I’ve never once done a traditional “predictions” post on SaaStr, but there has been so much going on this year, I thought FWIW I’d at least share what I’ve been thinking about a lot. And putting my money on.
Five perhaps somewhat obvious predictions for 2024:
1. Lower interest rates lead to SaaS multiple reflation, likely during 2H’24
It’s not clear how truly tight the link is between interest rates and SaaS multiples, but the overall correlation is clear. Lower inflation and the fed lowering interest rates should lead to an expansion of SaaS multiples. There are I think strong arguments that even today, SaaS companies are overvalued, and I get it. But in my experience in SaaS for 18+ years, things roar back after systematic shocks. I predict the same as interest rates fall. Even if a contraction in buying more SaaS products really was a far bigger issue than interest rates in reality the past 18-24 months.
2. Lapping tougher times helps impacted leaders bounce back, to a point
We are lapping App Layoffs and tougher times. Industry leaders, from Outreach to Gong, to Zoominfo and Box, should see a boost in 2024. It’s just math. Seat contractions and app layoffs are behind us. 2024 may not be great, but for folks who are leaders in their categories, everyone likely will point to some quarter in 2023 as the low point.
3. There is an “AI Innovation Pause” in B2B SaaS
AI overall is one of the greatest forces of nature we’ve seen in technology and software. But many SaaS leaders I talk to are still learning and experimenting on a few clear vectors. It’s not clear there are a ton of great ideas on what to do with AI APIs that aren’t already being tried out. AI is an unstoppable force but we may see the innovation side take a partial pause in 2024. For example, in the contact center, we’ll see the AI excitement morph into nuts-and-bolds automation-based outcomes.
4. Strong SaaS Startups Misjudge the Market, Even They Can’t Raise Post Series A/B
Growth investors need the multiple reflation in point 1 to happen to get the late-stage investing engine going again. It will happen, but likely will take until late in the year. The Series A/B crunch continues until then even for the best. Oxygen is very thin above $200m valuation for all but true outliers.
5. Efficiency Sticks, But in Unpredictable Ways
Almost every SaaS leader went from very unprofitable 18 months ago to operating margin positive today. That’s a rate of change in “profitability” we’ve never seen in SaaS — ever. Now it’s been proven. Everyone at scale can be cash flow positive if they want to be. Yet, as things get a smidge easier (see Points 1-2), there will be a lot of pressure to grow faster again. To scale up sales, and get back to marketing again. You can’t have it both ways, not fully. Likely we end up in a world of permanently tougher attainment in sales, and everyone looking to rely more on automation. Marketing remains forced to be myopic and short-term focused, but the market leaders lean in deep on brand, and pull ahead.
A Related Deep Dive on Efficiency, AI and More with Aaron Levie, CEO of Box, here:
(insights image from here)
