1/ This was a very interesting case study so it deserves its own little tweetstorm.

Q: What is the proper way to analyze a SaaS company that has revenue from both Individual and Team plans?

Founders: I'm about to reveal a trade secret of Craft.

Other VCs: pease stop reading.
2/ Craft evaluated a Series A investment that had 85% annual revenue retention across the Overall business. It didn't look particularly impressive.

But when we separated cohorts for Individual and Team plans, we saw a very different picture. The average masked two extremes.
3/ The Individual plan had about 60% annual revenue retention, which is poor (but not uncommon for Individual plans). The Team product had roughly 200%+ net revenue retention, which is fantastic.
4/ Most importantly, revenue cohorts for the Team product were compounding over time whereas revenue cohorts for the Individual product were shrinking. This is the key point: The Team product was creating a growing revenue base while the Individual base was deteriorating.
5/ How does Craft value a business like this? We placed 0 value on ARR from the Individual business but valued the Team business at a very high ARR multiple. We led the Series A. VCs that didn’t separate Teams vs Overall may have missed why we are so excited about this one.
6/ Moral of the story: when a SaaS business has both B2B/Team plans and B2C/Individual plans, break your analysis into two separate buckets. If B2B has compounding cohorts and B2C has deteriorating cohorts, place all the value on B2B and view B2C as lead gen. //

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More from @DavidSacks

8 Dec
1/ A common dilemma for SaaS founders is whether to focus on individual users or teams as the primary customer. This has important implications for pricing & packaging as well as product design.

TLDR: Team plans are where the money is & where founders should focus. Here's why:
2/ First, Deal Sizes.

Team products have larger contract values (b/c multiple seats). Small CVs of Individual products often can't justify the cost of a sales team. Unless the Individual product is highly viral, it will be easier to build distribution for a Team product.
3/ Second, Retention.

Team products are stickier than Individual products. Multiplayer mode is more engaging than single-player mode. And it's harder to leave.

Account-level churn rates for Individual plans are typically 5% per month, but only 1-2% per month for Team plans.
Read 7 tweets
3 Dec
1/ Ok since you asked, here are my reactions to the Slack deal and @levie comments to the effect that “the idea that workers would someday choose all their own tools was always a fantasy... Best product doesn’t always win, you also need the biggest sales force.” My thoughts:
2/ Bottom-up is still the best way into enterprises for startups. If Slack had to sell top-down, they wouldn’t have gotten anywhere. Especially true for products whose advantage is usability, rather than checkboxes. “Show, not tell”. Proof of the pudding is in the eating of it.
3/ Bottom-up works best for new categories of software. Once IT makes a wall-to-wall decision, it settles the matter. In other words, bottom-up works best when there’s no top-down. Nature abhors a vacuum. In this case, an IT vacuum gets filed by “shadow IT.”
Read 10 tweets
1 Dec
1/ Let’s say you're a SaaS founder who’s looking to build a sales team for the first time. How do you structure quotas & compensation for the initial sales reps and their manager? Oftentimes, the biggest hurdle in hiring the first rep is not knowing how to incentivize them.
2/ There are actually a number of simple math-based rules that you can use to set up a sales team.

First, the standard commission rate for SaaS products is 10%.

Second, in constructing an OTE for an AE, a 50/50 split between base and variable compensation is typical.
3/ Taken together, these standards generate a third rule: the typical quota will equal 10x base salary. I call this the Rule of 10. This generates the following pay scale for AEs: Image
Read 8 tweets
14 Apr
1/ How to survive a depression:

If demand for your business suddenly drops 30%, 50%, 80% overnight, what do you do?

Cut costs by a commensurate amount to stay solvent.

This is very sad and tough to do but the answer is clear.
2/ Who can’t cut the requisite amount? Those with big fixed obligations. Eg:
— debt service (highly levered businesses)
— fixed payrolls (union contracts; govt workers; tenured staff)
— big leases (real estate, planes, capital equipment)

Expect those entities to need bailouts.
3/ Startups should do OK because they don’t have big fixed obligations. They can cut if they have to. Assuming they have the state of mind to do that and haven’t saddled themselves with fancy offices, venture debt, etc.
Read 5 tweets
11 Apr
Buchanan writes that the entire Trump presidency hangs on decision to reopen the economy. Trump says it’s the biggest decision he’s ever had to make.

What do you do when you have to make an existential decision under conditions of enormous uncertainty?

Try to derisk it. 1/
2/ How do you do that? Make the choice less binary.

For example:
— define red / yellow / green zones as @balajis has suggested.
— red zones stay under SIP until exponentiality is controlled.
— yellow zones allow low-risk groups out but they have to wear masks. ...
3/ In yellow, high-risk populations stay under SIP. Super-spreader locations (bars, dine-in restaurants, movie theaters) stay closed.
— green zones can loosen further but have to enforce their borders to make it work.
— same-day test & trace is the precondition to everything.
Read 5 tweets
28 Oct 19
Some thoughts on the topic du jour in tech right now -- the sudden reappraisal of tech-enabled businesses based on gross margins/unit economics. Here's what founders need to know.

The Gross Margin Problem: Lessons for Tech-Enabled Startups link.medium.com/Q6FMwpLZ90
1/ How did we get here? The truth is that software startups never had to worry about gross margins until software started eating the world. Gross margins only became a concern once software blended with physical-world products to create new “tech-enabled” business models.
2/ Historically, pure software businesses had perfect gross margins. All the expense was in creating the first copy; subsequent copies were free. Realizing that he could sell cheap mass-market software and make it up in volume made Bill Gates the richest man in the world.
Read 21 tweets

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