Where should SaaS operators and founders focus in 2020? What steps should they take to make 2020 a year of growth? As we dive into the new year, it’s worth taking a step back to consider the current tech landscape and how it’s transformed over the last year.
It’s become a tradition for us to share our predictions about the tech trends that will shape the startup ecosystem in the new year. We asked High Alpha business designers, marketers, finance and venture experts, data scientists, and partners which trends they believe will shape startup strategy this year. This is what we’re on the lookout for in 2020:
The Future of Work Progresses
“While not a new topic, the recent acceleration in the future of work has been staggering. An amalgamation of forces including a rise in usage of artificial intelligence and enhanced quality of enterprise-level tools is leading to a systematic change in the workplace. Baby Boomers are beginning to retire and are being replaced with a younger population whose preferences are different than previous generations.
One output of these trends that I’m particularly excited for is the rise of remote and distributed workforces. I would guess at least half of the startups that pitch us at High Alpha are either fully distributed or partially distributed with some functions of the organization working remotely. Companies are coming to the realization that the best talent is not always local, and a remote workforce can lead to tremendous real estate cost savings. I predict that in 2020 we’ll see even more tools to address this trend. I suspect we’ll see an all-in-one out of the box remote work solution that will be developed to make it easy for companies to deal with the nuances of a distributed workforce — everything from procurement of office supplies, tools for employee connectivity such as virtual rooms with video, collaboration tools, payroll and tax solutions, etc. Companies are currently using several tools to accomplish these tasks, which are expensive and burdensome. Companies deserve a better way and I predict we’ll start to see some solutions addressing this need.
Other future of work tools that I predict will garner more attention are the unbundling of LinkedIn and software tools that move easily with an employee from job to job.”
-Seth Corder, Senior Associate
Feel free to drop Seth a line at email@example.com if you’re working on any of these tools. He would love to chat.
A Greater Focus on Data
“I think we’ll see a couple of trends in data science in tech for 2020. First, there will be more of a push towards getting machine learning models out of a data scientist’s notebook and into operations and in production. Last year, many companies hired data scientists (probably a bit before they were ready) and much of the work has been data munging or exploratory until companies could figure out what to do with them.
Things like Google’s AI Platform will go a long way towards developing machine-learning-as-a-service. I also think that, with more machine learning successfully integrated into tech products, there will be an increased demand for explainability. Many AI services can tend to be black boxes, while consumers are demanding ‘glass boxes’ — more transparency into why and how AI makes decisions.”
-Maria Patterson, Data Scientist
More Focused Investors and Operators
“With the dust still settling after several high-profile missteps, including the botched WeWork IPO, VC’s are going to encourage more focus from their portfolio companies. WeWork is a cautionary tale for all companies that are chasing hyper-growth through geographic expansion, product diffusion and the pursuit of almost limitless capital.
The relentless march of AI continues and shows no signs of abating in 2020. I believe the new year will see the rise of many AI-centric companies moving from the low hanging fruit of AI optimization to creative deliverables (think music, advertising creative, etc.) that have historically been the exclusive domain of humans.”
-Kristian Andersen, Partner
The Rise of Product-Led Growth
In many ways, 2019 was the year of product-led growth (PLG). We had a number of high-profile PLG IPOs in 2019, including Slack, Zoom, PagerDuty, Bill.com, Sprout Social, and Datadog. We also saw major PLG acquisitions in 2019, including Twilio purchasing SendGrid for $3B. 2020 we will see an acceleration of this trend, and I believe we’ll see the percentage of SaaS companies with a bottoms-up approach grow significantly in 2020, with over 50% of new SaaS startups incorporating some PLG levers into their go-to-market strategy.
It is incredibly difficult to juggle both inside sales and PLG, but I believe the best companies of this next generation of SaaS will be the companies that can effectively master that balance. As a16z General Partner Martin Casado notes, “Most startups are forced to juggle both motions [enterprise sales and bottoms-up growth]. They start with bottoms up and then overlay sales, effectively treating the bottoms up motion as lead gen for a direct motion. However, the relationship between these two curves is complicated and easy to get wrong.”
-Drew Beechler, Director of Marketing
Growing Emissions Consciousness in Tech
“Much has been written about the implications of computation-heavy AIs for traditionally high-margin SaaS businesses. While changes in pricing models can ameliorate margin pressure, little can change the fact that the digital economy will require increasingly higher power loads in the years to come.
2020 could mark a new level of energy consciousness on the part of enterprise tech buyers. While this will take years to have a concrete effect on the startup ecosystem, expect BigCos to begin analyzing their carbon footprint in ways they have not before and for words like ‘negative emissions’ to begin popping up in conversation.”
-John Garry, Associate
SaaS Business Model Assurance
“In 2020, there will be continued emphasis on sustainable business models like B2B SaaS and profitability, especially in the wake of some of the companies that went public in 2019 but have had their business models questioned.
Strong venture investment trend will continue in 2020 as lots of new funds that were raised in the last couple of years deploy all of that capital. Just in the first quarter of 2019, VC funds raised almost $10 billion, with other big names raising billions on top of that through the year, so there will be plenty of activity.”
-Blake Koriath, CFO
Early Stage Funding Round Compression; Greater Geographic Dispersion
“Venture round sizes at the earliest stages accelerated substantially in size between 2008 – 2018; a much faster rate than even later stage VC rounds. According to Crunchbase News, average Seed and Series A funding rounds increased at roughly 145% and 130%, respectively, in size over the decade while average Series B rounds increased by a lower (but not so modest) 83% with the largest accelerations in growth coming over the past few years. Interestingly as well, nearly half of the rounds went into companies from the Bay Area and New York.
I do not see this continuing in 2020. This shift will be driven by a focus on profitability over ‘growth at all costs.’ See, for example, the relative performance of Zoom and Slack post-IPO in 2019 as evidence. Though other factors are at play here, I do see the way public investors are viewing these companies affecting the way venture investors will look at deals at earlier stages.
This, alongside other factors such as the WeWork effect, a potentially rocky US economy and an increase in funds outside of the coasts will drive investors to look at deals away from traditional VC hotbeds, causing a net increase in the overall number of companies funded while decreasing the average round size. Being apart of the venture capital ecosystem in the Midwest, I am seeing many viable companies coming out of non-traditional markets firsthand and ultimately believe investors from all over will be looking to reach outside of typical geographies in 2020 because of this.”
-Nick Calla, Business Analyst
The Collision of Storytelling and Numbers
“The pendulum of marketing trends swings back and forth in perpetuity. History does indeed have a way of repeating itself. In recent years, we’ve witnessed an invigorating and passionate re-focus on brand and storytelling. This, in stark contrast to the dystopian, “growth-hacker” enabled world of the mid-2010s. Thankfully, many of us traded in our calculators for typewriters, and accepted that it’s emotion, more than anything, that drives decision-making.
However, as with any pendulum, it has the potential to swing too far. The eager focus on brand, emotion, and storytelling is a good thing. But now marketers are realizing they’ve under indexed on measurement and direct-response demand. Savvy marketers understand that the most successful organizations strike a balance between brand and numbers, storytelling and measurement, experience and response.
In 2020, we will see the scales start to balance. Marketers will blend storytelling and numbers in such a way that creates marketing that is both delightful and efficient, allowing us all to do more and do better.”
-Egan Montgomery, Marketing Manager
Remote Work Gets Even Bigger
“Tools like Slack, Asana, Zoom, and Google Drive have become the norm over the last several years. They are elements of a strong foundation for remote work, and as companies struggle to find the right talent, they could almost be considered recruitment tools. High costs of living in areas that are traditionally considered tech hubs coupled with technological advancements and a tight labor market only make remote opportunities more attractive.
In 2019, only 13% of tech companies were fully or mostly remote, but expect that number to grow in 2020. Companies like Buffer, InVision, and Zapier are proving that geography isn’t as important as it once was. Remote work gives employees a way to reach their lifestyle goals, while also opening new pools of talent that are broader than a local footprint.”
-Emily Brungard, Marketing Analyst