Blue Horizon’s reading list is a curated collection of articles for SaaS founders and management teams. We are entrepreneurs and operators who have lived through the process of founding and scaling software companies. Here are the articles and resources we found useful this month.
State of the Cloud 2023 with Bessemer Venture Partners
on SaaStr
There’s been a pivot from growth at all costs to driving profitability. Today, the top 10 highest BVP Cloud Index companies are driving an average of 14% free cash flow, double from just a year ago for the same companies. The efforts to drive profitability aren’t going unnoticed. They’re being rewarded. At the peak of bull market exuberance at the end of 2021, a 1% improvement in revenue growth had the same impact on valuations as a 6% improvement in free cash flow margin. Said another way, growth was more important than profitability by a factor of 6 at the height of bull markets. Today, this ratio is closer to 2:1. It’s still in favor of growth, but it’s more balanced today. A 1% improvement in revenue growth today has the same impact on valuations as a 2% improvement in free cash flow margin.
2023 Spending Benchmarks for Private B2B SaaS Companies
by SaaS Capital
The total median spend across all departments is 91% of Annual Recurring Revenue (ARR) for bootstrapped companies while equity-backed are spending 120% of ARR. Based on the total median spend, 80% of bootstrapped companies are operating at breakeven or are profitable while only 32% of equity-backed are breakeven or profitable. Or said another way, 20% of bootstrapped companies are operating at a loss while 68% of equity-backed are operating at a loss.
Domo: Cautionary Tale of Hype & Inefficiency
On OnlyCFO’s Software World
The point of this post is not to kick Domo while they have been down for the past 5 years — they have been doing that pretty well themselves. But rather illustrate the issues and provide their story as a cautionary tale to both operators and investors. Domo was an early example of a software company being over funded and overvalued, but there are a TON of companies today on a very similar path to Domo. Extreme inefficiency and weak revenue growth endurance are related and will be incredibly common with these companies. Many will hit a growth wall and struggle to ever have meaningful profits.
4 Key Takeaways from the AI Panel at Saastr 2023
by Tomasz Tunguz
Four key takeaways:
▪️ First, large language models like GPT-3 are making AI accessible to the masses.
▪️ Second, education represents a huge opportunity for AI.
▪️ Third, AI-generated images saw breakout success this year.
▪️ Finally, there’s debate around who will tune AI software.
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Blue Horizon acquires and invests in profitable software businesses with stable recurring revenue streams. The Blue Horizon platform combines long-term capital and industry expertise with an operating model that enables businesses and their leaders to focus on growth and profitability.