Technologies/AI

As growth became more elusive, a new set of software product benchmarks emerged

Even the fastest growing software startups aren’t growing as fast as they used to.

Of course, this is partly by choice; You have to trade growth if you want profitability, and vice versa. The benchmarks for measuring startup performance have changed over the past year, but changing startup performance standards mean we need a new basis for rapid growth, VC firm OpenView argues in its fourth annual Product Benchmark Report.

“As SaaS companies have moved away from growth at any cost, we have updated the report’s definition of ‘rapid growth’ from 100% growth to 75% year-over-year,” the report authors wrote.

Based on a survey of 1,000 private software companies, the report found that 22% of software startups qualified for OpenView’s definition of ‘fast growing’, down from 32% last year, even though a lower rate of growth was required to enter the cohort. OpenView runs surveys with product analytics startup Pendo.

It’s not just private software startups that are finding growth harder to come by; listed SaaS companies are also struggling. Nearly all of the most valuable SaaS businesses that have gone public since 2019 saw a decrease in net dollar retention (NDR) in 2023 compared to 2022.

We’ve also had our eye on it: Snowflake’s latest earnings is a good indicator that even companies with the most impressive NDRs are not immune to market swings.

The exact NDR for SaaS startups to target is a huge topic, and OpenView usually addresses it in the SaaS Benchmarks Report released in the fall. As for this product benchmark report, it is much more focused on the operational levers that software companies can pull to emulate the best in class. This is clearly a top concern for founders hoping to find a way to unlock new revenue streams without large investments.

Find someone’s group

What will the benchmark of a healthy SaaS product look like in 2023? Well, it’s tricky. If you’re selling enterprise contracts, you can’t expect the same level of sign-ups as for a self-serve product that caters to developers, for example.

“This is why we try to dissect data in different ways, so that people can find relevant metrics for their specific product experiences,” said OpenView operations partner Kyle Poyar, one of the report’s authors.

Another purpose of this segmentation, added Poyar, is to show companies some of the decisions they can make if they want to move to a different niche. “Things like what kind of customers you sell, whether you have a freemium move, free trial or retry… a lot of that is actually under your control as a business.”

One of the main changes many founders contemplate is whether they should adopt some form of product-driven growth (PLG), as opposed to the more traditional sales-driven growth.

In 2022, previous OpenView reports show that product-led companies are twice as likely to grow more than 100% year-over-year than sales-led peers. Such growth rates may be out of reach this year, but they still explain why companies are considering PLGs. However, the application of this strategy is still uneven and there are many nuances to consider.

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