Words of Wisdom from an Exited Founder

Plus: Where is money being spent in software?

Good morning MRR lovers,

Have you ever wished to receive advice from someone worth $100M? Well, today is your chance.

🍿 Quick Snack

  • 💬 $100M Advice: If you are looking to build a SaaS in 2024, focus on micro-solutions.

  • 💰 Did you think companies were spending less on software? Think again. 59% of spend went into only 4 categories.

  • 🍟 Extra Fries: 7 things to do when you’re struggling, Layoffs, and State of SaaS in LatAm.

🍔 The Full Meal

Wisdom from an Exited Anonymous Founder

We cannot deny that a vast amount of SaaS companies are being started every year, of which many products do the same thing and target the same customers. (I covered the commoditization of SaaS in a previous issue)

Despite the competitiveness of the market, there is still room for opportunity.

If you are looking to start your next venture, here are a few pieces of advice by Reddit user “RetiredFounder”:

  • Advice: Build a product with micro-focus, i.e., that solves a particular but important problem. To pull this off, you will require technical/programming skills, sales skills, and deep domain expertise.

  • Definition of Micro-Focus: Find a real problem you can solve that alleviates pain for your customers or gives them something they can’t get elsewhere. If you don’t have expertise in a particular area, work at a company that allows you to develop it. This will help you build a network of people that can become co-founders or early customers.

  • Prioritize Distribution: Make sure you can reach your target customer. Experienced founders think about distribution first; everything else is second.

  • Beware of Third Parties: No third party will be able to sell your product if you can’t sell it yourself in the first place. Resellers don’t create demand.

  • Technical and Sales Skills are essential for a successful venture: You can have both in one person, but ideally, these are two separate people.

  • Should you outsource development? No. Resist the idea of hiring an offshore development team to start the company. It will be expensive and frustrating to manage. You need to have the ability to move super fast when required.

  • Do I really need a person who can sell? Yes. No one can sell your product if you can’t sell it yourself. Lead generation is one of the most complex and challenging parts of starting a business. You need someone who will be able to bring prospects in the door.

  • Domain expertise is critical. For example, if you have been in the insurance industry for 10 years but have an excellent idea for the plumbing or the funeral home industry, be careful. Do not make assumptions about who your customers are and why your product will appeal to them. “Don’t leave your gold mine,” meaning leverage the wealth of knowledge you possess to build your business.

Where is money being spent on Software?

Over the past year, there were 3 significant shifts in a customer’s approach to buying Saas:

  • Payment terms became a priority to preserve cash flow

  • Customers were increasingly shopping around for alternatives, whether when considering new purchases or for renewals

  • There was a decline in multi-year agreements as companies prioritized flexibility

In 2023, 59% of spend in Software went to the following categories:

  • IT Infrastructure (27% of spend)

  • Data Analytics & Management (12% of spend)

  • Sales (10% of spend)

  • Security & Compliance (10% of spend)

How is software spend affected as companies grow?

The answer is two-fold: 

  • There are unlucky segments that experience a decline in a % of spend as a company size increases. Categories include Design and Content Tools, Marketing and Advertising, Finance and Accounting, and Commerce and Retail.

  • The lucky segments maintain a consistent % of company software spend across all sizes. Categories include Productivity, Vertical Industries, Dev Ops, and Human Resources.

Top Suppliers by Average Contract Value and Transaction Count

Top Products by Quantity Purchased

🍟 Extra Fries

  • 7 things to do when you’re struggling (Read More)

  • Salesforce, DocuSign, Okta and others laying off hundreds in SF (Read More)

  • Cisco launches Motific, a SaaS offering to accelerate generative AI deployments (Read More)

  • State of SaaS LatAm 2024 (Read More)

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See you next week!
-Alejandro