It’s almost halfway through 2023 and it certainly hasn’t been dull. We’ve hit a 5 year low with VC funding, the series Succession is coming to an end and Elon Musk is acting more like a desperate Housewife than CEO. So, yeah, 2023 is keeping us on our toes!
As we hit the halfway point, there are still a lot of insights and growth opportunities out there. This month we are looking at the rise, fall, and bankruptcy (maybe) of Elon Musk as well as the importance of onboarding.
If traditional funding models aren’t working for your SaaS startup it might be time to consider revenue-based financing (RBF).
What is it? RBF is a form of alternative funding where a company receives capital from investors in exchange for a percentage of future revenue until a predetermined amount is repaid, typically with a cap on the total amount paid. In contrast to traditional equity financing, RBF investors do not take an ownership stake in the company.
RBF can be particularly attractive for B2B SaaS startups for several reasons and is gaining popularity for a reason. First, unlike traditional equity financing, RBF does not dilute the founder’s ownership stake in the company. If that’s not reason enough, RBF can also be an alternative to debt financing, aligns investors with company incentives, and provides flexibility for scaling.
The Street Five
- Elon Musk says he is developing TruthGPT, his “maximum truth-seeking” AI chatbot. The new company X.ai is based in Nevada. We can’t help but wonder if this is another Hyperloop terminal in the making – i.e. we’re still waiting, Elon.
- Innovamat, the Barcelona-based math e-learning startup, raised $21M. 15k+ teachers and 350k students use its tools across Spain, Italy, Mexico, Colombia, Chile, Ecuador, Brazil, and Peru, and it recently started K-5 trials in the US.
- $6B Canadian fintech firm Nuvei, which powers payment services for sports betting sites, can now call Ryan Reynolds an investor. Will Nuvei be Reynolds’s new Mint Mobile?
- Harry Potter is set to return with a new TV series on HBO Max. The show will feature a new cast playing the iconic characters.
- Want to make some cash? OpenAI is set to start paying users $20,000 to report bugs in its AI algorithms and software. It’s called the Bug Bounty Program.
The Rise (Rebirth) of SaaS
You might feel that SaaS never fell from grace, but by the end of 2022 VC firms raised their lowest amount of funds in a decade. With 2023 creeping toward its halfway mark, you could say SaaS is reinventing itself and it needs to.
The 2022 crash was accelerated by rising interest rates and higher costs of capital. Investor sentiment has shifted from “scalable” growth without caring too much about profitability to “sustainable” growth based on the true drivers of a subscription model.
The result is reimagining the sales funnel and shifting from a “budget” mindset to an impact mindset – i.e. how is your product going to impact your customer’s business? And since the average cost per lead from Google Ads went up by 19% in 2022, while conversion rates fell by 14% SaaS companies need to pivot in a clear manner:
- Quality is more important than quantity when it comes to leads – inbound is critical by less is more and can often shorten the sales cycle
- Customer Success not just customer service – your CS team is critical to retention and growth
- Your funnel might not be a funnel – most SaaS purchases take place outside of the marketing funnel and have different pricing strategies. For instance, do you charge a flat monthly fee, per transaction or by number of words, or via bundle with add-ons? The point is the relevant value unit affects how you sell and to whom and that directly impacts the customer journey.
SaaS businesses are experiencing a rebirth because of the lessons of the SaaS crash. By just starting with the above 3 principles SaaS startups can position themselves for sustainable growth.
The Fall of Elon Musk
Are we obsessed, in a word, yes. Twitter’s purchase has baffled us and as Elon said last month ad revenues had fallen by 50%. He also is now conducting business as X Corp per court filings. Technically Twitter, Inc. is no more.
This means two things lay ahead for Musk – Bankruptcy and who he is going to blame.
There are a few facts beyond the Twitter Blue rollout disaster, which resulted in an entire team being fired. There’s the fact that Musk hasn’t paid rent for Twitter offices in months. Musk is most likely looking at a deluge of employee lawsuits, from not paying severance to denying senior executives like Parag Agarwal the $20-$60 million owed to them from Twitter’s merger agreement. Did we mention the 1k+ arbitration cases filed by former employees? That is a lot of legal fees.
In addition to massive legal fees and possible payouts, Twitter is also facing some enormous privacy violation fines. Musk has been quite publicly ignoring the FTC consent decree. In return, the FTC, you guessed it, launched an investigation. He’s also running afoul of the EU’s Digital Services Act and faces hundreds of millions in fines.
Is bankruptcy on its way?
Bankruptcy for Musk is almost inevitable. However, it’s the optics of how he proclaims this that should send a slight shiver down your spine. The fines will come well before the lawsuits, which means he will have the perfect scapegoat – the regulators and bureaucrats. He will most likely claim “If it wasn’t for the fines, I would have been able to turn around Twitter and save jobs”.
Instead of being the man who burned Twitter to the ground, Musk will position himself as a martyr – the man who could have saved Twitter, if only those horrific government people had gotten out of his way. Laws be damned and with them the rise of his Everything App (a copy of China’s WeChat).
What You Need to Know to Scale – Price Optimization
If you haven’t already considered looking at price optimization, it might be time to consider a pricing strategy if you want to scale your SaaS business. Here are a few steps that you can take now to optimize your pricing strategy effectively:
- Conduct market research to gain insights into competitors, your target market, and industry trends. You’ll want to analyze prices of similar products, conduct customer surveys (hint: buyer persona time) and monitor trades or social feeds for trends.
- Experiment with different pricing models, such as tiered pricing based on usage or features, volume discounts, or value-based pricing models. Test and analyze which pricing strategy is most effective for your business.
- Never stop monitoring and adjusting pricing based on market and customer feedback. This means setting up periodic customer surveys to gather feedback. You’ll also want to analyze customer churn and retention rates to identify any price-related issues.
If you follow these pricing optimization steps and are willing to adjust your pricing strategy based on customer feedback you can optimize and maximize your revenue and ensure long-term growth.
If you are looking for quick insights or strategies you can put into action immediately give a listen to Dan Martell’s Growth Stacking podcast. The serial entrepreneur and angel investor covers everything from building and scaling to productivity and marketing efforts. The best part – episodes are usually no more than 15 minutes and are packed with tips and tools you can implement now to grow your business.
Smart Brevity: The Power of Saying More with Less by Jim VandeHei, Mike Allen, & Roy Schwartz. The Axios co-founders share their communication formula “Smart Brevity” which prioritizes news and information, explains its impact, and delivers it in a concise visual manner. This is an essential guide for effective and efficient communication.