The SaaS 10-Year Challenge by@webaficionado

The SaaS 10-Year Challenge

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Sudheendra Chilappagari HackerNoon profile picture

Sudheendra Chilappagari

Sudheendra leads product and growth for Segment Platform. Previously, he was Co-founder of Belong.co

If you are on the internet, you’ve probably heard of this latest fad, The 10-Year Challenge, or the 2009 vs. 2019 Challenge. It’s simple, you post an old photo from 2009 next to a recent photo taken in 2019 and give it a nice caption. Somewhat like this 👇

While people are going nuts posting their 10-year challenges, data scientists are happy that they found a golden data set to train their facial recognition algorithms. Jokes apart, on a serious note I started wondering what if SaaS took the 10-Year-Challenge.. Presenting to you “The SaaS 10-Year Challenge”

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Let’s look at some interesting trends and understand how far we came across as an industry!

From “selling software” to “serving customers”

  • Back in the day if you were a SaaS company, you were selling software on cloud… no setup costs, no installations and no worries about downtime/maintenance in order to upgrade. In 2019, if you think you are selling software, you are mistaken. You are actually offering your service as a software, companies who understood this shift are the ones leading the market. According to SaaS veteran David Cancel (CEO, Drift), customer experience is the new marketing and helping is the new sales.
  • In 2009, SaaS was a relatively new thing without budgets and line items for software spend in most P&L statements. This meant a new challenge for SaaS entrepreneurs, since it was a blue ocean, they had to educate the market before selling their products. When I asked Pat Grady (Sequoia) about HubSpot’s journey, he said during the first five years, almost every quarter was a slog. Fast forward to 2019, customers are already using some form of cloud software to run their operations. So buyers are asking a different question — “So, why should I switch?”
  • Until 2009, Software was about streamlining business operations by saving costs, time and thus making the org more efficient. Developers didn’t really care about user experience and PMs didn’t measure customer engagement once the software was bought. Reporting was the sole feature that drew buyer’s attention and users had very little say in the purchase process. This started changing suddenly, thanks to Apple, Google and Facebook who created delightful experiences for consumers. Launch of Zendesk (2009) brought in smiles to support agents faces, much like the “zen” in their name. Today, if you are a SaaS company nothing matters more than customer experience. With pay-as-you-go model becoming the norm & retention being the key driver for growth, 2019 has a new bar for building and selling SaaS products. Companies like Drift, Superhuman, Notion etc. are setting an example for next-gen software.

2019 is the beginning of the Golden Era of SaaS

  • In 2009, SaaS was the new kid on the block… today it’s the golden era of SaaS. I almost see 2019 as the 1999 dot-com revolution but for B2B software with better economics
  • Salesforce hits $1B ARR for the first time in 2009 and today, it does $13.8 Billion in ARR. This means 1% of Salesforce revenue makes you a unicorn 🦄 (1%*$13.8B = $138M ARR ~ $1.38B valuation). I shared my thoughts on this topic recently on Twitter when people were wondering how Zoom built a $300M ARR business in a crowded Video Conferencing market

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To which Rahul Vohra (Founder, Superhuman) replied nodding his head..

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  • Commoditization of SaaS: We started seeing category leaders emerge in 2009, companies like Okta, Dropbox, Gainsight were just getting started. Today we have at-least a dozen similar companies, with almost similar value prop (features) and very little differentiation. For example, take a look at the much crowded Help Desk Software category, G2Crowd says there are at-least 40 SaaS companies let alone the ones who didn’t make it to their magic quadrant. Imagine how painful it is for a customer to decide on what tool to use? Almost all software ultimately becomes a commodity. Only differentiator left is Brand, don’t screw up that one :)

The catalysts behind the exposition in SaaS

  • 2009 was the beginning of API revolution — the hidden backbone which allowed software applications to communicate with each other. Today, APIs are eating the world and middleware companies are minting money. The leader in this space MuleSoft was acquired by Salesforce for a whopping $6.5B post IPO!
  • Until 2009 it was just about SaaS, but we started seeing the IaaS (infrastructure-as-a-service) revolution. The AWS ec2 free tier got me to sign-up for hosting my website and that’s it.. I was hooked! Today, I’d be surprised if you are a Developer and not using IaaS platforms to build your software. AWS, GCP, Azure are leading the Cloud Infrastructure market followed by companies like Segment establishing themselves as leaders in a niche category like Customer Data Infrastructure.
  • Funding in SaaS markets is at all-time high right now. In 2009, $100M ARR meant a billion dollar valuation (~10x multiple) and you are ready to go IPO as a SaaS business. Today more and more SaaS companies are trying to remain private and file for an IPO when their revenues are in the range of $300M-$500M ARR or just get acquired by private equity shops (like Vista Equity Partners, Openview etc.)

Some other fun facts:

  • In 2009, Jason M. Lemkin (Founder of SaaStr) was still at Adobe (post EchoSign acquisition) and well known SaaS blogger Tomasz Tunguz just left his PM gig at Google to join Redpoint Ventures 😇
  • The most celebrated SaaS unicorn Stripe, didn’t even exist in 2009! Today, Stripe has given birth to a whole bunch of subscription businesses and I bet they are the market leader when it comes to powering payments for SaaS companies
  • And finally, you’d have said bonkers if McDonald's decides to buy a SaaS company for $300M. This week (2019) McD snapped Dynamic Yield (machine learning platform) to create an Amazon style personalized experiences for their customers. Welcome to the future! 😍

Being in SaaS today is like being a painter during the Renaissance. If you know how to build and sell software, you are unstoppable. It’s never too late, come join the SaaS movement.. Viva la SaaS revolución!

PS: If you are someone looking to build your career in SaaS and need advice, feel free to reach out to me on [email protected]

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by Sudheendra Chilappagari @webaficionado.Sudheendra leads product and growth for Segment Platform. Previously, he was Co-founder of Belong.co
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