OpenView Venture Partners recently released their 2019 Expansion SaaS Benchmarks report, which surveyed more than 500 SaaS operators on a variety of product-led growth (PLG) topics.
One of the biggest surprises in the report was that among product-led growth company leaders, one of the least pressing concerns is fundraising. “The name of the game is to make those dollars go further by out-executing your peers,” the report summary explains. In addition to product-led growth adoption, the report touched on several topics (like diversity and geography) that are recurring in venture capital, framed through a SaaS lens. Read on for a few key takeaways from the report:
Top-Performing Companies Have One Thing in Common…
… and it’s that they’ve executed a product-led growth strategy. Seven years ago, just one public company followed the PLG model. Today, there are 21 public PLG companies, and they’re growing faster than their sales or marketing-led counterparts.
Of course, PLG companies may experience slower growth at the beginning (compared to non-PLG companies) because of their focus on the product as opposed to sales and marketing. According to the OpenView SaaS Benchmarks report, “the magic of the PLG model starts to kick in around $10M in ARR.” By design, PLG companies aren’t boxed in by traditional lead generation, sales, and customer success processes, meaning they can maintain hyper-growth at scale. “They can grow more efficiently as well, boasting a lower-than-average CAC payback.”
According to a Forrester report, 75% of B2B buyers now say that buying from a website is more convenient than buying from a sales representative. Customer experience has always been a key to company success — but customer preferences have changed. Instead of working with marketing or sales, customers want to cut to the chase, getting to the solution they’re seeking without a salesperson to slow them down. Companies are letting their product drive user acquisition, expansion, conversion, and retention — and it’s working.
It’s Not All About the Coasts
West coast activity leads in terms of both the number of deals and the capital involved in those deals (4,881 deals; $68.7B invested). The east follows closely behind in terms of number of deals (4,515) but lags quite a bit further behind in terms of capital invested ($37.4B). The between the coasts (BTC) region is considerably lower by both counts, at 2,977 deals representing $13B of invested capital.
Companies in high-cost regions burn 133% more cash and don’t grow as quickly as their peers in low-cost regions. According to the OpenView report, founders in high-cost regions (including the Bay Area, Seattle, Boston, New York, Austin, D.C., and Denver-Boulder) are 50% more likely to be concerned about fundraising than founders between the coasts. They’re also 40% more likely to be worried about burning too much cash.
Other companies are saving money by ditching geographics completely. Instead of worrying about the price of office space or competing in crowded talent markets, they can focus on hiring the right people. Big names like Zapier, Buffer, Invision, and Automattic have gone fully remote and reaped the benefits of being able to hire talent-first, with less emphasis on location.
Tech Stereotypes Hurt Growth
It’s been proven time and time again: diverse teams perform better. Although the amount of capital that female-founded startups have received has been steadily increasing, as have the number of women working for VCs, there’s still a big disparity.
A McKinsey report found that public companies in the top quartile for ethnic and racial diversity in management were 35% more likely to have financial returns above their industry mean, and those in the top quartile for gender diversity were 15% more likely to have returns above the industry mean. In a word, diverse teams overperform.
In addition to racial diversity, gender diversity in VC leaves room for improvement. The Expansion SaaS Benchmarks report suggests that “companies with an equal or female-dominated leadership team grew at faster rates than their male-dominated peers.” Despite these proof points, in Q2 2019, only 3% of global dollar volume went to female-founded startups. Age is another key factor of startup success. While the Mark Zuckerbergs of the world get a lot of attention, founders over the age of 30 tend to operate companies that grow faster and burn less cash.
If you’re interested in diving deeper into OpenView’s SaaS insights, download their report here.
