Thrive or Decline in 2023

There are boundless articles piling on about all the mistakes entrepreneurs and investors made during the days of easy money from 2016-2021 - and still many more prognosticating about how bad things will get. Here, I will share with you some data on how private enterprise SaaS companies selling to the Fortune 1000 are doing, and suggestions on what actions you can take next.

Analyzing the data of 28 private enterprise SaaS companies from Q1 - Q3 2022 shows a clear trend line:

The general trend of ARR achievement:

• In Q1 2022, 90% of the cohort made or exceeded their revenue targets.
• In Q3 2022, 75% of the cohort made or exceed their revenue targets.
• In Q3 2022, that number plummeted to 50%, but there were also some clear outliers.

The Cohort

The companies can be generally categorized into 4 quadrants:

1. Green - Quadrant A:

Companies in the upper right-hand quadrant crushed their numbers. The closable pipeline number remained a healthy 150%-180% of goal, and they are seeing no material signs of slow down. They have 3 things in common:

• The User = The Buyer - i.e. The primary user of their solution was also the buyer of their solution. This means faster sales cycles as the value is apparent to the person who controls both the budget, and the usage / adoption.
• Very High Product Differentiation: The solution is so novel, it's materially better than incumbency. This is where the solution delivers such high impact, "the juice is worth the squeeze". Yes - all that investment in product capability ends up being worth it. Whether it's 2X or 10X better than existing mousetraps, or solving what seemed previously unsolvable, these are product companies and product matters.
• Fast time-to-value: The solution is easier to implement than competitors, and the value is more easily realized by the customer - meaning the momentum and emotional high from when the customer bought the solution to when they realized the ROI was relatively short (< 6 months).

2. Blue - Quadrant B:

There were a lot of companies in this cohort. While they met Q1 numbers, most saw a decline in Q2 and Q3 - slipping on average to 70% and 80% of goal respectively. While their solutions are novel and highly differentiated, time to value resulted in delayed customer decision-making and not making the 'urgent + strategic' prioritization list. Q4 pipeline however looks healthy (175% of goal) as deals were not lost, but slipped.

• The Users of the solution work directly for the Buyer: This means the buyer is very motivated for the users to adopt the solution - but because they're not the primary user, they still have to do the work of getting the team on board, and other stakeholders convinced of the need for the solution.
• Very High Product Differentiation: The solution is so novel, it's 10X better than incumbency. This is where the solution delivers such high impact, "the juice is worth the squeeze". Yes - all that investment in product capability ends up being worth it.
• Long time-to-value: The solution is complex, integrations are complex, and the product gaps need to be filled by people to help the customer realize value. 9+ months to realize value is common. But the value delivered is high enough that customers tolerate it.

3. Yellow - Quadrant C:

Companies in this quadrant saw good Q1 and Q2 numbers, but then slipped to barely 60% of the goal in Q3 as buyers carefully asked themselves if they could make do with existing tools/platforms, and some deals being lost to incumbents. Q4 forecast remains dependent on a handful of must-win deals with no room for error.

• The Users of the solution work directly for the Buyer: This means the buyer is very motivated for the users to adopt the solution - but because they're not the primary user, they still have to do the work of getting the team on board, and other stakeholders convinced of the need for the solution.
• Neutral Product Differentiation: While the solution works, it does not have significant product differentiation in a fairly crowded market. There are many competing solutions that provide similar capabilities and incumbent vendors have caught up in features. During the procurement process, the company frequently ends up being forced to compete on features and price against similar incumbent vendors, and loss rates are creeping up.
• Fast time-to-value: The solution is easier to implement than competitors, and the value is more easily realized by the customer - meaning the momentum and emotional high from when the customer bought the solution to when they realized the ROI was relatively short (< 6 months).

4. Red - Quadrant D:

Companies in this quadrant saw their sales achievement hit their goal in Q1, but slip in Q2, and then absolutely crater in Q3 as the market conditions got tougher. They are steadily losing deals to incumbents and are faced with very difficult conditions moving forward. Q4 closable pipeline is at 80% of goal - meaning they will almost certainly miss the Q4 number.

• The Buyer is far removed from the users, and supports multiple constituents: The solution has 3 or more competitors offering similar capabilities - the product no longer has the edge it had a few years ago, and the buying process has been delegated typically to IT procurement.
• Neutral Product Differentiation: While the solution works, it does not have significant product differentiation in a fairly crowded market. There are many competing solutions that provide similar capabilities and so the company frequently ends up competing on feature comparison and price.
• Fast time-to-value: The solution is easier to implement than competitors, and the value is more easily realized by the customer - meaning the momentum and emotional high from when the customer bought the solution to when they realized the ROI was relatively short (< 6 months).

So what's the path forward?

Generally, depending on which quadrant you're in, companies are heading in different directions. There are exceptions where certain companies missed their numbers due to sales team performance or major product issue/outage, but for the most part, here's where they're headed in 2023:

Green - Quadrant A:

• Full steam ahead - Q4 forecast remains strong with almost 180% of the goal in the closable pipeline, and 1H 2023 pipeline is very robust. They are investing more of their capital or raising more capital to ride out the troughs and deal with product debt, expand their sales teams, and even looking at tuck-in acquisitions. It's early days, but they will continue to attract the best talent, the best investors, and the best customers for now - and they are pushing to drive new logo velocity to build market share.

Blue - Quadrant B:

• Cautious forward steps - While Q4 forecast remains healthy, 1H 2023 pipeline is unclear. Still able to raise capital but definitely trimming expenses in 2 areas: RIF of underperforming sales and services people and expanding territory for the high performers, and eliminating investment in non-core product areas. 80% of the companies in this quadrant are consolidating their focus areas and fixing core product and services gaps so that they can shrink time-to-value for customers (which ultimately leads to better margins)

Yellow - Quadrant C:

• On Alert - A very difficult box to be in, the leadership teams here are faced with two very difficult needs - defending renewals and driving new logos at the same time. Defending renewals is critical to prevent from slipping into Quadrant D. Both will require pricing concessions as the product has slipped in differentiation as competitors have caught up. Fundraising will be challenging.

Red - Quadrant D:

• Emergency Alert / All Hands On Deck - The risk of failure has become high. Bail-out funding is difficult to obtain - and will require an emergency life-line to extend the runway. The lifeline will come at a cost of big dilution, and 50% or higher RIF. The company essentially needs a reset to become a relevant, differentiated solution or deliver value faster.

This is a very difficult time for entrepreneurs. Much has been written that this is a period of "great filtration". Whichever quadrant you think you're in, my suggestion is that you take a very objective, honest assessment of where you really are, vs where you think you are. Ask your team, your trusted customers, and your board members - and chart your course carefully.

EXCEPTIONS:

• You believe you're a Quadrant A company, but your performance says you are in quadrant C or D: You have a performance problem in your team. Time to coach or upgrade!