Conversations about the state of the SaaS market in 2022 are everywhere, and it can seem overwhelming for entrepreneurs and business leaders to make sense of everything. In the first session of the eye-opening CRO Confidential series, SaaStr CEO Jason Lemkin interviewed Founders Fund Partner Sam Blond about the current economic climate. The blonde drill down to the critical points founders need to know to be successful and attract investors.
A New SaaS Playbook
In 2021, there was little focus on efficiency and more on revenue metrics like ARR. However, the economic climate of 2022 has driven investors sharply in the opposite direction. Blond says, “Entity economics matters more broadly today. There was a lot of emphasis on top-line revenue growth in 2021, what percentage of the business was growing year-over-year, and things like gross margin and revenue quality.” There was less emphasis on things.”
However, investors are more interested in the company’s efficiency in 2022, so Blond recommends that founders make a strategic change: focus on gross profit, rather than prioritizing ARR and top-line revenue as their ultimate objectives. And improve your margin. Investors will take notice, and you are more likely to win in a competitive environment.
This focus on margins and efficiency forces SaaS companies to adjust to the tried-and-true playbook. Still, the good thing is that companies have the power to use levers to help them improve their efficiency metrics: the ability to control that gross margin on the expense side, says Blond. And at the same time, you can adjust your sales strategy to promote more top-line revenue while keeping gross profit front and center: “If you’re looking for some sort of gross profit or gross margin dollars versus over-the-top top-line revenues, you might want to adjust your sales strategy for more top-line revenue.” If you’re focused on-line, this can manifest in driving behavior across the company, as you improve gross margins and, ultimately, the value of the business.”
Leadership should take this objective to the entire company and ensure that everyone works towards improving efficiency rather than just bringing in more dollars. However, that doesn’t mean your sales teams shouldn’t bring in more revenue–quite the opposite. “You’ll need to figure out how to get more revenue per sales rep if you’re a low-margin business,” says Blond.
Economic climate of 2022, barriers to growth and recruitment
Since the business landscape is very different this year, what strategy should Sales prepare for 2023? Blond mentions that sales teams aren’t having trouble selling what he’s seen. The business’s ability to sell its product and acquire customers hasn’t suffered, nor has there been massive budget cuts from customers or customer bases. However, a significant change affects SaaS companies, particularly B2B: hiring has slowed, meaning that net dollar retention is gradually decreasing as organic use at the company has also decreased. Organizations are simply growing less quickly, so it’s reasonable for most companies to expect top-line growth to slow down in 2022.
To help bolster your sales strategy for the future, you need to go deeper than the buyer or decision-making stakeholder. To sell effectively you need to understand your customer’s overall company objectives: “I think today, more than ever, understand the business priorities of the companies you’re selling to, not just Only your buyers.” Blond continues, “The message that resonates in 2021 may not be the message that resonates in 2022.”
And while recruiting excellent sales leaders is important this year, be sure to focus on two essential qualities:
Profile: Don’t get bogged down in looking for candidates with domain experience as your top qualifying feature. Talented leaders are hard to find, so focus on performance and career trajectory rather than industry. Priorities: Understand what your sales leaders will focus on during their tenure. First, they need to be able to hire an excellent team. And ask them about their goals and plans during the hiring process.
Ultimately, it’s important to remember that efficiency and smart strategy win. The right investor will focus on significant margins, gross profit and high efficiencies, so make those your goals for the year.
Key Conclusion Focus on gross profit, not just ARR. Re-focus your sales strategy to align with the goals of the entire organization, not just the individual buyer. Recruit sales leaders who share your vision and can hire a great sales team.
Published 28 October 2022