David Sacks - Masters of SaaS

Videos · Business

This summary was largely done for my own note-taking, sharing it just in case it adds more value to other people.

I have no affiliation whatsoever with anyone in this note. This is a summary largely taken for my own reference, and may contain errors :)

Highlights

Happy talk vs real-talk

Happy talk is the #1 killer of startups — refusal to deal with the companies real problems because the founders are engaged in talking about the problem instead of solving them

As a founder, you always want to be talking about, working on, and paranoid about the companies real problems

You need to almost have a dual mindset: be optimistic enough about the long-term mission/future of the company, and paranoid about the way things can go wrong in the immediate/medium term future. Systematically eliminate the greatest, existential risks

Sacks wrote a blog post about this:

Happy Talk versus Hard Talk

Cyclic nature of startups: how to stay on the frontlines without being a fad chaser

You want to be working on ideas that’ll be big in 1-2 years. The idea can’t be too obvious (too much competition) or too ahead of its time (doesn’t work with a venture backed model — where you must show traction within a year or two)

You want to show traction with early adopters in the first 1-2 years

Lessons from Yammer

They thought that social was a big thing, and social in the enterprise was going to be huge

At the time, they pioneered the bottoms-up sales model to the enterprise. Instead of going through IT spend and sales, went through bottoms-up adoption within customers

If the software is distributed through the cloud, you don’t have to go through IT. Just get employees to try it and share it with their co-workers. Go to IT afterwards to ask them if they wanted to get control of this thing

At the time, IT people used to call it “blackmail”. But this is now standard practice

When Yammer first started growing viral, a company just blocked Yammer behind a firewall. But they got their first $25,000 deal soon after that. Then started getting 6 and 7 figure deals

In present day, any employee that can go to your website and sign up for the product should be the dominant strategy for SaaS companies. Not top-down sales

In 2009, this was a pioneering strategy for Yammer. But became a common strategy in another 1-2 years

What’s going on in the consumer side that can make its way into the enterprise in the next 2 years

Obvious one is clubhouse. Adapting social audio to the enterprise

But remember that consumer can’t be ported over 1:1 to enterprise. You need to adapt it to enterprise

Cadence for SaaS companies

Once you cross Dunbar’s number, the founders cannot run around and manage everything at a task level. Micromanaging totally breaks down once you get to 40+ people

Have to solve the problem of keeping every connected and motivated when you get bigger. If not, the company degenerates

This is a finance/sales, and product/marketing system to keep everyone on the same page.

💡 Organise the company around launch events. It’s motivating for the engineers and product people to know that they have to hit a date. It’s a great way to synchronise the activities of different departments

Blog post here:

The Cadence: How to Operate a SaaS Startup

Here’s how to do it:

First decide your fiscal year. It’s going to be December 31st or January 31st. That will decide your fiscal quarters.
Second, snap your sales plans to the fiscal quarters. This will determine when quarterly closings, SKOs, and Board meetings occur.
Third, schedule a marketing event in the middle (second month) of each fiscal quarter.
Fourth, plan your product cycle to hit those event deadlines.

This simple system will create a superstructure for everything happening inside of the company. Each month of the quarter takes on its own character and theme

Winning a category: super important in a crowded SaaS landscape

20 years ago, no one ever got fired for hiring IBM. This has changed to “no one every got fired for buying the category leader”. Because the category leader is the safe choice — you don’t have to vet the vendor as carefully

You want to create the perception of category leadership as early as possible. It’s not just the customers. It’s the VCs and the employees

How do you that? Define the category: people will naturally look to you as the leader of it

💡 Either redefine a category, or define niches/subcategories. Put forward a definition of the category that you can own

SaaS is so much bigger than what anybody thought 10 years ago. There are plenty of categories to be defined

What can companies at the seed or Series A stage do to convince people that they are the category leader?

Put forward a vision of something that’s not being addressed today that you’re going to address, and that’s in the process of becoming big
At seed/Series A, you know that the category is not big today but will be bigger in the future
You don’t want to be the fifth/sixth company in the space. Be differentiated

Remote sales: effective? here to stay?

Yes, but it’s important for company culture to have in-person meetings

To recruit the best talent, need to embrace remote. But need to figure out how to create a sense of culture in a remote world

Burn Multiple

What is it costing me to add $1 ARR?

It’s (total amount of money burned in that period)/(net new ARR in a period)

Anything below 2 for a fast growing SaaS company is growing okay. Less than 1.5 is great. Less than 1 is incredible

But more than 2.5 is bad. That means you may be buying growth that’s not economical

Post at

The Burn Multiple

Price differentiation if you have global customers?

Should you have different pricing for rich countries and poor countries?

This is tricky. If you have multiple pricing pages, or show a different pages to different audiences, it’ll probably create a backlash. If you do it, be prepared to manage the fallout

Bigger pricing issue: Where to draw the lines between different plans. What’s the line between your paid, paid basic, and paid premium plan?

Use paid trials instead of freemiums. This way, you get people’s credit card details up front. Relevant blog post:

Freemium vs Free Trial: Which is Better for SaaS Startups?

Freemium strategies are great if you can get them right (that’s what Yammer did). But they are much harder to get right

Use the “Call Us” pricing category on the pricing page wisely. It’s a great way to price discriminate

Vertical-specific SaaS (industry-specific SaaS)

Is a big opportunity. SaaS is a huge market and rewards niches

Big markets start with horizontal solutions, and then go to vertical solutions

How do you know if it’s a 100M+ idea at an early stage?

First thing: MoM Growth rate (normalised as CMGR)
Below million dollars ARR, like to see 20% MoM growth rate
Between $1-$5M, like to see 15%
Beyond $5M, anything above 10% is great

When you go below doubling YoY, you may be hitting at a saturation point

If you’re flattening out at single digit millions, it’s not the best idea

Subject to ensuring that burn multiple is still okay

Looking at churn and CAC are also important here

SaaS is very quantifiable, and you can easily compare yourself to benchmarks

Unit economics in an early stage business

How do you overcome the problem of variability in data (data credibility) at the very early stage when your data is so small? How do you know someone is not gaming the system?

Look at simpler metrics. Instead of CAC:LTV Ratio, just look at the burn ratio. It’s very hard to game

David isn’t a big fan of the LTV:CAC ratio. Can get it’s logic (it should be at least 3x), but a good SaaS business has more expansion than churn. Prefers to look at Net Dollar-Based Retention for a cohort

When to sell

If you’re going to be a monopoly, never sell. If you’re going to be a commodity, sell to a tech giant

But the hard part is knowing if you’re going to be a monopoly or a commodity