16 ms·

I started SaaS companies in 2013 and 2021 – how things have changed

682 points by zuhayeer 5y ago

TradingPlaces 5y ago
Nobody ever mentions profits. That hasn’t changed
- quickthrower2 5y ago
  The company is the product. The exit is the profit.
  - raviparikh 5y ago
    There are lots of public SaaS companies where the founders and even investors have continued to hold the vast majority of their shares long after the IPO. LPs have much higher tolerance these days for longer periods of illiquidity for the VCs they've invested into. People are going "long" more than ever.
- raviparikh 5y ago
  Plenty of people mention profits! Companies are rewarded for efficiency and profitability (more so than they were 10 years ago). E.g. see the massive valuations relative to ARR and growth that Zapier, Mailchimp, and Calendly all achieved over the last year. That said, if you can spend $1 to get $1 of ARR, or even $2 to get $1 of ARR, and your company is doing 100% net revenue retention or better, then you likely will make more money over the long term selling equity, going unprofitable to spend on growth, and getting paid back over then next 12-24 months due to the nature of compounding growth / exponentials.
  - rushabh 5y ago
    The big question is, if customers are going to stay over a long run. Also the assumption is that SAAS companies are to keep growing, while I see them all converging on the same market / same dollar spend (CRM, Support, Workflow). There will be consolidation at some point, and it won't be pretty.
    - raviparikh 5y ago
      > The big question is, if customers are going to stay over a long run. Plenty of public companies have had several years in a row of >100% net retention. When Dropbox filed its S-1 it had a graph showing that every quarterly cohort of customers who had signed up had continued to grow massively in value over time, and i imagine the majority of successful SaaS co's could show a similar chart.
  - asdff 5y ago
    >Companies are rewarded for efficiency and profitability Uber would have been wiped out by now if it came out 20 years ago. Burning cash on the promise of future profit that still hasn't come around is a recent concept. Even companies like Standard Oil and Walmart would make money from other streams when they are putting a price squeeze on some competitor. It blows my mind how much slack these companies are getting, probably just because companies operating this way are a dime a dozen these days so there is some safety in numbers if TINA of places to invest in tech.
    - barry-cotter 5y ago
      > Even companies like Standard Oil and Walmart would make money from other streams when they are putting a price squeeze on some competitor. If you have evidence Standard Oil ever sold anything at a loss please share. I don't know about Walmart but everything I've read suggests that Standard Oil won by getting better at manufacturing faster than its competitors and passing on those cost savings to consumers. Less efficient companies failed, as those selling worse products for high prices are wont to do.
      - rtpg 5y ago
        I mean it's _the_ Standard Oil. They used their massive market domination and control of every step of the process to just destroy competitors. I mean yeah they succeeded because it turns out that for a commodity just having one large network for everything is more efficient (and if you own everything, no middlemen!). But that's just an argument for nationalising commodities. All that Standard Oil profit year after year came from somebody.
        vasco 5y ago
        > But that's just an argument for nationalising commodities. Because the government is so great at efficiently doing things and selling things I can totally see how you'd make the leap to nationalize all commodities.
      - asdff 5y ago
        Standard oil raising prices on customers in a monopoly and cutting prices to the point of not making a profit in markets with competitors was one of the central arguments of the U.S. government prosecution in the antitrust case. In the case of walmart it has been engaged in a price war with Aldi in certain markets in the past decade.
  - TradingPlaces 5y ago
    The article mentioned profits not once. Everything you just said is the bullshit companies say to get investors to pretend profits don’t matter.
    - raviparikh 5y ago
      Yes, I could have mentioned profits in the article, but I wouldn’t say that profitability (or lack thereof) is one of the primary things that has changed between 2013 and 2021, and the article is about changes. To elaborate on my earlier comment: Salesforce has been unprofitable during almost its entire 20+ year existence and it’s worth over $200B. It uses debt and equity to finance growth much more quickly than using profits to do so and thus has grown extremely fast. Do you believe Salesforce is in imminent danger of failure?
- lr4444lr 5y ago
  Profits!? That's a dirty word for startups: means you aren't spending enough on R&D or growth </sarcasm>
LurkingPenguin 5y ago
> Seed rounds are bigger: At Heap, we raised $2M on a $12M cap after having a working product and some early traction. Today, it's not uncommon to see a pre-product company raise $5M on $25M or even higher. However I think there's still a ways to go–SaaS outcomes have grown in size more than 10x in the last 8 years, but seed valuations haven't climbed 10x. Why would the valuations climb 10x? This makes sense given the author's second observation: > There are way, way more SaaS companies and getting initial traction is harder The rounds are bigger because more money is needed to compete. But investors would lose their shirts if they multiplied the valuations by 10-fold.
- raviparikh 5y ago
  (I'm the author of the post - thanks to whoever posted this to HN!) This is a good point, if probability of success decreased 5x while average outcome increased 10x, then a 2x increase in seed valuations would be reasonable. I don't actually know the differences in probability of success / expected value for the typical seed stage startup, but anecdotally it doesn't feel less likely. It is definitely harder to get off the ground, but I see a lot fewer companies (anecdotally) stumbling in the "middle" part of the journey between $2M to $100M in ARR or so, whereas I feel like in the past a lot more hot SaaS companies used to stall out. So I think that washes out against the harder initial stages.
  - donnythecroc 5y ago
    You are no.1 on HN. Would be interested to see if this drives more customers for you than launch post!?
    - raviparikh 5y ago
      I hope so! We did a "Show HN" but it didn't really catch on–oh well. So far this has driven a small bump in signups in the last hour though.
- bpodgursky 5y ago
  The world is bigger; more people are part of the economy; the average person is wealthier; the average person is more productive; the average person or company spends more of their income on services than in 2013. In a winner-take-most market, it's easier for the acquirer to leverage a successful SaaS company 10x what they could in 2013. This doesn't surprise me.
1cvmask 5y ago
It seems from article that the big change is how VCs now accept product-led growth today versus the past.
czbond 5y ago
I'm a founder at heart; I've loved creating - and have a software background. I really resonate with the paraphrased vibe of way, way more SaaS companies. I've been looking outside of SaaS to potentially harder science companies rather than SaaS for future endeavors. It is too easy to: splash page, Wordpress, "rails new saas" for a product and then try to sell via SEO / outbound, etc that the field is quite saturated - and un-discovered niches are a lot harder than say 2013.
- shostack 5y ago
  Can you help me understand how a billing model gets saturated exactly? I never got this about SaaS. People talk like it is a vertical. How is saying "I want to start a SaaS" different from saying "I want to start a one time payment ecommerce business?" I say this btw from having worked at a SaaS business for years.
  - soared 5y ago
    In this context saas isn’t actually the opposite of say “one time purchase software” but more analogous to “low hanging fruit low cost easy problem to solve with software”. IMO saas is muddled so it’s meaning is not as much about the billing model anymore.
    - pushrax 5y ago
      Kind of? Companies like Salesforce, Shopify, etc. are still poster children of SaaS and their software is certainly not simple. There are definitely tons of the type of company you’re talking about though.
      - soared 5y ago
        Agreed, definitely a kind of muddy term right now.
    - czbond 5y ago
      Agree - I use it as shorthand for software solving problems.
PragmaticPulp 5y ago
> I had a conversation with a traditional retailer who was afraid of using Heap for analytics because we used AWS for hosting, which is owned by Amazon, their biggest competitor. It sounds foreign now, but when AWS was new this happened all of the time: Companies who saw Amazon as a competitor in some way usually had someone, somewhere in management who was afraid of using anything hosted on AWS. It sounds silly now, but I remember having a lot of these conversations back when AWS was new. Typically, the older the company's management, the more likely they were to be afraid of using AWS for anything related to their business.
- jcims 5y ago
  I wouldn’t call it silly at all, it just depends on how strategic your failure is to Amazon’s success. At some point you become materially exposed to their decision making.
- fidesomnes 5y ago
  giving your customers to a 3rd party is never a wise choice.
- lostcolony 5y ago
  Anyone in the traditional retail space is trying to avoid Amazon. A. Because anyone in the retail space likely DOES have older management, and B. They're not entirely wrong; even if Amazon doesn't pull the rug out from under them, they're still indirectly writing checks to help fund their largest competitor.
- qaq 5y ago
  Why is it silly? you van use other clouds and not prop up your direct competitor
  - raviparikh 5y ago
    Agree that you can choose not to use AWS yourself if you see them as a competitor. But to refuse to use any service that itself uses AWS would severely limit who you can work with.
vmception 5y ago
Regarding growth sizes, the market is at a place where improvements are immediately applicable. Ask crypto/defi service providers how fast their organizations grow, people “ape” $2 billion into a product as consumers within days or minutes! It just gets leaner and faster!
rubiquity 5y ago
SaaS is all grown up now!
forgingahead 5y ago
Seed rounds are bigger: At Heap, we raised $2M on a $12M cap after having a working product and some early traction. Today, it's not uncommon to see a pre-product company raise $5M on $25M or even higher I'm seeing this as well and it's eye-watering how inflated the valuations have become for pre-product companies with no clear distribution levers. The consequence of this easy money has been a lot of flash-in-the-pan startups that seem more stable than in eras past (they've got lots of employees, a nice office, and some good press coverage, they must be legit!), but actually can flame out pretty quickly after a couple of years of serving actual customers. As a result, there are more buyers who are just more wary of new SaaS companies to begin with - they have the legitimate concern of whether you'll be around in a few years to continue supporting their needs, or just disappear with a nice "It was a great journey" blog post. While capital has become commoditised, the market is still yearning for more good tools, and SaaS is still a good delivery method with acceptable pricing. Founders should certainly think very carefully about why they are raising before they do so, and maybe even skip it altogether.
kbumsik 5y ago
Off topic, but what is the theme in the main screenshot? I often saw that kinds of design (much rounded, much gradient shadow) in new SaaS.
- nrabulinski 5y ago
  It’s called neumorphism and it got super popular around 2020 but, from my personal observations, it went away as fast as it came. Don’t get me wrong, there’re still a lot of designs that follow this language but I haven’t seen it utilized much outside of mockups.
  - kbumsik 5y ago
    Thanks for the insight. I personally thought it is kinda Skeuomorphism + Flat and I was right!
xupybd 5y ago
Wow that Airplane app looks amazing. It's a little on the expensive side for the size of company I'm in but would be a no brainer for a bigger company.
- raviparikh 5y ago
  Thank you! If you send me a note at ravi@airplane.dev I'm happy to discuss a discount or I can bump up the free limit for you. We definitely don't want price to be a blocker to try it out.
  - thom 5y ago
    Currently getting this on iOS: Application error: a client-side exception has occurred (developer guidance).
    - erikbye 5y ago
      So more or less abandoned already?
      - raviparikh 5y ago
        Airplane.dev is not abandoned - I just messaged the above user to look into the issue. Funding-wise, we have 3+ years of runway so we’re certainly not going anywhere any time soon.
    - raviparikh 5y ago
      Where are you getting this error and what’s your account? Send me a note at ravi@airplane.dev and I can look into it.
  - scrollaway 5y ago
    Seconding the parent's post on it looking amazing. I'm going to try it out now for our B2C app, we were looking to build some internal apps and you might be saving us a lot of time there.
dools 5y ago
$5m pre product raises!? Where is that shit happening. I have a product with customers and can’t get 6 figures.
- belter 5y ago
  Its happening in the land of milking people who got lucky, have a lot of money, and think it was by their own merit. Or people who have money from somebody else who is burning in their pocket and so on. You think any of these billion dollar companies is profitable?
- zo1 5y ago
  The cynical person in me would say that may be because you haven't had the right "introductions" yet.
  - belter 5y ago
    Also there you have milking for introductions :-)
- danjac 5y ago
  tbf nor can Uber.
hinkley 5y ago
> Product MVPs have a much higher degree of polish and companies wait much longer to launch Translation: people are distancing themselves from the MVP concept.
- adelpozo 5y ago
  Interesting, why do you think would that be? Difficult to reuse code/infra from the mvp for the final product? Or is it that the mvp is hard to define and ends up being the product? None of the above? Interested to hear the thoughts behind the comment
  - withinboredom 5y ago
    MVPs used to look like the rest of the web. Now people expect a “design” in a product. The web looks much different than it did even 10 years ago, but browser defaults haven’t changed much in 30 years.
    - jacquesm 5y ago
      I don't think people expect it so much as that the designs that put form over function are pushed so hard that it seems as though people expect it because there aren't any function-over-form alternatives. Fair chance that if you bucked that trend that you'd end up with happy users and a higher retention for the longer term even if in the shorter term your conversion rates may be a bit lower. Similar to how the quality tools rarely look as snazzy as the wanna-be's, and are sold to a more professional audience at a higher price but lower volume. They also typically need much less advertising and marketing, they are sold by reputation and word of mouth.
      - ldjkfkdsjnv 5y ago
        Maybe, but I will admit that I trust a SaaS product more that has a better design with slick front end components. When I see a rudimentary but functional product, I shy away
mongodude 5y ago
Hope my founding team read this post! The bar to run a company is so high these days that you can't settle for anything mediocre! Also, if you have a product market fit in 2021, consider yourself lucky and focus on scaling it. It is getting very difficult to find a niche where you can scale as you would in 2013.
doppp 5y ago
Hmm, sounds like PLG is the hot new buzzword to describe the search for PMF while burning VC cash (wow I realized I used 3 acronyms in this sentence). This article is clearly for people building SaaS with venture capital. What about founders who don't go the VC route and choose to bootstrap instead? PLG seems to be out of the question unless one has a long runway. I reckon even for the bootstrappers, things have changed between 2013 and 2021.
- MrGilbert 5y ago
  For the tech-guys on HN like me: PLG = Product-Led-Growth PMF = Product-Market-Fit (VC = Venture Capital, but that should be already common knowledge) While I found it quite entertaining to imagine that the Polynesian Leaders Group is searching for the Pacific Music Festival while burning Venture Capital cash, I had to dig a bit for the acronym's explanation to come up.
  - deleted 5y ago
    [deleted]
- pramodbiligiri 5y ago
  Going by articles like this - https://www.productled.org/foundations/what-is-product-led-growth https://www.productled.org/foundations/what-is-product-led-g... - PLG indicates that purchase and adoption patterns in B2B SaaS have changed in a way such that salespeople are less important than they used to be. I'm not convinced. In B2B the user of a product in a company is rarely the purchaser of the same product. Has that relationship pattern changed significantly? That article at least doesn't talk about that.
  - ayewo 5y ago
    Agreed. The definition of PLG offered by the article suffers from magical thinking by anthropomorphizing products (unless we are now capable of making products that are sentient): “Product-led growth (PLG) is a business methodology in which user acquisition, expansion, conversion, and retention are all driven primarily by the product itself.”
blfr 5y ago
Is OP lurking? I know this is not TRL but I'd love to read a post for this exact timeframe for changes in technology: frontend, backend, infra.
- raviparikh 5y ago
  (I’m the author!) That’s a great idea, I might try to write something like that!
bjarneh 5y ago
> 3) Product MVPs have a much higher degree of polish and companies wait much longer to launch The Airbnb story where they launched with no payment solution to get a feel for the market/product always fascinated me. Maybe those days are over, where you can hack something together quickly, just to try it out?
- SCUSKU 5y ago
  Fundamentally, I still believe that if you can find the right problem to solve, even if it is a hack, people will use it no matter what. But seeing as more people have spent resources on looking for those opportunities, I would assume the fruit is much higher on the tree now, so to speak.
ThePhysicist 5y ago
My impression is that every SaaS that is successful on ProductHunt (PH) or HN gets copied dozens of times within a few months. That's especially true for technically simple products. A good example is maybe privacy-friendly web analytics: I think products like Fathom and Simple Analytics were the first to really go after this angle (undoubedtly there were others before them though), and in less than 6 months dozens (hundreds?) of copycats turned up with exactly the same USP and the exact same look & feel. And interestingly it isn't the first mover who seems to win that market but rather the company with the most agressive (and sometimes outright misleading) marketing. So being the first doesn't guarantee your success anymore, at least if you don't have enough time to grow undisturbed. Personally I'd avoid posting products on PH or HN for that reason and instead focus on growing organically in a niche market where you're not immediately discoverable by copycat founders. In general PH feels more and more phony to me and I think there's a lot of astroturfing going on.
- lovetocode 5y ago
  Agreed. I built an app that was in the Top 5 to Top 10 paid business apps on the Apple App Store for about a year. It causes so much drama with copy cat developers from the the south east pacific. I had people steal my name on the App Store and other victims of these copy cats start to turn on each other because they all think they are stealing ideas from one another. It is absolutely bonkers.
  - lupire 5y ago
    Why would the victims accuse the other victims, who are creating different products?
  - moneywoes 5y ago
    Could you please detail more? Heavily interested
    - lovetocode 5y ago
      When you reach the top of the App Store you develop a new set of problems. One of those problems is copy cat developers who basically just copy app ideas in the hopes of stealing some of your users. It started with my users reporting about bugs that didn’t make any sense with odd screenshots and non-existent features. I look into it and the fake version of my app with almost an identical app icon, app name and with my name as the author. Apple was basically useless when trying to help me resolve this issue as it was a violation of my trademark. The only thing Apple can do is put you in contact with the email addresses registered to the other developers account. One day, my wife received a threatening phone call. How they got my wife’s number I have no clue. The other person on the phone call said I stole their Minecraft skin app. I told them it wasn’t me and that the same people stole my app, my name and about 30 other apps including theirs. Well these other developers didn’t believe me so they copied my app and tried to steal my users. How do I know this? Well they setup a new LLC to steal my app idea. I wouldn’t have found this out if they had not forgotten to change the name of the business in the privacy policy they copied from their original business name they contacted me at. Their new business that stole my app had some guy who pretended to be a lawyer but when I googled his name and saw his LinkedIn account he also worked at the original company that contacted my wife. That’s the short of it. Basically I caught them red handed, presented all my evidence to Apple and they were handled and pulled down the copy of my app. All the while, the people that stole both of our apps operated unhindered. Apple did nothing with that particular case that I could remember. I wish I was making this all up but it pushed me into some deep suicidal ideation because at the time I was dealing with PTSD from military service and my father passing away. 2017 was rough.
amir-h 5y ago
Do you feel like VCs in general are now more open to funding close to 1 year of runway just to get an MVP out and test product market fit? or is it your background as a 2nd time founder that drives VCs to trust you with less PMF proof?
- raviparikh 5y ago
  People are now raising “pre-seed” rounds in the $250k to $1m range that are intended to do exactly what you describe. Generally from a group of angel investors though rather than an institutional VC.
matsemann 5y ago
Ironically, the increase of SaaS businesses have made me more vary of actually using them. It seems like so many wants to have a successful semi-solo SaaS that pay their bills. They aren't longer a way to sell a product and a startup idea, but an attempt at a lifestyle. Some people throw up smooth landing pages for barely working products, and quickly move on to the next idea if it doesn't stick. How can I invest time and money in using a product if I'm afraid the founder will bail after a few months?
- erikbye 5y ago
  > How can I invest time and money in using a product if I'm afraid the founder will bail after a few months? Would you rather a risk a much bigger one-off payment? For software? Sure, it works now, but it might never get updated, and eventually stop working altogether due to OS updates or other factors. The one-time payment model is a much greater risk to the consumer than monthly subscriptions.
  - Otek 5y ago
    > The one-time payment model is a much greater risk to the consumer than monthly subscriptions. Short term - yes. But long term? It seems there is no point in planning to use a software for years now. And I don't like to migrate my knowledge base to new tool, every 2 years. But is there a way other than mastering org-mode on weekends?
    - mickael-kerjean 5y ago
      > But is there a way other than mastering org-mode on weekends? 1. a quick tutorial will be plenty to get you started: https://mickael.kerjean.me/2017/03/20/emacs-tutorial-series-episode-2/ https://mickael.kerjean.me/2017/03/20/emacs-tutorial-series-... 2. if you don't want to bother learning emacs, no worries, use one of the web apps such as the one I built: https://demo.filestash.app/login?next=/view/org/emacs.org#type=git&repo=https://github.com/mickael-kerjean/nuage_org_demo https://demo.filestash.app/login?next=/view/org/emacs.org#ty...
debarshri 5y ago
Seed rounds are larger because baseline of seed has changed. Investors expect you to derisk lot of things when you try to raise capital during seed as compared to what it used to be back in the day simply because today barrier to create SaaS product is low. You do not need ton money to create something to validate whether your product works or not. Yes there are many SaaS products than before but there are many successful SaaS products than before too. You really have to standout and innovate now more than ever. That means, when you launch in Hacker News or Product Hunt, your product cannot be premature. My opinion is that if you are a serious company you should delay launching on HN or PH as much as you can. Once you are out, the destiny of the product is not your control. Imagine if the campaign fails, you are going to have hard time explaining to investors why the campaign failed. Instead, I think one can control all the odds around the product, de-risk by making sure there is a pre-existing group of dedicated users already and then launch.
- skrebbel 5y ago
  I strongly disagree. HN/PH launches are short lived media events with (usually) little lasting impact. If you blame a failed HN launch campaign for a failing company then I don't believe your company was ever going to make it in the first place. Your product should be easy to find as early as possible. You need the customer feedback to build the right thing and you need the compounding effects of an early internet presence (eg SEO). Don't hold back launching, launch while you're still at least somewhat embarrassed of your product.
  - debarshri 5y ago
    I understand what you are saying. But your argument is true when you are bootstrapping a product. When you have already raised a pre-seed, whichbis what many companies are doing today. What have told a narrative to the investors to raise capital. When campaigns fail, it implies your narrative was incorrect and your understanding about the domain and market was wrong. Which might not be on entrepreneurs favour. When you are building a high growth startup these little lasting events can make or break. I have seen it happening with many companies.
jdthedisciple 5y ago
My personal take as someone who is about to start their first SaaS: I'll simply be flattered if someone deems my product worth copying.
- pdimitar 5y ago
  You will not be so flattered when you realize they've captured 90% of your potential paying users.
  - jdthedisciple 5y ago
    I get that and I don't expect anything else but I don't really care, as I'm just a 1-man-army with 0 funds. 50 people - heck even 10 - who think my product is worth using and I'm happy. That's how low my expectations are, just to keep myself sane :) (I'm obv. not counting on this product making me a full-time income. I'm doing it for the experience and to get a feel for the industry.)
    - pdimitar 5y ago
      Yeah, I'd love it if 10-50 paying users a month paid [part of] my bills. :D We'll see though, and you are right that keeping low expectations is a key.
    - ElectricMind 5y ago
      Imagine how many founder thought like you - "I'm obv. not counting on this product making me a full-time income" Because right now "context" your thinking is different. As soon as people taste the blood(success), it ain't this thinking anywhere. We are emotional being at core. Jealousy, greed, ambition affects everyone including Himalayan Monk.
    - mst 5y ago
      Plus a lot of the time you're not competing against other companies with similar products so much as all of you collectively are competing against customers' in-house excel abominations.
- 5y ago
plaidfuji 5y ago
> In 2021, there's a dozen really cool SaaS launches on HN or Product Hunt every day. A compelling value prop and demo video is no longer a guarantee that people will just check out your product. Speaking from the buyer-side of SaaS, I expect this is because users are starting to realize that they don’t want three dozen browser tabs open at all times to accomplish basic business functions. IT departments are realizing that siloing business operations in that many different apps means you need a massive DE team to keep everything integrated and in sync, hoping that these SaaS companies stay in business and keep robust APIs. No wonder data engineer is quickly becoming the hottest new role.
deleted 5y ago
[deleted]
hsuduebc2 5y ago
How exactly do you reach large companies? Is it different than in 2013?
pictur 5y ago
can a saas product be extracted from every subject? this brings to mind gold seekers and those who sell them pickaxes and shovels
neil_s 5y ago
This is super insightful, thanks for writing it up! Any details on the smart GTM strategy between enterprises and SMBs? I feel like enterprise is a dangerous place to start because of the long test/iterate loop, but SMBs could make your initial acquisition cost numbers look terrible.
arj_vandelay 5y ago
Sales GTM's have changed drastically. The movement from Sales led to marketing led to now product and community led is something that can be added to this analysis. Software is no longer bought by CIO's. The user and the buyer are the same for most SaaS companies and ARR is generated through the product now

682 points by zuhayeer 5y ago

TradingPlaces 5y ago

Nobody ever mentions profits. That hasn’t changed

quickthrower2 5y ago
The company is the product. The exit is the profit.
- raviparikh 5y ago
  There are lots of public SaaS companies where the founders and even investors have continued to hold the vast majority of their shares long after the IPO. LPs have much higher tolerance these days for longer periods of illiquidity for the VCs they've invested into. People are going "long" more than ever.
raviparikh 5y ago
Plenty of people mention profits! Companies are rewarded for efficiency and profitability (more so than they were 10 years ago). E.g. see the massive valuations relative to ARR and growth that Zapier, Mailchimp, and Calendly all achieved over the last year. That said, if you can spend $1 to get $1 of ARR, or even $2 to get $1 of ARR, and your company is doing 100% net revenue retention or better, then you likely will make more money over the long term selling equity, going unprofitable to spend on growth, and getting paid back over then next 12-24 months due to the nature of compounding growth / exponentials.
- rushabh 5y ago
  The big question is, if customers are going to stay over a long run. Also the assumption is that SAAS companies are to keep growing, while I see them all converging on the same market / same dollar spend (CRM, Support, Workflow). There will be consolidation at some point, and it won't be pretty.
  - raviparikh 5y ago
    > The big question is, if customers are going to stay over a long run. Plenty of public companies have had several years in a row of >100% net retention. When Dropbox filed its S-1 it had a graph showing that every quarterly cohort of customers who had signed up had continued to grow massively in value over time, and i imagine the majority of successful SaaS co's could show a similar chart.
- asdff 5y ago
  >Companies are rewarded for efficiency and profitability Uber would have been wiped out by now if it came out 20 years ago. Burning cash on the promise of future profit that still hasn't come around is a recent concept. Even companies like Standard Oil and Walmart would make money from other streams when they are putting a price squeeze on some competitor. It blows my mind how much slack these companies are getting, probably just because companies operating this way are a dime a dozen these days so there is some safety in numbers if TINA of places to invest in tech.
  - barry-cotter 5y ago
    > Even companies like Standard Oil and Walmart would make money from other streams when they are putting a price squeeze on some competitor. If you have evidence Standard Oil ever sold anything at a loss please share. I don't know about Walmart but everything I've read suggests that Standard Oil won by getting better at manufacturing faster than its competitors and passing on those cost savings to consumers. Less efficient companies failed, as those selling worse products for high prices are wont to do.
    - rtpg 5y ago
      I mean it's _the_ Standard Oil. They used their massive market domination and control of every step of the process to just destroy competitors. I mean yeah they succeeded because it turns out that for a commodity just having one large network for everything is more efficient (and if you own everything, no middlemen!). But that's just an argument for nationalising commodities. All that Standard Oil profit year after year came from somebody.
      - vasco 5y ago
        > But that's just an argument for nationalising commodities. Because the government is so great at efficiently doing things and selling things I can totally see how you'd make the leap to nationalize all commodities.
    - asdff 5y ago
      Standard oil raising prices on customers in a monopoly and cutting prices to the point of not making a profit in markets with competitors was one of the central arguments of the U.S. government prosecution in the antitrust case. In the case of walmart it has been engaged in a price war with Aldi in certain markets in the past decade.
- TradingPlaces 5y ago
  The article mentioned profits not once. Everything you just said is the bullshit companies say to get investors to pretend profits don’t matter.
  - raviparikh 5y ago
    Yes, I could have mentioned profits in the article, but I wouldn’t say that profitability (or lack thereof) is one of the primary things that has changed between 2013 and 2021, and the article is about changes. To elaborate on my earlier comment: Salesforce has been unprofitable during almost its entire 20+ year existence and it’s worth over $200B. It uses debt and equity to finance growth much more quickly than using profits to do so and thus has grown extremely fast. Do you believe Salesforce is in imminent danger of failure?
lr4444lr 5y ago
Profits!? That's a dirty word for startups: means you aren't spending enough on R&D or growth </sarcasm>

LurkingPenguin 5y ago

> Seed rounds are bigger: At Heap, we raised $2M on a $12M cap after having a working product and some early traction. Today, it's not uncommon to see a pre-product company raise $5M on $25M or even higher. However I think there's still a ways to go–SaaS outcomes have grown in size more than 10x in the last 8 years, but seed valuations haven't climbed 10x. Why would the valuations climb 10x? This makes sense given the author's second observation: > There are way, way more SaaS companies and getting initial traction is harder The rounds are bigger because more money is needed to compete. But investors would lose their shirts if they multiplied the valuations by 10-fold.

raviparikh 5y ago
(I'm the author of the post - thanks to whoever posted this to HN!) This is a good point, if probability of success decreased 5x while average outcome increased 10x, then a 2x increase in seed valuations would be reasonable. I don't actually know the differences in probability of success / expected value for the typical seed stage startup, but anecdotally it doesn't feel less likely. It is definitely harder to get off the ground, but I see a lot fewer companies (anecdotally) stumbling in the "middle" part of the journey between $2M to $100M in ARR or so, whereas I feel like in the past a lot more hot SaaS companies used to stall out. So I think that washes out against the harder initial stages.
- donnythecroc 5y ago
  You are no.1 on HN. Would be interested to see if this drives more customers for you than launch post!?
  - raviparikh 5y ago
    I hope so! We did a "Show HN" but it didn't really catch on–oh well. So far this has driven a small bump in signups in the last hour though.
bpodgursky 5y ago
The world is bigger; more people are part of the economy; the average person is wealthier; the average person is more productive; the average person or company spends more of their income on services than in 2013. In a winner-take-most market, it's easier for the acquirer to leverage a successful SaaS company 10x what they could in 2013. This doesn't surprise me.

1cvmask 5y ago

It seems from article that the big change is how VCs now accept product-led growth today versus the past.

czbond 5y ago

I'm a founder at heart; I've loved creating - and have a software background. I really resonate with the paraphrased vibe of way, way more SaaS companies. I've been looking outside of SaaS to potentially harder science companies rather than SaaS for future endeavors. It is too easy to: splash page, Wordpress, "rails new saas" for a product and then try to sell via SEO / outbound, etc that the field is quite saturated - and un-discovered niches are a lot harder than say 2013.

shostack 5y ago
Can you help me understand how a billing model gets saturated exactly? I never got this about SaaS. People talk like it is a vertical. How is saying "I want to start a SaaS" different from saying "I want to start a one time payment ecommerce business?" I say this btw from having worked at a SaaS business for years.
- soared 5y ago
  In this context saas isn’t actually the opposite of say “one time purchase software” but more analogous to “low hanging fruit low cost easy problem to solve with software”. IMO saas is muddled so it’s meaning is not as much about the billing model anymore.
  - pushrax 5y ago
    Kind of? Companies like Salesforce, Shopify, etc. are still poster children of SaaS and their software is certainly not simple. There are definitely tons of the type of company you’re talking about though.
    - soared 5y ago
      Agreed, definitely a kind of muddy term right now.
  - czbond 5y ago
    Agree - I use it as shorthand for software solving problems.

PragmaticPulp 5y ago

> I had a conversation with a traditional retailer who was afraid of using Heap for analytics because we used AWS for hosting, which is owned by Amazon, their biggest competitor. It sounds foreign now, but when AWS was new this happened all of the time: Companies who saw Amazon as a competitor in some way usually had someone, somewhere in management who was afraid of using anything hosted on AWS. It sounds silly now, but I remember having a lot of these conversations back when AWS was new. Typically, the older the company's management, the more likely they were to be afraid of using AWS for anything related to their business.

jcims 5y ago
I wouldn’t call it silly at all, it just depends on how strategic your failure is to Amazon’s success. At some point you become materially exposed to their decision making.
fidesomnes 5y ago
giving your customers to a 3rd party is never a wise choice.
lostcolony 5y ago
Anyone in the traditional retail space is trying to avoid Amazon. A. Because anyone in the retail space likely DOES have older management, and B. They're not entirely wrong; even if Amazon doesn't pull the rug out from under them, they're still indirectly writing checks to help fund their largest competitor.
qaq 5y ago
Why is it silly? you van use other clouds and not prop up your direct competitor
- raviparikh 5y ago
  Agree that you can choose not to use AWS yourself if you see them as a competitor. But to refuse to use any service that itself uses AWS would severely limit who you can work with.

vmception 5y ago

Regarding growth sizes, the market is at a place where improvements are immediately applicable. Ask crypto/defi service providers how fast their organizations grow, people “ape” $2 billion into a product as consumers within days or minutes! It just gets leaner and faster!

rubiquity 5y ago

SaaS is all grown up now!

forgingahead 5y ago

Seed rounds are bigger: At Heap, we raised $2M on a $12M cap after having a working product and some early traction. Today, it's not uncommon to see a pre-product company raise $5M on $25M or even higher I'm seeing this as well and it's eye-watering how inflated the valuations have become for pre-product companies with no clear distribution levers. The consequence of this easy money has been a lot of flash-in-the-pan startups that seem more stable than in eras past (they've got lots of employees, a nice office, and some good press coverage, they must be legit!), but actually can flame out pretty quickly after a couple of years of serving actual customers. As a result, there are more buyers who are just more wary of new SaaS companies to begin with - they have the legitimate concern of whether you'll be around in a few years to continue supporting their needs, or just disappear with a nice "It was a great journey" blog post. While capital has become commoditised, the market is still yearning for more good tools, and SaaS is still a good delivery method with acceptable pricing. Founders should certainly think very carefully about why they are raising before they do so, and maybe even skip it altogether.

kbumsik 5y ago

Off topic, but what is the theme in the main screenshot? I often saw that kinds of design (much rounded, much gradient shadow) in new SaaS.

nrabulinski 5y ago
It’s called neumorphism and it got super popular around 2020 but, from my personal observations, it went away as fast as it came. Don’t get me wrong, there’re still a lot of designs that follow this language but I haven’t seen it utilized much outside of mockups.
- kbumsik 5y ago
  Thanks for the insight. I personally thought it is kinda Skeuomorphism + Flat and I was right!

xupybd 5y ago

Wow that Airplane app looks amazing. It's a little on the expensive side for the size of company I'm in but would be a no brainer for a bigger company.

raviparikh 5y ago
Thank you! If you send me a note at ravi@airplane.dev I'm happy to discuss a discount or I can bump up the free limit for you. We definitely don't want price to be a blocker to try it out.
- thom 5y ago
  Currently getting this on iOS: Application error: a client-side exception has occurred (developer guidance).
  - erikbye 5y ago
    So more or less abandoned already?
    - raviparikh 5y ago
      Airplane.dev is not abandoned - I just messaged the above user to look into the issue. Funding-wise, we have 3+ years of runway so we’re certainly not going anywhere any time soon.
  - raviparikh 5y ago
    Where are you getting this error and what’s your account? Send me a note at ravi@airplane.dev and I can look into it.
- scrollaway 5y ago
  Seconding the parent's post on it looking amazing. I'm going to try it out now for our B2C app, we were looking to build some internal apps and you might be saving us a lot of time there.

dools 5y ago

$5m pre product raises!? Where is that shit happening. I have a product with customers and can’t get 6 figures.

belter 5y ago
Its happening in the land of milking people who got lucky, have a lot of money, and think it was by their own merit. Or people who have money from somebody else who is burning in their pocket and so on. You think any of these billion dollar companies is profitable?
zo1 5y ago
The cynical person in me would say that may be because you haven't had the right "introductions" yet.
- belter 5y ago
  Also there you have milking for introductions :-)
danjac 5y ago
tbf nor can Uber.

hinkley 5y ago

> Product MVPs have a much higher degree of polish and companies wait much longer to launch Translation: people are distancing themselves from the MVP concept.

adelpozo 5y ago
Interesting, why do you think would that be? Difficult to reuse code/infra from the mvp for the final product? Or is it that the mvp is hard to define and ends up being the product? None of the above? Interested to hear the thoughts behind the comment
- withinboredom 5y ago
  MVPs used to look like the rest of the web. Now people expect a “design” in a product. The web looks much different than it did even 10 years ago, but browser defaults haven’t changed much in 30 years.
  - jacquesm 5y ago
    I don't think people expect it so much as that the designs that put form over function are pushed so hard that it seems as though people expect it because there aren't any function-over-form alternatives. Fair chance that if you bucked that trend that you'd end up with happy users and a higher retention for the longer term even if in the shorter term your conversion rates may be a bit lower. Similar to how the quality tools rarely look as snazzy as the wanna-be's, and are sold to a more professional audience at a higher price but lower volume. They also typically need much less advertising and marketing, they are sold by reputation and word of mouth.
    - ldjkfkdsjnv 5y ago
      Maybe, but I will admit that I trust a SaaS product more that has a better design with slick front end components. When I see a rudimentary but functional product, I shy away

mongodude 5y ago

Hope my founding team read this post! The bar to run a company is so high these days that you can't settle for anything mediocre! Also, if you have a product market fit in 2021, consider yourself lucky and focus on scaling it. It is getting very difficult to find a niche where you can scale as you would in 2013.

doppp 5y ago

Hmm, sounds like PLG is the hot new buzzword to describe the search for PMF while burning VC cash (wow I realized I used 3 acronyms in this sentence). This article is clearly for people building SaaS with venture capital. What about founders who don't go the VC route and choose to bootstrap instead? PLG seems to be out of the question unless one has a long runway. I reckon even for the bootstrappers, things have changed between 2013 and 2021.

MrGilbert 5y ago
For the tech-guys on HN like me: PLG = Product-Led-Growth PMF = Product-Market-Fit (VC = Venture Capital, but that should be already common knowledge) While I found it quite entertaining to imagine that the Polynesian Leaders Group is searching for the Pacific Music Festival while burning Venture Capital cash, I had to dig a bit for the acronym's explanation to come up.
- deleted 5y ago
  [deleted]
pramodbiligiri 5y ago
Going by articles like this - https://www.productled.org/foundations/what-is-product-led-growth https://www.productled.org/foundations/what-is-product-led-g... - PLG indicates that purchase and adoption patterns in B2B SaaS have changed in a way such that salespeople are less important than they used to be. I'm not convinced. In B2B the user of a product in a company is rarely the purchaser of the same product. Has that relationship pattern changed significantly? That article at least doesn't talk about that.
- ayewo 5y ago
  Agreed. The definition of PLG offered by the article suffers from magical thinking by anthropomorphizing products (unless we are now capable of making products that are sentient): “Product-led growth (PLG) is a business methodology in which user acquisition, expansion, conversion, and retention are all driven primarily by the product itself.”

blfr 5y ago

Is OP lurking? I know this is not TRL but I'd love to read a post for this exact timeframe for changes in technology: frontend, backend, infra.

raviparikh 5y ago
(I’m the author!) That’s a great idea, I might try to write something like that!

bjarneh 5y ago

> 3) Product MVPs have a much higher degree of polish and companies wait much longer to launch The Airbnb story where they launched with no payment solution to get a feel for the market/product always fascinated me. Maybe those days are over, where you can hack something together quickly, just to try it out?

SCUSKU 5y ago
Fundamentally, I still believe that if you can find the right problem to solve, even if it is a hack, people will use it no matter what. But seeing as more people have spent resources on looking for those opportunities, I would assume the fruit is much higher on the tree now, so to speak.

ThePhysicist 5y ago

My impression is that every SaaS that is successful on ProductHunt (PH) or HN gets copied dozens of times within a few months. That's especially true for technically simple products. A good example is maybe privacy-friendly web analytics: I think products like Fathom and Simple Analytics were the first to really go after this angle (undoubedtly there were others before them though), and in less than 6 months dozens (hundreds?) of copycats turned up with exactly the same USP and the exact same look & feel. And interestingly it isn't the first mover who seems to win that market but rather the company with the most agressive (and sometimes outright misleading) marketing. So being the first doesn't guarantee your success anymore, at least if you don't have enough time to grow undisturbed. Personally I'd avoid posting products on PH or HN for that reason and instead focus on growing organically in a niche market where you're not immediately discoverable by copycat founders. In general PH feels more and more phony to me and I think there's a lot of astroturfing going on.

lovetocode 5y ago
Agreed. I built an app that was in the Top 5 to Top 10 paid business apps on the Apple App Store for about a year. It causes so much drama with copy cat developers from the the south east pacific. I had people steal my name on the App Store and other victims of these copy cats start to turn on each other because they all think they are stealing ideas from one another. It is absolutely bonkers.
- lupire 5y ago
  Why would the victims accuse the other victims, who are creating different products?
- moneywoes 5y ago
  Could you please detail more? Heavily interested
  - lovetocode 5y ago
    When you reach the top of the App Store you develop a new set of problems. One of those problems is copy cat developers who basically just copy app ideas in the hopes of stealing some of your users. It started with my users reporting about bugs that didn’t make any sense with odd screenshots and non-existent features. I look into it and the fake version of my app with almost an identical app icon, app name and with my name as the author. Apple was basically useless when trying to help me resolve this issue as it was a violation of my trademark. The only thing Apple can do is put you in contact with the email addresses registered to the other developers account. One day, my wife received a threatening phone call. How they got my wife’s number I have no clue. The other person on the phone call said I stole their Minecraft skin app. I told them it wasn’t me and that the same people stole my app, my name and about 30 other apps including theirs. Well these other developers didn’t believe me so they copied my app and tried to steal my users. How do I know this? Well they setup a new LLC to steal my app idea. I wouldn’t have found this out if they had not forgotten to change the name of the business in the privacy policy they copied from their original business name they contacted me at. Their new business that stole my app had some guy who pretended to be a lawyer but when I googled his name and saw his LinkedIn account he also worked at the original company that contacted my wife. That’s the short of it. Basically I caught them red handed, presented all my evidence to Apple and they were handled and pulled down the copy of my app. All the while, the people that stole both of our apps operated unhindered. Apple did nothing with that particular case that I could remember. I wish I was making this all up but it pushed me into some deep suicidal ideation because at the time I was dealing with PTSD from military service and my father passing away. 2017 was rough.

amir-h 5y ago

Do you feel like VCs in general are now more open to funding close to 1 year of runway just to get an MVP out and test product market fit? or is it your background as a 2nd time founder that drives VCs to trust you with less PMF proof?

raviparikh 5y ago
People are now raising “pre-seed” rounds in the $250k to $1m range that are intended to do exactly what you describe. Generally from a group of angel investors though rather than an institutional VC.

matsemann 5y ago

Ironically, the increase of SaaS businesses have made me more vary of actually using them. It seems like so many wants to have a successful semi-solo SaaS that pay their bills. They aren't longer a way to sell a product and a startup idea, but an attempt at a lifestyle. Some people throw up smooth landing pages for barely working products, and quickly move on to the next idea if it doesn't stick. How can I invest time and money in using a product if I'm afraid the founder will bail after a few months?

erikbye 5y ago
> How can I invest time and money in using a product if I'm afraid the founder will bail after a few months? Would you rather a risk a much bigger one-off payment? For software? Sure, it works now, but it might never get updated, and eventually stop working altogether due to OS updates or other factors. The one-time payment model is a much greater risk to the consumer than monthly subscriptions.
- Otek 5y ago
  > The one-time payment model is a much greater risk to the consumer than monthly subscriptions. Short term - yes. But long term? It seems there is no point in planning to use a software for years now. And I don't like to migrate my knowledge base to new tool, every 2 years. But is there a way other than mastering org-mode on weekends?
  - mickael-kerjean 5y ago
    > But is there a way other than mastering org-mode on weekends? 1. a quick tutorial will be plenty to get you started: https://mickael.kerjean.me/2017/03/20/emacs-tutorial-series-episode-2/ https://mickael.kerjean.me/2017/03/20/emacs-tutorial-series-... 2. if you don't want to bother learning emacs, no worries, use one of the web apps such as the one I built: https://demo.filestash.app/login?next=/view/org/emacs.org#type=git&repo=https://github.com/mickael-kerjean/nuage_org_demo https://demo.filestash.app/login?next=/view/org/emacs.org#ty...

debarshri 5y ago

Seed rounds are larger because baseline of seed has changed. Investors expect you to derisk lot of things when you try to raise capital during seed as compared to what it used to be back in the day simply because today barrier to create SaaS product is low. You do not need ton money to create something to validate whether your product works or not. Yes there are many SaaS products than before but there are many successful SaaS products than before too. You really have to standout and innovate now more than ever. That means, when you launch in Hacker News or Product Hunt, your product cannot be premature. My opinion is that if you are a serious company you should delay launching on HN or PH as much as you can. Once you are out, the destiny of the product is not your control. Imagine if the campaign fails, you are going to have hard time explaining to investors why the campaign failed. Instead, I think one can control all the odds around the product, de-risk by making sure there is a pre-existing group of dedicated users already and then launch.

skrebbel 5y ago
I strongly disagree. HN/PH launches are short lived media events with (usually) little lasting impact. If you blame a failed HN launch campaign for a failing company then I don't believe your company was ever going to make it in the first place. Your product should be easy to find as early as possible. You need the customer feedback to build the right thing and you need the compounding effects of an early internet presence (eg SEO). Don't hold back launching, launch while you're still at least somewhat embarrassed of your product.
- debarshri 5y ago
  I understand what you are saying. But your argument is true when you are bootstrapping a product. When you have already raised a pre-seed, whichbis what many companies are doing today. What have told a narrative to the investors to raise capital. When campaigns fail, it implies your narrative was incorrect and your understanding about the domain and market was wrong. Which might not be on entrepreneurs favour. When you are building a high growth startup these little lasting events can make or break. I have seen it happening with many companies.

jdthedisciple 5y ago

My personal take as someone who is about to start their first SaaS: I'll simply be flattered if someone deems my product worth copying.

pdimitar 5y ago
You will not be so flattered when you realize they've captured 90% of your potential paying users.
- jdthedisciple 5y ago
  I get that and I don't expect anything else but I don't really care, as I'm just a 1-man-army with 0 funds. 50 people - heck even 10 - who think my product is worth using and I'm happy. That's how low my expectations are, just to keep myself sane :) (I'm obv. not counting on this product making me a full-time income. I'm doing it for the experience and to get a feel for the industry.)
  - pdimitar 5y ago
    Yeah, I'd love it if 10-50 paying users a month paid [part of] my bills. :D We'll see though, and you are right that keeping low expectations is a key.
  - ElectricMind 5y ago
    Imagine how many founder thought like you - "I'm obv. not counting on this product making me a full-time income" Because right now "context" your thinking is different. As soon as people taste the blood(success), it ain't this thinking anywhere. We are emotional being at core. Jealousy, greed, ambition affects everyone including Himalayan Monk.
  - mst 5y ago
    Plus a lot of the time you're not competing against other companies with similar products so much as all of you collectively are competing against customers' in-house excel abominations.
5y ago

plaidfuji 5y ago

> In 2021, there's a dozen really cool SaaS launches on HN or Product Hunt every day. A compelling value prop and demo video is no longer a guarantee that people will just check out your product. Speaking from the buyer-side of SaaS, I expect this is because users are starting to realize that they don’t want three dozen browser tabs open at all times to accomplish basic business functions. IT departments are realizing that siloing business operations in that many different apps means you need a massive DE team to keep everything integrated and in sync, hoping that these SaaS companies stay in business and keep robust APIs. No wonder data engineer is quickly becoming the hottest new role.

deleted 5y ago

[deleted]

hsuduebc2 5y ago

How exactly do you reach large companies? Is it different than in 2013?

pictur 5y ago

can a saas product be extracted from every subject? this brings to mind gold seekers and those who sell them pickaxes and shovels

neil_s 5y ago

This is super insightful, thanks for writing it up! Any details on the smart GTM strategy between enterprises and SMBs? I feel like enterprise is a dangerous place to start because of the long test/iterate loop, but SMBs could make your initial acquisition cost numbers look terrible.

arj_vandelay 5y ago

Sales GTM's have changed drastically. The movement from Sales led to marketing led to now product and community led is something that can be added to this analysis. Software is no longer bought by CIO's. The user and the buyer are the same for most SaaS companies and ARR is generated through the product now