So Freshworks hasn't been immune to macro issues, but its bigger customers continue to grow and scale at an impressive rate

It's at ~$600,000,00 ARR today, growing 20%. But the bigger customers are growing much faster.

5 Interesting Learnings: #1.  Bigger Customers Keep Growing, But SMBs Have Slowed

A common theme across tech today.  Freshworks has 51,700 customers at around $2k ARR, with a quick sales cycle of just 25 days.  But in contrast to their bigger customers, the macro environment — or perhaps market saturation — has led to slowing growth in their SMB segment in 2023.

Klaviyo and Instacart reopened the IPO markets, from a 20 year low

Two great leaders, worth almost $10B now and public, and both priced at high end

But they IPO’d without any “bounce”

A little easy money and greed does help restart markets

We didn’t see that Klaviyo and Instacart in the end didn’t leave any money on the table

They maximized what they could raise, with the minimum dilution

But no bounce probably leaves the next wave of folks that are strong, but not as strong as Klaviyo or Instacart, in a slightly tougher position

I caught up with a sales rep this week on track to make $350k this year so far — and was miserable

I asked why?

A bad boss? No, he said

A crummy startup? No, it’s fine. No Snowflake, but fine.

Rough commute? No, he still works from home. What’s wrong then, I asked? How bad can it be?

“I made $500k in 2021, and now am making $350k working twice as hard or harder than back then”

He felt underpaid for working harder in 2023 than 2021

Even though he was still making $350k in today’s macro

He felt very underpaid

Want to get a SaaS start-up going?

Here are my Top 20 Tips to get a SaaS startup going and off the ground: 🔽2️⃣0️⃣🔽 1/ Take your time to find a great co-founder

It may seem like you are in a hurry, but in the end, anything less than a great co-founder will set you back. A bit more here:

saastr.com/a-simple-commi…

"A Top 10 Mistake:

Not going multi-product early enough."

saastr.com/add-second-pro… "Don’t take the easy route.  Your customers will want things that are fairly easy to build, and you’ll understand those problems well, because they are adds-on to what you are already selling.  

But these rarely move the needle."

Peter Gassner, CEO Veeva

I can be slow sometimes, but it’s taken me a while to understand what’s >different< in SaaS in 2023

Budgets are tighter, but SaaS is still growing, folks are still buying more software than ever

Here’s what’s different:

2023 is the first time SaaS itself got harder since 2005 SaaS has never been truly easy outside of a window from mid-2020 to late 2021

But every year, it got easier and easier. Not easy, but easier and easier:

One of toughest things about fundraising today is startups that are doing well but have fallen just below “the funding line”

E.g., a SaaS startup growing 100% at $5m ARR might get easily funded

If macro issues slow growth to 80%, that’s still pretty darn good. Just not enough. If the segment has been hard hit by macro issues, then shouldn’t 80% be good enough in 2023?

My rough learnings: the later the stage of the VC, the more they will lean in here a bit

If you are at $50m ARR and growth has slowed to 60% from 80%, a growth VC may take that risk

2023 is turning out to be even harder to raise VC capital than 2022. And 2021 feels like eons ago

SaaS multiples are at fresh lows, and slowdown that first came to late stage is now hitting seed

10 Simple Suggestions on How to Make Fundraising a Smidge More Successful in 2023: #1. Don’t Set Super Tight Deadlines If They Aren’t Real

Stop telling VCs they have a week to decide, if you can’t 100% back it up. Have 2 offers in hand? For sure, be aggressive. But don’t play timing games. Folks will just walk.

Freshworks is another SaaS and Cloud leader that yes, has seen some slowdown -- but still >beat< expectations

They are now at an incredible $560,000,000 in ARR, growing 23%

5 Interesting Learnings: #1.  NRR Still Impressive at 107% Given Many SMB Customers, Although Down Year-over-Year from 115%

For those of us who sell to B2B customers small, medium, and larger, it can be super helpful to see what’s happening with a leader like Freshworks.  Their NRR remains relatively… twitter.com/i/web/status/1…

So Cloudflare grew a stunning 37% at $1.2 Billion in ARR ... but that doesn't mean it was easy :)

And they were kind enough to give us a deep dive on just what's gotten harder these days and what hasn't:

#1/ New customer growth slowed to 13%, down from 24% a year ago and 32% in… twitter.com/i/web/status/1… #2/ Their top reps are still closing, and closing well — at 129% of quota.

And their productivity is only down 1%. “The top 15% of our sellers have achieved 129% of quota over the last four quarters.”

HubSpot crosses:

- $2 Billion in ARR
- Growing 27%
- $214m in trailing free cash flow

Pretty epic

#smbforever And like almost everyone, they’ve gotten a lot more efficient the past 12 months:

We’re in the second year of the VC Downturn. No need to pity your VCs. But it does add … stress.

Here are my best 10 ideas to keep your board and investors calmer, happier — and on your side. It’s worth these relatively small investments of your time:

🔽🔟🔽 #1: Respond to emails

You don’t need to take their suggestions. But reply. Many founders just don’t reply to emails from their investors. Think of them as quirky, large customers. You don’t have to do what they ask. But reply promptly if possible. If you don’t — they worry.

New sales reps are taught … a lot of things they shouldn’t be. And it leads to a lot of lost revenue.

10 Things New Sales Reps Are Taught. That Maybe They Shouldn’t Be:

🔽🔟🔽 #1: “Be careful of prospects that waste your time.”

Yes, your time is precious. But this is backwards. Almost no one wants to waste a salesperson’s time. Talking to sales isn’t fun. A prospect inbounds because they have a need. Treat them with respect. Watch your sales go up.

I’m not sure who decided the renewal should be a time of high tension with your customers.

But it has become that. An NPS damaging moment each year.

Really, it should be a non-event, done right. In fact, it should take no work at all. Done right. Every renewal has now become a time of dread.

How much will a vendor attempt to raise prices, without even a heads-up?

Will will be threatened with a shut-off if we don’t pay dramatically more?

Will we be told we have to buy a more expensive edition we don’t even need?

I think YC encouraging its founders to raise at a high price even in today’s market is smart

Yes, it may decrease the odds some can raise another round, or make it harder. VCs have a point there.

But … If the YC brand allows them to raise a lot more capital than otherwise, then that money can extend those seed rounds for 12, 18, even 24 months longer than usual

Assuming they don’t materially increase the burn rate

A lot of VCs are right now at cognitive overload

There’s no need to be sympathetic (at all), but it’s something to be aware of when you see VCs acting … differently

Here’s what’s happening: 2021 was An Age of VC Hubris. Everyone was a genius, and some of the best that had big cash exits actually quietly moved on.

2022 was Crisis Mode. It was a terrible time in VC, especially for anyone Series B or later. But folks know what to do in a crisis. You focus.

"#1. Investing in a startup with strong early traction ... with a good but not great CEO."

saastr.com/10-of-my-top-s… "#2. Investing when you aren’t sure but someone else really successful is investing.

You gotta do your own homework. All of it. Not just some."

While Series A, B and C investors are back … startups now risk falling again into “The Valuation Trap”.

What’s that?

It’s when multiples of revenue, the price VCs will pay, are too low for the next round to really increase in price. This was pretty common through about 2017 or so, and I had the issue as a SaaS founder myself.

Here’s the problem: unless a startup is super hot, most Series A, B, C+ investors will ideally want to pay 8x-10x ARR (revenues).

Did you know there’s a LinkedIn just for Doctors?

* It’s doing $450,000,000 in ARR
* It’s worth a stunning $6.5 Billion, growing 18%
* And it’s wildly, widely profitable

It’s called Doximity

5 Interesting Learnings: #1. 80% of All U.S. Physicians Are in Their Network.

This turbocharged Doximity’s growth, although truly hitting 80% of your ecosystem has lead to slowing growth as they approach $500m in ARR.

The hardest segment of SaaS:

Sales-led SMB sales

You have to be wildly, wildly efficient and effective

And you have to further fight the inherent churn in SMBs

CAC has to be really, really low A related post here:

saastr.com/the-challenge-…

Things are improving in venture, but they are still nothing like 2019, let alone the peak of '20 and '21

Seed rounds are on fire, but everything after that is still harder, and valuations are much lower

So what you need to know is do your existing investors ... have reserves? What are reserves?

They are a portion of a fund used for second and third checks into existing investments

Not every fund "carries" reserves, and those that do often use them very differently