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Spotlight on SaaS - five trends for the year ahead

Jon Davies, head of Tech Sector for New Zealand Trade & Enterprise in the US, shares insights from this year's SaaStr Annual conference.

This year marked the fourth SaaStr Annual conference (pronounced S-ass-tur) in San Francisco. In its short tenure, SaaStr (an extension of the acronym Software as a Service) has established itself as the preeminent industry conference, attracting thousands of founders and their teams from all over the world. In addition to the 250 + speakers over the three days, this year saw over 10,000 attendees stream through the doors to not only learn from the domain experts and those who’ve been there and done it before, but also to take advantage of the high-quality networking, peer-based advice, and puppies.  Yes, puppies.

A local dog rescue agency ran a booth again this year achieving 100% adoption rate of all the pups on show.

This is an international event, with 50% of conference attendees are international and this year and, via a fantastic collaboration between NZTECallaghan, and the NZ SaaS Community, we saw well over 100 Kiwis at the event. As one attendee put it "Kiwis are everywhere, it must be a great tech scene.”

We even upped the game by providing a full day of programming ahead of the conference for Kiwi’s in attendance at the Nasdaq Entrepreneurial Center, featuring talks by Kiwi ex-pats and founders, as well as industry thought leader David Skok.

The Kiwi continent at the Nasdaq Entrepreneurial Center

WHY SAASTR?

SaaS, or more simply businesses who sell their cloud-based software products and services via re-occurring payments, is now a firmly established and successful business model, leveraged by many well-known brands and businesses such as Salesforce, Spotify, Dropbox, Microsoft, Adobe, Google, Amazon and New Zealand’s own Xero. There are a few things about this recurring SaaS business models that make it unique, as well as challenging and advantageous. That’s why the conference is so well attended – each year it focuses on what's important as the SaaS model evolves and matures. After all, a lot has changed in SaaS since the “early days” 20 years ago, when companies such as Salesforce leveraged this new (and soon to be disruptive) business model. 

So what can we expect to be the SaaS focal points of 2018?

IT’S ALL ABOUT GROWTH

Capital is required for growth surges in the majority of SaaS businesses (commonly called growth capital). Revenues from customers in a SaaS business are realised in incremental payments (usually month on month), so it takes a significant amount of time for a SaaS customer to reach profitability. This often means some kind of fiscal bridge is required during that time toward breakeven profitability. Venture Capital is heavily involved due to this and SaaStr dedicated an entire day on Venture Capital and raising money. Key takeaways for growth in 2018:

  • To be profitable, companies need a heavy focus on repeatable and scalable business models for growth. 
  • In regards to growth, investors are looking at bookings (not revenue) growing quarter on quarter.
  • There were also large changes in the Private Equity (PE) market last year with around 70% of all SaaS acquisitions coming from non-tech sources. According to Tomasz Tunguz, “SaaS Startups are great private equity targets….and the difference between PE and Venture (Capital) is that there is no risk of failure for the business with PE.”
  • Market Capitalisation of publicly traded software companies has increased 28 times in 12 years from US$8 billion in 2005 to over US$250 billion in 2017
  • International Coin Offerings (ICOs) are taking over in 2018. The growing evolution and acceptance of crypto currencies has created a new way for founders to raise capital via ICO ‘Tokens’ that can be purchased by the general public and later be realised via a valuation or utility/purpose. 
  • In 2017 the median ICO amount raised was US$15m, which when compared to the median Series A raise is almost twice as much (US$7m)
  • In December of last year, ICOs collectively raised US$1.5b, which was the same as all collective, global Series A rounds raised

Source: Crunchbase

HAPPY CUSTOMERS, HAPPY BUSINESS

All of the product talks at SaaStr brought up the importance of having empathy for customers and deeply understanding their needs and purchasing behaviour. Keeping happy, paying, customers is incredibly important for long-term growth and business sustainability. This means that happy customers are a critical component for sustained growth, creating a relatively new category of strategy and employment within these businesses known in the industry as ‘Customer Success’. 

While revenue is quantitative measure, customer success is a qualitative measure, which makes it tough to correlate both easily without a bridge measure. This is where Net Promoter Score (or NPS) comes into play. NPS is a very powerful measure of happy customers (and how likely they are to recommend your product to others) and many SaaS companies can attribute long-term revenue growth to NPS Score -  but only if they analyse the results and take appropriate action

The team at New Zealand starup AskNicely were out in force at SaaStr again this year, sponsoring the conference for the second year in a row. Their platform supports NPS and allows other SaaS companies to survey customers and track their NPS scores across sectors, divisions, geographies and customer segments.

BUILD GREAT PRODUCTS

Of course, this observation seems obvious. But this ties in well with the takeaway about happy customers — great products are needed to achieve true scale. Des Traynor from Intercom summed this up with the simple message on the importance of this long-term approach: “Decisions are the currency of startups.”  Without a strategy for your product, you’re signing up for mayhem internally and with customers – especially at scale.  

Awesome visual notes from Alli McKee of stick.ai 

CULTURE, DIVERSITY and INCLUSION

We know well that diverse and inclusive teams lead to more successful, profitable companies and SaaStr Annual focused a great deal on this subject matter for 2018, intensively and actively trying to diversify the audience between 2017 and 2018. In fact, women and multicultural attendees increased to 36% for the 2018 conference, while women and multicultural speakers increased to over 60%.

There were also numerous topics this year covering diversity and inclusion. Therese Tucker, the CEO of BlackLineHQ, delivered a standout talk with one line in particular hitting it home: “As an old, female single mother, you can almost hear the VCs running from the room," she told the audience. I should point out at this point that women receive less than 2% of all VC funding globally.

Source:Alli McKee of stick.ai 

With this refreshing focus on diversity and inclusion, company culture was also a hot topic (especially given an insane year of poor behaviours surfacing in the tech world). A key statement made at the conference this year was from Dharmesh Shah, the CTO and Founder of HubSpot:

"Culture is the operating system for your company. Culture is to recruiting as product is to marketing — build it carefully.”

Essentially what Dharmesh is saying here is that culture is not unlike the product you are actually building and selling. Culture is a product you build, with your people as its customers. Customers and prospects are much more easily attracted to an amazing, considerate and thoughtful product. Conversely, talented people are more easily attracted to a good culture.

GETTING PERSONAL AND EMOTIONAL

Working in SaaS is tough. It’s even tougher when you’re giving it your all, not seeing the results you want, but hearing about other companies front-page success. Jason Cohen, founder of WP Engine, posted an article last year titled, I don’t want to be a founder anymore. His article created a lot of conversations within the industry around nurturing mental health of founders. He turned this into a very thoughtful talk at SaaStr — what do you do when a successful CEO says he’s supremely unhappy? Strong mental health is key for founders and a recent study from Columbia University showed that 21 of 22 CEOs interviewed were depressed, even after a successful exit (all over $10M). So how does that happen? What should we all try to do differently to prevent this in the future?

Jason’s thesis was to learn how to make emotionally tough decisions along the way to help avoid this fate of a deeper depression. He also left us all with this thought: "Building a company with people who are happy and fulfilled is even more important than revenues and fulfilling a real job as an entrepreneur is key.” And this warning: "Doing all the crappy work, to avoid your team doing it, leads to faster burnout. Be careful."   

Jon Davies is head of Tech Sector for New Zealand Trade & Enterprise in the US.

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