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terrible outcome.
THE THEORY AND DATA UNDERPINNING SALES COMMISSION PLANS BY Every startup’s sales commission plan is different. But it’s key to understand the theory and the benchmark data that governs the creation of sales commission plans to create a good one for your business. Before we begin, let’s define a few terms. Sales compensation is communicated in OTE, On Target Earnings. OTE has two parts: salary/draw and commission. Salary is the annual amount paid HOW TO CREATE COMPETITIVE ADVANTAGE FOR YOUR STARTUP WITH Imagine you’ve just been named the head of a bustling New York City restaurant challenged by one issue - customers complain about the customer service. A data-driven person, you search for a metric to evaluate the current customer service to validate the complaint and then track as you experiment with the restaurant’s operations. What metrics would you employ?DATA LAKE ENGINES
In 2015, we partnered with two young founders to build Dremio. Tomer Shiran and Jacques Nadeau had just left MapR, and they came to work from our offices in Menlo Park. We shared a vision for a new way of working with data. Today, the company is announcing a $70M Series C to help them along that journey. More data is being stored in data lakes like Amazon S3 and Azure Data Lake Storage. BENCHMARKING HUBSPOT'S S-1 One of the best ways I’ve found to understand SaaS companies is to pore through their public filings. A few months ago, I analyzed Box’s S-1. In this post, we’ll look at HubSpot’s IPO filing and compare their journey to a public company with a basket of about 40 other publicly traded companies, in the hopes that this data will help other founders chart their path to IPO. STARTUP BEST PRACTICES 27 Assume Anna is a key employee at a startup RedCircle which wants to keep her. Anna received a grant of 100,000 options on her start date. These options have a standard vesting schedule: a four-year vest with a one year cliff. This means the first 25,000 options vest after Anna has remained with the company for one year. THE RATIO OF ENGINEERS TO SALES PEOPLE IN BILLION DOLLAR The average founding team tends to be 2 people, one of whom is an engineer. When a company is founded, the sales/marketing to engineer ratio is 1:1. After the first year, this ratio for the public SaaS companies increases to 2:1 (S&M:R&D) for the life of the company. This table above shows the data in a bit more detail including the samplesize
HOW MUCH SHOULD A SAAS STARTUP INVEST IN SALES & MARKETING How much should a SaaS startup invest in sales and marketing at different stages of the business? This is a very nuanced question, but benchmarks do provide some guidance for what is reasonable. Sales and marketing investment depends on many different factors including establishing product market fit, the business’s sales model (inside, field, freemium), and not least, cash balance and TOMASZ TUNGUZ BY @TTUNGUZTOMASZ TUNGUZBENCHMARKSBEST PRACTICESBOOKSCHANNELCOMPENSATION Venture Capitalist at Redpoint Ventures HOW MUCH ARR CAN A CSM MANAGE? BY @TTUNGUZ How much can a customer success manager manage? I’d heard the wisdom of $1-2M in ARR per year and around 80 accounts. But I hadn’t come across any data. Last summer, Gainsight posted the results of their survey on the topic. The truth is most CSMs manage between $2-5M in ARR and somewhere between 10-500 accounts. But it varies by segment. WHAT IS THE STRUCTURE OF THE TYPICAL SAAS COMPANY AS IT The median startup with between 1-5M in ARR will have 12 engineers, 6 in sales and 3 in marketing. As the company grows and reaches 50-100M in ARR, the ratio of engineers to salespeople asymptotes to 1:1, down from 2:1. Meanwhile, the size of the marketing team increases only by 4X, compared to a 10X increase in sales and a 5X+ in engineering. THE 5 KEY PEOPLE IN A SAAS SALES PROCESS BY @TTUNGUZ Whether implicitly or explicitly, it’s critical for a startup to map out accounts to understand the purchasing dynamics of a buyer. When sales teams start selling, their goal should be to create the sales playbook. The playbook all begins with understanding the key dynamics among the five players in the sales process. These are the five people: The Proponent of the Sale champions the sales. THE 37% RULE: HOW TO DECIDE WHEN TO STOP WONDERING AND Earlier this year, I read Algorithms to Live By, a book that explains how to use insights from computer science in daily life. One of the rules is the 37% rule. It’s an important rule because it’s broadly applicable. But I had forgotten about it until I listened to the author on the Software Engineering Daily podcast. The 37% rule says that if you have a decision to make, you should spend ACTIVITY BASED PRICING Pricing is taxation. A pricing plan taxes some element of a product’s use. For a startup, choosing what to tax and how to tax it can be one of the most perplexing decisions because the tradeoffs between usage and revenue aren’t always clear. Activity based pricing or usage based pricing is one of the more common pricing plans in utility computing and software these days. THERE ARE ONLY 3 PRICING STRATEGIES FOR YOUR STARTUP BY Madhavan Ramanujam is a pricing expert. A partner at Simon-Kucher partners, the pre-eminent pricing consultancy, he argues in Monetizing Innovation that there are only three pricing strategies startups should pursue: Maximization, Penetration and Skimming. They prioritize revenue growth, market share and profit maximization differently. THE 5 MARKETING CHANNELS OF GREAT SAAS COMPANIES BY @TTUNGUZ Leads are the lifeblood of every SaaS company. As a SaaS startup grows, the limiting factor of the business quickly becomes demand generation. Can the marketing team generate enough leads for the inside sales team to attain their monthly quota? The Marketing team’s mandate is to generate these leads in a cost-effective way and develop a portfolio of lead-generation mechanisms. Ideally, these WHAT PERCENTAGE OF REVENUE SHOULD SAAS STARTUPS SPEND ON What percentage of revenue should be spent on payroll? In 2001, Salesforce spent $35.6M on payroll and generated $5.4M in revenue. NetSuite spent $38M on payroll generated $17M in 2004. as both of these companies scaled and approached IPO, the operating expense ratio (OER) or operating expense divided by revenue, asymptotes to 0.8. For every dollar of revenue, both of these companies HOW MUCH TO COMPENSATE SAAS SALES TEAMS FOR NEW SALES As a SaaS startup begins to reach critical mass, the business generates more of its revenue from upsells and expansions, reaching about 30% at between $40-75M in revenue, which is in line with some of the models we’ve created. Many times startup teams ask how to compensate a sales team for renewals and upsells. The 2016 PacCrest Survey contains a wealth of information about these types of TOMASZ TUNGUZ BY @TTUNGUZTOMASZ TUNGUZBENCHMARKSBEST PRACTICESBOOKSCHANNELCOMPENSATION Venture Capitalist at Redpoint Ventures HOW MUCH ARR CAN A CSM MANAGE? BY @TTUNGUZ How much can a customer success manager manage? I’d heard the wisdom of $1-2M in ARR per year and around 80 accounts. But I hadn’t come across any data. Last summer, Gainsight posted the results of their survey on the topic. The truth is most CSMs manage between $2-5M in ARR and somewhere between 10-500 accounts. But it varies by segment. WHAT IS THE STRUCTURE OF THE TYPICAL SAAS COMPANY AS IT The median startup with between 1-5M in ARR will have 12 engineers, 6 in sales and 3 in marketing. As the company grows and reaches 50-100M in ARR, the ratio of engineers to salespeople asymptotes to 1:1, down from 2:1. Meanwhile, the size of the marketing team increases only by 4X, compared to a 10X increase in sales and a 5X+ in engineering. THE 5 KEY PEOPLE IN A SAAS SALES PROCESS BY @TTUNGUZ Whether implicitly or explicitly, it’s critical for a startup to map out accounts to understand the purchasing dynamics of a buyer. When sales teams start selling, their goal should be to create the sales playbook. The playbook all begins with understanding the key dynamics among the five players in the sales process. These are the five people: The Proponent of the Sale champions the sales. THE 37% RULE: HOW TO DECIDE WHEN TO STOP WONDERING AND Earlier this year, I read Algorithms to Live By, a book that explains how to use insights from computer science in daily life. One of the rules is the 37% rule. It’s an important rule because it’s broadly applicable. But I had forgotten about it until I listened to the author on the Software Engineering Daily podcast. The 37% rule says that if you have a decision to make, you should spend ACTIVITY BASED PRICING Pricing is taxation. A pricing plan taxes some element of a product’s use. For a startup, choosing what to tax and how to tax it can be one of the most perplexing decisions because the tradeoffs between usage and revenue aren’t always clear. Activity based pricing or usage based pricing is one of the more common pricing plans in utility computing and software these days. THERE ARE ONLY 3 PRICING STRATEGIES FOR YOUR STARTUP BY Madhavan Ramanujam is a pricing expert. A partner at Simon-Kucher partners, the pre-eminent pricing consultancy, he argues in Monetizing Innovation that there are only three pricing strategies startups should pursue: Maximization, Penetration and Skimming. They prioritize revenue growth, market share and profit maximization differently. THE 5 MARKETING CHANNELS OF GREAT SAAS COMPANIES BY @TTUNGUZ Leads are the lifeblood of every SaaS company. As a SaaS startup grows, the limiting factor of the business quickly becomes demand generation. Can the marketing team generate enough leads for the inside sales team to attain their monthly quota? The Marketing team’s mandate is to generate these leads in a cost-effective way and develop a portfolio of lead-generation mechanisms. Ideally, these WHAT PERCENTAGE OF REVENUE SHOULD SAAS STARTUPS SPEND ON What percentage of revenue should be spent on payroll? In 2001, Salesforce spent $35.6M on payroll and generated $5.4M in revenue. NetSuite spent $38M on payroll generated $17M in 2004. as both of these companies scaled and approached IPO, the operating expense ratio (OER) or operating expense divided by revenue, asymptotes to 0.8. For every dollar of revenue, both of these companies HOW MUCH TO COMPENSATE SAAS SALES TEAMS FOR NEW SALES As a SaaS startup begins to reach critical mass, the business generates more of its revenue from upsells and expansions, reaching about 30% at between $40-75M in revenue, which is in line with some of the models we’ve created. Many times startup teams ask how to compensate a sales team for renewals and upsells. The 2016 PacCrest Survey contains a wealth of information about these types of FROM $800K TO $274M IN 4 YEARS Ariba went public in 1999 three years after having been founded. In its first year of selling, the company generated $800,000 in revenue. Then it ramped. $8 million, then $45 million, then $274M. In a three-year period, the company had grown 33x and achieved an astounding CAGR of 224% over the same period. Ariba shares increased 300% on its first day of trading at IPO, valuing the company at SEVEN STRATEGIC RATIONALES FOR THE MICROSOFT/GITHUB Last week, Microsoft acquired Github for $7.5B. It’s a massive acquisition at a massive price relative to other software acquisitions. Why is Microsoft willing to pay so much? Developer identity. Identity has been critical to Microsoft success. Active Directory (AD) forms nexus of the Microsoft enterprise ecosystem. AD contains all the users, their roles, and their rights. STARTUP BEST PRACTICES 8 -GETTING THE MOST FROM YOUR TEAM Startup Best Practices 8 -Getting the Most from Your Team By Preventing Burnout. Posted on. 2014, Sep 17 3 mins read. Startups are intense experiences. Driven by a burning passion to change some aspect of the world, startup teams push, push, push to grow as fast as possible. Without the right balance, though, teams burn out - aterrible outcome.
THE THEORY AND DATA UNDERPINNING SALES COMMISSION PLANS BY Every startup’s sales commission plan is different. But it’s key to understand the theory and the benchmark data that governs the creation of sales commission plans to create a good one for your business. Before we begin, let’s define a few terms. Sales compensation is communicated in OTE, On Target Earnings. OTE has two parts: salary/draw and commission. Salary is the annual amount paid HOW TO CREATE COMPETITIVE ADVANTAGE FOR YOUR STARTUP WITH Imagine you’ve just been named the head of a bustling New York City restaurant challenged by one issue - customers complain about the customer service. A data-driven person, you search for a metric to evaluate the current customer service to validate the complaint and then track as you experiment with the restaurant’s operations. What metrics would you employ?DATA LAKE ENGINES
In 2015, we partnered with two young founders to build Dremio. Tomer Shiran and Jacques Nadeau had just left MapR, and they came to work from our offices in Menlo Park. We shared a vision for a new way of working with data. Today, the company is announcing a $70M Series C to help them along that journey. More data is being stored in data lakes like Amazon S3 and Azure Data Lake Storage. BENCHMARKING HUBSPOT'S S-1 One of the best ways I’ve found to understand SaaS companies is to pore through their public filings. A few months ago, I analyzed Box’s S-1. In this post, we’ll look at HubSpot’s IPO filing and compare their journey to a public company with a basket of about 40 other publicly traded companies, in the hopes that this data will help other founders chart their path to IPO. STARTUP BEST PRACTICES 27 Assume Anna is a key employee at a startup RedCircle which wants to keep her. Anna received a grant of 100,000 options on her start date. These options have a standard vesting schedule: a four-year vest with a one year cliff. This means the first 25,000 options vest after Anna has remained with the company for one year. THE RATIO OF ENGINEERS TO SALES PEOPLE IN BILLION DOLLAR The average founding team tends to be 2 people, one of whom is an engineer. When a company is founded, the sales/marketing to engineer ratio is 1:1. After the first year, this ratio for the public SaaS companies increases to 2:1 (S&M:R&D) for the life of the company. This table above shows the data in a bit more detail including the samplesize
HOW MUCH SHOULD A SAAS STARTUP INVEST IN SALES & MARKETING How much should a SaaS startup invest in sales and marketing at different stages of the business? This is a very nuanced question, but benchmarks do provide some guidance for what is reasonable. Sales and marketing investment depends on many different factors including establishing product market fit, the business’s sales model (inside, field, freemium), and not least, cash balance and TOMASZ TUNGUZ BY @TTUNGUZTOMASZ TUNGUZBENCHMARKSBEST PRACTICESBOOKSCHANNELCOMPENSATION Venture Capitalist at Redpoint Ventures HOW MUCH ARR CAN A CSM MANAGE? BY @TTUNGUZWHAT CSM MEANSWHAT DOES CSM CERTIFICATION MEANWHAT DOES CSM MEANWHAT DOES CSM MEAN ARMYWHAT DOES CSM STAND FORWHAT IS CSM How much can a customer success manager manage? I’d heard the wisdom of $1-2M in ARR per year and around 80 accounts. But I hadn’t come across any data. Last summer, Gainsight posted the results of their survey on the topic. The truth is most CSMs manage between $2-5M in ARR and somewhere between 10-500 accounts. But it varies by segment.SAAS BY @TTUNGUZ
The Feedback Loops in Data that Will Change SaaS Architecture. Postedon.
THE 5 KEY PEOPLE IN A SAAS SALES PROCESS BY @TTUNGUZ Whether implicitly or explicitly, it’s critical for a startup to map out accounts to understand the purchasing dynamics of a buyer. When sales teams start selling, their goal should be to create the sales playbook. The playbook all begins with understanding the key dynamics among the five players in the sales process. These are the five people: The Proponent of the Sale champions the sales. THE 37% RULE: HOW TO DECIDE WHEN TO STOP WONDERING AND Earlier this year, I read Algorithms to Live By, a book that explains how to use insights from computer science in daily life. One of the rules is the 37% rule. It’s an important rule because it’s broadly applicable. But I had forgotten about it until I listened to the author on the Software Engineering Daily podcast. The 37% rule says that if you have a decision to make, you should spend THERE ARE ONLY 3 PRICING STRATEGIES FOR YOUR STARTUP BY3 BASIC PRICING STRATEGIESBEST PRICING STRATEGIESPRICING STRATEGIES IN MARKETING Madhavan Ramanujam is a pricing expert. A partner at Simon-Kucher partners, the pre-eminent pricing consultancy, he argues in Monetizing Innovation that there are only three pricing strategies startups should pursue: Maximization, Penetration and Skimming. They prioritize revenue growth, market share and profit maximization differently. HOW TO CREATE COMPETITIVE ADVANTAGE FOR YOUR STARTUP WITH Imagine you’ve just been named the head of a bustling New York City restaurant challenged by one issue - customers complain about the customer service. A data-driven person, you search for a metric to evaluate the current customer service to validate the complaint and then track as you experiment with the restaurant’s operations. What metrics would you employ? You might run a survey HOW MUCH TO COMPENSATE SAAS SALES TEAMS FOR NEW SALES As a SaaS startup begins to reach critical mass, the business generates more of its revenue from upsells and expansions, reaching about 30% at between $40-75M in revenue, which is in line with some of the models we’ve created. Many times startup teams ask how to compensate a sales team for renewals and upsells. The 2016 PacCrest Survey contains a wealth of information about these types of WHAT PERCENTAGE OF REVENUE SHOULD SAAS STARTUPS SPEND ON What percentage of revenue should be spent on payroll? In 2001, Salesforce spent $35.6M on payroll and generated $5.4M in revenue. NetSuite spent $38M on payroll generated $17M in 2004. as both of these companies scaled and approached IPO, the operating expense ratio (OER) or operating expense divided by revenue, asymptotes to 0.8. For every dollar of revenue, both of these companies THE COMMON CHARACTERISTICS OF SUCCESSFUL FREEMIUMEXAMPLES OF FREEMIUM APPSFREEMIUM BUSINESS MODELFREEMIUM BUSINESS MODEL EXAMPLESFREEMIUM BUSINESSESFREEMIUM MODELFREEMIUM MODEL EXAMPLE Is there a common characteristic of successful freemium companies? Piotr asked this question earlier this week. This is the framework I’ve seen work well for freemium startups. At its core, freemium is a novel marketing tactic that entices new users and ultimately potential customers to try a product and educate themselves about its benefits on their own. TOMASZ TUNGUZ BY @TTUNGUZTOMASZ TUNGUZBENCHMARKSBEST PRACTICESBOOKSCHANNELCOMPENSATION Venture Capitalist at Redpoint Ventures HOW MUCH ARR CAN A CSM MANAGE? BY @TTUNGUZWHAT CSM MEANSWHAT DOES CSM CERTIFICATION MEANWHAT DOES CSM MEANWHAT DOES CSM MEAN ARMYWHAT DOES CSM STAND FORWHAT IS CSM How much can a customer success manager manage? I’d heard the wisdom of $1-2M in ARR per year and around 80 accounts. But I hadn’t come across any data. Last summer, Gainsight posted the results of their survey on the topic. The truth is most CSMs manage between $2-5M in ARR and somewhere between 10-500 accounts. But it varies by segment.SAAS BY @TTUNGUZ
The Feedback Loops in Data that Will Change SaaS Architecture. Postedon.
THE 5 KEY PEOPLE IN A SAAS SALES PROCESS BY @TTUNGUZ Whether implicitly or explicitly, it’s critical for a startup to map out accounts to understand the purchasing dynamics of a buyer. When sales teams start selling, their goal should be to create the sales playbook. The playbook all begins with understanding the key dynamics among the five players in the sales process. These are the five people: The Proponent of the Sale champions the sales. THE 37% RULE: HOW TO DECIDE WHEN TO STOP WONDERING AND Earlier this year, I read Algorithms to Live By, a book that explains how to use insights from computer science in daily life. One of the rules is the 37% rule. It’s an important rule because it’s broadly applicable. But I had forgotten about it until I listened to the author on the Software Engineering Daily podcast. The 37% rule says that if you have a decision to make, you should spend THERE ARE ONLY 3 PRICING STRATEGIES FOR YOUR STARTUP BY3 BASIC PRICING STRATEGIESBEST PRICING STRATEGIESPRICING STRATEGIES IN MARKETING Madhavan Ramanujam is a pricing expert. A partner at Simon-Kucher partners, the pre-eminent pricing consultancy, he argues in Monetizing Innovation that there are only three pricing strategies startups should pursue: Maximization, Penetration and Skimming. They prioritize revenue growth, market share and profit maximization differently. HOW TO CREATE COMPETITIVE ADVANTAGE FOR YOUR STARTUP WITH Imagine you’ve just been named the head of a bustling New York City restaurant challenged by one issue - customers complain about the customer service. A data-driven person, you search for a metric to evaluate the current customer service to validate the complaint and then track as you experiment with the restaurant’s operations. What metrics would you employ? You might run a survey HOW MUCH TO COMPENSATE SAAS SALES TEAMS FOR NEW SALES As a SaaS startup begins to reach critical mass, the business generates more of its revenue from upsells and expansions, reaching about 30% at between $40-75M in revenue, which is in line with some of the models we’ve created. Many times startup teams ask how to compensate a sales team for renewals and upsells. The 2016 PacCrest Survey contains a wealth of information about these types of WHAT PERCENTAGE OF REVENUE SHOULD SAAS STARTUPS SPEND ON What percentage of revenue should be spent on payroll? In 2001, Salesforce spent $35.6M on payroll and generated $5.4M in revenue. NetSuite spent $38M on payroll generated $17M in 2004. as both of these companies scaled and approached IPO, the operating expense ratio (OER) or operating expense divided by revenue, asymptotes to 0.8. For every dollar of revenue, both of these companies THE COMMON CHARACTERISTICS OF SUCCESSFUL FREEMIUMEXAMPLES OF FREEMIUM APPSFREEMIUM BUSINESS MODELFREEMIUM BUSINESS MODEL EXAMPLESFREEMIUM BUSINESSESFREEMIUM MODELFREEMIUM MODEL EXAMPLE Is there a common characteristic of successful freemium companies? Piotr asked this question earlier this week. This is the framework I’ve seen work well for freemium startups. At its core, freemium is a novel marketing tactic that entices new users and ultimately potential customers to try a product and educate themselves about its benefits on their own. WHAT I'VE LEARNED ABOUT MODERN MONETARY THEORY BY @TTUNGUZ There’s a relatively new theory of how the government should manage the economy called Modern Monetary Theory. Over the weekend, I read a bit about it. With the impact of the COVID crisis, there are open questions about the best way forward. Should we continue managing the economy as we have since 1940 or change it? The US government has two primary economic goals: maximize THE 37% RULE: HOW TO DECIDE WHEN TO STOP WONDERING AND Earlier this year, I read Algorithms to Live By, a book that explains how to use insights from computer science in daily life. One of the rules is the 37% rule. It’s an important rule because it’s broadly applicable. But I had forgotten about it until I listened to the author on the Software Engineering Daily podcast. The 37% rule says that if you have a decision to make, you should spend DREAM TEAMS: THE CHARACTERISTICS OF BILLION-DOLLAR STARTUP The average founding team has 2.4 founders; the median is 2. 70% of teams have at least one technical founder. 40% of teams are exclusively computer scientists. 30% of teams have no technical cofounders. 15% of founders have dropped out of an undergraduate FROM $800K TO $274M IN 4 YEARS Ariba went public in 1999 three years after having been founded. In its first year of selling, the company generated $800,000 in revenue. Then it ramped. $8 million, then $45 million, then $274M. In a three-year period, the company had grown 33x and achieved an astounding CAGR of 224% over the same period. Ariba shares increased 300% on its first day of trading at IPO, valuing the company at HOW MUCH TO COMPENSATE SAAS SALES TEAMS FOR NEW SALES As a SaaS startup begins to reach critical mass, the business generates more of its revenue from upsells and expansions, reaching about 30% at between $40-75M in revenue, which is in line with some of the models we’ve created. Many times startup teams ask how to compensate a sales team for renewals and upsells. The 2016 PacCrest Survey contains a wealth of information about these types of BENCHMARKING SAAS STARTUP EFFICIENCY WITH REVENUE PER Benchmarking SaaS Startup Efficiency with Revenue per Employee Metrics. In the past, we have benchmarked the revenue per employee of large publicly traded SaaS companies and determined that the average is about $200k of revenue per person. But, that analysis examined revenue per employee that only one point in time. SEVEN STRATEGIC RATIONALES FOR THE MICROSOFT/GITHUB Last week, Microsoft acquired Github for $7.5B. It’s a massive acquisition at a massive price relative to other software acquisitions. Why is Microsoft willing to pay so much? Developer identity. Identity has been critical to Microsoft success. Active Directory (AD) forms nexus of the Microsoft enterprise ecosystem. AD contains all the users, their roles, and their rights. STARTUP BEST PRACTICES 27 Assume Anna is a key employee at a startup RedCircle which wants to keep her. Anna received a grant of 100,000 options on her start date. These options have a standard vesting schedule: a four-year vest with a one year cliff. This means the first 25,000 options vest after Anna has remained with the company for one year. HOW MUCH SHOULD YOU PAY YOUR SAAS STARTUP'S SALES PEOPLE How much should your startup pay its sales people? According to Pacific Crest’s Annual SaaS survey, 9% of a sales rep’s annual contract value. This figure doesn’t vary much on whether your startup’s salespeople are inside reps or outside/field sales reps. The table below computes the effective salary + commission of a sales reps as a function of average contract value and an estimated THE RELATIONSHIP BETWEEN MARGINS AND ACQUISITION PRICES BY The Relationship Between Margins and Acquisition Prices. Amazon operates its businesses at very close to break-even, zero net margin, to win the greatest share and prevent competition from undercutting them. This is as true for their books business as TOMASZ TUNGUZ BY @TTUNGUZTOMASZ TUNGUZBENCHMARKSBEST PRACTICESBOOKSCHANNELCOMPENSATION Venture Capitalist at Redpoint Ventures HOW MUCH ARR CAN A CSM MANAGE? BY @TTUNGUZWHAT CSM MEANSWHAT DOES CSM CERTIFICATION MEANWHAT DOES CSM MEANWHAT DOES CSM MEAN ARMYWHAT DOES CSM STAND FORWHAT IS CSM How much can a customer success manager manage? I’d heard the wisdom of $1-2M in ARR per year and around 80 accounts. But I hadn’t come across any data. Last summer, Gainsight posted the results of their survey on the topic. The truth is most CSMs manage between $2-5M in ARR and somewhere between 10-500 accounts. But it varies by segment.SAAS BY @TTUNGUZ
Venture Capitalist at Redpoint Ventures THE 5 KEY PEOPLE IN A SAAS SALES PROCESS BY @TTUNGUZ Whether implicitly or explicitly, it’s critical for a startup to map out accounts to understand the purchasing dynamics of a buyer. When sales teams start selling, their goal should be to create the sales playbook. The playbook all begins with understanding the key dynamics among the five players in the sales process. These are the five people: The Proponent of the Sale champions the sales. THERE ARE ONLY 3 PRICING STRATEGIES FOR YOUR STARTUP BY3 BASIC PRICING STRATEGIESBEST PRICING STRATEGIESPRICING STRATEGIES IN MARKETING Pricing. Is there any word that confers some whisper of dark arts than pricing? Or any question that instills less confidence than, “How did you derive your pricing strategy?” Many times, startups replicate and tune competitors' pricing strategies. If everyone else prices per seat, then so should we Is this the right thought process? Madhavan Ramanujam is a pricing expert. A partner at THE 37% RULE: HOW TO DECIDE WHEN TO STOP WONDERING AND Earlier this year, I read Algorithms to Live By, a book that explains how to use insights from computer science in daily life. One of the rules is the 37% rule. It’s an important rule because it’s broadly applicable. But I had forgotten about it until I listened to the author on the Software Engineering Daily podcast. The 37% rule says that if you have a decision to make, you should spend HOW TO CREATE COMPETITIVE ADVANTAGE FOR YOUR STARTUP WITH Imagine you’ve just been named the head of a bustling New York City restaurant challenged by one issue - customers complain about the customer service. A data-driven person, you search for a metric to evaluate the current customer service to validate the complaint and then track as you experiment with the restaurant’s operations. What metrics would you employ? You might run a survey HOW MUCH TO COMPENSATE SAAS SALES TEAMS FOR NEW SALES As a SaaS startup begins to reach critical mass, the business generates more of its revenue from upsells and expansions, reaching about 30% at between $40-75M in revenue, which is in line with some of the models we’ve created. Many times startup teams ask how to compensate a sales team for renewals and upsells. The 2016 PacCrest Survey contains a wealth of information about these types of WHAT PERCENTAGE OF REVENUE SHOULD SAAS STARTUPS SPEND ON What percentage of revenue should be spent on payroll? In 2001, Salesforce spent $35.6M on payroll and generated $5.4M in revenue. NetSuite spent $38M on payroll generated $17M in 2004. as both of these companies scaled and approached IPO, the operating expense ratio (OER) or operating expense divided by revenue, asymptotes to 0.8. For every dollar of revenue, both of these companies THE COMMON CHARACTERISTICS OF SUCCESSFUL FREEMIUMEXAMPLES OF FREEMIUM APPSFREEMIUM BUSINESS MODELFREEMIUM BUSINESS MODEL EXAMPLESFREEMIUM BUSINESSESFREEMIUM MODELFREEMIUM MODEL EXAMPLE Is there a common characteristic of successful freemium companies? Piotr asked this question earlier this week. This is the framework I’ve seen work well for freemium startups. At its core, freemium is a novel marketing tactic that entices new users and ultimately potential customers to try a product and educate themselves about its benefits on their own. TOMASZ TUNGUZ BY @TTUNGUZTOMASZ TUNGUZBENCHMARKSBEST PRACTICESBOOKSCHANNELCOMPENSATION Venture Capitalist at Redpoint Ventures HOW MUCH ARR CAN A CSM MANAGE? BY @TTUNGUZWHAT CSM MEANSWHAT DOES CSM CERTIFICATION MEANWHAT DOES CSM MEANWHAT DOES CSM MEAN ARMYWHAT DOES CSM STAND FORWHAT IS CSM How much can a customer success manager manage? I’d heard the wisdom of $1-2M in ARR per year and around 80 accounts. But I hadn’t come across any data. Last summer, Gainsight posted the results of their survey on the topic. The truth is most CSMs manage between $2-5M in ARR and somewhere between 10-500 accounts. But it varies by segment.SAAS BY @TTUNGUZ
Venture Capitalist at Redpoint Ventures THE 5 KEY PEOPLE IN A SAAS SALES PROCESS BY @TTUNGUZ Whether implicitly or explicitly, it’s critical for a startup to map out accounts to understand the purchasing dynamics of a buyer. When sales teams start selling, their goal should be to create the sales playbook. The playbook all begins with understanding the key dynamics among the five players in the sales process. These are the five people: The Proponent of the Sale champions the sales. THERE ARE ONLY 3 PRICING STRATEGIES FOR YOUR STARTUP BY3 BASIC PRICING STRATEGIESBEST PRICING STRATEGIESPRICING STRATEGIES IN MARKETING Pricing. Is there any word that confers some whisper of dark arts than pricing? Or any question that instills less confidence than, “How did you derive your pricing strategy?” Many times, startups replicate and tune competitors' pricing strategies. If everyone else prices per seat, then so should we Is this the right thought process? Madhavan Ramanujam is a pricing expert. A partner at THE 37% RULE: HOW TO DECIDE WHEN TO STOP WONDERING AND Earlier this year, I read Algorithms to Live By, a book that explains how to use insights from computer science in daily life. One of the rules is the 37% rule. It’s an important rule because it’s broadly applicable. But I had forgotten about it until I listened to the author on the Software Engineering Daily podcast. The 37% rule says that if you have a decision to make, you should spend HOW TO CREATE COMPETITIVE ADVANTAGE FOR YOUR STARTUP WITH Imagine you’ve just been named the head of a bustling New York City restaurant challenged by one issue - customers complain about the customer service. A data-driven person, you search for a metric to evaluate the current customer service to validate the complaint and then track as you experiment with the restaurant’s operations. What metrics would you employ? You might run a survey HOW MUCH TO COMPENSATE SAAS SALES TEAMS FOR NEW SALES As a SaaS startup begins to reach critical mass, the business generates more of its revenue from upsells and expansions, reaching about 30% at between $40-75M in revenue, which is in line with some of the models we’ve created. Many times startup teams ask how to compensate a sales team for renewals and upsells. The 2016 PacCrest Survey contains a wealth of information about these types of WHAT PERCENTAGE OF REVENUE SHOULD SAAS STARTUPS SPEND ON What percentage of revenue should be spent on payroll? In 2001, Salesforce spent $35.6M on payroll and generated $5.4M in revenue. NetSuite spent $38M on payroll generated $17M in 2004. as both of these companies scaled and approached IPO, the operating expense ratio (OER) or operating expense divided by revenue, asymptotes to 0.8. For every dollar of revenue, both of these companies THE COMMON CHARACTERISTICS OF SUCCESSFUL FREEMIUMEXAMPLES OF FREEMIUM APPSFREEMIUM BUSINESS MODELFREEMIUM BUSINESS MODEL EXAMPLESFREEMIUM BUSINESSESFREEMIUM MODELFREEMIUM MODEL EXAMPLE Is there a common characteristic of successful freemium companies? Piotr asked this question earlier this week. This is the framework I’ve seen work well for freemium startups. At its core, freemium is a novel marketing tactic that entices new users and ultimately potential customers to try a product and educate themselves about its benefits on their own. WHAT I'VE LEARNED ABOUT MODERN MONETARY THEORY BY @TTUNGUZ There’s a relatively new theory of how the government should manage the economy called Modern Monetary Theory. Over the weekend, I read a bit about it. With the impact of the COVID crisis, there are open questions about the best way forward. Should we continue managing the economy as we have since 1940 or change it? The US government has two primary economic goals: maximize THE 37% RULE: HOW TO DECIDE WHEN TO STOP WONDERING AND Earlier this year, I read Algorithms to Live By, a book that explains how to use insights from computer science in daily life. One of the rules is the 37% rule. It’s an important rule because it’s broadly applicable. But I had forgotten about it until I listened to the author on the Software Engineering Daily podcast. The 37% rule says that if you have a decision to make, you should spend FROM $800K TO $274M IN 4 YEARS Ariba went public in 1999 three years after having been founded. In its first year of selling, the company generated $800,000 in revenue. Then it ramped. $8 million, then $45 million, then $274M. In a three-year period, the company had grown 33x and achieved an astounding CAGR of 224% over the same period. Ariba shares increased 300% on its first day of trading at IPO, valuing the company atDATA LAKE ENGINES
In 2015, we partnered with two young founders to build Dremio. Tomer Shiran and Jacques Nadeau had just left MapR, and they came to work from our offices in Menlo Park. We shared a vision for a new way of working with data. Today, the company is announcing a $70M Series C to help them along that journey. More data is being stored in data lakes like Amazon S3 and Azure Data Lake Storage. HOW MUCH TO COMPENSATE SAAS SALES TEAMS FOR NEW SALES As a SaaS startup begins to reach critical mass, the business generates more of its revenue from upsells and expansions, reaching about 30% at between $40-75M in revenue, which is in line with some of the models we’ve created. Many times startup teams ask how to compensate a sales team for renewals and upsells. The 2016 PacCrest Survey contains a wealth of information about these types of SEVEN STRATEGIC RATIONALES FOR THE MICROSOFT/GITHUB Last week, Microsoft acquired Github for $7.5B. It’s a massive acquisition at a massive price relative to other software acquisitions. Why is Microsoft willing to pay so much? Developer identity. Identity has been critical to Microsoft success. Active Directory (AD) forms nexus of the Microsoft enterprise ecosystem. AD contains all the users, their roles, and their rights. STARTUP BEST PRACTICES 27 You’re two or three years into your startup. You have hired a great team and want to retain them. It’s time to consider refreshing their stock options to motivate them to stay longer. How many options should you grant to each employee? Startups should pay key people market rate to retain them. Otherwise, they may leave the business, lured by the promise of greater compensation elsewhere. BENCHMARKING SAAS STARTUP EFFICIENCY WITH REVENUE PER In the past, we have benchmarked the revenue per employee of large publicly traded SaaS companies and determined that the average is about $200k of revenue per person. But, that analysis examined revenue per employee that only one point in time. As Jesse Hulsing pointed out to me, examining this figure over five years reveals quite a bit about the health of the business. THE FOUR STAGES OF SALES COMPENSATION STRUCTURES IN EARLY Your startup is just getting off the ground. You might have a few account executives and a sales leader in place; maybe some revenue and a handful of customers. The sales team costs real money, and the question before the company is: how do you know what quota plan to assign to the account executives? I’ve seen four stages in early stage software companies. HOW MUCH SHOULD YOU PAY YOUR SAAS STARTUP'S SALES PEOPLE How much should your startup pay its sales people? According to Pacific Crest’s Annual SaaS survey, 9% of a sales rep’s annual contract value. This figure doesn’t vary much on whether your startup’s salespeople are inside reps or outside/field sales reps. The table below computes the effective salary + commission of a sales reps as a function of average contract value and an estimatedSkip to content
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21 November / sales / benchmarks/ customer success
BENCHMARKING YOUR SALES AND CUSTOMER SUCCESS TEAMS Our portfolio company Chorus.ai released the State of Conversational Intelligence 2020. The report uses data from 5m sales and customer calls to benchmark sales team performance. There’s lots of great data in the report. Some of the data reaffirms rules of thumb. For example, the typical win rate of a sales qualified lead is 19%. Other data points are surprising. For example, the average SDR dials 106 people to schedule one meeting. Read the postThis is a Standard Post 18 November / marketing THE 13 CRITICAL QUESTIONS TO ANSWER ABOUT YOUR STARTUP'S PRODUCTMARKETING
Last week’s post on The Most Frequent Mishire in Startups generated the most comments on a post this year. In particular, it was this section. Though the startup may have achieved product market fit, the company may not understand the fit. Who is using the product and why? How does the buyer journey evolve with time? How do buyers describe the product amongst each other? Few early stage companies can answer those questions accurately. Read the postThis is a Standard Post 10 November / startups / SaaS / management / recruiting THE MOST FREQUENT MISHIRE IN STARTUPS The most frequent mishire in startups is the first head of marketing. Many different disciplines fall under marketing’s purview. The question facing founders recruiting marketers is: which is the most important to prioritize? Marketing expertise falls into three segments: product marketing, demand generation, and brand marketing. Each of these kinds of marketers have critical skills for a startup. But the reason many marketing hires fail is the business doesn’t hire the right expertise at the right time. Read the postThis is a Standard Post 07 November / office hours NOTES FROM OFFICE HOURS WITH NICK MEHTA A few weeks ago, we were fortunate to welcome Nick Mehta, CEO of Gainsight to SaaS Office Hours. I learned a lot from the session about how customer success has evolved over the last 5 to 10 years. Here are my notes from the session. The discipline of customer success varies widely depending on price point. At the lower price points, some organizations combine the role of an account manager and the customer success person into a CSAM (customer success account manager). Read the postThis is a Standard Post 04 November / office hours OFFICE HOURS WITH ANTHONY KENNADA ON CATEGORY CREATION ON NOV 14 Next week, on November 14, Redpoint will host Office Hours with Anthony Kennada to talk about category creation. In the SaaS world, many businesses talk about creating new categories. To achieve this is rare, and it’s incredibly challenging to do. Anthony was a key part of the team at Gainsight that created the category that has just published a book on the topic called Category Creation, that we willtalk about.
Read the postThis is a Standard Post28 October /
A DECADE LONG MAC USER TRIES OUT WINDOWS FOR THE FIRST TIME IN 15YEARS
A few weeks ago, I installed Windows on my Mac using BootCamp. BootCamp allows you to have both operating systems on your computer at the same time and choose the one you want to use when. I was curious about Windows. So I installed it and tried to use it for a few days. Here are my impressions. Just as background, I’ve been on a Mac since I was seven and I last worked on a Windows machine in 2004. Read the postThis is a Standard Post22 October /
WELCOMING TRAVIS BRYANT, AGAIN! In January, we welcomed Travis Bryant to join Redpoint as an Executive-in-Residence. Nine months later, we are welcoming him again as our first Partner of Founder Experience. Travis has always been one to think about ways to change the game. He excelled during his time at Salesforce and helped Optimizely grow to great heights from very early days as the first executive hire. Throughout his many successes, he’s always looking to innovate. Read the postThis is a Standard Post 21 October / trends / fundraising/ startups
WHAT I'VE LEARNED ABOUT IPOS AND DIRECT LISTINGS Today is the anniversary of Spotify IPO, which was the first direct listing of a technology company. It was championed by Barry McCarthy, the former CFO of Netflix and the current CFO of Spotify. Since then, Slack has also listed directly. And the combination of these two events has created a groundswell for more of them. In the past few months and quarters, I’ve been learning as much as I can about thistopic.
Read the postThis is a Standard Post 17 October / books / best practices/ management
ON HUMILITY AND MAKING BETTER DECISIONS Dr. Daniel Kahneman features on the latest Farnam Street podcast and it’s a surprising episode. Kahneman wrote Thinking Fast and Slow. I admire Kahneman a great deal. Not for his Nobel or for his work, which are both impressive, but for his humility. Some of the key tenets of Kahneman’s work in his famous book were disproved. And he owned up to it, both in print and on the podcast. That’s the hallmark of someone with great integrity, and it’s a sign to trust someone more. Read the postThis is a Standard Post14 October / trends
DESIGN AND OPEN SOURCE: A POTENTIALLY POWERFUL COMBINATION We are very excited about open source software. Open source is a powerful distribution mechanism to get software and people’s hands early and easily. In an era where SaaS customer acquisition cost increases monotonically, open source can be a powerful antidote. The other area that we are spending time in is open source at the application tier. Mattermost is our latest investment there, and we continue to look for others. They tend to be very capital efficient, fast growing businesses that can be quite disruptive. Read the postThis is a Standard PostPOSTS NAVIGATION
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