Growth has long been the gold standard metric of success across the VC landscape in SaaS. Companies that show 30% month over month, 300% year over year, represent the upper quartile of company growth. Couple those growth metrics with reasonable burn and you’d get attention from almost any investor.
Looking at the In Revenue portfolio of B2B Vertical SaaS companies, as well as other results reported from companies like Snowflake, has me wondering if the new North Star in SaaS is Net Revenue Retention (NRR)?
As we’ve frequently discussed, customer buying behavior has shifted. What’s old is new. Trust is the currency that matters. White papers, webinars and dinners aren’t enough. Even in the presence of a trusted referral from a partner, we are seeing sales cycles across our portfolio run into a buyer request for a pilot before they fully commit. It’s their way of saying, “I don’t fully trust you.” The “Golden Age of SaaS” rears its ugly head, and the era of overpromise and underdeliver has start-up sellers paying the price.
As a seller, I always hated pilots because it took the control of the outcome out of my hands. I would do everything in my power to avoid the dreaded pilot. I’ve even coached many of the founders in our portfolio against giving into the ask for a pilot due to this mentality. However, as I’ve stepped into the seat as CRO in one of our portfolio companies, I’m seeing first-hand the buyer’s hesitancy to get into bed with a SaaS provider without some element of proof.
I currently sit in a unique place as an investor, seller and sales leader – all at the same company. While I still love the thrill of closing a deal, my interests are much bigger. My goal is to ensure this company pushes past its current inflection point. We can build a machine that can prove the ability to acquire customers at a consistent rate, but what I’ve found is that sales alone isn’t enough.
The customer demands more.
Enter: Customer Success (I include implementation and onboarding under this umbrella by the way), the sixth fastest white-collar profession in the United States according to the Customer Success Statistics pulled together by Custify.com.
Sidenote: These are some stats you should know…
- The probability of selling to an existing happy customer is 14 times higher than to a new customer.
- The top challenge CS leaders wanted to tackle in 2024 was ‘Delivering Value to Customers’. However, scaling Customer Success ranked as the second biggest challenge for CS teams in 2024, cited by 58.4% of the companies
- 93.7% of companies that measure the impact of Customer Success are using a revenue target (GRR, NRR or both)
Land and expand is not a new strategy. It’s been the play in enterprise sales for decades – but now the enterprise mentality is permeating massive sections of the market. The path to trust is to prove it. The ask for a pilot? It’s an ask to prove it.
How then do we connect my desires as an investor and a seller to the pilot?
What’s old is new in sales, and what’s new in VC is NRR – the pilot sits at the intersection. The pilot, when managed correctly, is a land and expand sales motion. Those familiar understand that landing that initial deal is a foot in the door. To get invited into the rest of the house requires proving your worth. Paid pilots – complete with benchmarks and success criteria set up front and a clear, contracted, path to conversion – is how sales get their foot in the door. Customer success (including implementation and onboarding) must build trust by delivering on those promises. Sales then has the permission to roam the estate.
As an investor, now I can see growth via acquisition, but also growth via customer expansion. It’s growth that costs less and is fueled explicitly by delivering value to the customer and measured by NRR. This new North Star broadens my perspective to include businesses with steady, healthy growth—those that prioritize retaining and nurturing existing customers rather than chasing net-new acquisition at all costs. Strong NRR drives sustainable growth because it’s built on a foundation of trust.
