At last week’s Workshop Wednesday, we brought back one of our most highly requested sessions: an AMA (Ask Me Anything) with SaaStr founder and CEO Jason Lemkin. In it, we cover the SaaS community’s most pressing questions about Artificial Intelligence (AI), pricing, efficiency, and funding.
Before diving into your questions, you’ll want to head over to the link below and sign up for an exciting event coming up this week. On Wednesday, March 27th, SaaStr is hosting AI Day, you can sign up for free at this link.
The biggest thing on many of our minds is what the future of AI will be in B2B. Some founders fight against AI, and those companies are losing deals to competitors who may have issues but are still AI first.
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Q: What Are You Most Excited About with AI?
AI is coming for sales and marketing, and Jason is a super fan of AI in marketing. Why? Because hundreds of the best founders are radically ripping through post-sales AI, and now it’s time for marketing.
“Most folks get it, but it took me a while to see the 80% thing,” Jason says. Let’s look at an example to illustrate what he means.
At SaaStr, we do tons of video, maybe 500 hours a year or more. An app called Opus Clip came along, and you give it a URL to a SaaStr video, and it gives you 20 clips. Are they as good as what an agency can do? No.
But here’s the aha moment. Agency clips do twice as well as the ones from Opus, but we get 100x more and don’t need an agency. You get 100x more and don’t need an agency, and it does 80% as well as an agency that is sometimes late. You can spend $100/month on AI instead of $5k-$10k/month with an agency.
It’s disruptive. Doing 80% as good as a human when you’re already doing it may not be worth it. But doing 80% of what you can’t get done… that’s huge. 20% isn’t good enough, so if a bot can take that 20% to 80%, that’s a big deal. Why wouldn’t you do it?
Q: What Role Will Employees Play For AI?
Trust is a big deal with customer support. One SaaStr fan asked what role company employees play with AI and providing accuracy to customers. “95% of the folks I talk to don’t understand the product themselves,” Jason says. “When I get a good cold email from an SDR, I ask what they could really do for SaaStr, and they have no idea. AI is better than that.”
Many folks in CS don’t want to hear that their outbound emails are horrific or that they don’t follow up. CSMs have been turned into upsell or ambush agents, at least outside of the top performers.
We don’t need mediocre CSMs making $100k a year who don’t know the product or take forever to get back to you. It’s challenging to find super high-quality folks unless you’re in B2C, where customer support is sales. As a founder, you need to be more involved in functional areas like sales support and success.
Two things are fueling this change in CS with AI.
- It’s tough for folks to staff these functions.
- You have to be so much more efficient.
The average public SaaS company is marching toward $400k in revenue per employee. Today, we have to be 4x more efficient than a few years ago, so you probably need half as many people as you do, and AI is the only way to bridge the gap.
Q: What Do You Think AI Will Do to the Next Generation of Innovators and Disruptors? Will It Affect Entry Level Jobs?
“We’ll see,” Jason says. Many tech veterans don’t want to work anymore, and we can’t afford folks who want to work 10 hours a week and make six figures. Will the next generation want to put in the work? “I hope so,” he continues.
In B2B, we will be stuck with AI because there’s no one to work at our companies. You can find some pirates and romantics, and you might have to use AI.
What about budget? Is there budget for AI? At the CIO’s office, there’s a certain amount of budget for experimentation, but not that much. Folks are still doing app layoffs. Today, AI budget is more centered around getting rid of people and getting more efficient.
If you can tap into that, you can tap into budget that may not exist in your category. It’s a little brutal, but if folks want to get rid of half their contact center that are people and replace it with software, you’d probably get budget for $50k.
Q: What Teams Should Be Involved to Fully Leverage AI and Get in Front of the Wave?
Jason would challenge each department to go out and find one app that will make the company more efficient. Give everyone x amount of money to go find the best one. Is the CTO involved in these decisions? No, they don’t need to be involved when you’re using one or two seats of whatever software.
Inspire them to do some tire-kicking, see what their ideas are, and if it doesn’t work, kill it. You can’t replace everything with AI today, but the progress since last September has been so high that you have to be on top of it in a competitive landscape.
“If you fight this wave, you’ll lose. If nothing else, find the gem of truth in AI in your segment and expose it to your customers.”
Is SaaS dead right now? Not literally, but is the energy there for any SaaS product that isn’t AI? App contraction is still happening, and AI is absorbing all of the energy in the industry. Of course, vertical SaaS will always be differentiated, but if you’re anything remotely horizontal, there isn’t energy unless you’re bringing AI to the table.
Q: Where Is The Best Place to Start When Implementing AI Into Your Product?
If you’re not implementing AI into your product and haven’t embraced what’s happening, you should copy the competition so you don’t lose deals. Build a mediocre version of something because feature parody matters in SaaS.
You can lose deals to feature gaps, and Jason has seen rampant loss of business due to not having feature parody. If you have a critical feature gap, you’ll lose a lot of deals right now, even if the AI in your competition isn’t perfect.
Today, folks seem to be launching fewer features, ratcheting prices, and digging into the existing customer base. “If you don’t have pseudo AI parody, I’ll bet on the vendor that has some type of AI,” Jason shares.
Q: What’s The Best Advice for Overcoming Aggressive Renewals and Huge Price Increases?
“Price increases are where folks go when they don’t know how to innovate,” Jason says. When you’re mature, raising prices by $1 might make sense. If you’re at $100M or $200M of revenue and your growth is facing a decline into the single digits, pricing stuff is super important.
But if you want to grow fast, you want to innovate and take care of those customers and the energy that goes into these pricing games, especially for new CROs and revenue teams.
Jason shares that he would love to see more focus on logo retention and GRR and fight this toxic trend of CS reporting to sales. Sales should be focused on closing new customers as much as possible because that’s what will make your business succeed over the long term.
CROs focus way too much energy on post-sales to the detriment of the long-term success of founders. You’re much better off having a great VP of Sales to close customers and make them happy.
The only way to win in B2B is to materially increase customer count. Whether you raise prices or not, if you don’t increase customer count, you’ll quietly go into terminal decline. If your customer count is still growing 20-30-40% each year, even when NRR is down, or things are harder, you will have a bright future.
Q: Do You Think This AI Trend Will Impact Funding?
Will later-stage rounds disappear because people get more efficient and need less money? Many people are raising just one round and taking off. It’s not so much an AI trend but an efficiency one. People may raise a round or round and a half, and that’s it until very late stage. That’s what Viva did, and they’re at $35B.
A round and a half is enough for an 80% gross margin business with high NRR and good word of mouth. All the great software companies are built on 80% word of mouth.
If you get that early virality, even a light amount of it, and you get enough of that engine going and are efficient, you can do a lot. We will likely see more of this trend. In 2021, anyone growing decently was funded. That’s why there were so many unicorns.
That’s not true today. But what is happening is maybe 10-20% of folks are growing at 2021 rates or faster, and they’re being flooded with capital. In 2021, there were more places to put it, but if you’re a top 5% startup, ideally AI first, you’ll be flooded with more capital than any startup should have.
And funds aren’t just coming from new folks, but existing investors with bigger funds. So, some will stop raising a round or two, and others will reach a level of scale where they’ll have to be very disciplined.
Growth capital won’t dry up because it has to go somewhere. It’s always hard to raise capital, but if you’re in the box where valuation, growth, and timing work, you’ll do fine. If you’re outside that box, it’s brutal.
Q: What Do You Recommend the ARR Per Employee for a Startup of $2M ARR to be Seen as Efficient?
“This is a great and terrible question,” Jason says. Founders across the board are misinterpreting advice from VCs and social media. “No one wants a startup at $2M to be profitable or efficient. It’s too early.”
No one cares if you’re profitable or efficient early. It doesn’t matter until you’re at scale. Folks can’t raise as much capital these days, but you don’t get credit as a startup for being profitable but not growing.
You still have to grow as fast as ever. In many cases, you have to be even more efficient with less capital. You will get no VC funding for being profitable. You do, however, have to get from 1 to $200M in revenue in 10 years or less. So, put it on a spreadsheet.
If you’re at $2M growing 20%, how will you get to $200M in 7 more years? You’re not. No one will fund you because they can’t make money in venture, and it’s very hard to make money in venture.
If you get $100M in 10 years, that’s pretty good. Say growth slows, and you sell for $800M; that’s pretty amazing. Say the VC owns 10%. That’s $80M. The fund is $300M. How much of the fund is returned? You barely returned a quarter of the fund, even with a billion-dollar exit.
You need an A+ team, disruption, cutting-edge technology, triple-digit growth, and efficiency. Your job just got harder, and the pressure isn’t off for being profitable.
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- Source: https://www.saastr.com/everything-founders-should-know-about-ai-pricing-and-funding-with-saastr-ceo-and-founder-jason-lemkin/
