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THE ICONIQ GROWTH
Enterprise Five
The ICONIQ SaaS Glossary
See our SaaS Glossary for a completeguide to the key metrics
included in this report, plus:
Cost classification
Revenue recognition
Cohort analysis
Unit economics
ICONIQ Growth standards across five key metrics we
believe are highly representative of a B2B SaaS
company’s overall growth and efficiency:
Our analytics efforts were born with the same analytical rigor that has been embedded in our DNA as investors since inception.
Our mission is to empower our portfolio with proprietary analytics, insights and problem-solving frameworks to make informed decisions across their business operations and strategy.
This takes the form of both broad thought leadership – recent examples are the basis for what we will be sharing today – as well as deep, 1:1 partnerships and advisory work with our operating leaders.
We are going to fly through data – can get it all on our website and will share these slides afterwards
In terms of methodology, we’ll be sharing proprietary data from a few different sources:
Quarterly operating data from XX ICONIQ Growth portfolio companies
Proprietary survey of more than 230 SaaS GTM executives
Proprietary dataset of every CMO and CRO hired at XX B2B SaaS companies from the day they were founded to the day they went publicMethodology visuals with firmographics & logos
What are we talking about today?
As growth investors we’re lucky to have witnessed many exceptional growth stories from $10M all the way up to IPO
[Gather list of portfolio companies speaking at SaaStr so we can call it out as makes sense]
Ideally you have the best product, but the companies that win and are the market leaders have the best product and the best GTM (e.g., Microsoft)
Companies invest a lot in go-to-market, and it only gets more important as companies scale
And in today’s macro environment, go-to-market strategy is perhaps more important than ever.
Most companies have experienced continued headwinds through most of 2022 and 2023 year to dateGraph of topline attainment by year and quarter
When we look at performance against key go-to-market metrics in 2022-2023 compared to prior years, the macro impact to both growth and efficiency metrics is significantGTM metrics scorecard: ARR Growth, NDR, Net Magic Number in 2022-23 compared to 2019-2021 (and maybe before)
Talk track: performance against metrics
Today we’ll discuss how companies build a strong go-to-market motion starting from the beginning through IPO
Today we’ll focus on the how – how do companies drive strong GTM execution as they scale
As growth investors we’re lucky to have witnessed many exceptional growth stories from $10M all the way up to IPO
[Gather list of portfolio companies speaking at SaaStr so we can call it out as makes sense]
As SaaS companies scale, many experience a growth plateau after reaching $10M ARRARR growth rate by ARR scale
One of the key drivers required to navigate this growth hurdle is an organization’s go-to-market strategy and execution
What are good measures of product market fit? Net dollar retention is one of the best
GTM teams are focused on:
Landing new logos. During this stage, new logo ARR drives ~70% of ARR growth
Logo churn is the top driver of total churn, as companies identify and refine their ideal customer profile
Early Ics are foundational – critical to get these right
One of the biggest questions you’ll face when building your go-to-market motion is how to build and scale your teams. Here’s what the typically go-to-market org looks like during this stage
[Perspectives from CRO of Cloudflare - from May 2023 dinner]
Founders will always be the best sales person but founders are also the best at a lot of other things: have to both stay involved but identify the right times to step back
There is a magic to founders being involved with customers which is so critical to the product roadmap and always ensure that your team knows that no customer call is too small to invite the founder
Often there is a risk for founders that if you delegate customer conversations, critical feedback gets filtered and you don’t get a true understanding of customers’ problems
Chris’ advice is to think about the finding the right way to scale your role as a founder as a trust exercise – if, as a founder, you believe you are getting the unfiltered truth and feedback from your team particularly around product and allocation of resources, it is a good signal that you can step back. If you hear too much variability in the feedback and don’t trust the perspectives, stay involved
Roles and responsibilities can look different at this stage
For example, the role of CS evolves as companies scale
[Perspective from Angi Holt - CCO formerly of Productiv, now of Datadog]
Hiring can be challenging in the early stage: find people that are willing to build with you and your customers
CS is the band-aid at early stage companies. Hire people that are going to be able to partner with your customers to understand their use cases and fill in product gaps. When you’re still trying to find product market fit, you want your CS people to be jacks of all trades. As you scale and your product becomes more mature, your CSMs can become more specialized or commercialized
Another example: often your first sales rep will be hired before your first dedicated sales leader. This person will be integral in building the early versions of your sales process and establishing relationships with your earliest customers
Hiring a sales leader
40% of companies have a sales leader before $10M ARR, but most do not. Of course, this will depend on your operating model
FYI, you’re going to have multiple sales leaders as you scale (usually 2-3), but your first one should…
CAROLINE TO UPDATE TALK TRACK
Generally, Early Stage companies are looking for one of two things when they make their first Sales hire: they want someone who has been a Head of Sales before, or they want someone who has experience running a big book of business. Typically it is hard for companies to get someone who checks both of these boxes (and most commonly, companies wind up hiring someone with neither).
Early Stage companies found the greatest success when hiring for a prior quota of ~25X+ current ARR (so for a $10M ARR company, that would be a prior quota of >$250M). (this refers to an executive’s prior personal revenue accountability or quota, not the full company number). It turns out that having been a Head of Sales before doesn’t matter all that much
Optimizing for prior Head of Sales experience instead of scale resulted in a >3X higher early departure rate.
Scale can compensate for a lack of prior leadership experience, and failure to scale up proves to be a bigger risk than failure to scale down (many Founders worry that a leader’s scale from a large company may be too vast relative to where the company is, but the data suggests that this need not be a fear as these leaders wind up having great tenures)
Heads of Sales with neither trait fared the worst.
Incentives and compensation structures are a critical component of go-to-market strategy. Incentives align your go-to-market teams towards shared business objectives
Go-to-market teams - particularly those most directly responsible for revenue generation - are often incentivized by a portion of their compensation tied to performance, called variable compensation
Tie this variable compensation to performance against individual goals - and make sure individual goals are tied to company goals
The most common metrics for Account Executives: closed won ARR, contract term (longer contracts better)
The most common metrics for CSMs: Net Dollar Retention, Gross Dollar Retention, Renewal Rate
Reward strong performance
Use accelerators
Don’t cap commissions (except for exceptional situations)
Talk track : in the early stages, strong performers should be making 2-3x their variable compensation
Note about why how we’ve structured this: we’re going to walk through critical drivers of strong GTM execution by scale
Talk track: during this stage, operationalizing is critical. Prepare your GTM motion for scale
GTM teams are focused on:
Landing new logos. During this stage, new logo ARR drives ~70% of ARR growth
Logo churn is the top driver of total churn, as companies identify and refine their ideal customer profile
This is the first time you’re really scaling out this team and you must operationalize to support the growth
Most companies segment their teams by company scale% of companies segmenting by top methods
You’ll have sales reps aligned to each segmentAE headcount per segment (maybe ratios of SMB EEs to Mid-market EEs to Enterprise EEs)
Companies build a robust tech stack at this stage
Talk track: AI commentary
These are the most popular, but always be on the lookout for newcomers
The importance of tooling is in part the role these play in allowing you to track and measure sales activities to work towards forecast visibility and revenue predictability
You should have full forecast visibility, and you should work towards revenue predictability (gets more important as you approach IPO, which we’ll come back to). Track conversion rates from the top to the bottom of the funnel and work to improve them
Talk track: should really be investing in measuring your sales process. Get really granular – what activities (emails calls meetings) are working, how many are needed to create an SQL, what campaigns are working, what do conversion rates look like by persona / company segment, etc.
Talk track:
During this stage, quota attainment starts to decrease and ramp time starts to increase. Invest in sales and enablement to manage through this
Onboarding and enablement is very important, but it’s a waste of time to over-invest in it if you haven’t achieved repeatability yet. An onboarding and enablement program is meant to teach and coach reps on what works and how to do what works, so you need to know that first
You should be building structure into your enablement programs at this point. Highspot’s “sales enablement maturity framework” says this is when you should start being structured around sales specific sales playbooks and activities, and rigorous in terms of coaching and practice
Talk track:
An enablement program is only as good as your coaches. Set
With the freeze in IPOs over the past 18+ months, going public may not be top of mind right now – but it actually should be, at least from a team-building perspective. We typically see the CRO join 3 years before IPO (on average). Building a predictable revenue engine can take time, so more time is often beneficial when building your IPO-ready team. Optimizing for longevity starts to become important at this stage.
As we saw with Early Stage sales leaders, during the Early Growth Stage, scale trumps prior Head of Sales experience (internal note – this comparison is not shown on slide but could be interesting lead-in)
For Heads of Sales hired between $20M-$50M ARR, we see ~14X+ ARR as the figure that leads to greater success in terms of tenure and longevity
You’ll notice that the relative scale requirement has decreased since Early Stage (25X ARR to 14X ARR), but the absolute scale requirement has, of course, increased. Assuming you are right around the midpoint of this stage, you would be looking for someone who has owned a personal revenue number or carried a quota of around $500M ARR.
Certainly there are leaders who made it to IPO without demonstrating this quota threshold, however, in terms of minimizing downside risk (having an important hire depart prematurely) and maximizing potential, “more is more” when it comes to scale
We have found that each Marketing leader typically has a “major,” or a predominant strength. The three primary personas are: Product Marketers, Revenue Marketers, and Corporate Marketers. You want a leader who can adeptly manage your entire marketing strategy, but the question inevitably arises around in which of these areas your leader should “spike.”
Note about why how we’ve structured this: we’re going to walk through critical drivers of strong GTM execution by scale
GTM teams are focused on:
Landing new logos. During this stage, new logo ARR drives ~70% of ARR growth
Logo churn is the top driver of total churn, as companies identify and refine their ideal customer profile
- Of course there are some one-time marketing expenses related to IPO event itself, but for the most part, a steady increase in marketing overtime is what drives further scaling as companies approach IPO
At this stage, you should be developing an enterprise-ready product and testing your sales process up-marketCould layer in some light G&E insights here in terms of net new arr generation by scale, ACV by scale100% stacked bar of customer mix by segment by ARR scale
Commentary: this is mostly mid-market to enterprise companies, but the same trend is true of SMB as well
You may think about building out more robust support and services teams / capabilities to support larger enterprise customers, with the ultimate goal of retaining and expanding these customers over timeOver time, customer support and other professional services like integration support become a larger portion of overall services revenue
Note about why how we’ve structured this: we’re going to walk through critical drivers of strong GTM execution by scale
GTM teams are focused on:
Landing new logos. During this stage, new logo ARR drives ~70% of ARR growth
Logo churn is the top driver of total churn, as companies identify and refine their ideal customer profile
We typically see the IPO-leading CMO join 2 years before IPO (at the median)
For SaaS companies founded in the US, around 80% of their total revenue on average comes from north america until they reach $100M ARR. At this stage, revenue from EMEA and APAC grow to 30-40% of revenue100% stacked bar of revenue source by region and ARR scale
Talk track: [Perspectives from Xactly’s head of Japan expansion & Drata CRO] Caution against doing this too soon. Signals you should be ready to think about expansion include:
You have competitors in this market
You have existing customers based in this region with strong uses cases and adoption
You have enough existing customers to have a referral network: customer references are key when entering other geos. The first thing our prospects ask is “who in Japan is using this”
Use partners to help you expand internationally