Santosh Sharan

Yesterday Salesforce shares dropped 21% after reporting missed earnings for the first time since 2006. I am afraid this is only the beginning of a long trend. Many enterprise SaaS companies are set to miss their forecasts. Here’s why (and how GTM teams should react):

BACKGROUND

Salesforce enjoyed at least 18 straight years of perpetual growth.

During this low interest rate period, Salesforce GTM teams

- saturated the CRM market 
- maximized account penetration 
- increased sales quota and hired large GTM teams

Now with high interest rates, Salesforce customers are beginning to realize:

- that a significant number of salesforce licenses are barely or never used
- that teams can be as productive without having salesforce licenses 
- that they need to question all large spends

It’s becoming commonplace for CFOs to show up on renewal discussions, asking for significant discounts.

Research says 33% of all SaaS spend is wastage.

I expect this will be corrected in the next 4 quarters.

Here are 6 things enterprise GTM teams can do to react:

1. Lower Price:

SaaS prices have been going up 18% YOY. For the last two decades, most enterprises focused on going upstream and took pride in large deals. The pressure to lower prices will be the highest at the top of the market. Proactively lowering prices will help retain some of these accounts.

2. Expand into the low end of the market:

With significant brand equity, enterprise SaaS brands can comfortably take out smaller vendors and consolidate the low end of the market.

3. Lower Sales Quota:

We have ended up with unreasonable sales quotas, most of which are not going to be achieved. It’s time to get realistic about sales efficiency and quotas.

4. Reduce or Optimize expenses:

GTM teams and GTM processes have grown significantly. Now is the time for companies to optimize expenses and focus on profitability.

5. Seek growth in APAC: 

While US and EMEA markets may be saturated for some, APAC can prove to be a high growth market given the lag in software adoption. For Salesforce, APAC will contribute 24%, EMEA 9% and Americas 11% of next quarter’s growth.

6. Consumption based pricing:

SaaS vendors that provide consumption or usage based pricing before their competitors do will gain an advantage and exhibit stronger growth.

TAKEAWAY:

The economic pressures are going to be more severe at the top of the market.

The winners of the next economic cycle will figure out how to provide value to users at a much lower unit price than their competitors.

The natural tendency for the enterprise GTM teams will be to ignore all the recommendations above until things get MUCH worse.

Don't.

This discussion needs to happen NOW.

With high interest rates, the world has changed.

We can no longer expect the same results as before.

It is time to evolve and align with the macro changes.

We can't bury our heads in the sand anymore.

If I was going to start a company today, I would not aim for a $100M+ exit. VCs will hate this, but here's what I think the new startup model looks like:

BACKGROUND:

In 2024, what should the goal be of starting a new venture?

Simple.

Sell the company as soon as you're ensured that every person in the team makes an average of $600K - $1M / year in the 18m-24m month period.

Why?

Because early stage entrepreneurs take on far too much risk.

Ask yourself, would you rather have a lottery ticket for $100M, where most of the proceeds go to institutional investors or would you rather sell for ~$15M where you get to keep all the proceeds and set aside some for the next job?  

If your answer is the latter, then let me show you how you start your next venture:

YOUR CONTRIBUTION?

- Don’t build anything novel. Stay away from technical innovation. Repackage what already exists for the lower end of the market
- All you need to do is disrupt the GTM and pricing plan (charge $99-$495/mo in a market that’s used to paying $20K+/year) 
- Offer 50% of the most used features disrupting the existing vendors and then sell the company back to one of the existing vendors

HOW DO YOU IDENTIFY A BUSINESS IDEA?

If you want to impress VCs then you can go into a rabbit hole justifying competition and why you are different  and create slides on how you use LLMs or AI. I can't help you with that, but if you want to bootstrap the business then here’s a framework to identify ideas:

1. Keep it simple: Stay away from anything complicated or new. New technologies come with a lot of risk, let VCs and well capitalized companies  take that risk - not you.

2. High ACV Markets: Do a thorough research on G2 or Trustradius and find categories that have SaaS tools selling for anything above $15K in ACV. The higher the better.

3. Low Building Cost: Find a SaaS category where you can literally copy the tool from other competitors with minimal effort.

4. Customer List : Prefer category where it is easy to pull the customers of the tool using technographics providers (such as builtwith or HGInsights).

5. Choose a category where one of co founders have expertise in or have prior work experience as an exec and can command trust.

HOW DO YOU BUILD THE TECHNOLOGY?

- The entire technology needs to be developed by a single full stack developer in less than 6 weeks. Period. 
- Don’t outsource. One of the co-founders needs to be able to build the entire tool. Avoid UI/UX or design cycles if possible. 
- Buy free trials of existing tool in the market and make a cheap knockoff of the most popular used interfaces or workflows
- Use automation to generate code, add some of your own skin and viola you have a product that can be marketed
- Don’t invest in technology thereafter, other than minor enhancements

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