Time is flying by in 2023. As we head into June it’s time to ramp up for the second half of the year. While some consider the summer months as a time to slow down, we think it’s a great time to put your growth strategies in place and scale up. This means putting your head down and assessing your capital efficiency, embracing AI and how it can help your business grow, and focusing on renewal and retention strategies. Let’s take a look at the Leaps Ahead for June!
We keep saying it because as it stands, capital efficiency is still a critical issue for startups. As growth remains vital for investors, they increasingly scrutinize burn and margins during such times. Startups with high burn rates relative to their development will find it challenging to fundraise.
What is The Burn Multiple?
It is a framework to assess capital efficiency. It evaluates burn as a multiple of revenue growth, measuring how much a startup burns to generate each incremental dollar of ARR. The higher the Burn Multiple, the less efficient the development is. Venture-stage startups should maintain a Burn Multiple of 2x or less.
The Burn Multiple is a catch-all metric, as any serious problem will eventually impact it. The ratio can help investors assess the quality of product-market fit, as startups with lower Burn Multiple ratios are generally viewed as better in terms of product-market fit. Startups with gross margin, sales efficiency, churn, growth, or founder leadership problems will eventually impact the Burn Multiple.
Although a “bad” multiple is acceptable in the earliest years, startups should aim to keep their burn low and cross the “penny gap” as quickly as possible. The Burn Multiple should improve as the startup matures and eventually approach 0 to become profitable. Founders should aim to maintain a lower Burn Multiple Ratio to ensure capital efficiency and maximize runway.
The Street Five
- Last month the Small Business Optimism Index fell to 89, its lowest point in over a decade. Translation: Continued labor gaps and inflation remain the top challenges for startups and small businesses.
- LinkedIn is shutting down InCareer, its regional Chinese job platform – the market leader Zhaopin has only 263M more users
- Meta is testing a new way for its creators to monetize Instagram posts, basing earnings on viewers vs. ads served. The idea is to help Reels compete with TikTok.
- Seven months after cutting ties with Ye, Adidas still has $1.3B worth of Yeezy-branded inventory in warehousing and the brand’s losses are piling up — sales are down $441M YTD.
- In creepy AI news, a couple used AI to transform Friends characters into toddlers. This opens the ethical AI debate up quite a bit, don’t you think?
The Rise of AI
We know, we know – AI is everywhere and it isn’t going away. So it’s time to embrace how it will positively affect your SaaS business. Yes, there are ethical components (see #5 in The Street Five above), but for the most part, it’s going to make our lives easier.
The biggest impacts:
- Content – it won’t get rid of writers, but it will help improve research and creative briefs allowing for creators to be, well, creative.
- Search – Google & Microsoft are already skilled at monetizing search, so get ready for AI with Bard and Bing that allows users to dive deeper into their search inquiries. Businesses are going to need to play along!
- Programming – AI can write, troubleshoot and even improve code for developers (cue every dystopian sci-fi film and hope for the best folks)
- Marketing – marketers are already early adopters of AI – impacting everything from graphic design, copywriting, and data analysis. You can almost hear every marketer chanting “Reclaiming my time, reclaiming my time.”
- Customer Service – AI can turn past data into better customer service using predictive analytics – taking every customer interaction and turning it into actionable insights. Plus, it can reduce overall costs for CS, too. The biggest expansion – Healthcare.
- Finance & Risk Assessment – AI finds a tricky balance between fraud detection and the creation of it. Mainly it can take the guesswork out of risk assessment, helping traders make more informed and ideally ethical decisions.
All in all, AI is here to stay and we need to adapt to it while developing some ethical standards to ensure that false data and information are not disseminated.
The Fall of (Temporarily) The Upsell
While the SaaS segment is still expected to grow by 11% this year (that is down from the 17% forecasted in December 2022) renewals and upsells are expected to be flat. Translation: the new Upsell is a Renewal.
With global tech layoffs, the SaaS sector faces a decline in seat licenses for suppliers.
While certain sectors like AI, project management, and cloud data might see average contract value (ACV) go up, SaaS companies across all verticals should anticipate more contraction at renewals, not expansion.
Some SaaS businesses are attempting to recoup lost revenue with price increases as high as 18% – that’s quite the increase since last year from the typical increase of 3%-5%. This strategy won’t work since many B2B customers simply won’t be able to manage the price increase.
This means that CEOs need to revisit their forecasts and begin to consider the fact that a flat renewal is a HUGE win in 2023’s economy.
SaaS startups’ time and resources will be better spent on customer retention strategies, product development, and inbound marketing until the market adjusts itself.
Leaps Ahead June: What You Need to Know to Scale
Last month we tackled price optimization as it pertains to scaling up. If you’ve already done a deep dive into your pricing strategy, it might be time to revisit your onboarding process.
We’ve discussed the importance of an onboarding strategy before and its impact on the bottom line. Companies that focus on improving their onboarding process often see a
In the competitive landscape of B2B SaaS onboarding is extremely important because customers expect to see the value of a product immediately and they will let you know when they don’t.
5 effective onboarding strategies that increase MRR:
What does all the above mean – read more about it here
Scale or Die the podcast from Dave Rogenmoser, Co-Founder of Proof discusses proven growth strategies with the experts from some of the fastest-growing startups giving you real-world experiences to help your business grow.
If you are plagued with questions such as “Why isn’t my business growing faster” or “How do I achieve 3x growth” then the 2017 book From Impossible to Inevitable by Aaron Ross and Jason Lemkin is still a must-read. The authors give insights into the growth strategies of now behemoth companies Hubspot, Marketo, etc., and provide a guide on how to create your own growth strategy.