Byron Deeter on SaaS Growth in 2021 | Bessemer Venture Partners

Byron Deeter remains confident regarding the future of cloud technology and isn’t overly concerned that the surge in software purchases triggered by the COVID-19 pandemic is waning.

As an investor at Bessemer, a venture capital firm with a successful track record of investing in cloud-based companies, Deeter’s optimistic outlook is perhaps anticipated. However, his insights shared during a recent discussion with TechCrunch as part of our Extra Crunch Live series were particularly noteworthy.

The Extra Crunch Live series continues: Click this to see what’s coming up on the agenda.

We inquired about potential shifts in the market following the rollout of new vaccines and the subsequent slowdown of the accelerated digital transformation prompted by the pandemic.

“Will growth rates decrease? Was this simply a temporary effect of COVID-19? Or has this represented an acceleration of existing trends? Both scenarios are likely to occur,” he explained, adding that while he doesn’t anticipate continued reliance on extensive daily video conferencing like Zoom, he believes Zoom will continue to be a “fundamental component of the economy.”

Deeter believes that “a new standard has been established for software,” and the subscription-based model ensures continued usage. This leads him to maintain optimistic projections for growth.

We further questioned whether Bessemer’s software portfolio companies would experience similar or increased growth rates in 2021 compared to 2020. Acknowledging a shift in the composition of the portfolio, he stated that “overall,” he believes “the group could potentially grow at the same rate or even faster.”

This response was somewhat surprising. How could this be possible given the expected decline of the significant boost software has received since the advent of the iPhone and the internet? Deeter clarified that while some software solutions, such as Slack, Zoom, and DocuSign, benefited from accelerated adoption due to COVID-19, other companies implemented “temporary solutions” – which he playfully referred to as “duct tape and chewing gum” – to address urgent needs during the pandemic.

He anticipates these companies will not revert to outdated software systems. This sustained adoption of modern software will, in his assessment, drive increased spending and contribute to the growth of the startup software sector. “Provided the economy remains stable,” Deeter concluded, “typical purchasing behaviors will persist.”

This perspective is highly encouraging for a significant number of startups.

Our conversation extended beyond these points, covering the types of pitch decks Deeter prefers, the qualities he seeks in founders, and even his overarching advice for entrepreneurs. We also addressed questions submitted by audience members, and we extend our gratitude to those who participated live.

The complete video recording of the show is available below, along with additional quotes. Access to Extra Crunch is available here, and we hope you enjoy the program.

Byron + Extra Crunch Live

Regarding bottom-up sales strategies compared to sales assistance:

Determining where to concentrate efforts presents a genuine challenge. Defining your ideal customer and your primary method of reaching the market are crucial. When several approaches appear promising, thoroughly analyzing which is the correct solution requires significant effort. Different companies may arrive at different conclusions, even when starting with similar data. Increasingly, companies aim for a developer-driven approach, supplementing it with direct sales support, a popular model within the developer ecosystem. Often, they initially launch using this method. However, direct sales often serves as a reliable alternative. If a company possesses a superior product and a compelling value proposition, they can frequently achieve substantial success through increased sales assistance, even if the developer-focused strategy doesn’t fully materialize as anticipated. Recent years have unlocked unique opportunities that the industry previously couldn’t accommodate.

Concerning ‘startups’ as a target demographic for SaaS businesses:

I believe startups can be remarkably discerning technology purchasers, providing valuable feedback and constructive collaboration in the early stages. Securing a few early adopters who are technically proficient, regardless of their size or stage, can be incredibly beneficial. They will rigorously test your product and offer candid opinions. Their inherent cost-consciousness means they won’t hesitate to discontinue use if it doesn’t deliver value, which can be a positive attribute. However, as a target customer group, they are generally among the least reliable. There’s a common saying that “a startup shouldn’t rely on other startups.” The market has experienced a decade of unprecedented startup success, but statistically, the majority still fail. You want to avoid a situation where your success is dependent on an unsustainable trend beyond your control. A common alternative, a broader market approach, involves targeting the lower end of the midmarket. This segment offers deals that are ten times larger than those from startups, with a comparable sales cycle. While you will inevitably attract some startups who will adopt your product, building your foundation on them is risky. Ideally, your growth will outpace the average startup, and you’ll have a higher survival rate. Therefore, a more stable and forward-thinking customer base will provide a more productive platform for development.

Regarding the most important quality in a founder:

I would likely identify it as a “superpower.” This is noteworthy because the specific superpower varies for each founder and each business. However, I highly value a strong inclination to excel in a particular area or possess a distinct advantage that allows them to dominate a specific market segment. This could manifest as exceptional product understanding, market insight, go-to-market strategy, talent acquisition, or inspirational leadership. Consistently, I’ve observed that our most successful CEOs demonstrate extraordinary abilities in at least one domain.