This Week in Startups - David Sacks and Ethan Ruby on launching SaaSGrid | E1803

Episode Date: September 6, 2023

This Week in Startups is brought to you by… House of Macadamias is the next big health trend! Get 20% off your first purchase and a free box of Namibian Sea Salted Macadamia Nuts at houseofmacadamias.com/twist by using code twist20! Vanta. Compliance and security shouldn't be a deal-breaker for startups to win new business. Vanta makes it easy for companies to get a SOC 2 report fast. TWiST listeners can get $1,000 off for a limited time at vanta.com/twist Fitbod. Tired of doing the same workouts at the gym? Fitbod will build you personalized workouts that help you progress with every set. Get 25% off your subscription or try out the app for FREE when you sign up now at fitbod.me/TWIST. * Today’s show: SaaSGrid Co-Founders Ethan Ruby and David Sacks join Jason to demo SaaSGrid and break down the solution it provides for founders (3:12). They also cover the software recession (26;18), AI’s impact on SaaS (36:41), and much more! * Time stamps: (0:00) David Sacks and Ethan Ruby join Jason (3:12) The solution SaaSGrid provides for founders (7:02) Ethan demos SaaSGrid (9:25) House of Macadamias - Get 20% off and a free box of Namibian Sea Salted Macadamia Nuts at https://houseofmacadamias.com/twist by using code TWIST20 (10:45) Burn multiple and startup efficiency (16:27) Fixed cost of a SaaS business today and major roadblocks in SaaS (20:40) Determining target customers and when outbound makes sense (25:10) Vanta - Get $1000 off your SOC 2 at https://vanta.com/twist (26:18) Headwinds against SaaS and the software recession (30:12) The MRR chart and analyzing contraction and churn (35:13) Fitbod - Get 25% off at https://fitbod.me/twist (36:41) AI’s impact on SaaS companies (41:47) The ZIRP/COVID-19 bubble and founders skipping funding rounds (44:37) The 3 MOST important things for SaaS companies to pay attention to * Check out SaaSGrid: https://www.saasgrid.com/ FOLLOW Ethan: https://twitter.com/ethanjruby FOLLOW David: https://twitter.com/DavidSacks * Read LAUNCH Fund 4 Deal Memo: https://www.launch.co/four Apply for Funding: https://www.launch.co/apply Buy ANGEL: https://www.angelthebook.com Great recent interviews: Steve Huffman, Brian Chesky, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarland, PrayingForExits, Jenny Lefcourt Check out Jason’s suite of newsletters: https://substack.com/@calacanis * Follow Jason: Twitter: https://twitter.com/jason Instagram: https://www.instagram.com/jason LinkedIn: https://www.linkedin.com/in/jasoncalacanis * Follow TWiST: Substack: https://twistartups.substack.com Twitter: https://twitter.com/TWiStartups YouTube: https://www.youtube.com/thisweekin * Subscribe to the Founder University Podcast: https://www.founder.university/podcast

Even in the non-internet world, you always had that voice on a customer support call. I would say your call is being recorded for quality assurance. Yeah. You call the bank or something. So I think that, you know, almost all of our sales calls, almost all of our customer support calls, they will ultimately be recorded. And then the AI will be able to understand what people are saying. And so in the context of a sales team, it'll be able to tell the, like the VPS sales, here's the top five, objections that you got from prospects.

Here's the top five reasons you lost deals. Here are the top rebuttals. I mean, this is where it starts getting more sophisticated. Here are the sales reps who powered through those objections with rebuttals that worked. And here, you know, and then you could double click and you could actually listen to the responses of the best sales

reps rebting the objection. That's got to tilt best sales reps who are like, consider it their secret weapon, how they get through these things or whatever. All the secrets also get out. This weekend startups is brought to you by House of Macadamias is the next big health trend. Get a free box of Namibian sea salted macadamia nuts

at House ofmacadamias.com slash twist. Plus, get an extra 20% off your order by using Code Twist 20. Vanta. Compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it easy for companies to get a sales. SOC2 report fast. Twist listeners can get $1,000 all for a limited time at Vanta.com slash twist. And FitBod.

Tired of doing the same workouts at the gym? FitBod will build you personalized workouts that will help you progress with every set. Get 25% off your subscription or try out the app for free when you sign up now at FitBod. dot me slash twist. All right, everybody, welcome to this week in startups. You might be confused because you see my bestie David Sachs here and you think, huh, is this like a new version of the all-in podcast? No.

Today, we're not going to talk about Ukraine, Russia, Bricks, G6, 2024, venture, macroeconomics. None of those topics. Sorry, if you were here for that. Just wait, a couple of days. On Friday, you get your red meat. You'll get your all-in podcast. I'm here to boost your ratings. It's a crossover.

Yeah, it's a crossover episode, which literally is what all in is to a certain extent, right? All you guys were on. I was just watching our first podcast. You were the fifth episode on this weekend startups. Here we are, 1800 episodes later. Yeah. And so I was looking at the video of us, more hair, a little bit skinnier, less gray. But man, that was like over 10 years ago talking about SaaS back then.

And with David Sachs today is, um, Ethan Ruby, who is a partner at Kraft focused on analytics, and you two have been in the laboratory actually building kind of a startup or a service. I'm not sure how you're framing the SACs, but welcome back to the program. Welcome to the program. Ethan, maybe tell us what you've built and why it's important. Yeah, so it's called SASS Grid. It is a product.

It's a new type of dashboarding and business intelligence tool, and it's built specifically for SaaS companies. So if you think about how SaaS companies do their metrics today, what they typically have to do is create a data warehouse or export CSVs. They download the data from their CRM tools like Salesforce or HubSpot. They get their finance data from QuickBooks. And they basically download all this data and put it in spreadsheets and they calculate their SaaS metrics. And what we've discovered looking at those metrics as investors for thousands of companies over many, many years is that these companies get it wrong all the time. The formulas are wrong. The data

contains all sorts of edge cases because you're downloading them from systems that weren't specifically purpose built for SaaS companies. So we've seen that the data has lots of mistakes, the formulas have a lot of mistakes, and it's very time consuming. And the only time founders even take this time to put this package metrics together is when they go out for fundraising. The rest of the time, they're just looking at maybe their high level ARR, but they're not looking at all of the metrics that they should. Which is really opposite of what it should be. You should be looking at the metrics continuously.

Yeah, it's better for the, it's more important for the founder to be looking at them than the investors to a certain extent, right? They're running the business every day. Right. And I think the problem is the reason why the founders aren't, they're not properly instrumented the way they should be, it's just how much time it takes to do this. So with a sort of a business intelligence tool that, that's not specifically verticalized for SaaS.

So if you think about it, if you were to go use Looker or Tableau, your data analytics people, like I said, would have to set a data warehouse, import all of this data, write all the SQL formulas, or the SQL code to get the formulas.

They'd have to, like, manually construct this whole thing. And our view on it was, after again, working with thousands of these companies, is why is there a tool that just does this automatically? Like, why can't you just connect your data sources and then boom, it'll just give you your dashboards

automatically because we know you're a SaaS company. So we felt like we should be able to create really a new kind of business intelligence company a verticalized BI tool just for SaaS companies. Because we know you're a SaaS company, we can do it better than any of those other tools. We can just make it work automatically. Again, connect your data sources. Boom, we give you all the dashboards that you need. So with that, why don't we have Ethan?

Ethan is the CEO. He was Kraft's partner for analytics like you mentioned. He has been in the weeds working. with thousands of companies on their SaaS metrics, has seen all the ways that these companies make errors. They get the formulas wrong, the data doesn't translate properly. He's been fixing all these problems.

And so he came with the idea, wait a second, we can do all this work automatically for companies. And this is actually a new SaaS tool. Yeah. So this is a SaaS tool for SaaS companies. This isn't a tool for craft to give away for free to get an edge on investing in SaaS companies,

to be clear, because when you told me the idea, I was like, oh, wow, that's an incredible tool for you to just keep for your companies. This isn't an internal tool for any company who wants to buy it. It started as an internal tool. But then we realized, wait a second, there is so much more here. Like I said, this is really a verticalized B-I tool that it could be its own company. Okay. Business-intentioned. So, frankly, we saw this opportunity. So it's completely spun out now. It's completely independent of craft. We funded it. So we funded the seed round. But it's a completely separate company now. And it, it, has a profit motive for itself. And Ethan is the CEO. Okay, Ethan, why don't you show us what you've built? And congratulations on the launch. Yeah, thank you, Jason. Yeah, I'm more than happy to. So this is a SaaSGuard dashboard.

This is what you get when you plug in your data in which just a couple clicks, get going. And I'll scroll through a little bit so you can see. But we have all the metrics that you would think of when you're tracking a SaaS company. So obviously, you know, the first thing you want to do, knows your ARR. And you want to understand the difference between ARR from new deals you sold, from expansion, you want to be able to look at your churn. You want all those things at your fingertips. And with SASGrid, because we plug into your underlying data sources, you can actually click on any data point and see how that number got calculated. So I clicked on my expansion

ARR from last quarter. I see the customers that had expansion last quarter. I can go to that customer and look at specifically how they have grown over time. And you can even click directly from the Salesforce records that we're pulling from. So we really have the ability to let you go far deeper on all your metrics and understand not just what the high level numbers are, but what are all the numbers driving that? Jumping back to the dashboard, so that's ARR, which is obviously very important. Other metrics that David has talked a lot about and that we often, look at when we're evaluated companies, net new ARR, ACV,

customer concentration, a very important one looking at your cohort your cohorted retention. This is something, retention is a little bit tricky to understand. And it's something founders often get wrong, trying to understand like, okay,

how do I track the same group of customers over time to understand, do they churn, do they expand, do they contract? How often do they renew? We, are able to do all of this out of the box. And one difference from some other tools that exist out there is that we don't do just the revenue numbers.

We do the efficiency numbers as well. So we pull in data from Stripe, HubSpot, Salesforce, but we also pull in data from systems like QuickBooks. So you can understand both your revenue and your expenses and be able to look at things like burn multiple, which is really important, right? Especially in today's market, you can't just be growing fast. You have to be growing fast efficiently. And we give you all the tools to enable you to track that well.

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That's been table stakes for a decade here in the SaaS world and Silicon Valley, obviously. But some of these are new ones that you had a big part or did create. So maybe explain that one. Yeah, a magic number is for a given period. It could be the last quarter or the last year. You take what was your burn during that period and then you divide that by your net new ARR. And what that gives you, the multiple is it is for each dollar of net new ARR that you generated,

how much did you burn to create that? Not how much did you spend? So if you spent a half million and you burned a half million, you're not dividing into a million, you're dividing into 500. Right, just your burn. Just your burn. So for example, if your net new ARR increased by a million dollars over the past year and you burned a million dollars over the past year, you'd have a burn multiple of one, which is very good.

If you spent $2 million to not spend, burn $2 million to achieve that level of growth, your burn multiple will be two. My rule of thumb for this is that any burn multiple above two when you're spending burning more than $2 per unit of growth is too much. A burn multiple between one and two is pretty good, and a burn multiple of one and less is outstanding. So this really is efficiency. You're looking at how efficient is the startup.

So startups that are spending too much in office space, overpaying employees, maybe giving too high of commissions to the sales team, spending too much on marketing. It all comes out in the wash here because you can't fake it. And so this incentivizes people. people in this new climate we're in, we're not in a ZERP environment anymore, zero interest rate. This incentivizes people to lower their burn in order to be more efficient.

Yeah, absolutely. So, you know, one of the things I've always said is that when you're in a boom market, the three things that matter are growth, growth, and growth. But when you're in a bear market, the three things that matter are growth, burn, and margins. So it's not that growth stops mattering. It's just that investors have a more balanced view. and yes, they want growth, but not if it is uneconomic, inefficient growth. They want to know that your burn and your margins are sound as you're growing.

And it's better to have a company that has good, not just growth, but efficiency of growth, as opposed to a super fast growing company that's unsustainable. And in a market like this, those companies get flushed out real quick. And they get flushed out because there's nobody left to fund them. eventually the tide goes out their burn multiple. What's the worst burn multiple you've seen? What would you say is like in the ZERP time period?

Well, you know, the burn multiple can vary based on the stage of a company. So it's tolerable to have a higher burn multiple when you're a very early stage company and you just don't have much revenue yet. You know, if your company just doesn't have any net UAR at all, then the formula won't even compute. So when you're very early, seed stage, early series A, high burn multiples are okay, but you want to see it going down over time to two or less. When you have a late stage company, it's called it growth stage with a burn multiple of three, that's bad news. You know that the dogs are not eating the dog food.

It's costing them too much to push that growth in, you know, sort of through the market. What you want to see is mark a pull, not that the company has to kind of like push. this thing out using a lot of money. Now, the thing I love about burn multiple is that, like you said, you can't fake it. So there are other efficiency metrics here that matter, like CAQ, like PAC payback period. Those are very important too, and we certainly plot them and show them to people. However, CAQ or customer acquisition costs, that depends on your company accounting for the expenses in a completely proper way. So, for example, a lot of companies might have apparently a great KAC, but it turns out that they've been spending a lot of money on marketing programs, and they

didn't think to include marketing and KAC. They just thought it as a sales expense. So they may have miscalculate. It's very easy to miscalculate KAC by misattributing an expense to the wrong column in QuickBooks. And so the thing I've always liked about Burn Multiple is it just includes everything. You can't massage the story, if you will. Not that anybody's trying to be dishonest necessarily, but if you were spending money on some conferences, podcasts, you know,

whatever, Google ads, Facebook ads, whatever it happened to be, you can't hide that in another column. It has to go in to the calculation at the end of the day. Right.

And so I get that in the early stages, Ethan, the early stages, use like a fixed cost to the business, right? There's a certain number of million dollars it takes to build a SaaS business. What is that steady state number? Because if you've seen so many companies,

I'm curious in today's market, what's like table stakes? You know, we knew when building an app company, you needed about a dozen people and probably $2 million a year to get a basic app out the door on two platforms, you know, two or three developers on each platform, product manager, etc., customer support.

What's table stakes in terms the fixed cost of a SaaS business today? Yeah, I mean, it certainly changed a lot, right? The fixed cost structures that you see today are much different than the fixed cost structures that you looked at a few years ago. But I think it's really reverted to a lot of the traditional success metrics, meaning you should be able to rate, SaaS companies should be able to raise a relatively modest seed round. Let's call it $3 to $6 million total across a couple of tranches.

And that should be enough to get them to a million dollars of ARA and raise. is a series A. Now, obviously, the burn multiple is going to be higher during that seed period, right? You're probably going to spend three, four million of that to get your first million of AARR and get yourself in a good position. And that's okay, right? Like David said, in the early stages, you know, you are paying people to code before you, before you have a product to produce any AARR. But once you hit that series A stage, once you have a couple of sellers and somewhat ever predictable motion, that's when you can start saying, okay, I can get my burn multiple to around two. Yes, yes, I'll still have, you know, some upfront expenses and R&D, but there's,

it's somewhat predictable about what I spend on marketing, what I spend on commissions, getting the error out. And then more and more of the growth companies that you see today in 2023 that are actually doing well, for multiple is often a very important KPI and they are targeting to be at one or lower. I was just meeting with a, you know, one of the growth companies that's actually performing very well right now. And they had, while maintaining a healthy A.R. growth rate had worked their burn multiple well below one. So I think that's starting to become the gold standard, especially for these later states' businesses that are looking towards IPOing in a few years. So, David, three to six million to get to one million in AOR.

That seems, you know, not easy, but doable. We see that happen often. When you look back on your 20 years in SaaS, what are the milestones that, you know, you see people sort of hit a row block. Is it like 1, 5, 10, 25 million? When does it get harder and harder? And maybe you could describe those characteristics. Yeah, I mean, I think you're constantly leveling up in SaaS. I mean, so getting to that first million dollars of ARR, you're sort of navigating the wilderness, you're trying to find product market fit. Then I think you're, you know, the next milestone's about five million of ARR. That's sort of where the series B historically was. Then you're trying to get to 20 million

And that's where Series C was and so on down the line. And I'd say at each stage, you have to learn something new. And I think when you start talking about five or 20 million of ARR, you have to get pretty good at building a sales organization, knowing how to scale that. You know, that first million of ARR you can get by with founder sales and with maybe you hire one sort of very entrepreneurial salesperson to help the founders.

I actually like doing that. I don't like to see product founders being their head against the wall. trying to do sales which are unnatural to them. I much prefer when they get like a sales partner to help them. But once you get past that and you want to get to five or 20 or beyond, you absolutely have to have a VP of sales who knows how to scale a sales team. You know, 20 million of ARR, you know, if your goal, remember, that's just a fixed point. Ideally, you're going to be on your way to doing 50 the next year.

So if, you know, if you need to do an incremental 30 million of of A-R, think about the size of that sales team. Maybe hopefully you get, you know, five to ten of that 30 that you need from expansion. Hopefully it's not all coming from new customers. But let's say that you're looking to get another 25 from new business. You know, you're going to need, let's say your quotas are, you know, a million dollars per sales rep. You're going to need about 30 sales reps to hit that.

I mean, that's just trying to get to a pretty meaningfully sized sales organization. And that's just for account executives. You're going to need marketing to keep. all those AEs fed with new leads. So you're going to need marketing programs. You're going to need communications and so on down the line. So every step it scales up and gets harder and harder. There are organizations that work with SMBs or don't believe as much in sales until you hit a certain number hub spot at Lassie and Jira.

They've built incredible businesses without outbound sales. In fact, Jira was like, hey, we're not going to have sales teams. but I just had the co-founder on and Scott was explaining that they do have it for the larger clients now. What do you have thoughts on, you know, what size client? How to service each size of the client?

So you're, I think you're charging 500 bucks a month for this product as an example. Or 500 and up. Is that right, Ethan? Yeah, exactly. Yeah. So the pricing starts at $500 a month.

So a $6,000 annual contract goes up from there based on Based on the size, I mean, from the metrics perspective, the way that you price and the way that you sell has to do with the ACB that you can sell, right? You have to work backwards from the types of deal you can sell. And so, you know, using SaaS Fier's example, we're very committed to serving startups well and, you know, being a good partner to early stage companies in the ecosystem. And so we actually give away the whole product for free until companies have a million of ARR. Oh, okay. So that's great.

They have a million of error because they use our product to track their. It's built in. Exactly. And so then we can say, and so then once they hit that million of error place, we can say like, okay, like you actually have some real revenue. You probably have a pretty big budget. You have some, you've raised some capital. Now we know that actually a $6,000 price point to start is pretty reasonable for you. And so, and, you know, at $6,000, we're like, okay, like we, yeah, outbound sales probably isn't going to be a good motion for us if that's our,

if that's our ACV, because that can be can cost $6,000 just to get a qualified lead with outbound sales. But if we, if there's good word to mouth in the ecosystem and we get inbound sales, $6,000 is plenty to justify having a sales rep, me right now, but sales reps in the future, work those inbound lead. So that's kind of the thought process that companies have to have.

They really have to work backwards from what their ACV is. Yeah. Yeah. Jason, right. I'm building sales seams. Sorry, what's that? Oh, I was just going to ask your thoughts on building sales teams to what you learned over the years and seen.

Yeah, I mean, where I thought you were going to go with that question for a second is when you're talking about outbound. Like, when does outbound make sense? Yeah, that's sort of what I'm getting at you. Yeah, I think that's a really good example of you have to have a go-to-market strategy that matches up with the types of customers that you're serving. In my experience, outbound doesn't work at all when your target customer is a small business, is an SMB.

And the reason for that is that when you think about the activities of what an outbound SDR, outbound AE would be doing, those activities can be scaled much better with a marketing program. So instead of having a sales rep or an SDR sending emails one at a time to a potential prospect, basically cold email or cold calling, why wouldn't you send a million emails at a time? Yeah. So outbound has never really made sense to me when you're talking about S&Bs. Where I think it makes sense is if you're a SaaS company that's going after our enterprise, and you've kind of got a defined account strategy.

Let's say you're selling to the Fortune 500. Well, there's only 500 Fortune 500 companies. So you can simply make a list of who all those companies are, and you can figure out who's my buyer within those companies. If it's the CIO, you can make a list of the 500 CIOs of the Fortune 500. And then it might make sense to have SDRs calling on them, either through a dialer or maybe you're emailing them in a more one-on-one way. So that would be more of like an account-based marketing strategy.

who your target customer is and the best way to reach them really defines, you know, how your go-to-market strategy is structured. And, you know, it's really important then as a founder to think about when you're hiring that all-important first VPS sales, what kind of sales leader am I looking for? Because, you know, you could end up hiring a sales leader who's got the wrong skill set. Like, they could try to bring, they could try and bring a big outbound program to your startup. but if you're selling SMBs, it'd be a lot better to have a sales leader

who's experienced in like bottom up, you know, and letting the product do the work of generating the so-called PQLs or product-qualified leads. So you got to like, you know, make sure all the pieces of your strategy are aligned correctly. If you're a SaaS or services company that stores customer data in the cloud,

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your compliance dialed in. Just work with Vanta. Get your compliance automated and tight and tight is right. Lock down those big deals. Here's the best part. Vanta's going to give you $1,000 off. That's $1,000 off at vanta.com slash twist. That's Vanta.com slash twist for a thousand dollars off. your stock too. A lot of headwinds against SaaS makes for a good reason to build these tools, huh? Like if you have more insight, you can measure it, you can manage it a bit better. Let's talk about a couple of those headwinds. Companies are building products that maybe span across multiple categories. So if you were using Notion, my team was looking for like a to-do list task manager slash project management tool. It turned out two of the products we pay for already. Coda and

notion had that built in. And so that's one headwin is that people seem to be making multifunction products. And then of course the other one is competition. So, you know, David and I'll let you either of you take it. Those two headwinds are, are they getting more pronounced now? Is he getting more dogged out there and fighting because of these issues? Yeah, absolutely. So first of all, in terms of just the overall environment, we're in a software recession. I mean, I don't know what's happening in the larger economy and how the larger economy seems to be doing so well, but there's no question that Silicon Valley and the software industry in particular are in a recession. There is major headwinds to buying behavior. Sales cycles are taking longer, buyers are sharpening their pencils.

They are trying to consolidate vendors, and software companies on their part are kind of moving into each other's turf. So for example, we're seeing in the sales enablement category, there were a bunch of categories that used to be separate in terms of selling to sales teams. There was forecasting, there was caller intelligence, there was pipeline management. Now all these things are converging and all these different companies are trying to compete with each other. Clary, which used to do sales forecasting, is competing with Gong, which used to be exclusively caller intelligence. So, you know, all these companies are kind of moving into each other's turf and it's going to create, I think, more competition and

it's just, you know, it's raising the bar even further. We saw that happen. I think, Ethan, with Microsoft, Apple, competing on like office suites, Google inserting themselves into all that you had. You know, if you go with, you know, Microsoft, you're going to get a presentation software. You're going to get a Google sheet. You know, you buy Google sheets. You're going to get email. Everything just seems to be bundled and packaged.

What about the other headwinds that you're seeing in SaaS or green shoots, things that seem to be going well now? Yeah, so. He hasn't happened. I don't know if that's happened yet. We're starting to see a few green shoots, but there's still a lot of headwinds. One of the biggest things, and we were starting to actually work on some benchmarking data across all SaaS Grid customers, which will be really interesting once we're fully ready

to reveal that. But one thing that we're seeing a lot of is contraction, typically from C contraction, meaning your existing customers who still like your product are actually spending less with you than they used to normally because you charge per seat and you know if you sell a sales tool they have fewer sales reps than they used to or they have fewer viewers in your data tool or whatever it may be um and it's funny i've worked with companies that you know you know literally their air r counter broke the first time they had contraction because all through 2020 2021 they've done their whole life cycle, they've never had a customer contract before. And now, again, all their best customers

who really like them are pulling back and spending less. So there's definitely been a head win because you really think about losing, you really think about the worst thing that can happen in a SaaS business churn, right? Your customers, they go to a competitor. They go out of business. They just don't need you anymore. But what's really hurt companies a lot is their biggest champions just spending less with them and having ACPs come down over time. So that's definitely been a major headwin, especially for software companies that sell to offer to other software companies. Because David pointed out, you know, whatever the macro is right now has hit software way harder than it has other industries. Can you show how you attract that in South Grid, Ethan? Yeah, sure. So we'll go, you know, we'll look at

the MRR chart. We basically show every movement you have. So you, you know, you can see your new customers, but you can also see your contraction and churn. And so this particular data set only has a little bit of contraction, but I can see that, you know, this customer actually, you know, lost MRR over the course of this period. And it's actually really, can be really hard to track that from different systems. There was just, I'm going to forget the name, but there was a public company that just had to issue oopsies because it was either expansion or contraction. They had a Salesforce formula error.

Oh, wow. That meant that they were, I forgot if they were undercounting contraction or double County expansion. But these things happen even to very large companies if you don't have a system with guardrails helping you get it set up. Well, hopefully you have accounting as a backstop that can catch that. But yeah. Actually, I think that's just one last thing we could show in the demo is just how you

connect these data sources, Ethan. Yeah. Yeah. So basically what we do is we take, again, the systems you already use like Salesforce, like HubSpot, like Stripe that aren't built for SaaS. And basically what our product is, right, it is a SaaS. engine, right? We have the native subscription logic that's as that's as companies need. And so you can take your existing workflows, your existing custom fields that exist in something like Salesforce,

and you just tell us what they are. Be like, okay, we use this field to track ARR. Great. We use these types of opportunities to track our expansion, to track our new, to track our new contracts. These are the stages we use. These are the way that we track our. or dates. These are all the fields that we use to report. You can map your fields in Salesforce or HubSpot to, you know, to the correct categories in Saskerut.

Yeah. Yeah. And then there's a, there's a, I think an important feature lets you do like one-offs for edge cases. Yeah. So basically that was the entire flow to set up Salesforce. So those three screens right there, right?

So instead of taking hours to set it up, you know, in a different system, We did those three clicks and you get reporting out of Salesforce. And then if there ever is an edge case, and for whatever reason, some number is wrong, you can correct it directly in SaaS Grid instead of having to go back to the core system. And every company has some edge case, one or two wild customers with weird contracts that drive them nuts. And so basically you can fix that directly in SaaS Grid and never have to worry about it again. Yes, Sax.

You think the per seat model needs to change. in some way because we're seeing, you know, Facebook and Google and Microsoft get rid of tens of thousands employees, of employees, and then have revenue still go up. So should we start tying some of these SaaS tools to revenue or some other metric or maybe have some floor pricing for them and maybe this perceived pricing as if AI makes everybody 30% more efficient, then you're going to have like maybe some disjoint here where, ultimately there's 10 people, you know, doing 10%. million dollars a year in sales as opposed to 100 doing a million each. Well, there's no question that the Percy model has really taken it on the chin over the past year because, like Ethan was

saying, so many companies that are big software purchasers have laid employees off. So instead of, you know, doing this breakneck hiring every year, they've actually been doing massive C reductions. So this has been a huge headwin for SaaS companies. It used to be a couple of years ago, every year you'd just do an automatic 120%, 150% from existing customers, and you'd roll into the next year with all of last year's revenue plus plus plus. Now I'm starting with last year's revenue maybe minus whatever account reductions they've done. I mean, we have one SaaS company that's in our portfolio. They sell into Twitter, and their renewal was 80% lower.

Yeah. And because Elon, frankly, laid off 80% of the staff. Now, I was impressed they even got the renewal because knowing how tough Elon is, I thought they would just lose the account completely. So I thought like a 20% renewal was actually a great number in that case. But it's just an example of how tough it is right now when seats are contracting. Now, to your point, do SaaS companies need to come up with a different pricing model? I'm not so sure about that. I mean, the seat model is a really good way to align price to value, which is ultimately the end goal for any software company.

if you try to charge more than the value you're creating, then you could turn the entire logo. So you don't want to do that either. And, you know, if the company is laying off headcount, they're looking to save money. If you don't roll with that, and again, align your pricing to that, they'll just turn off you completely, which you don't want.

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optimized workout for me based on these parameters. And it will do it for you to check it out. It's amazing. The design of this app is extraordinary. I was able to invest in it. That's how impressed I was with it. FitBod takes the guess work out of fitness. Just open the app and start making progress. You deserve it. Get 25% off your FitBod subscription or try out the app for free when you sign up now at FitBod. M.M.m.m.m.m.m. S. FITBOD.m. M.S.T.T.T.T.S.T.S.S. companies are getting more efficient themselves, so they should be able to do more with less. So if the trend of AI making the customers more efficient, well, the SaaS companies should be more efficient. Has Ethan, has that come out in the numbers? ability to get to a million taking less money. This is something we're talking about in the venture

community a whole bunch. Hey, you know, you don't need as many people to start a company after cloud computing and all these other things. And hey, maybe with AI, you're not going to need as many people or is it still too early to tell? Oh, I think companies are definitely spending less. When you look at things like burn multiple, when you look at runway, um, runway tends to be pretty steady, sometimes even going up, not because companies are raising money, but because that they've cut their burn. So when you look at all these metrics, companies are definitely getting more efficient because they understand that it's going to be very different to rates their next round

round than their prior round. Is that because they were bloated already? Or can you attribute any of that to like AI making startups more efficient? You know, you gave that number before. Raise three to six million. Get to a million in ARR. Do we think that goes to, you know, raise two to four million to get to a million in ARR? I don't think we've seen that dramatic of effects from AI yet.

I think mostly what happened is that. is that companies were bloated or spending ahead of product market fit and they realized the macro caused them to you know with the macro they had to cut back and preserve and get longer you know i can say from you know from building sasker myself with the team of engineers right things um there are definitely coding co-pilots um that that are that are helping and making an impact and it's going to really shape how this next wave of software is created but i don't think it's not quite yet on the order of magnitude of actually, you know, having a 30% difference in how,

in how much you have to spend to produce software. You know, we're still, we're still looking to hire engineers. We still, you know, we still need to build a bigger engineering team and to, you know, get even more efficient and pump out more code. So I don't think it's having that big of an impact yet. You think, Sacks, AI, going to have a major impact here on the creation of these companies or the operation of them, number of employees it takes. I mean, eventually, you know, on a 10-year basis, you've got to believe that AI is going to have a huge impact on the way we work.

I just think that for now, you know, has it had a meaningful impact on the cost that takes a long, something probably not. But eventually, yeah, you know, the theory would be that in the same way that Mark Zuckerberg was able to create Facebook in a dorm room at Harvard, he didn't need to hire lots and lots of people. He was able to code it himself. It's going to be easier and easier for people to do. create that first version of the product themselves. So yeah, I think the cost does have to come down over time. Are we there yet? It isn't reflected in the numbers yet. Got it. Where do you think the gains will be seen first? Obviously, coding comes to mind, but there are other areas in which, you know, SaaS companies spend a bunch of money. Where do you think AI is going to have the most profound

impact in the short, medium long term? Well, coding, you've already seen a bunch of co-pilots that have happened, and that seems to be the first area. And there's a good reason why. I mean, coding is language and it can also be run through a compiler to basically weed out any mistakes. So the AI can do a perfect job in theory, right? Because the compiler will just catch the mistakes. And it's a little different than areas where it can like completely hallucinate. Yeah. So, um, but ultimately, I think that every area of the company will eventually have its own co-pilot or multiple co-pilots. There's going to be marketing co-pilots. It'll be sales co-pilots. I think in the area of sales, conversational, intelligence is a really interesting one where, you know, to the extent that all of your sales calls are recorded anyway. And people are surprisingly okay with that. Like, it seems like Gong just puts this little, and some of the other ones put a little,

like, third person on the call and everybody knows this recording. Remember, even in the non-internet world, you always had that voice on a customer support call that would say your call is being recorded for quality assurance. Yeah. You call the bank or something. So I think that, you know, almost all of our sales calls, almost all of our customer support calls, they will ultimately be recorded. And then the AI will be able to understand what people are saying. And so in the context of a sales team, it'll be able to tell the, like, the VPS sales, here's the top five objections that you got from prospects.

Here's the top five reasons you lost deals. Here are the top rebuttals. I mean, this is where it starts getting more sophisticated. here are the sales reps who powered through those objections with rebuttals that worked. And here, you know, and then you could double click and you could actually listen to the responses of the best sales reps rebukting the objection. That's got to tilt the best sales reps who are like consider it their secret weapon, how they get through these things or whatever.

Because you're basically saying, like, all the secret sauce will get out. Yeah, all the secret sauce gets out, which, you know, it's good for the business. It might be bad for the, for the leading person and all that. How does this affect funds? You raised a big fund. that was the trend. But now we're seeing people do maybe more with less money, certainly more efficient post-ZERP.

You find yourself writing smaller checks now to get the same amount of equity. And do you think that's going to be the trend in Silicon Valley is that maybe some companies raise less money and get public with the founders having more equity, which means maybe there's less of a chance for late-stage investors, certainly. We're just investors generally

to own a meaningful percentage of a company. I think it's going to look more like it did in the call it 2017 to 2019 timeframe. When I look at our portfolios from that era, it was normal. You'd write a $10 to $15 million series A check and you'd end up with 15, 20% ownership in the company. I look at our funds from that time period and we have big chunky ownership positions and a lot of interesting companies. You look at what happened during the sort of the, I'd say the ZERP COVID bubble. So with 2021 being the absolute peak, but the frothiness started in 2020. and you'd have to write big checks

and you wouldn't even necessarily get the kind of ownership position you're talking about. I think 2021 is going to be a very challenging vintage for VC funds. It's just they did not, they wrote big checks, they did not get larger ownership positions. What about people skipping rounds?

And this sort of new movement where founders are like, I may raise less money, just overall. Are you starting to see that yet where they become really super conscious of their equity positions as founders in the team? I think they're going to have to be because evaluations are lower.

So if they want to avoid dilution, they're going to have to be more cost conscious. Capital is hard to raise. I think investors are more sensitive to efficiency metrics. So I think all those things are going to matter quite a bit. In terms of where the market is right now, there's still a lot of companies that were able to raise at the peak in really the second half of 2021, raised enormous rounds, rounds that were three, four, five times bigger than normal. 50x valuations, 100x.

A R, exactly. 100 X. And they raised a billion with a 20 million valuation or a 10 million in revenue, 100 million, a billion dollar valuation, something like that. Yeah, I mean,

we saw companies, I mean, this isn't happening a lot, but the craziest that I saw was 250 times ARR. So, $4 million in ARR equals a billion dollars. Yeah, I've seen that a couple of times.

I mean, they are good, there are good companies in a certain sense. Like, they have got other things going for them besides revenue, but, like, they may have a phenomenally useful product.

that isn't fully monetized yet. But look, there's no question that it happened way too much in 2021. I mean, it's just shoving all your chips in with two outs or something. I don't know how you catch up and actually get a 25x return for your LPs or whatever the power law dictates you need. Ethan, what a great SaaS companies do when you look at the data, when you look at the company formation and now you got your own, whatever if you were to say, hey, one, two, three, these are the three most important things SaaS companies can do.

We've got a lot of startups, obviously, listening to this weekend startup. So the top three things in your mind, I'm asking the question in a long fashion to give you time to think. Yeah. I think the first big one is I think all the best SaaS companies I've ever worked through is really have at least one distribution strategy that just works absurdly well.

It's borderline unfair. It could be that, they have a product that is super necessary for a company at a very specific point in time. For example, Vanta, you try to sell your first enterprise deal. You need to get soft to compliant. Vant is right there to sell use software. Or they have these incredible bottom up motions. You mentioned things like during the last thing earlier.

Companies that basically every single sale is a struggle, and especially if they're not selling massive enterprise deals, tend to struggle long term. But starting with a leg up with one really key distribution strategy that works super well is a huge key. Second, I would say that really good companies don't spend until don't spend a lot of money until they discover that really good distribution strategy or that really good wedge of the market, meaning they don't come, they don't necessarily come out guns blazing and as soon as they raise a seed round or series A just start spending it all wildly, right? They noticed that, hey, I'm really appealing to this segment of the market or this channel is really working well for me. Like I have, you know, phenomenal, you know, I have like a two-month

PAC payback if I really focus on this channel and this way of selling and then I can experiment elsewhere. But they're really conscious about where they spend money. They do spend money. You have to burn money in some degree to be a big SaaS company, but they're super strategic about it. And then third, less than the financial side, the best companies are just really good at shipping product. I mean, that goes that goes without saying, but you know, you do occasionally run into this company where they ship a great initial product. It's a great wedge into the market. And they really struggle to innovate.

They struggle to say, okay, what's the next product? How do I make it even better? How do I go from this wedge I might have within enterprise buyer into building something that could dislodge a very big contract that an enterprise already has with a legacy system? So having really great engineers, having a clear product vision, and continuing to build more products to go deeper, to build something that people really want and super key. All right, David, you heard those three. Distribution advantage. Knowing went to pour gasoline on the fire and went not to.

And then third, product velocity, I'd say. It's maybe a good way to summarize it. What are your thoughts? We changed that order or add something to it. You did a good job boiling that down there just to the headlines. I would say that Sometimes I do a good job, Montery.

It's like having a lot of times. Sometimes not so good. That was impressive. To Ethan's point, if you're in the early stages not working, you know,

being experimental, pivoting, getting lots of shots on goals or on goal, I think a lot of founders, it's like we, you know, when things aren't working

and we do these board meetings, it feels like we have the same conversation every three months. Yeah, and that the worst. And whereas the companies that are either working, or which are trying new things.

It's a different conversation every three months. They're able to say, okay, we tried this. Here's what we learned. And now we're trying this. Different hypothesis testing. A lot more fun to work on those companies. Like you're saying, more swings on bat, more shots on goal. You know most things won't work.

So you're really trying to survive until something does work, right? In some ways, that's what this is about, startups. And then I think when things are working, you do have to watch. out for churn net dollar retention. After AAR growth, the most important metric is net dollar retention. If you have customers of trading, if they're leaving, they're obviously unhappy, or somehow you lost product market fit or maybe a competitor's coming to the market, undercut your pricing, something is wrong.

So anytime your net dollar attention is below 100%, it means your bucket is leaking, and you got to fix that right away. It's a huge indication of something wrong in your business. And I would say that the founders who make things work are always properly instrumented. You know, I remember at a Yammer, we built a lot of the stuff in-house that you see in SaaSGrid. So I think a big part of the reason why we're doing SaaSGrid is like every founder can just be properly instrumented now out of the box. Just connect your data sources and boom, it's all there. One feature we never showed you is that in addition to all the charts that Ethan auto-generated in SaaSGrid, you can create your own dashboards.

So you can customize them. You can create a dashboard for your board. And you can choose, do I want this to be like a one-time report or do I want it to be auto-updating? Yeah. So when you got some guy on your board who's a former founder like you, and they want to see it every month and, yeah, have more granular discussions, you just give them their own URL. Exactly. The fact I can just do a share. So, yeah, like all these charts and dashboards become shareable with like the whole Google Docs permission system.

So you can revoke permission if you want later. But what we want to do here is try and create the standard. so that, you know, you don't have to think about how do I calculate net dollar retention. What's the proper way to think about burn multiple? Do I have my denominator or my numerator, correct? We'll do all that work for you. We'll set it up. And we'll give you all the metrics you need plus 10 more you didn't even know you needed,

but we'll just give them to you for free. And then you decide if in your own custom view, do you want to see that or not? I got the killer distribution model for you, which you kind of mentioned earlier, Ethan, which is, you know, I think you kind of just put out there that you're going to, you know, give some averages across all the people in the database. If that's good to get, give to get, and I can only see that data. If I'm a customer, how can I live without that data? So you're kind of going to be, you really want to see how everybody else is doing to benchmark yourself.

I mean, that's going to be an incredible data source if you can get there. Yeah, we'll put a little teaser out there, but the full benchmarks are going to be available to Saskare customers only. So it's going to be, going to be super exciting. give the top level to the press. I think that's one of the things Zillow did really well. I don't know if you saw my interview with the founder of Zillow, but man, that was the Zestimate and their ability to report on what was happening in each market.

And then the marketing woman there was the chief marketing officer would make those reports by city. And she just started with New York, Los Angeles, like the places where Phoenix were really hot. And they would give it to the local news. So they would have an embargo date. Here's the news. So for you guys, just giving an embargo date. And here's the news, TechCrunch, this weekend startups. whoever is covering startups or tech,

Wall Street Journal, whatever, it's going to be like... Yeah, benchmarks are coming. Maybe what we'll do is when we launch benchmarks, we'll come back and show that to you. But yeah, I think benchmarks will be killer. And the reason it'll work so well in SaaS Grid is because everything in SaaS is highly benchmarkable. So software businesses all operate

according to a certain set of SaaS metrics. It's kind of like Gap, except, you know, Gap is like certified by, you know, the accounting agencies. There's no certification for, SaaS metrics, but they are, there is a standard for them, and we want to be that standard. It's kind of crazy that there hasn't been anything like this before. Like I said, a verticalized business intelligence tool that once you tell it, you're a

SaaS company, it just knows what to do. Yeah, of course. It doesn't make you reinvent the wheel. If this had already existed before, we would have just recommended it to all of our portfolio companies, but it hasn't existed, so we had to build it. I think it's kind of a bold move. When you first told me about it and texting me, about it. I was like, I would keep this

from myself and just give it to my companies and don't give it to anybody else and then offer it to SaaS companies for free in exchange for sharing the taking a meeting with you. But hey, here we are. SassGrid is available to everybody. It's free if you're up to a million. Use the code

Bestie and you get the first million dollars free. Listen, great job. You think congratulations on your startup. Sachs, thanks for coming on and debuting the product here first. Another first on this weekend startups as we do here and if you didn't get enough of me and sacks together, we'll be back this weekend for the All-In podcast,

and you'll see us next week at the All-N Summit. Bye-bye.