Here is the first newsletter of 2024. Let’s dive right in.
🎯 AI is transforming the SaaS industry by creating outcome-driven solutions. SaaS products are now functioning more like co-pilots, actively assisting users to achieve desired outcomes.
📉 SaaS companies faced low growth rates in 2023 and need to find ways to manage costs while expanding business. Two strategies for growth in 2024 are adopting usage-based pricing models and prioritizing resilience and efficiency.
🍟 Extra Fries: AI is transforming construction management, SaaS funding is shifting towards sustainable growth and efficiency, and vertical SaaS companies are well-positioned to succeed despite the rise of AI.
Outcome-driven solutions are the future of SaaS
AI is not merely a step forward in productivity or efficiency; it is a transformational shift that will alter how SaaS is created and how it is utilized by customers.
Prior to the emergence of AI, SaaS offerings were mainly created to automate specific tasks or streamline certain processes.
However, with the emergence of AI, we are witnessing a new trend where SaaS products function more like co-pilots, actively participating and assisting users to achieve their desired outcomes.
This has two significant implications for the ecosystem:
Existing startups and established companies must rapidly adapt and integrate AI assistance into their products to maintain a competitive edge.
On the other hand, emerging startups must completely rethink their solutions rather than just incorporating AI into an existing product.
Here are some examples of companies in the latter category:
Inflection AI is creating a personal assistant called Pi. Pi lets anyone quickly receive relevant information and advice on their interests.
Metropolis is revolutionizing the parking industry by enabling checkout-free payment for drivers while allowing operators to replace all parking revenue systems for a fraction of the price.
Adept AI is building an entirely new way to get things done. It takes your goals in plain language and turns them into actions on the software you use every day.
Builder.ai: “Software built at the speed of thought” — this company offers a no-code AI-powered app development platform designed to build and operate software projects faster and cost-effectively.
Unlocking Growth in Challenging Times
In 2023, the year-over-year growth rate of SaaS companies experienced its lowest point in the last five years.
The existing challenge for founders is to find creative ways to manage costs while continuing to expand their business.
In 2024, there are two strategies that SaaS companies can implement to drive growth:
#1 - Consider adopting an usage-based pricing model
SaaS companies are moving beyond traditional licensing and seat-based pricing to more flexible models, such as usage-based pricing (UBP).
UBP is gaining popularity because it offers more predictable revenue streams and enhances customer satisfaction (customers don't feel like they are "overbuying," they only pay for what they use)
UBP models also outperform traditional subscription models in terms of ARR growth, with companies opting for a UBP model growing at an average of 200% annually, compared to 116% for subscription-based companies.
#2 - Prioritize resilience and efficiency.
🛠️ AI is revolutionizing construction management, driving significant market growth, enhancing project efficiency through improved planning and risk management, and fostering better collaboration and safety on job sites. (Read More)
📊 In 2024, SaaS funding is shifting towards sustainable growth metrics and efficiency, with a focus on ARR per employee, Rule of 40, and unit economics as key indicators of fundability. (Read More)
🏆 Vertical SaaS companies are in a good position to succeed and remain resilient, thanks to technical limitations, psychological preferences, and efficiency gains, despite the potential for AI to enable internal software development. (Read More)
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