SMB Tech Benchmark Guide, the State of the Market, and the Market’s Impact on the SMB space

👋🏾 Welcome Back! What to Expect in This Month's Newsletter

It’s tough to kick off this newsletter without acknowledging what a devastating week this has been. We are mourning alongside the families in Uvalde who have lost their loved ones to senseless gun violence. We are strong supporters of gun control and urge our readers to donate to Everytown and follow the action steps on their website in hopes of preventing tragedies like this from happening again.

In light of the change in seasons, we hope that everyone is getting outside and enjoying the warm weather. This month we’re excited to share the latest in SMB news. We’ll share excerpts from the Official SMB Software Benchmarking Guide from Lightspeed, discuss recent news on the state of the economy, and tips for weathering this market downturn.

📜 What's New With the Crew?

Sydney is excited to share some big news in the next SMB Syndicate as she is cooking up something she can't wait to announce. She will share more when the time is right!

Tessa is excited to be approaching her next close for Capitalize VC in June and recently made a new pre-seed investment in Coily.

Jen was excited to see her portfolio companies, Brightflow AI and Boulevard, nominated as part of GGV’s SMBTech 50!

📰 SMB News Roundup

• WizeHire just raised $30M in Series B funding to help SMBs with hiring, putting the company at a $250M valuation

• Bounce bagged $12M in Series A funding from A16Z and other investors to expand their luggage storage business by leveraging extra capacity from local SMBs

• Expense management provider Emburse announces that they will be making a big push into the SMB market

• Forbes reports on how the pandemic has transformed the way banks look at small business lending

• In a Tweet, Kiva Dickinson discusses the impact of the market turndown on CPG.

• Eric Stromberg and Spencer Peterson of Bedrock Capital predict that 2022 will be roaring year for SMBs.

• YC sends a letter to all of its founders on how to weather the current market conditions.

✍🏾Deep Diligence

We were really excited to read Lightspeed Venture Partners’ Official SMB Software Benchmarking Guide. We mirror their sentiment when they say that they are “unabashedly long on the SMB market”. ****In their guide, we learned so much about how they are quantifying the opportunity in the SMB tech space that we decided to spread the word by including an excerpt of their guide in our newsletter! We encourage you to read the whole thing. You can find it here: https://lsvp.com/smbguide/. Thanks to Arsham & Adrian for authoring this report.

“SMBs have historically been ignored; now we’re convinced they’re the next frontier. In the past, there were economic disadvantages to building for and selling to SMBs. How could you economically sustain paying costly sales reps who are closing such small accounts? Don’t SMBs have a higher propensity to go out of business and have a reputation for being fickle when it comes to paying for software? Will your company in turn have a leaky bucket? Why invest heavily in product and engineering resources to sell a product for $1K ACV as opposed to $100K?

What changed? There’s been a gradual delaboring of sales forces, accelerated by COVID but in effect well before. It’s not a novel concept – how do you think B2C companies justify picking up one-off consumers who on a good day will pay $15/month? It turns out the consumerization of the enterprise doesn’t just mean building a prettier product, but making it easier to adopt and following playbooks that B2C peers have set around digital distribution. This trend opened up the previously inaccessible market of SMBs who have been woefully under resourced, who would much rather focus on perfecting their craft than dealing with administrative work around maintaining an HR database, recruiting, logging payments, tracking inventory, or organizing expenses.

The markets have started to notice. Five years ago, there were 8 publicly listed SMB oriented SaaS companies, and today there are 25*. High growth SMB-focused companies often ask themselves what types of benchmarks to follow given most studies are generic to SaaS in general, which has selection bias towards enterprise businesses.

Importantly, this trend is not to be confused with product-led-growth, which is equally exciting but focuses on businesses where the product drives initial adoption, often as part of a small team within a larger enterprise, and expands throughout. Our focus is on software companies that depend on a long tail of lower ACV deals. We analyzed 24 of those businesses based on public data with the hopes of setting a new source of truth for the next generation of SMB enablers.”

Read the rest of their benchmarking analysis here.

📅 Upcoming Events

• We look forward to planning an in-person event this summer! Have a preference on location? Drop a note in the comments!