We’ve also seen an explosion of SaaS IPOs already in 2018 including Docusign (NASDAQ: DOCU), Dropbox (NASDAQ: DBX), Pivotal (NYSE: PVTL), Pluralsight (NASDAQ: PS), Smartsheet (NYSE: SMAR) and Zuora (NYSE: ZUO). The basket of IPOs has been successful to boot, collectively representing $38.2B in enterprise value upon IPO (3.5x the figure for all of 2017). This lies in stark contrast with consumer tech, which has seen relatively few IPOs – not to mention poor results for several that have recently gone public (think Blue Apron (NYSE: APRN), Snap (NYSE: SNAP)).

In terms of the companies that do achieve outsized success, most are utilizing an emerging go-to-market strategy OpenView calls product led growth. It’s through this strategy that companies are able to grow faster and with less cash.

On the whole, founders using a product led growth strategy are able to burn less money and thereby retain more of their companies (and more of the cash when an exit does come). #expansionbenchmarks18 Click To Tweet
Let’s examine how product led growth plays out in reality by evaluating two giants in file sharing: Dropbox and Box. Both were founded in the mid 2000s and reached scale quickly. But Dropbox, which pursued a freemium, product led growth strategy, has clearly won the file sharing war. The company generates double Box’s revenue, spends a lower share of their revenue on sales & marketing, and consequently trades for a far higher revenue multiple (9.1x versus 5.2x).

As the above example illustrates, our data shows that the best performers tend to follow a product led growth strategy, where the product is central to how these companies acquire, convert, expand and retain users. This allows these companies (in addition to Dropbox, think Twilio, SendGrid and Shopify) to forgo spending large sums on traditional marketing and sales activities. Instead, they rely on the products themselves to supply a pipeline of satisfied users to convert to paying customers.

OpenView’s Product Led Growth Index tracks the performance of public SaaS companies that exemplify the aforementioned characteristics compared to the broader SaaS comp set.

Our data shows that product led companies trade at a higher forward multiples, have higher gross margins, spend far less on sales & marketing and grow faster than average. #expansionbenchmarks18 Click To Tweet
It’s no wonder then that HubSpot, an early pioneer of content marketing paired with high velocity inside sales, has pivoted its business model towards a more efficient product led growth approach. HubSpot now offers freemium versions of their CRM, Marketing and Sales products and boasts a self-service model allowing users to get started with their product without speaking to a sales rep.

CEO Brian Halligan describes their revamped go-to-market motion as “a flywheel where the customers are the main driver that pulls new prospects in” and boasts that half of HubSpot’s new customers use the free product before they buy. HubSpot then offers up scalable packages and pricing to expand customers as they become successful (ie. add more marketing contacts), run into feature gates, or want to use HubSpot for additional use cases.

Now, onto pricing, something we’re pretty passionate about. Why? Well it’s is one of the quickest and most powerful growth levers at a SaaS company’s disposal, yet too often pricing is overlooked and ignored.

Thankfully, this year’s survey data makes clear that SaaS companies have finally woken up to the importance of pricing. Nearly two-in-three companies we surveyed changed their pricing in 2017. And it wasn’t only small companies that changed their pricing, either. Even among companies with $20M+ in ARR, a whopping 61% changed their pricing at some point in the last year.

For companies that did change their pricing, these changes had a substantial positive impact on revenue growth.

Two-in-five of companies that altered pricing reported a 25% or higher increase in ARR as a result. #expansionbenchmarks18 Click To Tweet
Another two-in-five reported a 10-24% increase. Check out our OV BUILD podcast to hear from Chief Strategy Officer Brad Coffey on how HubSpot reinvented its pricing and the massive impact it has had on growth.

Long ago, Atlassian proved that world-class enterprise software companies can be founded anywhere. But, for a while, Atlassian was seen as the exception, not the rule.

Fast forward and the internationalization of SaaS has gone mainstream. Australia’s Canva became a unicorn this year, as did Portugal’s OutSystems. And don’t forget the success of other international startups like Shopify (Canada), Klarna (Sweden), Pipedrive (Estonia), Wix (Israel), UiPath (Romania) and RD Station (Brazil) – just to name a few.

Of the expansion stage companies that participated in this year’s survey, nearly 40% of those with $1-10M in ARR were based outside of the US. This includes significant representation from Canada, Europe and Australia/New Zealand.

The global nature of SaaS isn’t just a trend picked up in our survey. OpenView’s recent investments reflect the rise of international SaaS companies. In the past two years, we’ve invested in Deputy (Australia), Loopio (Canada), Auvik (Canada), Logz.io (Israel), Applitools (Israel) and Pipefy (Brazil). And we expect to continue to back world-class software businesses wherever they spring up.

While you can launch a successful SaaS business anywhere, data from our survey makes one thing crystal clear: Companies from North America can reach scale without venturing very far beyond their borders. Even when these North American-based companies do grow beyond $20M ARR, they still generate 85% of revenue from home base.

The same cannot be said for companies based outside of North America.

Smaller European companies can play at home, but they must go global to really thrive. Among European companies surveyed that reach $10M in ARR, nearly half of their revenue comes from North America. #expansionbenchmarks18 Click To Tweet
That’s triple the figure of companies below $10M ARR.

For example, when Spanish AlienVault raised its $8M Series B in 2012, they quickly brought on 7 executives from US-based HP, including a new CEO, to accelerate penetration in North America. Just six months later, AlienVault secured $22M in Series C financing.

Similarly, search-as-a-service provider Algolia was founded in France in 2012. Very soon after, they moved their HQ (and their go-to-market hub) to San Francisco while their biggest office, stocked with developer talent, remained in Paris. This hybrid approach has helped Algolia scale rapidly, leading to a whopping $53M Series B raise in 2017.

There are a couple of reasons why this makes sense:

1. North America spends more on SaaS than any other region in the world. That’s doubly true when you narrow in on emerging technology categories and exclude later stage ones like email, file storage and CRM.

2. Showing traction in North America is vital to attracting funding in the current market. The VCs that write the biggest checks are predominantly based in North America; meanwhile, European VCs mostly focus on seed and Series A rounds.

Research consistently demonstrates that diverse teams are smarter and perform better than homogenous ones. Now there’s even proof that these teams also produce better financial outcomes – something long suspected.

This year, 37% of SaaS companies we surveyed had at least one female Board member, up from 29% last year. #expansionbenchmarks18 Click To Tweet
Meanwhile, 75% had at least one female leader on their team (i.e. Director-level or above), up slightly from last year’s 72%.

Make no mistake, there’s still work to be done. Only 13% of companies surveyed reported full parity between men and women on their leadership team. Just 10% had full parity on their Board – though this figure is more than double last year’s 4%.

Several of OpenView’s portfolio companies exemplify this push towards building more diverse teams. Lessonly and Loopio, for example, partnered with the Athena Alliance to hire their first female Board members. In the year of #MeToo, it’s encouraging to see positive – if incremental – improvement in the area of diverse hiring.