Wednesday, May 17, 2017

The growing dissonance between two business models (SaaS and VC)

In our weekly investment team call earlier this week we decided to pass on two early-stage SaaS startups that were both on track to grow from zero to $100k in MRR in their first 12 months of going live. Both companies clearly had impressive traction, but in both cases we weren’t convinced of the market size and the opportunity to build a large, sustainable company. (We of course might be wrong, and maybe we’ll have to add both companies to our growing anti-portfolio list in a couple of years. I’ll keep you posted.)

Had I seen a SaaS startup with this growth curve in my first 2-3 years of SaaS investing (in 2008-2010) I probably would have asked “where do I have to sign?”. And chances are that it would have been a good investment. The reason is that at that time, growing from zero to $100k in MRR within 12 months was extremely rare and an indication of not only a great product and excellent execution but also a great market opportunity.

One could argue that I saw much fewer deals in general at that time and that, being an angel investor, I had lower ambitions than a VC. That’s true. But it’s only part of the picture. The other part is that even as recently as 6-24 months ago, we’d consider a SaaS startup with this growth pattern exceptional. Passing on fast-growing SaaS companies that are clearly successful and on to something is a pretty new and somewhat scary experience for us.

The driver behind this development is what my colleague Clément Vouillon has described as “The Rise of Non ‘VC compatible’ SaaS Companies”, that is the fact that compared to some years ago there are now many more SaaS companies that get to $1M, $5M, maybe even $10M in ARR. Arguably, there’s never been a better time to start a SaaS company. A much larger and more educated market, combined with vastly lower costs to create software, means that your chances of building a viable SaaS company have never been higher. 

For VCs, the question is how many of these companies can become large enough to make the (admittedly somewhat weird) business model of venture capitalists work. Large VCs need multiple unicorns just to survive. In SaaS, that means companies that get to $100M in ARR and keep growing fast beyond that mark. With a ~$60M fund, we at Point Nine may not need unicorns to survive, but we won’t generate a great return if we don’t have exits north of $100M either. And as much as I agree with this post on TechCrunch today when it says that starting and selling a company for $100 million dollars is an outlier event in terms of pure entrepreneurial probability, a big part of my daily motivation is to find some of these truly iconic companies that become much larger. I guess once you’ve seen it once (in my case with Zendesk) you get addicted and want to do it again. :-)

We've come too far
To give up who we are
So let's raise the bar
And our cups to the stars


(I’m not sure if I understand the meaning of these lines in the context of the song, but I love the song and had to think of these lines while writing this post.)

Coming back to our observation regarding the rise of bootstrapped SaaS companies, assuming our theory is right, it means two things:

1) We’ll have to raise the bar even further
There will be more and more SaaS companies that, based on the “pattern recognition” that we’ve developed in the last years, we’d like to invest in but will have to pass on. We can only make 10-15 new investments per year and we’re obviously trying to find the very best ones - the outliers among the outliers, if you will.

2) Picking might become even harder
If it’s true that there are indeed more SaaS companies that quickly grow to $1-2M in ARR but that increase is not matched by a similar increase of companies that become very large, picking the right investments will become even harder. To keep up with that challenge we’ll have to constantly ask ourselves if we’re still asking the right questions when we assess a potential investment.

What does it mean for SaaS founders? First of all, as mentioned above, we might live in the best time to start a new SaaS company that ever existed. Second, founders should ask themselves what kind of company they aspire to build and should only try to raise venture capital if they are convinced that they want to build what Clément called the “VC compatible” startup (check out his post for a little checklist). As Clément said, this is not about good or bad. The VC path is not better than the bootstrapping path. In fact, for the majority of SaaS startups it’s probably not the right one.

Not yet convinced that you shouldn’t raise venture capital? :) Let us know!

Friday, May 05, 2017

Revisiting Point Nine’s tech stack. Plus: 7 little hacks that help me keep (some of my) sanity

[This post first appeared on Point Nine Land, our Medium channel.]

A few years ago I wrote about some of the tools that we’re using to run a VC fund in the Cloud. Nicolas later followed up with more details about our tech stack. Today I’d like to provide a quick update on how our SaaS stack has evolved, as well as share a couple of little tools and hacks that help me (sort of) keep (a little bit of) my sanity.

Part 1: The Basics

Zendesk continues to be our lifeblood. Since we started using Zendesk to manage our deal-flow about six years ago, we’ve logged more than 18,000 potential investments, and every month, several hundred new ones are being added. Processing so many new deals in a timely fashion is no easy feat (kudos to Savina, Louis and Robin who are doing the bulk of that work!) and wouldn’t be possible without Zendesk. Zendesk obviously hasn’t been built for this use case, but the ability to customize the software with triggers, automations, macros and other features has turned Zendesk into the perfect deal-flow management system for us.

We continue to use Basecamp to keep track of our portfolio companies — we have one dedicated Basecamp project for each portfolio company that we use internally at Point Nine to store updates and meeting notes — but have migrated to Honey and Slack for most other use cases that we previously used Basecamp for. Honey (a Point Nine portfolio company) offers a beautiful, modern intranet and is great for storing long-lived content. Slack has allowed us to heavily reduce internal email communication. I was initially sceptical about Slack (yet another inbox?) but have meanwhile become a big fan because the time we spend on Slack is more than offset by the time we save on email. In my experience, the two biggest advantages of Slack over email are (a) the ability to quickly discuss issues with a group of people in real-time and (b) organizing conversations by channel, which makes it easier to ignore (or process in batches) less urgent messages.

We continue to use Google Docs and Google Sheets for almost all documents and spreadsheets, and after some initial resistance, I think even our COO Aleks (who spent her previous life with Word and Excel), is starting to like it. :) For documents that still come in Word, Excel or PDF form, we’re (of course) using Dropbox to ensure that everybody always has the latest version.

We’re still using Skype for external calls on a daily basis, but have switched to Zoom for internal video conferences. I’m still a fan of Skype, but Zoom seems to be more reliable and to offer a slightly better audio/video quality, and offers call-in numbers for people who have to call in while on the go. The only downside is that Zoom eats up a lot of CPU, and for some reason that is completely beyond me doesn’t allow you to show a large screen-sharing window and a large video at the same time.

Our website is now powered by Contentful, and we use Unbounce for landing pages, and Typeform for all kinds of things. Speaking of dogfooding, we love it when a SaaS company uses ChartMogul as that gives us easy access to all relevant SaaS metrics; we’re using 15Five for team feedback; Mention for media monitoring; Contactually for contact management; and (more recently) Qwilr for occasional sales pitches.

Finally, we recently got started with Recruitee to manage the growing talent pool for the #P9Family. We’re using Medium as our blogging platform (although this blog still runs on Blogger, which tells you something about my age); TinyLetter for our “Content Newsletter” (subscribe here); and Buffer to schedule social media posts. Last but not least, we still use MailChimp to publish our (in)famous newsletter (sign up here if you haven’t yet).

Part 2: The little tools and hacks

1. TextExpander

TextExpander lets you insert snippets of text using shortcuts. I remember using a similar application with the same functionality on Windows 3.11 (which tells you even more about my age), when in the first couple of months after launching Acses, my main job was to write personalized emails, suggesting a link exchange, to as many website owners as possible. Since then, text expanders have become one of my favorite productivity helpers. To give you an idea of how I’m using it, here are a few examples of some of my favorite shortcuts:

Shortcut: calendly30

Text snippet:

Want to pick a time from my calendar?

https://calendly.com/XXX

Alternatively, please feel free let me know a few options that would work well on your end.

Looking forward to it!



Shortcut: iiwfy

Text snippet:

If it works for you we can use Skype, my user name is XXX. Alternatively you can reach me at XXX.

Looking forward to talking to you soon!


Shortcut: m-a-c

Text snippet:

Thank you for your interest!

You can get an editable copy of the spreadsheet by going to „File > Make a copy“.

Let me know if you have any questions.

Best regards

Christoph


I hope you won’t find it rude that if you receive an email from me, not each and every word may be carefully typed in by hand. But there are only 24 hours in the day, and if I didn’t save time this way I could answer fewer emails, which would be worse.

2. Calendly

Did you notice the calendly.com link in the first snippet above? Calendly is another favorite of mine. It’s a scheduling tool that can greatly reduce the back-and-forth emails that are so often required to schedule a meeting or call. Here’s how it works:

  • Let Calendly know your availability by connecting it with your calendar and by setting up slots for calls and meetings.
  • If you want to schedule a call or meeting with someone, send him/her your Calendly link.
  • The other person picks a time, and the event is added to your calendar (and the other person gets a calendar invite for his/her calendar).

Compared to solutions like x.ai, which try to solve the problem using AI, Calendly is a rather “dumb” tool. It won’t solve all of your scheduling issues: If, for example, you need to coordinate a meeting with a bigger group of people or if you need to take into account travel times and traffic, Calendly won’t do the job. But my experience is that it works perfectly well for 90% of my Skype/phone calls, so I can highly recommend it.

Initially I was worried if the UX for the person you’re scheduling with was good enough or if people don’t want to click on a link in an email in order to schedule a meeting with me. However, I’ve gotten only good feedback so far, and just in case, I always include the “Alternatively, please feel free to let me know a few options … “ note when I send around the Calendly URL. Another great solution is MixMax’ “instant scheduling” feature, which arguably offers an even better experience for the person on the receiving end.

3. 1Password

1Password is one of those apps that, once you’ve used it for a little while, makes you wonder how you ever survived without it. If you’re not using a password manager, chances are that:

  • you use the same passwords everywhere (pretty risky — if one site gets hacked, the hacker gets access to all your online accounts); or
  • you keep a list of all your passwords (not much safer and not very convenient); or
  • you try to memorize a lot of different passwords (which probably means you’re resetting passwords all the time)

1Password creates a unique and safe password for each of your online accounts and takes care of the synchronization across all your devices. You only have to memorize one master password in order to unlock your password vault. Just make sure you don’t lose that password!

4. My email signature

Some time ago I made a slightly weird self-observation: I noticed that when I checked my email on my iPhone while I was traveling and e.g. sitting in a cab, I’d often be faster to reply to emails than when I was sitting at my desk. You’d expect the opposite, because typing on a real keyword is obviously much more convenient and much faster. The reason for this behavior is that the “Sent from my iPhone” signature gave me the excuse for writing very brief replies, whereas when I was at my desk I felt obliged to write longer, more well-written answers — which often led to procrastination. When I noticed this behavior I changed my desktop email signature to this:


Christoph Janz | www.pointninecap.com | Christoph Janz
Not sent from my iPhone. Please excuse brevity nonetheless.

I can’t claim that this little hack made me a great emailer. I never achieve inbox zero and regularly have to declare email bankruptcy. But it definitely helped to get somewhat better.


5. Typeform => Zapier => Zendesk

About 18 months ago we replaced the “submit” email address on our website by a Typeform. The Typeform lets founders upload a pitch deck and allows us to collect a few bits of information such as the startup’s sector, launch date and funding ask. You can check out the pitch submission Typeform here. We use Zapier to push the data from Typeform to our Zendesk. If you submit the Typeform, here’s what we see:



The impact of this seemingly small hack, which simply ensures that we get all of the information that we need for our initial assessment at a glance , turned out to be staggering. Previously we often felt like we were drowning in incoming inquiries and would often accumulate a large backlog of submissions; thanks to the improved process, we’re usually able to get back to founders within 1–2 weeks.

When we were considering removing the “submit” email address and replacing it by a Typeform, we weren’t sure how people would react. We were somewhat worried that asking founders to complete a form could look unfriendly or unapproachable and were wondering if we’d increase the barrier to submit a pitch too much. Fortunately, we got lots of positive feedback, not least because Typeforms look and feel less like boring web forms and more like a conversational interface. Also, our impression is that the submissions that we’re no longer getting are mostly the ones that we’re happy to miss (like random mass emails about projects that are completely out of our areas of interest).


6. SizeUp

SizeUp is a Mac app that allows you to quickly resize and position windows with keyboard shortcuts. It’s a simple app, but another one of these handy little tools that I don’t want to miss. I frequently want to see two windows on my screen side-by-side, and with SizeUp it just takes one hotkey to move and resize a window to the left or right half of the screen. Occasionally I want to see more than two windows at once. In that case there’s another set of hotkeys that allows me to arrange the screen into four quadrants. Apple added a “Split View” feature to OS X two years ago or so, but I still prefer SizeUp for its extra features and customizability.

7. SaneBox

SaneBox was highly recommended to me by Pawel, who’s been swearing by the product’s ability to help him keep his sanity for some years already. After using SaneBox for a little while it has become an essential part of my tool stack as well. SaneBox comes with a whole bunch of features, but for me the key feature is that it moves all emails that don’t look important into a couple of special folders such as “Social”, “News” and “SaneLater”, leaving only a much smaller amount of emails in my main inbox. This way you can check out newsletters, social network notifications and everything else that SaneBox’s algorithm determines to be unimportant in batches, which saves you lots of interruptions.

I also use SaneBox’s ability to detect emails from people, who I haven’t communicated with before, to send them this auto-responder:

Hi there,

This is an automated reply to thank you for your message. You’re receiving it because my AI-based assistant thinks that we don’t know each other well yet. :)

I’m trying to read and answer all emails in a timely manner, but due to the large volume of emails that I’m getting it doesn’t always work. If you don’t get a personal email soon I apologize in advance.

In the meantime …

* If you’d like to submit a pitch, please use this Typeform:

https://pointninecap.typeform.com/to/gZKJUl?referrer=christoph

* To get a copy of one of the Google spreadsheets that I’ve published on my blog, you can get an editable copy of any spreadsheet by going to „File > Make a copy“.

* If you’re interested in working for one of our amazing portfolio companies, please reach out to jenny@pointninecap.com.

* For other inquiries, please email us at info@pointninecap.com.

* If you’re a SaaS company and you want to get your metrics right, check out ChartMogul (www.chartmogul.com)

* I unfortunately don’t have the time to answer individual questions in regards to financial planning. Sorry.

Best regards

Christoph


Christoph Janz
www: pointninecap.com | Blog: www.theangelvc.net | Twitter: @chrija



I still take a look at all of these emails and try to reply to most of them, but it’s not always possible (and also not always necessary) and in these cases I think this auto-reply is better than no reply at all. What’s great about this setup (which uses SaneBox and Zapier) is that none of my regular contacts get this auto-responder. Once I’ve sent you an email, SaneBox classifies you as “important” and removes you from the “SaneLater” label.

This is by no means an exhaustive list of all the tools and little hacks that we’re using at Point Nine, but I hope you found some of them useful.

What are your favorite productivity hacks?

Sunday, April 02, 2017

Why startups should hire an HR person sooner rather than later

At the excellent SaaStr Annual 2016 conference about a year ago, a very experienced SaaS CEO said on stage that an internal recruiter can be a startup CEO’s secret superpower. I couldn’t agree more, and I think startups should make that hire sooner rather than later.

If you can hire only one or two handful of people with your seed round, hiring anybody who doesn’t either code or sell is hard to justify. Being willing to invest in an internal recruiter or talent manager (or more broadly, an HR person) early on requires pretty big balls a lot of confidence. The right time for making that hire obviously depends on a variety of factors, but I would argue that most startups should hire an HR person sooner than they think.

Here’s why.

1) A great HR person can free up a lot of your time

Anybody who ever hired people knows that it’s extremely time-consuming. Let’s say you want to hire 10 people in the next 12 months. That means that you’ll have to:

  • screen around 500-1000 CVs
  • interview around 100 people
  • do 2nd and 3rd interviews with around 20-50 people
  • do a few dozen reference calls
  • negotiate compensation and an employment contract with 10 people

The numbers can obviously vary greatly, but you get the idea. It’s a lot of work, and if you have only developers and sales/marketing people in your company you’ll have to do the bulk of it yourself. An HR person can take over a significant chunk of that work for you.

2) A great HR person can help you make better hires

An experienced HR person will help you get more candidates, better candidates, and will help you get better at picking the right ones. As a result, he or she will increase the quality of your hires – which is obviously hugely valuable – and reduce the number of costly mis-hires. A great HR person will also help you to build a network of high-quality candidates early on – people who might not be a fit at the current stage but could become a great fit at a later stage.

3) A great HR person will run the process and help you build an employer brand

A great HR person will not only make sure that you have a great shot at hiring your favorite candidates, he or she will also run the entire hiring process for you and will ensure that you leave a great impression with the many candidates that you will not hire – which is important for your reputation. He or she will also help you to start building an employer brand and to become known as a great place to work.

4) A great HR person will save you money

Having an inhouse recruiter lets you save on fees for external recruiters. Since external recruiters usually charge 25-33% of the candidate’s annual salary for a successful placement, it’s well possible that your internal HR person will pay for him or herself by reducing the need to work with external search firms.

5) A great HR person will make your employees more effective

Guess what, adding 10 new people to your team not only means 100s of interviews, it also means setting up payroll for 10 people, onboarding 10 people, providing continuous training and support to 10 more people, and much more. All of this costs a lot of time which you probably don’t have. An internal HR person can greatly help you to take much better care of your team, thereby making your employees both happier and more productive.

Because of all of these factors, an HR person is one of the highest-leverage hires that you can make. Nevertheless, unless you’ve raised a lot of capital, bringing on an HR person instead of, say, another engineer, is still a difficult trade-off. So when is the right time? I don’t have a scientific answer, but I’d say that by the time you plan to hire 10 people in the next 12 months you should hire an HR person. This point in time will usually coincide with having found a decent level of Product/Market Fit and having raised a larger seed round.

As another rule of thumb, your HR person should probably come in somewhere between employee #10 and #20 at the latest. As an example, Front hired an internal recruiter as employee #19 – and it sounds like it was not a minute too soon!

Thanks to Jenny – our very own HR lady! - for reviewing an earlier version of this post and providing valuable feedback.

Wednesday, February 15, 2017

5 ways, 100 million dollars, 100 free posters

I'm a big fan of placeit.net ;)
If you're a reader of this blog, chances are that you've already come across my post about "five ways to build a $100 million business". Given that the post (and the infographic that we created recently) has for some reason resonated so well with lots of people, we thought it would be cool to turn the concept into a beautiful poster that you can put on the wall. The idea is that (besides being decorative), the poster can serve as a little cheatsheet to remind people of some important aspects of building a large business.

Below is the result that we created together with an excellent illustrator from Barcelona, Denise Turu. I hope you like it!

If you're interested in getting a physical copy of the poster please complete this short Typeform. The first 100 people will get a FREE poster. Afterwards we'll probably give it away for a nominal amount (to cover printing and shipping costs).

[Update: The 100 free posters sold out quickly but you can order the poster here.]

Click for larger version








Monday, January 16, 2017

Impressions from the 5th annual PNC SaaS Founder Meetup (AKA PNC SaaS Camp)

We have a tradition here at Point Nine that once a year, we organize a meetup for the founders of our SaaS portfolio companies. The first meetup took place in SF back in 2012 and gave the founders in our (at that time still rather small) portfolio a unique opportunity to learn about what works and what doesn't work in SaaS, compare notes and share war stories.

About two months ago, the 5th annual PNC SaaS Founder Meetup took place in a small lake town a little bit outside of Berlin. To celebrate the 5th anniversary, we turned the meetup into a 48-hour long "camp" and invited about 150 founders and key people from our SaaS portfolio companies, along with a handful of external SaaS experts, to a nice resort close to Potsdam.

Here's a short video that we recorded at the meetup:


Spending two full days and two full nights together not only allowed us to put together an amazing agenda with more than 60 presentations and workshops; it also led to countless great conversations, connections, and friendships. We're truly thankful to all the amazing speakers and attendees who made this possible.




Tuesday, January 10, 2017

SaaS Funding Napkin, the 2017 edition

Today is January 10, 2017. That means that in ten days, this jerk will become the leader of the free world. Ugh. It still feels surreal to me. In less earth shattering news, the fact that it's 2017 also means that my "SaaS Funding in 2016" napkin needs an update.

As a reminder, in the original post I tried to give a "back of a napkin" answer to this question: What does it take to raise capital, in SaaS, in 2016? Today I'd like to take a stab at the (early) 2017 answer to that question.

Like in the 2016 version, the assumption is that the founding team is relatively "unproven". Founders with significant previous exits can raise large seed rounds at high valuations early on, so the "rules" are different for them. On another note, when I say "what does it take to raise capital" I mean "what does it take to have an easy time raising capital from great investors". If your company doesn't meet the (very high) bar pictured on the napkin it doesn't mean that you won't be able to raise money at all. It just means that it probably won't be easy, that you will likely have to talk to a large number of investors and that you may not be able to raise from a well-known firm.

So, what does it take to raise capital, in SaaS, in early 2017? I don't think a huge amount has changed since I created the first version of the napkin about nine months ago, but here are a few observations:

1) The bar keeps getting higher and higher

I already wrote about the rising table stakes in SaaS two years ago, and since then the bar has kept increasing. The SaaS companies included in Tomasz Tunguz' benchmarking analysis of exceptional Series A companies grew on average from $10k to more than $90k in MRR in their first year of commercialization and then to over $400k of ending MRR in their second:



Twilio, Workday, and Zendesk have shown that the best SaaS companies can get to $100M in ARR in 6-7 years and continue to grow at around 50-70% year-over-year after hitting that milestone. Slack, unbelievably, reached $100M in ARR just 2.5 years after launch. Slack is an outlier even among the outliers, but getting to $100M in about seven years and hitting $300M 2-3 years later is the type growth which the best investors in the Valley are looking for in 2017.

I didn't have to make a lot of changes to the napkin to reflect this since the growth rates that I had put into the 2016 version were already in line with the "T2D3 path". I've increased the Series B amount, valuation and MRR range, though, and because the expectations of later-stage investors trickle down to the earlier stages I've changed the ARR potential number in the "Seed" column from "$100M+ ARR" to "$100-300M+ ARR".

2) Being a workflow tool is no longer enough

Investors are increasingly questioning if you can build a large and long-term sustainable SaaS business by being primarily a workflow tool. The thinking is that every successful software product will eventually be commoditized because it attracts lots of people who will copy the product and offer it for a lower price. That concern isn't new, of course, but given how crowded most SaaS categories have become by now, investors are increasingly looking for additional ways to build moat around a business.

So if you want to raise capital for your SaaS startup in 2017, investors will wonder if you can become a true system of record, build a real platform/ecosystem/marketplace or build a unique data asset over time. The latter option will get particular attention this year, so I highlighted that in the "Defensibility" row of the napkin. The ability to gather large amounts of data from the entire user base, and use that data along with AI/ML to make your software smarter, is one of the big themes at the moment. For what it's worth, I know AI and Machine Learning are a hyped topic but I think the hype is justified.

You might think that some of the things that I've written here – getting to $100M ARR within a few years, thinking about $300M ARR at the seed stage – are just crazy. I won't argue with that. The vast majority of SaaS companies will never get to this level of growth or scale, and yet they can be successful and profitable companies that generate life-changing wealth for the founders and great returns for early investors. VCs need outliers to make their business model work, but that's not your problem. If you think you don't have strong potential to become one of these crazy outliers, maybe VC isn't right for you.

OK. Enough words. Here's the 2017 SaaS Funding Napkin!

(click here for a larger version)





Wednesday, December 28, 2016

What we're looking for in SaaS in 2017

As the year is coming to an end I’d like to share a few thoughts on what we’ll be looking for in the SaaS world in 2017. This is not meant to be an exhaustive enumeration but rather a brief outline of a few big themes that I feel particularly strongly about.

1) Viral growth and/or negative churn

In the last couple of years I’ve come to the opinion that in order to build a SaaS unicorn you need to have either (a) a highly viral customer acquisition engine or (b) significant negative net churn (that is, a dollar retention rate significantly above 100%). The rationale behind this statement, which might seem odd at first sight, is actually simple math. If you don’t have negative net churn you’re losing an increasing amount of MRR every month to churn, simply because your churn rate is applied to an ever-increasing base. That means that as long as you have positive net churn, you’ll have to add an increasing amount of new MRR from new customers every month just to offset churn. As you’re getting bigger and bigger it will become extremely difficult to maintain a high growth rate if you have to replace an ever-increasing amount of churn – unless you have an inherently viral product.

At a somewhat theoretical level, what I’m saying is that since net churn MRR grows as a function of your MRR base, you better have a mechanism that lets you add new MRR as a function of your existing base as well. I know this is a somewhat simplified way of looking at it and I’m sure there are a few exceptions to this rule, but I’m convinced that almost all SaaS startups that want to become big should strive for viral growth, negative churn, or both.

Related posts (from this blog):

2) Obsessive focus on user experience

Companies like Slack or Zendesk have shown that a superior user experience can provide a decisive competitive advantage and can become a critical success factor for SaaS businesses. Pundits might object that you don’t win enterprise customers by having a prettier interface. I think that’s shortsighted for at least two reasons.

First, user experience is not only about making the UI more beautiful. As legendary UX expert Jakob Nielsen defines it, “user experience encompasses all aspects of the end user's interaction with a company, its services and its products”. An excellent user experience requires an elegant product that meets the needs of the customer and is a joy to use, but it goes beyond that. The design of your marketing website, the tone of voice of your marketing emails, interactions with customer service – all of this is part of the experience that you offer.

Second, today more and more buying decisions are made by the actual users of the software (e.g. someone in marketing looking for a marketing automation solution) as opposed to the IT department. When the buyer is also the user, usability becomes one of the key decision criteria.

This decentralization of software buying, which has led to the consumerization of enterprise software both from a product as well as a go-to-market perspective, is maybe the most important driver of change in the software industry that we’ve seen in the last 5-10 years. But it’s far from over. Millennials arguably have even less tolerance for slow, bloated, ugly enterprise software. If you grew up with UBER and Spotify, if you’ve never ordered a cab by phone and never went to a store to order a CD, chances are you expect your work software to work flawlessly as well. :-) As millennials continue to rise up the ranks, a focus on great design and a delightful user experience will become even more important for software companies.

Two of our most successful SaaS investments to date, Zendesk and Typeform, owe a large part of their success to what I like to call a “10x” improvement in user experience over the status quo. It will be extremely interesting to see which companies can accomplish a similar quantum leap in 2017 and how it will look like. Will it be a SaaS solution with voice as the primary form of input? A mobile-first SaaS app that truly leverages the smartphone’s camera, sensors and other applications to provide a 10x better user experience? Or a software with a conversational interface, powered by a bot? I don’t have the answer, but I’m pretty sure that new ways to input data – methods that are more natural than dropdown menus or smartphone keyboards – will be a part of it.

Further reading:

3) Smarter software and more automation

Up until recently, the main job of software was to make people more efficient by digitizing paper-based processes, doing calculations and enabling more efficient communication inside and between companies. This has led to huge efficiency gains, and I honestly have no idea how companies used to be operated without computers until 40-50 years ago.

And yet, the biggest disruption is still ahead of us. I am, of course, talking about artificial intelligence (AI). How long it will take until AI will reach human intelligence – or if that’s never going to happen – is an extremely interesting topic that goes far beyond the scope of this post (and of course one that I’m not an expert in). It’s safe to assume, though, that software is getting better and better at more and more tasks which were previously thought to be impossible for computers to learn. Watson’s victory against two “Jeopardy” champions a few years ago and AlphaGo’s win against one of the best Go players are two legendary examples, but there are lots of other, less publicized cases, of computers winning against humans.

If close to 50% of jobs will be done by computers in the not too distant future, as an Oxford University study suggests, this will of course have unprecedented consequences for our society. How those consequences will look like, and if the net impact will be positive or negative for most people, is another extremely interesting topic that I’m not going to delve into here. What’s clear is that this disruptive force will create enormous opportunities for SaaS companies.

With today’s software it can sometimes be hard for a SaaS startup to prove the ROI of its product to prospective customers. Putting a dollar sign on the efficiency gains that a customer can realize by using your software can be difficult, and your product may provide lots of pretty intangible benefits that are hard to quantify. Now imagine that your SaaS solution allows your customers to get work done with significantly less people or maybe no people at all. In that case, the ROI will be pretty obvious.

What if future versions of sales automation software will not make your sales force more efficient but become your sales force? I can’t imagine how bots could take over sales calls … or wine and dine with a client. :) But think about jobs like web-based prospecting, lead qualification or email campaigns and the idea starts to sound a lot less far-fetched.

Although we developed a strong interest in AI in the last few years we have not yet seen a large number of “AI startups” that we fell in love with (one notable exception is our portfolio company Candis, which is automating accounting work). This could be because the industry is still at a nascent stage or because it’s still early days for us in terms of learning and developing an investment thesis around AI, or both. In any case, we’re excited to spend more time on this topic in the coming year!

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