 Thank you. Thank you very much. Thank you guys really appreciate the opportunity to be here with y'all at slush So I'm Peter Weed and this is Geesa. I know I am no longer have the the pleasure of being at McKinsey I am now a venture capitalist but We thought that we'd come and share a little bit of what we were seeing in learning and for sure When we had the opportunity to found this practice at McKinsey four or five years ago The thing that had really struck me is that when I did the research with a few other colleagues We saw that there had been 5,000 companies Approximately in the software world that had made it to 50 million in revenue since 1980 But of those only about 400 ever survived to be stand-alone businesses by 500 million in revenue and we asked ourselves What gives? Those companies when you make it to 50 million in revenue Do you think you can even make it to 10 million in revenue with the crappy product? That means there were 5,000 amazing product companies out there Of which the vast majority over 90% of them never survived to actually Impact the world and I was asking myself Why does it have to be that way could we even get a hundred more of those companies? And what would the world be different if we were able to achieve that and so we took all of that research And we started working with a bunch of the leading venture capital firms out of the US initially and then expanded globally Exploring that you can do this in a ton of different technology categories It's hard to have a really broad conversation. So we're going to focus today We're going to talk about what we discovered looking at SaaS businesses and how we break them apart and how we Have an opinion at least on how you can metric and evaluate those businesses. Is it going to be perfect? No, this is a dialogue. We want to hear from you guys and and Participate in that this is about pushing forward The capabilities of what's going on but at the highest level and this is just like look We started to go down saying, you know, what drives value, you know How do you actually metric for that and how do you run these businesses? But this was the that the culmination that initial work and we've got a whole set of stuff called grow fast Die slow where we actually take a look at the scaling of these businesses, right? What do you want to look at a business by the time you get to five to ten million in revenue to Say by the time that I Double a couple more times make it to 50 million. I've got a very high probability of succeeding and in the end The answer is actually pretty simple. You have to outgrow your competitors. In fact in The world of software it tends to be a win or take all scenario So one company survives on average. It's not in this deck But on average that number one company if you look we've done three-year cohorts going back 20 years on Average that number one company consumed 70 to 75 percent of the total equity of that entire space And if you have that amount of equity you can raise money more cheaply and you can buy other companies more cheaply So it puts you in a position of power and that's why you see this 51% of all software companies that reached 50 million in revenue that were growing greater than 50 percent per year through 100 and 150 million in revenue They lasted and became 500 million dollar companies. It was a de minimis number There were very very few companies that actually Maintained their standalone status that we're not growing at least 50 percent per year in fact It's it's it's so clear In the numbers that that is what you're looking for and so we're going to talk a little bit about How do you actually get there and by the way? the Challenge that you're facing with all of this is you're probably burning money to grow 100 200 percent up to 50 because that's kind of what you need to do and at 50 you need to be growing 50 percent a year through 150 you're probably burning cash and you're doing it in the constraints of a market that may be valuing your money differently your equity differently, right? This is just moments and looking back the last three or four years at the valuation of sass on Revenue multiples. It's all over the map, right? And if you delay fund raising or you raise less money than you should and you're making choices to grow more slowly that puts you in a Position where you are very likely to be surpassed by somebody else. So it's not just growth it's efficient growth and It frustrated the hell out of me because two or three years ago. We would do all these things and valuations were purely built on Essentially growth rate. I'm happy that over the last year. I think people have been listening to us And now you get about 25% of the valuation is actually driven by the efficiency of that growth And so let's talk about like how would you actually metric and look at a business to actually Do that in such a way that's operationally feasible. Yeah, exactly So at least we've now arrived at this, you know idea of efficient growth as opposed to just growth at all costs But now the next problem kind of kicks in right? how do you actually measure that and What comes with this is that there is a multitude of metrics out there that people use to assess growth, right? I mean you can see a short list on this page But there's many more my personal favorite for example is the famous infamous rule of 40 Which tries to hone in on the relationship between top line growth and margin development and effectively what it's saying is You know revenue growth combined with your EBITDA margin has to equal 40 In other words if you're growing, you know 20% year-on-year then you should see a margin in your business of another 20% Conversely speaking if you're growing at 80% you can afford to have a negative margin of 40% right So there's a couple of issues that come with this Notion for example. So one of them, you know, it's not scientifically found it to and that, you know How sustainable is a business that's growing? Extensively top line only, but there's no profit coming out of it And then three what do you actually do with this? Even if this holds it doesn't allow you to dig deeper It doesn't allow you to actually understand What it is operationally that you can do in order to drive growth further and so This is where you know where we've spent a lot of time thinking about okay. Well, you know if you think about these metrics and if you think about What to measure how to measure and then how to actually dig deep in your business What we propose is a slightly different concept and it's centered on what we've dubbed two kinds of engines You can see them on this page on you know on the left side There's what we've called what we call the cash engine and we've separated that from what's on the other side here Which is effectively the growth engine You know very very briefly what that means is on the left side you see everything That's kind of you see the operational value of your business This is all about how much free cash you can generate from one dollar of ARR You know that's coming in so you take out you know you start with your gross margin you take out cogs you take out G&a and more importantly you take out R&D That's that's an important call out because we would argue that R&D is essential to your business You need to spend money on R&D to drive growth further And then what you're left with is effectively your net margin right your cash at the cash engine of your business on the other side It's more around how do you effectively spend your money, right? How much net new ARR are you driving with every dollar that you're spending? on your sales and marketing campaigns and What's the beauty of the advantage of this model and why the reason why we like it? Is that it actually can be built down or treat down to a very granular level, right? To very actionable operating metrics that allow you if you're on the very right-hand side of this You know if of this decision to your chart to really understand what it is What's the one single metric? What's the one single criterion that you can you know modulate that you can work on in order to improve your business and ultimately drive growth? Having looked at you know dozens of businesses that way what we found is that there's really in sauce There's really four areas Where you can create growth right the first four places to look if you will We can see them on this page. It's there's there's an element around recurring margins, of course There is an element around customer acquisition on the opposite end of that There's pricing which kind of feeds into both and then there is your customer success Let me Quickly talk you through you know, we're a consultancy. We love to calculate things So we've you know We've taken an example growth stage sales business and we've tried to really assess Well, if you think about these four areas of success right and how they tie back to these operating metrics Where is it that you can create? Where can you create the most bang for your buck, right? Where do you go first and? And so what we found is and this is again This is a standard business, you know 20 million dollars ARR, you know a hundred percent ARR growth rate You can see the assumptions on the left side here point is that you know for your free cash flow out of those four areas The two that are most effective for you to look at immediately Are on customer acquisition and pricing and Peter is going to talk about this for a moment in terms of what we've in a moment In terms of what we've how we've applied this and what we found with one particular company that we've worked with a lot in the past But what is really interesting here also just as a side note is a lot of people tend to focus on the retention element of this And it turns out that yes, you know, it's it's obviously it's important that you maintain your customers But if you want to drive your business forward like there's other areas that you need to target first, right? Pricing is usually a pretty easy one and one that you should immediately kind of evaluate followed by customer acquisition Features and so Peter. Do you want to talk us through a little bit on how we've applied this? Yeah, I mean look this is just numbers, right? The beauty of this is it actually Transitions from metrics that tend to be very backward-looking tend to be very Inconsistently defined tend to be not linked to operational activities You can do is a little bit like, you know playing football and telling being told to play harder, right? You know, you don't want to do that because you don't know what to do Yeah, the beauty of this is you can actually start to prioritize different activities that that you might take In a business and an example of that a few years ago We had the opportunity to work with a really neat cyber security company and when I started the conversation with the CEO He was in a situation where he'd seen hyper growth up to about 25% and then he'd hit a wall He was growing at about 25 to 30% per year He really believed that he needed to grow much more quickly and he was struggling with why was his situation occurring? And we do like that his sales force he had 18 sales people and only two were hitting their quota number So we were talking about well, what do you do about this and his initial instinct was holy cow I've hired a lot of really bad sales people. I'm gonna try to fire all these folks and it's just operationally almost impossible to turn over a whole sales force and actually continue your growth and we basically said Let's calm down. Let's actually get to know this business a little bit more And let's let's break break it down and into its underlying structures and ask like what's actually happening here When we started to piece it apart you saw something that's very common I see this all the time in businesses which is to up maximize their tam up front and to have a very simple way of Talking about things. They had had a very horizontal value prop The challenge is is that horizontal value prop wasn't resonating with any customers They didn't know exactly who they were trying to sell to and they were trying to sell to everybody By actually doing one small little tweak, which was we actually segmented the customer base into five different groups It actually created pitch decks specifically for those Within two quarters every one of their sales people, but one was exceeding their quota And then the beauty was they had created, you know a sales team that was like a little bit of a bunch of mini-me's of The original like good sales guy Well over time you need to diversify the sales organization need to add BDRs What are you going to do about hunting versus farming? Do you handle enterprise sales the same as as mid-market sales? The sales team now was actually really happy as you can imagine six months in so when you went in and actually announced Hey, we're going to reorganize how this team works On our growth path that in getting up to 35 sales people They were happy to actually adopt that and then that puts you in a position where you could actually in their particular case You also saw by the way when you when you're screwed up on your customer segmentation and your value prop Your pricing is screwed too because there's no way you could have had pricing right if those things were screwed up Well now your sales team is actually performing at high at a high Basis you can actually change pricing and actually see the results come out of it And so in their particular case pretty much every six months They did one they pulled one lever and in a period of two years They went from about 25 million ARR to 110 million ARR and they sold Earlier this year for 635 million Which I know the CEO and I were a little frustrated because essentially their cap table was just so excited They'd gone from something that was almost looking like a recap to having a huge exit So they were like so excited to get the money We could have probably doubled or tripled the business a couple more times But the point is is even if you find yourself in those scenarios where you're seeing that top off Which so many businesses have and we have these charts that we call the Valley of Death Which is it just happens all the time between 10 and 50 million in revenue You can reignite it because almost always it has nothing to do with your product It has everything to do with how you actually operate that business and putting yourself in a position where you actually move from being Just a great product company to be in a great operating company is the key because that's what's going to create the durable value and not have The brutality that allows you to be a standalone giant and doesn't put you in a scenario where you have to sell out or early Just for people an IP value So anyways, what we'll stop there and I know that we also wanted to do some q&a from the audience And please come up and talk to geese and I afterward. I mean, I've worked with a few hundred businesses and A few dozen of the top venture funds pretty deeply over the last four to five years Scaling their businesses. There's just so many really common opportunities that unlock Hyper growth for businesses and help them achieve, you know, their outcomes. They're they're looking for About four minutes to answer a couple of questions Maybe pick one or two from Slido that you can see in front of you. We're ready. Okay. What resource Do you think that apart from knowledge? The growth is about luck. I've heard someone say to me once luck means, you know, getting up early in the morning so I Think there's some component of it, but I really think it's more scientifically Driven than that. Well, I mean, I think what you're saying about luck is did I stumble upon knowing my customer? Segments and get lucky about figuring out how to actually target my product Can you get lucky and do that? Yeah But most of the businesses that I've observed and worked with that have actually gone on to have pretty successful IPO's it was actually from moving from a Perspective that they were going to be lucky to one where they actually took control of their destiny Because if you're in that scenario where you're relying on being lucky You essentially are just hoping that the outcome is going to occur and look a lot of that is occurring in the kind of Pre-product market fit world, but in the post-product market fit world You actually have the tools at your disposal where you can actually affect the chances that you actually have an outcome There's so many case studies and I hate to call out individual companies So we could talk about it later, but you know, I think some of the great examples are folks like Twilio, you know making their pivot from You know trying to sell 23 visionary value props that was evangelical sales hell to having like three very specific things They were selling to people that wanted to buy today, you know It's things like that that essentially transform your business and allow you to take control and Roy the guy who who helped do that You know he did an amazing job, you know, so you could talk about tons of these almost all the success cases look like that They don't look like luck Okay, where can I find the data you presented? Well In come see us after McKinsey proprietary data happy to talk to you about you know what what our findings are What we've done and on the analytical front to come, you know create these to come to these insights and create these charts It's basically it's you know, our our in-house research Peter and my experience over the last, you know decade or so in working with Tech technologically enabled, you know fast growing companies. Yeah The entire team has built a folks that have been entrepreneurs and in the venture community So you you were at summit partners before most of the folks in our team, you know ran other very successful startups or or venture funds prior to coming back We've benchmarked over 200 Growth-stage SaaS companies so a lot of this comes out of directly there plus we've worked with portfolios of a few hundred SaaS companies from a number of different venture funds to directly look at much of this So the data is real when you look at these companies and how you can actually compare yourself to them Do you think there's a certain sign that a company would fail? You know the failures that that I have seen actually most frequently come from businesses where they don't end up Understanding who their customers actually are and what they want to do and how they want to buy and and trying to be I think everything for everyone rather than doing a proper kind of Customer segmentation right and understanding that there's different elements different, you know buckets if you will of people that you cater to It's not one size fits all yeah I mean I always go on the the mantra that if you're building a platform you've already lost Because anybody who builds a platform isn't building something for anyone the best companies that have platforms never built a platform They built for very specific solution cases and they you know Expected that they were going to be selling those specific things and though those actually helped them Be very successful and actually scale those those businesses So anyways, I know that we're out of time, you know, please come up afterward. We can talk to her very specific Thank you. Thank you. Thank you. Thank you. Thank you so much. Let's give a big hand. Thank you