You know, I feel like I use a similar introduction for every session, but with this one, I really am honored to present a two-time sponsor, a platinum sponsor of SaaS Metrics Palooza of 23, someone who's an amazing leader in our industry, and someone that I'm very happy to call a professional colleague and friend, and that's Randy Wootton, the CEO of Maxio. And with that, Randy, it's your show. Great, thanks, as always, Ray. It's a pleasure to work with you and to work with the other folks that are participating in this year's SaaS Palooza to help us better understand what's available in the market and what we could be doing together to move the market forward. And so today, I'm excited to talk about the only two metrics investors and operators can agree on. This comes from having been a CEO three times, once at a public company, and once at a private company, now at a PE company, and worked with lots of investors. But to set a little bit more context, my journey so far is I break it into three phases. First phase I describe as living the dream. When I was flying jets as a bombardier navigator and A-6 intruders, I went back and taught English to a bunch of midshipmen at the Naval Academy. This is a picture of them in my class, which was pretty consistent across my classes. I realized I didn't have a future in teaching. So moved into the corporate sector and spent some time at some of the greatest companies out there, Salesforce, Microsoft. I led a company, Rocket Fuel, and was part of another company, Iquanov, and just great. My third phase was I called the C-suite. And so for the last seven, eight years, I've been, as I mentioned, CEO of a couple of companies. I was fortunate to be chief strategy officer at Seismic after we sold Percolate to Seismic and got to see another great CEO, Doug Winter, do it right and took some of those lessons learned to apply in my role now at Maxio. I've also been on boards, both the boards of the companies I was running, but also on a couple other boards, Guiding Financial, a tech-enabled service, Opal, which is an enterprise content strategy platform, Tiled, content production software, and then helped out with RallyPoint. So I've had that visibility on both the operator and the investor, and that's what the root of this talk is coming from. The other asset that we're going to be just talking about a little bit today is the Maxio Institute Growth Report. And this is a collection of data from over 2,300 customers that are Maxio customers. And it helps give an overview of what's happening in the broader B2B subscription marketplace. And we will talk about what we've seen, this complimentary to the benchmark survey that Ray and Teams publishes. And I think there's a really nice way to bring these two things together to better understand what's happening in the market. And then we'll double-click down into the specifics of how you impact your growth rate. So what are the primary trends in Q1 of 2022 and Q2, 2023? What you've seen is that the growth rate started decreasing in Q3 of 2022. So in Q1 of 2022, this is where everybody, the heady days of 30% year-over-year growth, everyone's excited about that. We started to see the decrease in Q1. And then now in Q1 of 2023, it's gone down to an average about 10%. If you exclude the less than 1 million, which we'll talk a little bit about, it's at 13%. But there's been a little bit of a rebound. And so people are interested to see what's happening in Q3. It's like the end of the season of your favorite TV show. You're left with a cliffhanger. So we'll be sure to get data out as soon as Q3 closes to see if this trend has continued. We also have done some analysis within the Maxwell Institute to look at the segments of customers we have, primarily from zero to under 100 million. And if the growth rates are different by size of customer as well as funding stage, what you're seeing in this initial graph is that the companies that are less than a million bucks have really taken a hit over the last six quarters. It seems like that would make sense that they haven't gotten product market fit. They're not getting the funding. They're going out of business. You're also seeing the significant material decrease in those companies that are 20 to 50 million. And this is companies with large go-to-market teams. I think we've seen this significant reduction in the overall B2B SaaS space in terms of what's happening and are people willing to spend money. Every CEO, CFO I'm talking to is pulling back and looking at their spend and trying to get to that rule of 40. And then above 50 million, when you're moved out of that expansion phase, you cross the valley of death, you start to see stabilized growth in Q2 23. The other way, as I mentioned, that we have pivoted this data is to look at it by funding stage. And we use CrunchBase and PitchBook to help us identify what phase different companies are in. And one of the things you see is in the Series A is the drop down in growth rates over the last several quarters, and then just where it's pegged, less than 20%. I was talking to Chelsea, our general partner, Chelsea Stoner, who's on Battery, and she's the general partner who sponsored the Maxio acquisition of SaaSOptics and Chargify. She said, Randy, this is way out of normal in terms of her many years as an investor. She also said, it's probably because we're looking broadly across the full set of customers, and they do see customers or prospects that they're working with that are in that 100% growth rate. So there's still people out there that are winning. It's just becoming harder to win. What's the key difference between what was happening in 2021 and 2022? We, as many other people have talked about, is the shift from growth at all costs to growth efficiency, and growth efficiency is now being rewarded. Growth efficiency, one way to measure it is the rule of 40, which is a combination of your growth rate and profit margins. So if you were to look at the graph on the left, what you see is the enterprise value to trailing 12 months revenue versus the rule of 40 percentage. In Q4 2021, if your rule of 40 percentage was less than 10%, you could have a valuation of 10X. In Q4 of 2022, you have to be greater than probably 60% to get that same 10X. So there's much more scrutiny in terms of your growth rate, but also your profit margin. And so that's what we talk about efficient growth. So the rules of the games have changed. So what does this mean? Is growth at all costs land grab? You're dumping a bunch of money and go to market. You're trying to get customers. Now it's how do you focus on your ICP? How do you move from a sales funnel to a sales cylinder? How do you think about not just acquisition, but looking at your customer base where you already have an MSA in place. You already have established relations. You were probably the vendor of choice. How do you provide new capabilities, new services, new solutions to your customers? I think the other thing that we've been talking about on our end is the difference between getting any new logo versus those that are gonna be profitable for you over time. And that requires you to have a deep insight in the unit cost economics in terms of your customer acquisition costs. A lot of things that Ray talks about at Benchmarket and the Standards Board in terms of how are you thinking about your overall go-to-market efficiency, your numbers like magic number, et cetera. But then going to the next level of detail in terms of understanding your cost to acquire and then your cost to serve. Just because they're small customers doesn't mean they have big needs. And so how are you able to deploy things like community, peer groups, webinars, self-help articles so that you can right size the service that you're providing for customers that might be a little small. So before I dig into the two metrics that matter, I wanna call out a operating metric scorecard that Ben Murray, another colleague in this space and who's part of the SeaS Palooza cadre has produced as part of his work as the SaaS CFO, which is a set of metrics that are grouped under five different categories from growth to retention, to gross margin, profit and OPEX and efficiency. We use this exact scorecard, this operating dashboard in Maxio and I'd recommend it to everyone in terms of getting a better sense for what's working, what's not. If you're a really small company, Ben would tell you, hey, just focus on growth as you're getting out of the gate, pre-revenue starting to get that initial revenue and then you'll start to move into the retention metrics and then as you start to focus on retention, you'll start to look at gross margin. There are two metrics in particular that we're gonna talk about as around recurring margin and SaaS marketing as a percent of revenue, excuse me, sales and marketing as a percent of revenue that we will talk a little bit more in the next couple of minutes. The key is, what I love about this is it's one of these dashboard, color dashboards where you can just get a sense of looking at two companies which one is gonna be going in the right direction and which one is struggling. When you're on the right, this is an example of a company that Ben worked with and you start to see most everything's in green and so now then you can really hone in in terms of where there needs to be some focus. In this case, it's new bookings, gross logo retention and gross dollar retentions. Still pretty strong in the gross dollar retention but trying to get over that magic 90% in gross retention, especially if you're trying to do a new funding round. Whereas the one on the left's got a lot of work and this is gonna be one of those like a reset. So you're gonna have to come in and really look across the board in terms of what are the systemic issues, product market fit, probably have too many people for the size of the company, may require restructuring, et cetera. So I think of this as, this overall dashboard is a wonderful diagnostic tool like a business radar. So when I took over Maxio about a year and a half ago, I worked with Chelsea who I alluded to earlier in the board, small board and talked about how do they think about businesses? Like they had netted out, it can't be 27 metrics like we're on the other dashboard. And they said there are really two things that they focus on. And it's the wording they use is a cash engine and a growth engine. The cash engine is measured by a recurring margin. And what this is telling you is how much free cash you generate from $1 of ARR on your platform. So basically you gotta pay your cost of sales, which is reflected in your gross margin percentage. You gotta have the R&D to produce the product. And then you have GNA to maintain the system. So it's a representation of COGS, GNA and R&D. Once you pay those out, how much money do you now have generated to either put into your growth engine, if it's efficient or you bank it or you do something like M&A. So then you move through your cash engine, you start to look at your growth engine and this is a growth efficiency. And this is so how much net new ARR add for $1 of sales and marketing. And I think this is probably the metric a lot of people are working with today and trying to understand and the dynamics of a constricting market. Are they being efficient with their overall sales and marketing? And so it's a little bit more complicated in terms of how do you calculate it. It's your gap revenue in period three minus the gap revenue in period two or whatever period you wanna use. In this case, we're using a quarter. So you multiply by four and you divide it by your sales and marketing in the period prior to when you would be driving the revenue. So kind of like a magic number as well. And I think there's the two engines you start to double click in to understand what's happening. You split out the growth engine in terms of the net new ARR, what's coming from new customers, what's coming from existing customers. This ties into number of new customers, average ARR, which then has you reflect on the pipeline. And so you can either use this one or two ways and sort of looking at what's working, what's not at each of these stages. The cash engine is a little simpler in terms of it's really just what is your current ARR divided by the percentages associated with the COGS, the GNA and RMD. So how do we use it at Maxio? How do we use Maxio in board reporting? So to the comment about understanding what your ARR is, what is new, the initial new, the win back, how do you isolate this? How do you look at your loss, expansion, contraction? How does that all play out? These are the types of metrics that you need to inform both the growth engine as well as the cash engine. You also have the view of, so this is dollars, you also have the view of customer count. So what's happening in terms of logo retention and logo growth. So having that ability to look at your MRR and be able to do the MRR waterfall, do customer cohort analysis, starts to help you understand at the secondary or tertiary level of what's working in terms of your cash engine. So what are the takeaways? Broadly, we're in the era of growth efficiency. This is not new news. I do think it requires executives and teams to think about where are they going to get their growth? Is it going to continue to be from new logo? Is it going to be from current customers? It's going to require them to think about how much are they spending? The key metric we use, and we talk a lot about is the rule of 40. It's still a meaningful benchmark to measure your efficiency and how you're moving over time. One of my favorite articles by Todd Gardner, another colleague who's participating in this event, he talks about the porpoise effect and the opportunity to bring a company to profitability and run it profitably for a bit and then be decisive and directive about where you want to invest if you go negative again. And I think it's a really great way to run a company because if you're growing at 100% growth and you have negative 60% EBITDA and you have any wavering on that top line, all of a sudden you're in a deep hole on your EBITDA and trying to get to a rule of 40 is going to be really hard. So if you're hovering in this market more around that profitability or just below, and you can pop up to profitability when you need to, that gives you, I talked to my team about being in control of our own destiny. So once you understand what your business is doing, how do you make sure you're on the same page with your investors about what does good look like and how do we calculate our metrics? So going on, I'm just going to pop back here. This is another really powerful part of this dashboard. As I was mentioning in gross dollar retention, on the right side, adding in what benchmarks you're going after. So it's 90% is kind of a consistent metric you hear broadly around good gross retention, both dollar and logo. You have alignment with your board on that in terms of what that should be and then how you're tracking. And then you're able to indicate against the benchmark what's working, what's not. So I think it's super important to be clear about how you define your metrics, which periods you're looking at and having the right benchmarks. Then finally, obviously this is the advertising for Maxio is you want to have the reporting infrastructure in place to report consistently to your investors. I was just at a conference this week at the AICPA talking to a bunch of technology companies, about 45 of us in the room. And we were talking about revenue recognition as a component. The CPAs feel like many early stage companies still struggle with, they're trying to do it in Excel and it leads to lots of problems. And so this is what Maxio does is revenue recognition, reporting, as well as billing can help you make sense of all the numbers, help you produce those dashboards that you can be aligned with your investors on. So much like Ray is doing his podcast, we've decided to launch our podcast, which will be called Expert Voices. It's coming out in two weeks. It's gonna be semi-monthly podcast. We'll start off with Todd Gardner, who I was alluding to earlier, and we're gonna bring SaaS experts to you. And this is really meant to be about, hey, what's working for those folks in this space? They'll primarily be financial leaders or controllers, VP of finance or industry influencers and helping us to think about how to run businesses in this context. What are the lessons learned and what are they seeing for the future in terms of not just the role of CFO, but the role of finance and financial operations going forward? So look forward to that being published soon. If you'd like to stay in touch, you can reach me at my email. I'm always happy to set up a couple of minutes to chat. You can connect me on LinkedIn. I'm publishing articles about how to be a CEO, what are some of the lessons I learned I have had over the years. I would love to hear your feedback and suggestions on things you've learned. We're also writing a lot about the future of finance and financial operations in B2B SaaS. So with that, I'd like to say thank you. I look forward to seeing you on the internet. Well, thank you so much for that very succinct and content rich presentation. Would you mind going to your slide with the cash engine and the growth engine? Because I have a couple of questions for you. This is interesting that these are the two metrics that operators and investors could agree upon. Couple of questions. It's probably stage relevant, but on that cash engine, is there some benchmarks or recommendations on where we should be once we take that gross margin minus R&D minus G&A? Is it a plus 30% plus 50%? Is there any guidelines you have there, Randy? Yeah, I would say in general, what battery says is 30% is good, 50% is great. And to your point, Ray, it is stage appropriate. I think it is important to your implied point for the CEO and the investor to be super clear about what the expectation is. Because this becomes then your expense envelope in terms of investing in R&D, you're investing in G&A and COGS. And obviously when you're early stage, you're probably investing more in R&D because you're trying to build that product and get it out to market. And so having a clear understanding for your investment cycle, that's from R&D, your support cycle in terms of G&A and COGS to deploy the product will help inform how much you can go, how fast you can turn on the gas for the growth engine. Yeah, it's really interesting, Randy. Byron Deeter and Samir Dholakia from Bessemer who did the first session on Tuesday, they were talking about the opportunity to optimize even some development infrastructure to reduce their cost of goods sold. Are you finding that at, whether it's a match here or a lot of the CEOs you've talked to, that people are looking at code optimization to try to reduce COGS? Yeah, I think so COGS is comprised of a set of things. For SaaS companies in particular, large percent is tied to your hosting costs. I think in general, what I've heard is it's about 5% is reasonable. If you're spending more than 5%, you should really double click on that. If you're spending less than 5%, you should think about that as well. I think AWS has, there are a bunch of companies out there will help you optimize your AWS spend. They also have a set of services you can engage. So it will help you better understand if you're optimizing for AWS. Now there are challenges with going all into AWS because then you're depending on them versus being able to be cloud agnostic. So I think there's some choices you need to make. But what we see primarily is most companies that we work with are on AWS in their early stage growth. They may go to another cloud over time. The other thing, Ray, that I would suggest is really look at your internal software spend. So what are you spending on the things that are supporting COGS? And what are the things you're using to support your other functions? So R&D as an OpEx versus sales and marketing, those costs would go in the sales and marketing. But what you'll find in the question I asked, I was at a dinner we hosted with Expert Voices. We were in New York, and I did one in Austin this week. And then I was in Austin the week prior. We did one there. I asked people, how many software tools do they have? And the average was over 100, over 100 tools. And what you find is a lot of people and companies are set up, they're decentralized, meaning each functional leader can buy their own tool. And we're not all great negotiators. We think we are. But it's like we all think we're great singers when we go to karaoke. But having a collective understanding and maybe put one person on point, either your RevOps person, your IT person, or someone in finance to put their arms around the SaaS spend and double click on that. Right now, people are gonna take a little bit of a discount to keep you as a customer, I imagine. So I think there's an opportunity to solve there. The final piece around COGS, I think is more around process, Ray. And this is that customer support thing that we've talked about and how you think about implementation and speed and time to value. So that's a lot about process evolution, workflow automation, training, partners, et cetera. So that I think under COGS, there's a combination of working down your hardware, software costs, as well as working through your process optimization. One other thing about COGS, and this isn't pre-scripted, so this is real time, putting Randy on the spot here, but customer success. There is this ongoing debate of customer success. If they're doing onboarding engagement, A-level support is COGS. If they're doing expansion, it's OPEX. And what I guess is we have 50% of our audience here are finance executives that, customer success is the opportunity to optimize the number of resources being used for onboarding engagement and support. Yeah, I think so. And I think we're partners with GuideX. This is a free shout out to GuideX, which has significantly reduced the amount of time it takes for our customers to get up and running because we have a programmatic way of them walking through our system and implementation. So I think that's one way to think about it. The other way, which I've seen at other companies like Salesforce and Microsoft, is to lean into your partner ecosystem. So build your professional services, create a playbook, and then engage with partners directly to help on your capacity. And it also, the commercials can work out to be pretty good. If you've got a good set of partners, you're feeding them a bunch of opportunities, you're not taking that cost necessarily directly with your own employees, but it's a different structure. So I do think the other way to think about customer support and how do you think about reducing the cost over time is low cost labor markets. Do you build up center of excellences in other areas? I think there's a way to do load balancing that also helps you get a global footprint. So if you're working beyond the US and you wanna have in-market support and success, there are ways to structure that. So I do think talent is borderless today. And as a CEO of a SaaS company, you need to be thinking about what skills do you hire where for each of the different functions? How do you optimize the way they work together? How do you support them through the tooling? And how do you ensure that you have a consistent customer experience for different customers in different regions? And for the listening audience who didn't have the chance to attend all the sessions on the first day, a couple of sessions I would recommend which really support what Randy's been saying. Eric Christopher, who's the founder and CEO of Zylo showed a lot of the research and benchmarks they have from over $33 billion in SaaS spend. That 46% of SaaS spend right now is with software that's barely being used. There's a lot of unused because of the distributed purchase power. And then Janelle Tang, who's a vice president investor gives six different examples of best-in-class cloud 100 companies and how they're using techniques and software to decrease that cost of goods sold. So a couple other speakers I highly recommend. Okay, Randy, we have time for one more question. Efficient growth. It's a mantra that we've heard so much over the last nine to 12 months. But in your next slide, you show how you need to look at it from an expansion ARR and a new ARR perspective. Is there something, some insights that you have or your software provides to look at the effectiveness and the efficiencies or the efficacy of growing a dollar of existing versus a dollar of new? Because I see a lot of companies moving from that traditional 70% of net new comes from new versus expansion to like a 60-40. What say you? I think you're right. I mean, the broader macro theme is it's harder to get new logos. What we're seeing is that when we had deals that could be approved by a VP of finance, now they're having to be approved by a CFO. Or there are more people involved in the buying committee than what was before. And so the cycle's a little bit longer and it's under more scrutiny, which is fine. We've adjusted to that. But then you need to adjust. If you have growth aspirations of 20, 30%, where's that growth gonna come from? And I think with our technology, one of the things you're able to do is break out the customer acquisition costs for new and for expansion. So you can see exactly what you're spending for each and see where you're getting the most return. And what I would suggest is a lot of companies kind of muddy that. And so they have, oh, here's our overall sales and marketing expense. But I think if you're going to be at our stage, if you're gonna be deliberate about going after your customers in a way, a direct outreach, you gotta create value for them in terms of content, experiences like webinars, best practices, and you don't wanna just slam with a bunch of emails coming out of marketing. It's, you gotta be thoughtful about how do you create, and being sensitive, I mean, create value and being sensitive that they're probably working under the gun with fewer resources, higher expectations. And so how do you make it easy for them to say yes? And I think that, Ray, goes back to the, are you clear about your ICP? Are you clear about the value that you're offering? Can you make it the pitch in 20 seconds and make it super easy? The thing that's really great about, well, Maxio helps you understand your customers and which ones are struggling or which ones are doing well. And so you can create a set of services or strategic outreach for customers who may be struggling. They're not getting as much adoption from your product, and you can roll that in. We have partnerships with GainSite, ChurnZero, et cetera. And so you start to get insights into different types of cohorts and what's happening. So if you're able to use that, I think that will help inform your expansion strategy, which has to be led by your chief customer officer in partnership with some set of resources on your marketing, which will then, I think, represent more of your new logo, excuse me, new ARR, compared to your direct outreach done through Net New. Got you, great insights. Well, Randy, thank you so much for speaking here at SaaS Metrics Palooza 23. Thank you, your entire staff, for being SaaS Metrics Palooza Platinum sponsors this year. Really appreciate that. And next time I see you in person, I can now give you the secret handshake of the Podcasters Club. So congratulations on your podcast. And for the listening audience, this isn't Maxio's first involvement and podcast. They also are the presenting sponsor for SaaS Talk with the Metrics Brothers. And if you haven't listened, it's a podcast with Dave Kellogg, better known as CAC, and myself. And we've consistently been ranked in the top 10 of all business podcasts, and all that's thanks to Maxio. Thank you, Randy. Thank you for everything. Our pleasure. It's been a great partnership. Bye-bye now, everyone.