And to all our partners
- After years of valuing growth rate over profitability, founders are facing whiplash to react to the changing macro conditions.
- Most companies are cutting their cash burn, regardless of cash runway or growth rate.
- Focusing on NDR and CAC payback period exclusively can help founders focus regardless of the macro environment we see next.
“In this easy money environment, one would think becoming a unicorn is a foregone conclusion the moment your Delaware LLC is incorporated.”
-OpenView 2021 SaaS Benchmarks Report, in jest
The data on unicorns in 2021 (and even into early 2022) was truly astounding. It’s safe to say that we’ve been brought back down to earth in the last six months. In 2021, more than 40 new unicorns were minted each month. In the last three months, we’ve averaged eight. The tides have turned significantly.
When operators sat down to build 2022’s budgets in late 2021, growth was the key metric and so GTM and R&D teams were given cash to drive growth into new product lines, new customer profiles, and new paid-ad channels. Hiring was at an all-time high and headcount approvals were relatively easy to come by.
We all know what they say about best-laid plans.
In this report, we spend the first two sections talking about what’s happening in the public markets and what it’s meant for private SaaS businesses. After surveying 660 companies, it is certainly not sunshine and rainbows. However, what has happened and why is paramount in order to prepare for whatever comes next.
The latter sections focus on what’s within your control and how to navigate planning for 2023. The future is uncertain, but there are paths to building a market-resilient startup able to withstand any economic volatility.Download the 2022 SaaS Benchmarks Report
The Whiplash Era
Over the last few years, SaaS businesses have been facing whiplash like we’ve never seen before.
Here’s the TL;DR since November:
- Historically low rates and geopolitical challenges caused inflation to finally spike.
- The Fed increased interest rates to curb inflation.
- Rising rates increased the cost of capital and moved investors away from longer duration assets (e.g., high growth SaaS).
- Software multiples came down and it has become harder and harder to raise capital.
The most recent shock in April 2022 saw fast growing SaaS companies get hit the hardest, as valuations fell from 46x their last 12 months (LTM) revenue to 11x.
On occasion, private companies are able to insulate themselves from public market chaos. But few startups have had insulation (re: cash runway) thick enough to protect them from the volatility of the last six months.
The result? Founders are left with whiplash trying to build the type of company that the market is rewarding.
Almost immediately, we went from constant LinkedIn job postings to constant TechCrunch articles about reductions in force (RIFs).
Slashing Spend Across The Board
At a high level, our data shows what everyone has already known—companies are slashing their budgets to generate optionality in the future. However, we expected that companies with short cash runways would be cutting heavily and companies with longer runways would be insulated.
The reality is an overwhelming majority of respondents are slashing spending regardless of cash runway.
Leveraging Optionality To Build Insulation
Today’s noise is overwhelming: Somewhere, a TV blares with CNBC guests yelling about how companies need to be cutting cash burn by 50%. Elsewhere, a curious advisor questions why the ARR target had to be reduced just because of a 5% reduction in force. Simultaneously, a Twitter thread about how ‘grow at all costs may be back by the holidays’ is picking up steam. The noise is insufferable—and figuring out who may be right is a lost cause.
Block out the noise, build resilience into your business model, and focus on consistent execution. The data we collected backs these notions.
CAC Payback: PLG, But Different
The path to great CAC payback is discoverability and a robust free product.
NDR: Moving an immovable object
Maintaining NDR in this environment is more challenging and more important than it has ever been.
Data, Definitions, Etc:
- OpenView’s 2022 SaaS Benchmark Survey ran from 7/12/2022 to 8/7/2022. A link to the survey itself can be found here: 2022 Benchmarks Survey
- Overall 660 operators at SaaS businesses responded to the survey.
- The survey was distributed through our sponsor, our peer network of VCs, and our own network.
- For more detailed definitions on the metrics in this report, please refer to the full report.
- If there are additional questions/comments, reach out to [email protected]
See how 600+ founders responded to this year's survey
Don’t forget to download the full report for even more objective data that lets you analyze how your company stacks up.