So what the heck happened in 2022 and into 1H’23, when SaaS unicorns could go from 100%+ growth to 0% in 12 months?
How could growth for some decelerate so quickly? It didn’t happen in the last big downturn, and it didn’t happen to everyone:
- Datadog’s growth slowed to 33% from 61%. But it still grew at an epic pace at $2B in ARR.
- Zscaler’s growth slowed to 41% from 61%. But still pretty strong growth at $1.5B in ARR.
- Monday’s growth slowed to 50% from 65%. But again, still very impressive at $640m in ARR.
The list goes on. The macro impacts for most in SaaS and Cloud are real. But customers didn’t stop buying.
And yet many startups even at $100m+ ARR saw growth slow to 0% or close to it. What happened there??
Basically what’s clear now is customers went through a “10% App Layoff”
If you’ve been at a big tech company, you know what this is like. You get all the VPs into a room, and you tell them to make a list. Of the 10% to cut.
But this time, instead of headcount, it was apps. Yes, some bigger companies went through layoffs too, but in many cases, they hired more folks back, and really just kept headcount flat or slowed its growth.
Apps though they truly cut.
And layoffs usually takes a few rounds. Everyone knows the 1-2 apps they don’t really need (or frankly, the 1-2 employees they don’t really need). The first 5% or so to cut always takes just a few minutes. But then after that, it’s tougher.
So that’s what we saw in 2022 and into 2023 — App Layoffs. Everyone around the table just cut apps from each department. Not all of them. But in many cases, the number of apps shrunk by 10% or so. For the rest, the IT or finance departments tried to manage costs down.
And if you were “cut” as an app? Painful. Very painful. But it honestly means you weren’t as valuable as you thought. Because they kept the other 90%.
The good and important news is that we are now lapping this. Very big customers in many cases are not asking their VPs to cut >another< round of 10% of their apps from budget. In fact, in some cases, we are seeing budgets modestly reflate now, and growth rebound from relative lows.
Take a look at the very latest from ZoomInfo here, perhaps the public SaaS company the most like a lot of us. While things have gotten a lot tougher there the last year, and is still tough — :the last quarter was less tough in terms of relative growth than the prior one:
The customers you close now are more real. They really want you.
(cut image from here)
