SaaS Interviews with CEOs, Startups, Founders
Pavilion Breaks $10m Revenue using New Growth Playbook, CEO Sam Jacobs
17 Dec 2024
Chapter 1: What is the main topic discussed in this episode?
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Chapter 2: What is the shift from growth at any cost to profitable growth?
I'm Sam Jacobs and we're really gonna be talking about this shift that I've been writing about on social media from growth at any cost to profitable, efficient growth and what the tenets of profitable, efficient growth are and how to achieve it for your business and a couple quick steps and hints because a lot of what we're doing and talking about, we try to implement and embody within Pavilion the company in addition to Pavilion the community.
So raise your hand if you're familiar with Pavilion the community. All right, so Pavilion is the world's largest go-to-market community for high-growth executives in the world. It's 10,000 members all over the world. It's a paid membership organization.
Chapter 3: How does Pavilion support its members in achieving growth?
So people pay to be members, companies pay to be members, and we provide education, we provide peer-based support, we provide incredible in-person experiences not dissimilar from this. And hopefully we help people accelerate their careers by giving them the tools they need to be best-in-class go-to-market operators. So that's what the business of Pavilion provides back to its members.
It's a recurring revenue business. It's not a software business, but it is a recurring revenue business paid for primarily through membership dues. And, you know, again, I've been talking. My name is Sam Jacobs. I'm the CEO.
And we've been in the shift from a world where investors were driving a lot of the value for organizations to a world where now customers are driving value because growth is driven for at least for us through profit. And so our journey, it should say investor value on the left.
Chapter 4: What are the challenges faced by SaaS businesses in the current environment?
But. Over the last couple of years, particularly in 2020 and 2021, investors were driving a lot of the value creation for enterprises. And that's because when capital was not constrained, when there was free money, it meant that people could invest in businesses and growth at any cost. And that's where this phrase comes from. Growth at any cost was worth something.
And the reason for that is because of... Not exclusively, but because of interest rates. Because if you understand about the net present value and time value of money, you understand that a dollar at 0% interest rates in 20 years is worth the same as a dollar today. And as interest rates go up, that dynamic shifts. It's not the only thing driving the compression of multiples and
Chapter 5: What are the key metrics for assessing business efficiency?
public technology companies and in private technology companies, but it's part of it. And we're not immune from that either. I didn't think when I started this business that it would be a venture-backed business, but it turned out three years ago that a company called Elephant Ventures got in touch with me and they wanted to invest $25 million.
And so even though I lecture and write about go-to-market alignment online, we immediately fell victim to all of the mistakes that we comment other people embody and employ. So we were growing very, very quickly through last year when the tech recession ultimately hit us. and we're not immune, right? So since the summer of 2020 run, growth rate of public SaaS businesses have been cut in half.
The cost of acquire, and I just actually did a webinar today, this is the mean, right? So on average, there's been a dramatic increase in the cost of sales and marketing spend to acquire one new dollar of annual recurring revenue. If you take out some of the best performing companies from the cohort that did this analysis,
Chapter 6: How can companies improve their customer retention rates?
which includes companies with incredible net revenue retention like Snowflake, it's actually there are certain public companies that are spending $5 and $6 in sales and marketing investment to acquire $1 of new ARR.
So we're in a dramatically different environment, and the cost of getting somebody's attention and converting them to a customer has conservatively doubled over the last couple of years, if not tripled or grown 4X. while net revenue retention has also declined.
And that's particularly problematic because all of these fundamental assumptions are assumptions that underpin the idea from a couple of years ago that SaaS businesses and software businesses are worth 10 times revenue. And we used to hear that that was a conservative valuation, and you could be valued on a multiple of revenue. In today's environment, the actual multiple is five to six times.
And that's provided that you have growth. So even though we're moving away from a growth at any cost world to a world where efficiency is prized, the reality is that growth is still worth 3x more than profit. But even in that environment, it's not worth anything close to what it used to be worth.
Chapter 7: What strategies can drive profitable growth in SaaS?
And that's because the technology sector, but particularly the SaaS industry, has faced so many different headwinds. So we're moving, and again, I'm sorry about the formatting, but on the left it should say investor value, and on the right it says customer value. So what do successful companies need to do in this environment? And none of this is gonna be rocket science, but I wanna make sure.
that it's 35 slides and 14 more minutes. So I wanna make sure I hit the bit so that my friend Guy Rubin can speak. So what do you do differently in this modern world? And none of this should be rocket science, but I wanna underscore a couple of things that you can do to align your business around profitable, efficient growth.
What we know is that, again, nothing revelatory here, retention drives all valuation for recurring revenue businesses, right? And that sounds obvious, and yet, if we go into a boardroom, most of the time, historically, we've been talking about
Chapter 8: How does understanding unit economics influence business decisions?
the sales funnel all the way up to the point of sale. We've been talking about new business acquisition, new logo acquisition as the primary driver of enterprise value. But when we do the analysis, we understand that actual enterprise value from recurring revenue businesses is not exclusively, but primarily driven through retention.
Again, that's not surprising, but it is surprising that we talk more about the pre-sale funnel in most board meetings and most revenue meetings than we talk about the entirety of the customer journey.
And so one of the things that we need to do is we need to build up a go-to-market organization that is focused on talking about the entirety of the customer journey, that builds algorithmic customer health scores that lead to retention so that we can understand exactly the behaviors that are going to correlate to retention because retention is the thing that ultimately drives value. So...
We are focused. We were in a world where we got $25 million. We spent it in a lot of different directions. We lacked prioritization at the same time that we hit this tech contraction. And there's a big compression on learning and development budgets. And that's why you've seen some flatness in 2023. But now we're growing again. And how are we growing?
We're growing slower than we were growing from 2020 through 2023. But we are growing, and we're growing profitably and efficiently. This is not public information, although it is being recorded, that's okay. But really, since we raised money, we were a business that during COVID had 30% operating margins and was growing 3X from 2019 to 2020.
That growth slowed, and we weren't 30% operating margins. We were generating significant amounts of cash. From 2021 in February when we raised the round through last year, we burned $8 million of capital, which we'd never done before. Now we are generating cash again, and we are profitable again, and we're growing. So the question is, what exactly did we do differently? How do we do it?
Some tenets about profitable, efficient growth. All of it fundamentally is about prioritization and alignment. So I can speak specifically about the things that Pavilion did. But the most important thing that I would say up on this screen is capital efficiency is prized in the current market. And what that means is doing more with less.
So this year we're making, our top line has grown 15% this year. And we have half the people that we had a year ago. If you look at some of the stats that Alina and Nicola presented from Chili Piper, Chili Piper's doubled their ACV, cut their customer acquisition costs in half, and also dramatically increased revenue per employee up to $200,000 per employee all over the course of the last year.
So part of what efficiency means is prioritization, and part of what efficiency means is really just understanding that you can do a lot of things with the same number of people using offshore resources, using AI, and using automation that maybe you didn't think were possible. So a couple of the things that we want to focus on and that I want to focus on right now as we go through this.
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