The SaaS Trends You Need to Know for 2019
With 2019 rapidly approaching, what might next year have in store for software companies across sales, HR, marketing, corporate development and more? OpenView’s experts explain their predictions for the upcoming year.
Take a look and weigh in with your own predictions by tweeting to @OpenViewVenture with the hashtag #2019SaaStrends.
Even Enterprise Companies Will Adopt Product Led Strategies
Liz Cain, Partner
The way we engage with buyers is changing…fast. We’re on the verge of the next evolution where the best products will actually sell themselves – think Slack, Atlassian, Dropbox and Expensify. But “product led” does not mean “product only” and even traditional enterprise companies are looking for ways to de-labor the sales process to meet the demands of today’s buyers.
In order to stay relevant and compete in 2019, forward-thinking sales leaders will start incorporating product led ideas into everything they do. Where will you see it first?
- Leveraging product data to identify the right prospects and customers for sales teams to spend time on. This strategy will effectively integrate product usage data with existing firmographic information to prioritize leads/customers and ensure sales reps are spending time on the right deals.
- Elimination of manual processes. From lead enrichment to cadence tools to appointment scheduling, the sales tech stack keeps growing. The key is to eliminate repetitive manual work and free the sales team’s time up to work on higher value tasks.
Product and Engineering Teams Will (Finally) Become Data-Driven
Kyle Poyar, Senior Director of Market Strategy
With the adoption of CRM, we began to measure everything our sales teams did. We now expect sales leaders to be grilled about even the minutiae of their team’s performance: ramp times, quota attainment, deal velocity, pipeline by opportunity stage, the list goes on. As marketing automation platforms took off, we started doing the same thing with marketing. The trend towards metrics also holds true for customer support (metrics: handle time, time to first response, customer satisfaction) and finance (metrics: gross margins, COGS, net margins).
Product and engineering is one of the largest expenses for SaaS companies (Atlassian alone puts half of their revenue into R&D!), yet they’re usually the least data-driven functions. Product managers are too reliant on anecdotes and intuition when prioritizing their roadmap. Engineering managers default to “story points” (about as quantitative as it sounds) or gut feel to manage their teams. The result is that it’s extremely difficult to predict the time, cost, adoption and ROI associated with building out a new product or feature.
That’s finally changing. Solutions like Pendo (raised a $50M Series D in September), Intercom (raised a $125M round in May), Appcues (raised a $10M Series A in August), and Aptrinsic (recently acquired by Gainsight) make it easier than ever to analyze user activity within a product, drive feature adoption and capture in-app feedback. Meanwhile, solutions like GitPrime (full discretion: OpenView led their Series A in April) enable engineering organizations to collect concrete data about things like team velocity, how much of their team’s work goes to technical debt and individual performance.
Expect to start measuring your product and engineering performance in 2019. After all, you can’t manage what you can’t measure.
Brand Takes Center Stage
Ashley Minogue, Director of Growth
Every single year competition heightens. 2018 was no different. SaaS companies report having over 9 competitors on average. The past few years this heightened competition has led to increasing demand gen budgets. Companies poured more and more dollars into paid channels to acquire as many leads as possible. Well, we are starting to see the pendulum shift. In 2019, we will see more companies investing in their brand (as opposed to just direct lead generation) to break through the noise and create a groundswell among their user base. Companies recognize they will not win by just having the first spot in the search results or by creating a feature war with competition. Prospects want to know what companies stand for as a brand. At this point, a great product is table stakes. A great brand is a differentiator.
To build brand awareness and create a community, there will be a push for more authentic and value-add communication. We will continue to see an investment in podcasts and events that bring together prospects and customers. There will also be even more emphasis on video across all channels including websites, emails and social to have a more human connection.
Companies Double Down on Pricing Successes
Kyle Poyar, Senior Director of Market Strategy
At the end of last year, I predicted that companies would finally wake up to the importance of pricing. Well, it sure happened. Nearly two-in-three SaaS companies changed their pricing, according to data from over 400 companies who participated in our 2018 Expansion SaaS Benchmarks survey. For companies that did change their pricing, these changes had a substantial positive impact on revenue growth. Two-in-five reported a 25% or higher increase in ARR just as a result of the pricing change. Only 2% said the pricing change decreased their ARR.
So what’s next? As they would with any other successful initiative, companies will double down on what’s working. For later stage companies, they’ll look to hire someone solely dedicated to pricing and packaging strategy. Others will put more resources into monitoring pricing and implementing changes.
Here’s one idea that any company can implement in 2019: create a pricing committee. This committee, which could also be called a Product/GTM committee, should be cross-functional and include key people across departments (Product, Finance, Sales, Marketing, Customer Success). They should meet at least quarterly (my preference would be monthly) to review pricing KPIs, monitor the competitive landscape and make pricing decisions.
The Product Led Growth Index Will Outperform the Market
Sean Fanning, Corporate Development Manager
Earlier this year we crunched the numbers and found companies that implement product led growth (PLG) strategies are growing faster, generating higher gross margins and realizing a greater “Rule of 40” (sum of growth and EBITDA margin) than other public SaaS companies. Public market investors have realized that not all SaaS revenue is created equal – public product led growth businesses trade at higher revenue multiples (valuations) than their peers investing in traditional sales and marketing strategies.
Public PLG businesses grow much more efficiently than their peers as the ease of product use allows for lean customer success organizations, virality contributes to lower cost of acquisition and goodwill they build with their users makes the products extremely sticky. All of these factors coalesce, enabling PLG businesses to acquire and expand revenue more rapidly. Take Box and Dropbox, for example. 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 and marketing and consequently trades for a far higher revenue multiple.
At OpenView, we believe businesses with PLG strategies will feature prominently among top performers in the software landscape. With the expectation that public market volatility will continue into 2019, investors will search for growth assets that deliver strong permission to believe in continued growth and market leadership. We’re certain that the valuation gap between public product led growth businesses and the rest of the public SaaS landscape will continue to widen as PLG businesses become coveted assets. 2019 will be a breakout year for PLG stocks, and we’ll continue to update our product led growth index to visualize the outsized performance versus other public SaaS companies.
Startups Proactively Invest in Customer Success
Ashley Minogue, Director of Growth
We all know it’s more efficient to retain an existing customer than to acquire a new one. However, all too often start-ups don’t invest in customer success until churn becomes a poignant issue. In 2019, we will see more early stage companies recognize that customer success is the backbone of their business and invest in building out their customer success teams proactively. This is imperative in the product led era. More and more companies are adopting PLG strategies such as empowering self-service sign-up and delaboring their sales process. Customer success plays an increasingly important role in ensuring customers are truly adopting the product and accelerating their growth.
A Demand for Growth-Oriented Talent
Sarah Duffy, Director of Talent
Given the rise in successful product led growth companies, an emerging trend we have seen is the demand for growth-related talent. We’ve seen brand new roles popping up across product, marketing, customer success and beyond. Because this is a new “trend,” the candidates that we’ve seen be successful in these roles within our portfolio aren’t always the most tenured in terms of total years of experience. We’re also finding that in order to uncover the right growth candidates, hiring managers are having to look beyond ideal titles and pedigrees. For example, if you’re hiring a growth leader for a B2B SMB SaaS company, you may have more success looking at talent coming from a high growth B2C e-comm backgrounds.
We want to hear from you! Tell us your own predictions by tweeting to @OpenViewVenture with the hashtag #2019SaaStrends.