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Product led growth is having a well deserved moment. But SaaS companies have been running this playbook for years.

It just didn’t have a recognized name until OpenView defined the category. Before then, we just called it "growth" (and sometimes "ecommerce for saas.")

Mailchimp is a great example. They launched their free forever plan and grew to 1.2 million back in 2012.

They didn't call it product-led growth." They were just inspired by the idea of using their product, to market itself. And they were excited about the low CAC.

I also lived this first hand at Wistia. Back in 2012, they launched their Free Plan.

It allowed them to capitalize on the virality of the product (being embedded all across the internet) & helped them acquire hundreds of thousands of free users.

They convert thousands of those free users into paying customers without any sales folks, until 2016.

SurveyMonkey, Typeform, Dropbox, DocuSign, and Slack all had similar versions of this go to market model in the early 2010s.

So even though PLG is having it's moment, SaaS brands have been refining this playbook for a while. We just didn't know how to explain it to our families.

Today, I’m talking to Intuit Mailchimp CEO Rania Succar, who took over as CEO in 2022 after a pretty rough patch in the company’s history. See, Mailchimp was founded in 2001. It was a startup that learned a lot of lessons from that first dotcom boom and bust, and it managed to stay both successful and fully independent for 20 years.

But in 2021, it sold to Intuit, the company best known for finance products like QuickBooks and TurboTax, and the very next year, Ben Chestnut, who was one of the company’s co-founders, stepped down as CEO after telling employees that he thought introducing themselves with pronouns in meetings did more harm than good. After that, Rania took over.

This is a pretty huge culture change for the company, especially as it became more integrated with Intuit. It was also a big challenge for a new leader who came in from the outside — well, the outside of Mailchimp, but the inside of Intuit.

You’ll hear us talk about that transition a lot. Rania and I also got into the weeds of making decisions, which is very Decoder. She has a lot of thoughts on how decisions are made and why sometimes the things that seem easy are challenging and other things that seem difficult aren’t. That includes shutting down cult favorite newsletter service TinyLetter, which you’ll hear Rania say was one of the easiest decisions she’s ever made.

We also got really into the core business of email. Email was hot, then it wasn’t, and now it’s hot again. As part of Intuit, Mailchimp is just one part of a platform that helps small businesses operate. Mailchimp is there to do marketing and customer management, and the platform sells itself as something that “turns emails into revenue.” You’ll hear Rania explain how all of that is supposed to work.

Of course, we had to talk about generative AI, which is a big part of the Mailchimp road map. You’ll hear Rania explain that AI right now is more useful for segmentation and targeting: sending the right message to the right customer at the right time instead of constantly bombarding everyone with emails.

But there’s a dark side to that, of course. Having AI send everybody perfectly targeted emails all the time might just lead to a lot of email spam, and it might lead to people responding to AI emails with AI emails of their own. So, I asked Rania about that loop and if there’s any way to break it and make all of this a little more human.

This was a really fun conversation with some honestly scary ideas in it — and it’s all about email.

Okay, Rania Succar, CEO of Intuit Mailchimp. Here we go.

This transcript has been lightly edited for length and clarity.

Rania Succar, you are the CEO of Intuit Mailchimp. Welcome to Decoder.

You are a new-ish CEO. You’ve made some changes. That’s what our show’s all about. I think email is just a fascinating forever project of the internet — how we use it, where it goes, who controls it.

Ben Chestnut, CEO & Co-founder of Mailchimp (acquired by Intuit in 2021), described my talk at MicroConf as "cheating" a few weeks ago here in Atlanta.

Why?

Because I took the PLG framework and pointed out three key areas of improvement for founders:

• Get your activation rates up as much as you possibly can; data shows there’s a huge gap here for growth (especially for bootstrapped founders)

• Increase your net revenue cohort retentions as high as humanly possible after 12 months (ideally in the 100-120%+ range, but “comfortable” growth is usually 80%+)

• Stop guessing when it comes to pricing and monetization because it can easily become the greatest growth lever you have

Ben specifically reacted to the revenue cohort retention reports I had in my presentation, and how most subscription metrics platforms like Stripe, Profitwell, Baremetrics, ChartMogul, etc. have these reports out-of-the-box and ready to use.

And yet, few founders and growth leaders know how to actually leverage them for growth.

He described it as "cheating" because he had to pull these charts and crunch the numbers by hand before there were ever solutions that could help him do it automatically.

Net revenue cohort retention (NRR), however, is critical to PLG businesses struggling with growth because it paints the picture of long-term retention (12+ months) rather than just short-term monthly revenue churn.

Most businesses likely have relatively healthy monthly churn (<5%) but when you pull up the net revenue cohort retention report??

*opera scream* 😬

In my presentation, I explained that growth is really only "comfortable" after you reach 80% retention after 12 months.

Anything below is pushing a boulder up a mountain.

Best-in-class SaaS gets 100%+ after 12 months.

Reports like these get even better, however, when you segment the data based on specific customer segments.

One of the attendees came up to me after my talk and said he pulled up his NRR report while I was talking and it completely punched him in the face. That's how powerful and illuminating that report is for people.

Check the comments below for a deeper-dive on how to use these reports in your own growth work (and how you, too, can cheat like Ben suggested in the video clip below 😉).

Source: microconf.com

Back in June 23 I acquired my 2nd SaaS product, Meet Slack. Since the acquisition it's generated over 33k in revenue. Here's why I bought it 👇

Acquiring SaaS products is a high risk endeavour. In order to drop that risk I look for specific characteristics in a deal. Below are some of the items on my list:

1. B2B --> I've learnt the hard way to avoid B2C

2. Low churn --> Ideally below 3%. It could be as high as 5% if I believe I can drop it.

3. At a minimum 50 paying customers --> Helps validate product-market fit.

4. At least 10 paying customers who have paid for multiple years --> Helps validate product-market fit.

5. No complicated industries --> This includes medical, space, biotech, etc.

6. Simple, mature product --> I want something that does one thing extremely well. I don't want to have to poor a ton of R&D into the product post acquisition.

7. Built in growth engine --> This is one of the hardest thing to find in a deal. I want to acquire something which is growing at least 10% a year organically either from strong existing SEO, virality, account expansion, etc.

8. Low operational expenses (AKA high gross margin) --> Most SaaS cost very little to maintain. It costs me less than $100 a month to run Meet Slack.

9. Self service (AKA "low support cost") --> I don't want to have to run a large support team to assist users. The product needs to be easy to use and require little to no account management.

10. Clear way to grow revenue --> Either by investing in marketing, further product development, raising prices, or a combination of the above.

11. 3 - 5X multiple on ARR --> I want to make my money back as soon as possible. Lower churn, a higher ARPU and/or LTV, and the strength of the built in growth engine would increase the multiple.

Meet Slack checks most of these boxes and will generate over $40k in revenue in 2024. This comes to around a 50% return on investment.

If you enjoyed this post and want to learn more about acquiring SaaS, and how to grow a holding company, then consider subscribing to my personal newsletter - https://lnkd.in/eUjEjjcz.

So price increases have been the name of the game in SaaS for the past 12 months, in many (not all) cases to help make up for slowing growth:

Zendesk up 16%

Salesforce up 9%

Google Workspace up 20%

HubSpot up 12%

Webflow up 16%

Shopify up 33%

Slack up 10%

And some of them like Slack and Salesforce hadn’t raised list prices in quite some time.

On the start-up side, last year most of you said in fact you were planning to raise prices in 2023 — and you did 😉

What did we learn from so many SaaS leaders raising prices — in many cases, a lot? Well, we learned for the most part there was a lot of price elasticity. Churn didn’t go up much at all, and the customer base absorbed the price increases.

But it can’t last forever. You can’t raise and raise forever, at some point the elasticity hardens.

And one of the first to see it was Toast. Toast added a $0.99 fee to orders of $10 or more. Now that may not sound like a lot, but Toast’s margins are lower than a pure-play software vendor, and the impact to the bottom line and net margins would have been huge.

What happened? The customers revolted. And while there are other options than Toast, Toast is clearly #1 in its category. And yet, Toast had to back down:

“While we had the best of intentions—to keep costs low for our customers—that is not how the change was perceived by some of you,” CEO Comparato said. “We made the wrong decision and following a careful review, including the additional feedback we received, the fee will be removed from our Toast digital ordering channels.”

Certainly you could argue this is a different type of price increase than Slack, given how Toast operates in effect as a partial marketplace. And that it sells to SMBs.

But it’s at least a sign to take a pause. Yes, there is more price elasticity in SaaS than we thought. But it’s not unlimited.

At some point, the customers wiil revolt. Quietly with their wallets, or in the case of Toast, Loudly.

This is best tech POV of the last year.

It’s for “pay once” software (formerly known as plain old software.)

While the idea of owning, instead of subscribing to, software isn’t new, what Jason Fried at 37signals has done here is some perfectly timed business genius.

Because it makes a 60-year-old category sound like a revolution.

On the heels of B2B SaaS bloat and growing customer frustration over the last 5 years—and a downturn in the economy—Fried came in and proposed a new way:

Why pay subscription fees forever when you can pay once and own your software instead?

Here’s a bit from their pitch-perfect POV:

“For nearly two decades, the SaaS model benefitted landlords handsomely. With routine prayers — and payers — to the Church of Recurring Revenue, valuations shot to the moon on the backs of businesses subscribed at luxury prices for commodity services they had little control over.

Add up your SaaS subscriptions last year. You should own that shit by now.”

Their first “pay once” product is Campfire, a Slack competitor. Dozens of Slack competitors have failed over the years.

Why? Because, once established, it’s almost impossible to overtake a category leader.

So 37 Signals competed with Slack by being something Slack could never be.

That’s the definition of great strategy.

Zig when they zag. Be strong where they're weak.

Another smart thing 37 Signals did. They used what I call the three levers of differentiation:

- Business model

- Product

- Marketing.

By differentiating in all three dimensions, their customer is way more likely to consider their pitch. Here’s how they differentiated in each area:

Business Model

↳ Pay once instead of forever.

Product

↳ Campfire: simple, no-BS business messaging. Like Slack without all the feature creep (and you own it).

Marketing

↳ Direct, honest, founder-led marketing.

Because they have these three levers working together, it gives way more credibility to the idea that Campfire is categorically different than Slack.

That 𝘥𝘪𝘧𝘧𝘦𝘳𝘦𝘯𝘤𝘦 is what makes customers pay attention to their pitch.

It doesn’t hurt that some Slack customers could save hundreds of thousands of dollars a year by switching to Campfire.

That’s a pretty good pitch.

Still, a small software company competing with Salesforce and Microsoft usually ends badly.

Do you think they’ll succeed? I do.

#ceo

#cmo

#strategy

My two favorite Slack integrations are just for notifications: Account Engagement and Stripe.

Account Engagement tells us when we have a new newsletter signup, contact form submission, or free course enrollment (middle of funnel).

Stripe tells us when another purchase comes through (bottom of funnel).

Maybe connecting youtube stats and google analytics should be next (top of funnel).

The expansion of subscription-based models in business, particularly in the Software as a Service (SaaS) sector, has witnessed remarkable growth, with companies adopting this approach experiencing a three to fourfold increase compared to the S&P 500 in the past 12 years. However, as the prevalence of subscription licensing has surged, a noticeable disparity has emerged between providers' profits and the outcomes experienced by customers.

Despite the apparent success of the subscription model, a closer examination reveals that software is not becoming more cost-effective or providing broader and deeper functionalities for customers. Major players such as Meta, Netflix, Microsoft, Oracle, SAP, and Salesforce have recently announced substantial price hikes, reaching up to 24% for specific products or services. Concurrently, the tech industry is witnessing a new wave of layoffs. The supposed advantages of economies of scope and scale seem to have gone awry, leaving business customers to bear the monthly cost burden. Long-term success in the market hinges on enhancing the productivity, agility, and bottom lines of business customers. In essence, focusing on adding value rather than imposing constraints.

Are moats overrated in SaaS?

Intrigued by this part from Jason M. Lemkin's chat with Ben Chestnut at Mailchimp (acquired for $12bn by Intuit):

"You may not need a moat. I've had a lot of discussions over the years on what constitutes a "moat" for many SaaS products. Ben confirmed there is no moat at Mailchimp. He said in fact, he doesn't want moats. If a customer wants to leave, he wants them to leave. And hopefully earn them back later. "Customer happiness is a moat". You don't get that if you make it hard to leave."

#moat #saas #saastr #mailchimp

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