So we try to be positive on SaaStr — that’s what helps the most. Showing folks the way, often through tougher times.
But there’s a trend I want to highlight now that we’ll see all across 2024. And I’m highlighting so if it’s you — you can get a bit of a kick in the arse and go do something about it.
It’s the “NRR Zombie”.
What’s that? It’s a SaaS startup that basically fell out of product-market fit after the 2021 boom … but has enough revenue and high enough NRR to keep going.
In some ways, NRR Zombies are outputs of the actions of 2023, especially for venture-backed startups. Everyone had to cut, cut, cut — and was told to cut, cut, cut. That they had to get to cash-flow positive, because no more money was coming.
And while many couldn’t pull it off, and will go under, a lot actually got there. They did layoffs and froze headcount. They cut marketing spend to $0. They raised prices. And most importantly, they kept most of their existing customers, even as they struggled to attract any new ones.
So now they are, in essence, NRR Zombies. They’re at $2m-$20m ARR or so, sometimes more, aren’t losing money, and have 90%-100%+ NRR and relatively stable GRR and logo retention. So that revenue and cash will keep coming in for years.
But they just can’t get any new customers anymore.
Here’s my core point: everyone sort of got a pass for this state in 2023. There was so much panic and fear about not running out of money, and cutting the burn, and overfunded unicorns, that almost everyone got a pass on growth as long as the burn was low.
But not only is that pass over, it’s time to recognize what world you’re in. In 2024, it’s time to be honest, and get past crisis mode.
If you’re an NRR Zombie, the bad news, it’s a really tough situation to fix.
The competition has evolved the past 3 years, and they may have blown by you. And your team may be too tired, or broken, to get back into the game for real. In fact, most of your team may need to go to get back to growth, ultimately.
The good news? Well, the good news is I have seen folks come back from being NRR Zombies. If they fight like hell. You still have the customer base to build on.
If the founders are truly committed and truly want it, then that existing $2m-$20m in ARR becomes customer funding for the next generation of products and software. That’s the beauty of true software. The COGS are low.
In fact, one borderline NRR Zombie I was an investor in turned it around and sold for $200,000,000 just a few months ago. It took remaking the management team, changing the GTM, and rebooting the product dramatically. But they did it. They never gave up.
The key is they never lose hope, and they never lost the drive to win and make it so.
Is that you? If not, find a way to get back there.
The bad news again is it’s tough to pull out of becoming an NRR Zombie. But it can be done. The customer financing is there. How badly do you want it?
(image from here)
