The Official SaaStr Podcast: SaaS | Founders | Investors
00:15:32 · Christine Edmonds
[00:15:32] S2: Great. So on that note, let's start to think about growth and efficiency in the context of today and what's happening both public and private markets. We're gonna spend some time going into a few case studies and anecdotes to share how our founders navigating this time and what are they doing. But before we do that, just wanted to level set in terms of what is the impact that we're actually seeing from a quantitative standpoint. So we'll start with with 2021 here just to provide some context. And in... Specifically, we're looking at net incremental bookings and attainment to that. So if you were growing from... If you were planning to grow from 10 to 20,000,000, of that 10 incremental million dollars, how much are you actually attaining in that year? 2021, I think we all know, was an exceptional year across the board, and the median attainment for the companies analyzed here was very close to a 100%. Q one in particular tends to be a fairly healthy quarter just given the proximity to annual planning and a little bit more visibility. But I think, you know, Doug and and any investor that's been in the business for a long time can attest to the fact that never before have we seen so many companies outperform their plan, which I think just speaks to the markets in general last year. So what does that look like this year? Of course, early in the year, there was some changes starting to happen both in public and private markets. But when we actually looked at the impact on attainment, it it was still a very strong quarter. 99% median attainment. And that coupled with really robust balance sheets, most companies had somewhere between two and a two and a half years of runway. So definitely in a solid place, I think the other way to look at this is the easiest reference point that most of us have in the recent past would be q one of twenty twenty. So what happened in COVID when there was similar volatility and a lot of quick changes to buyer behavior. In q one twenty twenty, media entertainment was closer to 80%. So I think really speaks to the health of many of these companies coming into the year despite some of those changes. Of course, impact has accelerated through q two and and now with early indications into q three. So in in q two, that median attainment number moved from 99% down to 87%.
00:17:38 · Christine Edmonds
The other way that we looked at this was for companies ending quarter in June versus July, what was median attainment and really did see each incremental month add to some of the pain and the misses that we saw here. So again, we'll talk through some of the lessons that were applied in in 2020 and how they're being used today to manage this. But I think one thing to point out here is just how quickly these things can change and the importance of really getting ahead of some of the decisions that need to be made through times like these.
00:18:09 · Doug Pepper
[00:18:09] S1: So that was the impact for the private companies. This is showing what we're seeing in terms of the impact in the current environment on the public companies, and it's actually quite a similar story. If look you at the column on the left, that's kind of Q1 earnings. What were companies communicating to The Street in terms of their results? And it was a great quarter. 95% of companies beat their management plan. 91% beat the consensus analyst estimates. And maybe most important, if you look at the box at the bottom, almost 80% of companies that announced in Q1 raised their guidance for revenue for the full year. It's a good sign, actually quite typical over the last few years. That's what analysts expect you to do. Q2, things changed. The actual results of Q2 weren't that much worse, a little lower. People were still largely beating their management and their consensus plans. The big change, and a pretty dramatic one, is that now only 50% of companies raise their guidance for the year, and that's communicating real conservatism, maybe pessimism, about the back half and their ability to continue growing at the original pace for the year. And even those that did raise, you can see the median beat raise was like 2% raise on their plan. So even the raises were a little bit anemic. And so that's indicating, just like the private companies, that the impact of the demand environment is showing up more in q two and the pipelines for q three and q four than we may have expected.
00:19:38 · Christine Edmonds
[00:19:38] S2: Great. So again, we'll get into some more tactical case studies in just a moment, but maybe one last quantitative view to share here. When we bumped up top line performance against bottom line performance, so we looked at how much are companies attaining of their plan from a revenue standpoint and how much are they spending relative to what they had budgeted, we found most companies fell in one of two buckets. So the first bucket is this top right quadrant in the light green, and these are companies that actually managed to both beat their top line plans while burning less than anticipated. One thing to note is on average, these companies were about three times the scale as their counterparts in other cohorts, which, again, I think speaks to more mature go to market motions, probably a more stable and robust customer base as well. The other bucket that many companies fell into were companies that were missing top line, but again, were able to very quickly pivot some of their operations to manage costs so they could extend their runway, and that's the top left quadrant you have here. Again, 2020 was the first time that many of these leaders had to even think about scenario planning, think about how to manage costs and make a lot of these really tough and emotional decisions. And I think in 2020, there were some companies that may have over rotated and hindered their growth by being too conservative when it came to cutting costs. And so what we're seeing so far is many of those lessons and learnings being put into action with a much more proactive and a much more measured response so that they can extend that runway and not have to make as drastic decisions later on.
00:21:14 · Doug Pepper
[00:21:14] S1: So this slide is, outdated as well, but, we'll still talk through the same topics, which is basically how are companies, reacting to this environment? And the key thing is that it's not a one size fits all because every company is being impacted differently by the environment, and therefore their reaction, their playbook needs to be unique to their own situation. And it is interesting, though, to note that everybody's feeling a bit of the same dynamic. And that dynamic, I think probably most people in the room here can feel a little bit, which is the last two years during the pandemic, there really was a pretty extraordinary tailwind for the adoption of technology. Companies saw more growth rate than they expected in the last two years. And what happened was that they applied those similar growth rates to their planning for this year and next year. And given the new environment, rising interest rates, lower valuations, less demand, normalization of demand, most of those companies aren't experiencing the growth rates that they expected. Varying degrees, right? Peloton would be the most obvious example of extraordinary demand and real normalization, maybe Zoom, but to some degree, every one of our companies that we work with is feeling that same dynamic. But the problem is they all built their spending plans to those more aggressive growth rates. And so what do they do? They've got to make adjustments. And so what we're seeing in our portfolio roughly is that about 20% of companies are doing RIFs. They're doing layoffs. Those are the companies that may be hired too aggressively or are seeing the biggest shock to demand and they're laying off good people. And that's really hard to do. I think that's probably the hardest thing for a CEO to do. The truth is months later, easy for us to say, but we often hear those CEOs saying we're better off for it. We are more efficient. We're actually getting more done by having made that tough decision. So 20% layoffs. Another 20% are really doing hiring freezes. So they're saying, We can't hire anymore. We're really slowing down. We're not letting people go, but we're doing a freeze. The majority, probably around 60%, again, rough numbers, are slowing hiring.
00:23:35 · Doug Pepper
They're still hiring, but much more selectively, much more slowly, and it'll probably end the year 10, 20% below in terms of headcount, what they otherwise would have. And so lots of new plans. And speaking of plans, it's really important to note that companies aren't just thinking about what's my plan for 2022 for this year. They're really needing to look out 2023 and more accurately predict demand and growth because it's those expectations for 2023 that drive the hiring plan for the back half of this year. And so every CEO, every CFO in our portfolio is sharpening their pencils, usually multiple times to kind of come up with new plans for this year and next year to drive growth, but also better efficient spending against that growth. The other thing I'll say, and again, this slide is a bit different than what we expected. The other thing I'll say is that companies rightly so are not just focused on spreadsheets of planning and spending. They're thinking about how do I execute more effectively in a more optimized way in this environment in terms of go to market? And the watchword there again around efficiency is focus. Companies are realizing that to do more, they actually need to do less. They're saying no more often. And so what are some examples of that? One might be they're not expanding internationally right now. If they were gonna go into five countries, maybe they go into one. If they thought they'd go into Europe and Asia, maybe they just go into Europe or maybe they just stick to The US. And so they're making tough decisions like that this year. Maybe they're not launching a new product that they were considering launching. When it comes to customers, maybe they don't launch a new vertical or a new segment and they continue to focus on a segment that they know is most willing to buy and seeing the greatest value proposition. Speaking of value prop, one of the biggest changes this year is that the line of nice to have versus must have has really gone up. And we're seeing companies that used to be must have with that line going up, now falling below into nice to have and it's harder to sell. And so companies are really trying to iron out this value based selling. How do they prove that their ROI is immediate and real? And that kind of new motion is more important now than ever.