What's 🔥 in Enterprise IT/VC #345

Developers + buyers aka "Users and Choosers" - Hashicorp sandwich 🥪 model + practical advice selling dev tools in 2023

Hashicorp released its Q1 numbers this past week and while it did beat expectations, the stock was pounded due to a lower forecast for the rest of the year. Despite the lower forecast, long time readers know that I view Hashicorp as one of the 🔑 leaders demonstrating the ability to leverage an OSS model to drive financial results. It has truly proven that OSS dev tools companies can not only be an artistic success with millions of users, community and engagement but also a financial success. The results speak for themselves as you can see below (see presentation here):

One slide in particular caught my attention - “users and choosers” which means developers and buyers showing that you need to do both to win financially.

However, at scale, this can also pose a challenge. There are millions of users/developers but only 830 over $100k in spend who account for 89% of its annual revenue (🧵 here)!

Yes, it’s Hashicorp.

💯 - building a vibrant OSS community is hard as hell and monetizing it at scale is even harder and super dependent on some large customers! The slide below shows you how much patience it takes as the graph depicts 4 years to >$10M of spend, but I’m sure there was a year to two of developers just using the product before buying the initial product in 2019.

Since we specialize in partnering with founders from day one, read our post on Demystifying PLG on tactics to go from developers to buyers or users to choosers. Here’s a few nuggets (read the rest here):

1. PLG is a continuum and too many folks think PLG is a pure play model that’s just about swiping credit cards when in reality very few companies build big businesses like that, especially in developer tools.

2. Reframing PLG as lead generation with product will change your success criteria. If it’s easy for a single user to onboard then imagine how easy it will be to onboard large customers when you move to enterprise sales.

3. Don’t be afraid of the sandwich model. Not every PLG co is built the same, some may have an amazing community and get their 50 customers via bottoms up and others may sprinkle in a few design partners early sourced through the community…

As Haschicorp has shown, it’s doable - you can not only be an artistic success but also a financial one as well. Doubling down on practical steps to sell more, our boldstart operating partner, Anna Debenham just released this post: “How to sell the value of dev tools in 2023.” Anna brings a ton of real world experience joining Snyk as Employee #4 in the early days and involved in the product journey to scale. Here’s an excerpt:

That was a lot to digest, so here’s a summary:

As well as understanding your user persona, learn about your buyer persona and the values they care about. Make sure your messaging speaks to them.

Examples of developer tool value points include saving time, replacing or removing budget line item, reducing infrastructure costs, and supplementing specialists (hello, AI!).

Gather your value metrics via a survey, or if you don’t have enough users yet, get individual data points from customer case studies.

Take care not to over-exaggerate your value — be prepared to show your workings to prospective buyers.

Go further by ingraining your value points directly into your product via dashboards or a product usage report email.

Remember building a true community for developers means you have to play the long game, and not everyone can stay the course especially in this tough economic environment where getting some early wins or paying customers is important to raise that next round of funding. Yes, users are the key to success for the developer first model, but you can also find the choosers earlier if so inclined. Read more on my “sandwich model” and the nuance is in who and how you choose those first design partners to go with your bottoms up motion.

As always, 🙏🏼 for reading and please share with your friends and colleagues!

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Scaling Startups

1. 💯👇🏼 💋 of death for many startups

   

2. Along those lines 🧵

   

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Enterprise Tech

1. Why AI Will Save the World by Marc Andreessen- I’m sure you’ve already seen or read this but in case you haven’t…

   What AI offers us is the opportunity to profoundly augment human intelligence to make all of these outcomes of intelligence – and many others, from the creation of new medicines to ways to solve climate change to technologies to reach the stars – much, much better from here.

   AI augmentation of human intelligence has already started – AI is already around us in the form of computer control systems of many kinds, is now rapidly escalating with AI Large Language Models like ChatGPT, and will accelerate very quickly from here – if we let it.

2. I’m biased but ❤️ this approach from Snyk (a portfolio co) when it comes it the official launch of its AI product - DeepCode AI:

   Purpose-built AI for secure development

   DeepCode AI, powering the Snyk platform, utilizes multiple AI models, is trained on security-specific data, and is all curated by top security researchers to give you all the power of AI without any of the drawbacks.

   As I’ve said a number of times, guardrails needed when it comes to ChatGPT and Snyk’s approach is paying huge dividends

   Single-model AI like ChatGPT is powerful, but it comes with limitations and hallucinations. DeepCode AI's hybrid approach uses multiple models and security-specific training sets for one purpose — to secure applications.

3. GitLab all in on AI (slides from earnings presentation

   

4. Daniel Bryant’s summary of SaaStr London with Top 8 Takeaways

   here are a few hints at what is covered:

   • Category creation is (still) hard

   • Markets in 2023: Hope for better, plan for the same

   • “Field CTO” could be Developer Relations for Execs

   • Product-led growth: Think distribution, adoption, and expansion

5. SaaS Metrics 2.0 from Kyle at Openview Partners

   Your guide to SaaS metrics 2.0

6. Biggest mistakes getting a dev tools co from $0-1M (2 years to realize goal) and then $1-100M (7 yrs) - Edith Harbaugh of Launch Darkly via Jason Lemkin

   "Pricing has no right answer! We started with a self-service model, and cheap-and-easy pricing. But prospects wanted more, and wanted to talk to sales. And underpricing can pigeonhole you."

7. Rumor mill - app layer or infra layer when it comes to AI - Midjourney, Stability revenue numbers via swyx

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Markets

1. How the slowdown in Net New ARR really looks