Newsletter #2: When the valuation music stops, shopping after Covid-19, explosion of design...
Hi there,
It’s been a crazy week.
First, Tiger Global repriced the deal on two separate occasions after signing the term sheet, forced by the global sell-off.
Then, Bolt founder and CEO Ryan Breslow called Stripe and Y Combinator "the mob bosses of Silicon Valley" in a Twitter thread.
And then, the International Monetary Fund pushed El Salvador to ditch bitcoin as legal tender, stressing that there are large risks associated with the use of bitcoin on financial stability, financial integrity, and consumer protection.
So much to look forward to in the coming week.
In this, we cover:
3 big ideas: When the valuation music stops; Shopping trends post-covid; Explosion of design tools and what it means for designers
3 learnings: Hiring a VP of Sales; Magic of bundling; Calculating CAC
3 resources
Thanks for reading.
For any inputs, do message here: vandan.jain235@gmail.com.
Big ideas
Perspectives on what is happening around us
1. Fast-growing software companies used to be valued at 6x-8x the revenue. As the market’s understanding of software products matured, the number of investors only increased, driving up the valuations of such firms. The cheap money provided by the Fed only led people to take even more risks. But, due to an expected slowdown of this impetus, investors are pulling out.
What should the founders and operators do? Sarah Guo from a16z shares that this is a great reset moment for them. They need to move beyond the valuation game and raise the bar for execution, focusing on building better, and not just bigger companies.
[+] Check these lessons from 166 start-up IPOs. The biggest learning here is that the most-funded companies don’t necessarily build better companies. In fact, barring a few outliers, the reverse is true. Out of these 166 companies, the 30 least-funded are currently trading at higher multiples.
2. Covid-19 significantly shaped our shopping behavior. For example, people went wild for at-home gym equipment (Umm..Peloton). But now things are returning back to normal again and the outlook looks different for different categories. This visualization uses Google Trends to explore shopping interests for various products before and during the Covid-19 pandemic by categorizing them into three search behavior patterns: Normal, Unusual, and New Normal. Check here.
Key insights
New normal: Personal care category, which received a boost due to the pandemic, has declined but still remains above pre-covid levels
Normal: Essentials such as fruits, tea, and beer continue to remain normal
Unusual: Home-office and fitness products, which saw an increase during the pandemic are back to their pre-covid levels
[+] Check these 100 trends to watch out for in 2022, by Wunderman Thompson Intelligence.
3. Today, an explosion of digital design tools and apps has made design more accessible than ever. Anyone can build a website on Wix, create a logo using Squarespace’s logo generator, or prototype on Figma. So, if everyone can design, what does that mean for designers?
Counter-intuitively, this has further increased their value and given them a seat at the table. This is because people have now started articulating the value of good design. As the problems become even more complex, we need even more thoughtful application of empathy, strategy, communication, and management of the technology itself, with a lens of creativity. Designers are uniquely equipped to shape the future of tech.
This post discusses what designers should do to uplevel their craft and enhance their value.
Learnings
Ideas from other companies, entrepreneurs, and “thought leaders” that work
1. For a SaaS founder, the most common misfire is the VP of Sales. In fact, there is a VC saying, “You’ve got to get past the carcass of your first VP of sales to really start selling”. This post by Jason Lemkin from SaaStr breaks down the key steps to take to get the right person on board. Check my notes here.
My key takeaways
Look for someone who has built at least a small team before, and created 2-3 reps that are performing well.
He/she should have experience selling at your price point, approximately.
Don’t over-index on domain expertise.
2. From a business standpoint, it is usually not obvious why bundling is good. Think about it - Earlier people were ready to pay $10 per CD. Now they can get all the songs they want for $10 per month on Spotify. For consumers, that's great. But isn’t it bad for the music industry? No, in fact, it is clocking more revenue than before.
Check this post to understand the dark magic inherent in bundling.
My key takeaway: Bundling works when we, as consumers, assign different willingness to pay for different things within the bundle. In such cases, bundling helps companies to eliminate waste. Check my notes here.
3. In everything from growth projections to company valuations, it’s common to use CAC and CPA interchangeably — but it’s wrong. CAC specifically measures the cost to acquire a customer. Conversely, CPA (Cost Per Acquisition) measures the cost to acquire something that is not a customer — for example, a registration, activated user, trial, or a lead.
In other cases, companies usually add up sales and marketing expenses and divide them by net-new customer adds. On the surface, it may look right but even that method can be wrong.
This post from Brian Balfour (ex-VP of Growth at Hubspot) shares how to actually calculate CAC.
My key takeaway: Consider the following while calculating CAC:
How long does it take between marketing/sales touchpoints and when someone becomes a customer?
What all expenses are included in sales and marketing costs? We also need to product engineering cost, if that cost is incurred for marketing purposes (such as freemium).
Resources
Tools, practical guides, and templates to make your journey easier
So many founders find it difficult to build the GTM strategy. This deck can help to structure our thoughts while building a scalable GTM approach.
Get discovered by early adopters and earn valuable SEO juice. Here is a list of 150+ directories where you can submit your idea/product.
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