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In Early Markets, Services Can Be a Competitive Advantage

In early markets, customers prefer entire solutions, not best in class point products. These solutions often include significant professional services and education. At the beginning of a new wave, most customers don’t understand the technology well. So, they seek experts to guide them. Companies that provide services and education often win the early market. They develop customer relationships, reinforce their expertise with a strong brand, define the purchasing criteria in their favor and ultimately grow faster.

October 18, 2018

Killed by the SaaS Love Triangle

Here’s a super interesting perspective from Sunir Shah, founder of the Cloud Software Association, a 2000 member organization dedicated to promoting partnerships and business development among SaaS companies that we like a lot. From the early SaaS days when few believed the SaaS subscription business model could support partners and indirect channels, the SaaS partnership model is evolving to expand distribution channels for SaaS companies beyond direct only channels. The implication is that the market could be even bigger than currently estimated with a greater expansion of the SaaS value chain.

October 16, 2018

Normalization of Valuations in the Public and Private Software Markets

I’ve written quite a bit about the public market software multiples. They’ve increased to near historic levels with forward revenue multiples approaching 9x. As the public markets have appreciated, something has happened that I didn’t expect. Some public companies are now fetching the mulitples of the most attractive private companies. I thought valuations between the markets would normalize because of a deflation in both public and private. Today, we have the beginnings of normalization by inflation.

October 10, 2018

SaaS Employee Productivity and Profit Drive Company Value

Employee productivity is an oft overlooked performance benchmark in fast growth tech companies. It is easy to calculate – divide revenue by number of employees. The calculation is the same regardless of the business model. The simplicity and consistency of how the metric is calculated is attractive and helpful in calculating the revenue potential of a company.

October 4, 2018

Three Observations About the Adobe/Marketo Acquisition

About two years ago, Marketo was publicly traded and valued at roughly $1.1B. Vista Equity paid $1.8B to take the company private, a 64% premium. At the time it was taken private by Vista, Marketo generated $241M in trailing revenue, growing at 35% annually. Its net income margin was -31%. Last week, Adobe announced they acquired Marketo for $4.75B. By the time of the sale, revenues had grown to $321M, growing at about 21% annually and profitable. Presumably, the company traded investments in growth for profitability to service the new debt.

October 2, 2018

SaaS Valuations Driven by Customer Base

Harvard Business Review published an article last year describing a new method they dubbed the Customer Based Corporate Valuation (CBCV) method focused on SaaS valuations and subscription companies.

September 27, 2018

Managing for Net Cash Flow vs Net Profit

Most businesses we have looked at were managed to maximize net profit, which is typically a good thing. But, when trying to attract an acquirer, they really should have been managed to maximize net cash flow. As at the end of the day, that's really what matters most to investors -- getting visibility into a near-term return of their invested capital, that hopefully can pay back in 12-18 months, not 4-5 years. Let me explain further.

September 25, 2018

SAAS GROWTH: GETTING FROM $20M TO $200M

For SaaS companies targeting fast growth to $100M and beyond, the company’s data management of its own business information can enable the growth path or bog it down.

September 20, 2018

What is SaaS? | Software-as-a-Service Myopia

It seems a little late in the game for me to be asking a question like “What is SaaS?” But, I’ve always harbored a few embarrassing little secrets on the subject and I think it’s time I came clean.

September 18, 2018