed lead sources such as a defined lead referral process with current customers. Other missed lead sources such as influencers and affiliate programs are undervalued.2) Ability to close qualified leads is another inconsistent competency of many early-stage companies, which is especially dangerous if significant money is being invested in Marketing and lead generation activities. Matt suggests fixing the qualified lead to Closed-Won process before investing more in additional lead generation.3) Lead form/demo form to demo completed is surprisingly a big leak for many early-stage companies. Matt shared the story that one of his new customers did not even measure the number of people requesting to be contacted or have a demo. The inbound demo request-to-demo completed ratio is a critical conversion rate that far too many companies do not measure. Matt said that an average of 42% of people who request a meeting or demo actually end up having a meeting with the vendor - meaning 58% of high-intent leads are not actually being followed up with timely.What metric does Matt like for B2B Saas companies in the $1M - $5M ARR range? Matt said the Customer Lifetime Value to Customer Acquisition Cost Ratio (CLTV:CAC Ratio) is one of his favorite metrics. Essentially with the industry standards that Matt shared a 3:1 CLTV:CAC ratio is a good goal, it means that for every dollar you invest in Sales and Marketing, $3 of gross profit is generated. The latest RevOps Squared benchmarks show that a 4:1 CLTV:CAC Ratio is the new benchmark.If you are an early-stage B2B SaaS company, this conversation with Matt Wolach, the founder of Xsellus 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.

Eric Christopher, the founder, and CEO of Zylo is sitting on top of one of the industry's largest SaaS spend data repositories and thus benchmarks, a key reason I knew I needed to have Eric as a guest on the podcast.What was the catalyst for founding Zylo? It started with Eric's experience as a revenue leader in two social media platform companies. Eric realized that by introducing new solutions directly to the Marketing department, it was becoming difficult for companies to manage and govern SaaS spend."A business idea with complexity is worth pursuing" - the words an advisor shared with Eric which was part of the motivation to founding Zylo! Since anyone in a company can be a buyer of a SaaS solution, coupled with the existence of thousands of vendors with very different features and pricing, buying a SaaS product is complex. Moreover, measuring the value is very difficult and often, ill-defined.How does Eric define SaaS Spend Management? "Helping companies manage, measure and maximize value from every SaaS application purchased". The lifecycle of a SaaS solution starts with understanding how to receive the best price, and then how to optimize the value received. Questions to ask include, are employees using the product, are they receiving value, and how does the value compare to other solutions with similar functionality? Zylo uses a "value framework" that starts with understanding every application being used through a discovery process. Next, is being able to manage adoption and usage, which may be as much about maximizing value versus reducing costs. Next, identify opportunities for cost avoidance, while considering the renewal process to know the best terms based on the current utilization rates. Finally, gaining visibility into the existence and usage of every SaaS product in a company materially increases the ability to have the governance and controls in place to purchase, utilize, renew, and purchase the right products in the future.One surprising aspect of SaaS sprawl is that many organizations do not know what SaaS solutions are being used by their employees and the associated expenses! The best SaaS Spend management programs start with the ability to conduct "discovery" to identify all the SaaS tools being used in a company....but when is it the right time to consider implementing a SaaS Spend Management solution?Eric highlighted that when you are hitting $1M - $2M in annual SaaS spend is one milestone. Another milestone is that at 500 employees if you do not have a SaaS Spend Management program in place - alarms should be sounding. ...however, Eric shared that it is never too early to introduce a more structured SaaS purchasing, management, and governance process.Zylo is sitting on a treasure trove of "SaaS Spend Management" data from over $30B in annual SaaS spending across industries including a few of the below :SaaS spend by employee has increased by 50% over the last 2 yearsSaaS spend has been increasing by over 20% per year for several yearsTotal SaaS spend is underreported by 50% due to decentralized purchasing The average company has over 300 "paid" SaaS subscriptionsThis increases to > 1,000 in Enterprise companiesInterestingly, the cost of the SaaS spend may not be the primary opportunity for many companies, it may be minimizing the risk of not managing and governing the flow of data outside of the company!Several new trends in SaaS spend will be disclosed in the Zylo Benchmark report being published on April 4th, 2023!If you are interested in the evolution of purchasing and managing SaaS spend in your company, this product with Eric 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.

In 2023 many SaaS companies are searching for what market(s) are going to drive their next phase of growth - and international markets, especially English-speaking countries are often considered by U.S. B2B SaaS companies.Rick Pizzoli, moved to Europe over 25 years ago to launch the European presence for U.S. based software companies. Based upon that experience, Rick and Sales Force Europe has helped over 500 companies enter and/or expand their presence beyond the United States or a single country in Europe.Rick shared that the majority of U.S. companies first start to consider entering the European market in the $5M - $10M ARR range. European companies begin to expand beyond their home country a little earlier, often in the $2M - $3M ARR range due to the more limited breadth of each country in Europe.Understanding your positioning, messaging, value proposition, and efficiency of your "home market" customer acquisition motion as measured by metrics are critical foundational elements to planning for an entry into a new country. If a company has not captured and documented the keys to success in its home country, it will be impossible to be successful in a new country.Another key factor to consider when entering into the European market is do you have a "lighthouse" account in a country you can build upon, and/or do you have a product that is localized for countries beyond English speaking? Rick's perspective is conducting market research to determine the "best" initial country is a better strategy than just saying let's just go to the United Kingdom, as it is the most like the US market and they speak English. At the same time, the UK market, especially in London is probably the most competitive market to enter, as so many U.S. based companies use the same "we similar" mentality.Bringing on local talent that understands the local market, has relationships in the local market, and can translate the "messaging and positioning" that works well in the U.S. to the local European country. There are nuances of the "talent profile" that works in one country versus another, which suggests having a local team with local leadership will yield a faster return on investment than parachuting in one or two resources from the home country.One key to success is seeding the market awareness and engagement with top-of-funnel activities beginning with a digital marketing strategy 3-6 months before having a local, on-the-ground presence. Having local Sales Development resources in place for at least 3 months before having a local Account Executive will also increase the productivity of those first 1-2 AEs. Having a local presence shows a true "commitment" to the local market and will make the majority of in-country buyers more comfortable with purchasing from a recent entrant to the local market.Should a company start with a single or at least two resources when first entering into a new country? Two resources are always better, and could also allow for additional language skills for the second target country that is being considered in a pan-European presence. It also eliminates the "resource" vs "market" specific challenges.If you are considering or just beginning the evaluation process to expand your U.S. or single European country B2B SaaS company into or across Europe, this conversation with Rick Pizzoli and Sales Force Europe is highly informative.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

SaaS Spend Management is an emerging and rapidly evolving category - yet Ryan Neu, Co-Founder, and CEO of Vendr has a unique vision for how the category needs to evolve.Ryan has a background in public accounting, and then transitioned to software sales, including a role in the early days at Hubspot. During his career selling, he realized that selling great products is hard, takes too much time and the distribution is quite inefficient - thus the catalyst to founding Vendr in 2018.Vendr was created as a new way to buy and sell software....and it is the "SELL" comment that is unique amongst SaaS Spend Management See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

If you have ever been frustrated with the forecasting process and accuracy at your company - this episode is for you!Guy Rubin is the founder and CEO of ebsta, a leading provider of Revenue Intelligence - the next generation of forecast management.Guy founded ebsta to automate the logging of sales rep activity directly into their Customer Relationship Management (CRM) like Salesforce and Hubspot. Over 50,000 companies have used ebsta in this environment which is when the breakthrough happened to begin scoring target buyer relationships - essentially a "relationship score".The strength of relationships is a key factor in an opportunity's probability to convert into a new customer....and thus making the revenue forecast more accurate. More on that later in the episode.Back to the core problem, ebsta has been solving for years - having timely and accurate account, contact, and opportunity data in their CRM. Since most of this data is captured in their email, and/or calendar. By using technology to capture every email, event, and meeting with an account or opportunity, it can be automatically imported into the CRM. Then, a company can use AI to determine the frequency of communications with an opportunity and begin to create an "opportunity score" based on the recency, frequency, and level of activities with specific opportunities.What about including insights from "conversational intelligence" platforms? This is another signal that ebsta uses to evolve the "engagement score", but Guy highlighted that CI is only one signal that informs their platform.Intent data is another signal that ebsta uses to inform and evolve their engagement and thus opportunity score. In a recent research report that ebsta published, one of the challenges is to determine what is the actual impact of intent data on the opportunity "win rate". In this report, ebsta was able to identify the level of influence that intent data has on win rates.Forecast accuracy is a challenge for every company. Initially, Guy felt the "ebsta" internal forecasts were superior to those of a "bottoms-up" process that begins with the AE or front-line sales manager. Those customers still require the ability to include the sales "bottoms-up" forecast, the ebsta automated forecast is typically within a +/- 5% error of margin - which is superior to the 69% of companies that miss the forecast by +/- 10% or greater.If you are involved in your company's "forecasting process" this conversation with Guy provides great insights and ideas to enhance your forecast accuracy!!!See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Friday, March 10th, 2023 - a moment in B2B Technology and Start-Up ecosystem history that many will never forget and hopefully provides a foundation for learning the risks and rewards of venture-backed, early-stage entrepreneurship.Todd Gardner founded SaaS Capital in 2007, the industry's first "recurring revenue credit facility". Before names like Salesforce, Workday, and Snowflake were well-known names, Todd experienced the financial crisis of 2008 and experienced firsthand the impact of a systemic banking issue including the meltdown of his financial partners.Our goal for this episode of the podcast is to provide practical insights and advice that SaaS founders, CEOs, and CFOs can apply to decrease the risks associated with their financial related decisions and banking decisions.We started with the basic, summary facts surrounding the collapse of Silicon Valley Bank (SVB):December 31, 2022, SVB financial disclosure: - $209 B in total assets - $175.4B in total depositsMarch 8th: SVB disclosed a $1.8B loss on the fire sale of $21B in long-term assetsMarch 8th - 10th: ~ $42B in deposit withdraws were made by SVB customersFriday, March 10th: SVB was declared insolvent and closed by U.S regulatorsSunday, March 12th: U.S. government including the FDIC, US Treasury, and Federal Reserve announced that all deposits (100%) would be backstopped - made good because SVB had more than enough assets to cover the outstanding liabilities, primarily customer deposits. Essentially the US government is managing the risk which is primarily a "time-based" issue versus a balance sheet issue.Todd next provided an industry backdrop that lead to the run on SVB. Due to the accelerated ramp of venture capital investing in 2020 - 2021, the deposits on hand at SVB doubles. As standard bank operating practice, SVB invested a significant portion of those deposits in long-term bonds and treasuries, which had a low return due to the low-interest rates of the moment.During the second half of 2022, interest rates began to increase dramatically, and the result was that the value of the long-term bonds decreased in value. Simultaneously many customers were moving their deposits at SVB into higher interest-rate instruments outside of SVB - forcing SVB to sell some long-term assets to support the decrease in deposits.Due to the above macroeconomic interest rate dynamics, coupled with the short-term issues created by a handful of Venture Capital firms quietly recommending their portfolio companies move their deposits out of SVB.We next discussed the "financial ecosystem" that has been the foundation that fueled the amazing growth of the technology industry which includes: - Over half of the technology start-ups banked with SVB - Over half of Venture Capital firms in technology banked with SVB for Capital Call - Line of CreditHaving the primary source of assets and liabilities from the same industry ultimately becomes a material issue for SVB.The above is a backdrop to the insights and advice that Todd shared for how this experience can inform future financial and banking decisions by SaaS founders, CEOs, and CFOs which include:#1: Diversify banking relationships including checking, savings, and credit facilities          - have at least 2 banks and/or treasury based money-market account#2: Understand the banking relationships that your payables and payroll firms use#3. Maintain fiscal discipline throughout the start-up journey to change the narrative from "cash runway" to ongoing operating profit as early as possibleIf you are interested in learning more about the Silicon Valley Bank collapse and what it means to the financial strategy of SaaS CEOs and CFOs going forward, this conversation with Todd 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.