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By Lightbird’s Thuy-Linh

Most software today isn’t written from scratch — in fact, it is estimated that over 80% of code in any modern application is code written by others, whether it is code from open source projects and Github repositories, remote call-outs to third-party services, or libraries acquired from third-parties. While re-using third-party code makes absolute sense in terms efficiency, efficacy, speed and cost, these external software artifacts are potentially subject to vulnerabilities and hacks that can negatively impact one own’s software security. In fact, with the rise in popularity of open source components (the average software application in 2021 depended on more than 500 open source libraries and components, up 77% in two years), the exposure of software to vulnerabilities inherited from potentially unsecure third-party’s components is expected to rise too. And indeed, in the past few years, the number of attacks that took advantage of these software dependencies — so called software supply chain vulnerabilities — increased in average 740%+ YoY (!).

So, how can one address the security challenges of using third-party’s and especially open source software components?

In this article, you’ll read more about our research in the state of software supply chain security (SSCS), our opinion on the current status quo (incl. a list of players / tools in the field) and where we see market gaps and opportunities for new entrants.

Status quo and respective challenges

In the aftermath of recent massive software supply chain attacks (e.g., SolarWinds, Log4j), politics around the world, including the White House and the EU, were awaken to the criticality of SSCS and intensified efforts to better protect software from supply chain vulnerabilities. This global concern has by now also spread to the private sector with for instance a large industry group, including the likes of Google, Amazon, Ericsson, Intel, Microsoft and VMware, pledging $30 million to work with the Linux Foundation and Open Source Security Foundation to improve the security of open source software. In the same vein, many initiatives, frameworks and guides were subsequently developed, such as S2C2F (“Secure Supply Chain Consumption Framework”) or SLSA (“Supply Chain Levels for Software Artifacts”; pronounced “salsa” 💃). Software supply chain security issues also took the center stage at the Black Hat conference in 2022.

While the issue of SSCS gets strong public and private interest today, and despite the risks that software supply chain issues could expose an organization to (see the latest supply chain attack targeting 3CX users and more than 600,000 companies worldwide), 27% of medium to large companies still do not have any established security policy in place to deal with software governance and open source security. For small companies this number approaches more than 45%. Worse than that, latest surveys show a great discrepancy between what people think is happening within their organization vs. what is really happening: while 68% of respondents are confident that their applications are not using known vulnerable libraries, close to 70% of 55’000 enterprise applications revealed known vulnerabilities in the underlying open source software components.

In fact, the core challenge for companies is that software supply chain security is highly complex as it spans various and vast aspects of software development that an organisation cannot directly control. Months after the Log4j vulnerability was reported for instance, it was still responsible for security breaches: this attack taught us that it is not enough to only know where one’s own developers are using Log4j, organizations have to also know all of their software that uses Log4j. As such, organizations have to implement processes and tools that help them check components across their entire software development lifecycle, including in-house code, outsourced development, commercial software packages, open source deployments, interfaces and protocols, development tools, … and anything else that makes up or interacts with the final solution.

In addition to “scanning all individual components” thanks to SCA or SAST tools for instance, the understanding of the dependencies within a project is equally vital (e.g., how do the different parts of the code interact with each other? how would a vulnerability affect the rest of the software chain? who has access to what and when?). Along with choosing and managing hundreds of initial dependencies, developers are thus asked to track an average of 1,500 dependency changes per year per application while maintaining software quality at all times. This is commonly referred to as dealing with the “Dependency Hell”.

And so, while SCA and SAST tools are relatively in use (around 35% of all respondents to a recent survey by the Linux Foundation have such tools in place), they typically can only address a portion of all the aspects around software supply chain security:

To date, various tools and frameworks exist across the three pillars of SSCS as illustrated above to help companies use third-party’s code and open source components more securely. 👉 Look at the end of this article for our list of 25+ companies, incl. companies recently out of stealth such as Oligo or Ox Security, providing solutions in this space.

It is nonetheless important to highlight here that given the complexity and vastness of SSCS, it is almost impossible for anyone to be 100% protected or “clean” of vulnerabilities, and thus for any tool to provide a bullet-proof solution. In fact, an external dependency per se already contains risks and potential vulnerability exposure. Like other aspects in cybersecurity, it ultimately comes down to the extent of an organization’s risk appetite.

Market development and opportunities

As mentioned earlier, SCA and SAST are the most widespread tools currently in use against software supply chain security vulnerabilities. However, they can only cover parts of what would be needed — thereby creating opportunities for new entrants and innovative solutions. At Lightbird, we are excited about the following developments in the SSCS space:

• The provision of more comprehensive / aggregating tooling across various aspects of software supply chain security. 59% of all respondents in a recent survey by the Linux Foundation found that “adding intelligence to existing software security tools (e.g., SAST, SCA, SBOMs, IaC)” should be the top priority to improve SSCS. And while a few players — such as Sonatype (US, 2008) or Snyk (US, 2015) — have been developing and commercializing suite of tools to address various aspects of SSCS, new technologies and an increasing availability of data will enable the next generation of more encompassing solutions. Endor Labs (US, 2021), for instance, backed with $25M in seed funding from Lightspeed, started the commercialization of a product suite claiming to go further and deeper than any other tools in SSCS matters. Ox Security from Israel also emerged from stealth in late 2022 with $34M in funding to introduce a more comprehensive version of the Software Bill of Materials (SBOM), called PBOM or Pipeline Bill of Materials, which covers not only the code but also each of the procedures and processes that impacted the development of a specific application.
• Tools and frameworks to facilitate the adoption of best practices and endorsement of organizations that do so. Google has for instance launched its Assured Open Source Software service which gives enterprises and government users access to the same vetted open source packages that Google itself uses in its projects. According to the company, these packages are regularly scanned, analyzed and fuzz-tested for vulnerabilities and built with Google Cloud’s Cloud Build service with evidence of SLSA-compliance. Chainguard (US, 2021) also took this route with products that allow developers to only build with SLSA compliant containers with provenance and SBOM verified by digital signatures. Chainguard was founded by the team behind the SLSA framework itself and is funded by Sequoia.
• Automated analysis and remediation of security vulnerabilities for SMBs. Security by default from the start should be encouraged, yet not every developer needs to be a cybersecurity expert, nor do all companies have the resources to address the complexity level of supply chain security. Because supply chain vulnerabilities can however affect companies of all sizes with the same impact, we see an opportunity for new entrants to offer basic, developer-friendly (i.e. embedded in a developer’s workflow) yet performant security tools targeting the particular needs of SMBs. Aikido Security — one of the few European players in this space — based in Belgium is taking this route by addressing teams with less than 50 developers.
• The adoption of bottom up go-to-market approaches. At Lightbird, we back companies with strong distribution advantages that come from adopting innovative go-to-market strategies beyond traditional sales & marketing. It’s fair to say that cybersecurity has remained one of those industries where traditional sales motions have endured. And so, it is not surprising that SSCS companies often target security officers, CISOs and compliance teams in a top down approach. Yet, with Snyk leading the way, we are particularly excited to see more and more cybersecurity companies start adopting an innovative go-to-market approach, typically targeting developers and incentivizing developer communities around security to evangelize the product from the bottom-up.

We’ve put together a list of active companies in the SSCS space 👉here. Have we missed anyone? If you are building something to improve software supply chain security and enable more secure use of open source software, we’d love to exchange perspectives and hear from you! Feel free to reach out via LinkedIn or to hello@lightbird.vc.

Thanks to my colleagues at Lightbird for their feedback as always and a special thank you to Charles for the insightful input!

Software Supply Chain Security: addressing cybersecurity challenges in using open source software was originally published in Marcau Partners on Medium, where people are continuing the conversation by highlighting and responding to this story.

The Nordics are the new SV (Sustainability Valley). What is behind the success of the region in the startup ecosystem?

The Nordic countries have a proven track record of being home to some of the most contented, affluent and inventive individuals worldwide. The impact the region is having in the European environment is so relevant that a recent McKinsey’s report defines it as “the new SV”, which is usually the acronym used for the Silicon Valley, but referring to “Sustainability Valley” this time.

With 42 total unicorns produced, including Skype, Spotify, Klarna, Supercell, Kry just to name a few, more than 1627 successful exits in the last four years only, the fastest (12.5x, 2017–2022) growth in Europe for the number of mega rounds ($100M+), the Nordics have a very sound reputation among investors and founders. This is even more true in the impact and sustainability space. In 2022, 35% of all VC funding in the region went to impact startups: with this number averaging around 22% in Europe, this performance makes the Nordics the most impact-focused region in the world. Even after a challenging 2022 that saw investments in the Nordics dropping by nearly 30% from 2021 but still 2x compared to 2020, the Nordics can be definitely considered a hotbed for innovation.

But what is the secret sauce that makes the region rise through the ranks? Are there any lessons that can be applied in other ecosystems?
While the answers to these questions may be hidden behind several social, economic and geographical factors, we have tried to identify four macro-areas that can help to explain the Nordics success.

TL;DR

1) A well established tradition of entrepreneurship and innovation

2) Combination of private and public effort in supporting the startup ecosystem

3) The high-quality education system in the Nordic region produces a skilled workforce extremely keen on entrepreneurship

4) Sustainability is an intrinsic value in the Nordics, it’s not just an objective

The Nordic region is a technological reference point due to its tradition of entrepreneurship and innovation

The Nordics region has a strong history in innovation that creates a common and shared tradition of entrepreneurship. In fact, while in recent years the Nordics gave birth to a significant number of unicorns and very successful companies, the region’s culture of entrepreneurship and innovation has longstanding and strong roots. With a sound reputation as pioneers in the mobile phones industry with Nokia and Ericsson, that were among the first to prove the possibility to compete at a global level even against the big Asian and American powers, the region continued to boost giants even in more traditional industries with colossus like IKEA, Maersk, Volvo, and H&M. These enterprises became undoubtedly iconic examples of the Nordics’ reputation all over the world.
The ecosystem around innovative products and business models has proven even more solid with the definite proof of power in the recent software revolution, with Skype’s contribution above all.

In this context of established entrepreneurial tradition and focus on innovation, it comes with no surprise that Sweden is at the forefront, especially driving digital disruption in every industry. One of the most significant events that boosted the technological inclination of the country was the late-1990s government policy to put a computer in every home. Over the course of the program, from 1998 to 2001, around 850,000 household computers were distributed for free, up to a quarter of Swedish households. Many individuals who couldn’t otherwise afford such machines were given access to a completely new possibilities and digital skills. Sebastian Siemiatkowski, Klarna’s founder, began to code on a computer his mother bought with the government support. Another catalyst for the spread of digital innovation in the early 2000s was the fast adoption of broadband, which was even faster than in the US: in 2005, when Klarna was founded, there were 28 broadband subscriptions per 100 people in Sweden, compared with 17 in the United and a global average of 3.7.

The overall ecosystem is a recognized asset from its participants themselves who work pro-actively to preserve and to sustain it, enhancing a flywheel that accelerates its development speed. Numerous pioneers of the Nordic technology industry are in fact dedicating their next steps to continue to develop the ecosystem, either by launching fresh startups like Spotify’s founder Daniel Ek did with Neko Health, or by reinvesting their resources, like Niklas Zennström, the founder of Skype, who founded Atomico and then supported Klarna. Talents (and capital) remain in the region, and they set even more ground for the future.

Availability of funding and investment is the result of a unique combination of private and public effort

One of the strengths of the Nordic ecosystem is the synchrony between the governments-public interests and the private ones for the development of the tech and startup ecosystem.
Governments in the Nordic countries have been proactive in promoting entrepreneurship and innovation and have implemented policies and initiatives that encourage investment in startups. This support includes funding for research and development, tax incentives and easy access to public financing.

In Norway, for example, you can claim an income deduction on personal investments up to NOK 1 million (around EUR 89K). In Sweden, instead, state-owned pension funds are a real boost for the startup-ecosystem development. Back in 2016 Northzone, an early investor in Spotify, was able to raise its biggest fund back then of €350M, also thanks to investment from state-owned pension funds AP3 and AP6. All in all, Nordic pension funds account for 16% of total VC funds raised in the region, while in the DACH this number fluctuates around the 2% and it is 3.5% in France and Benelux. Beyond public pension funds’ activity Nordics government are notorious for establishing public programs for investing, both directly or indirectly through other VC funds, in startups, supporting their tech development or international expansion. For example, in 2016 the Swedish government established Saminvest, that actively supports both national and international venture capital funds and angel investor programs that will add value to the Swedish ecosystem. Similarly, Business Finland, the Finnish government organization for funding and trade, provides services and funding for Finnish startups and SMEs, to foster their international growth and to fuel business and product development as well as technical R&D. The entrepreneurial spirit in Sweden is also supported by strong social policies and foundations: “The social safety net we have in Sweden allows us to be less vulnerable to taking risks” — Gohar Avagyan, Vaam’s co-founder, referring to the range of income insurance funds that protect business owners when their venture fails or for startups’ employees if they lose their job, guaranteeing up to 80% of your previous salary for the first 300 days of unemployment (Reuters).

Beyond public capital and government incentives, the Nordics are attracting at the same time a massive amount of private money to the VC space. Startups in the area raised $11.7B in 2022, almost USD 417 pro capita, while in the DACH region the total amount raised was USD 16.1B (EY, Sifted, VentureLab), close to USD 170 pro capita. For the Nordics, this is 36% lower than the all-time high in 2021, but more than 50% higher than 2020’s total. In this context, Sweden results to be the gold reserve of all VC money in Europe. Swedish key venture capital firms, among the others, include Northzone, Creandum, and EQT Ventures. These firms have not only invested in successful startups, including Spotify, Klarna, and iZettle, but they manage the largest funds of the entire European region. Among the top 5 funds in term of size, 4 are managed by the Swedish trio, with EQT (with its EQT Growth I and Ventures III respectively at the first and second position) and Northzone (Northzone X) monopolizing the podium. Creandum follows at the fifth place with its Creandum VI, preceded by the UK-based Felix Capital.

Another key aspect that is worth being pointed out is the lower severity of the funding gap problem through the entire startup lifecycle. If later stages are well covered by incredibly large-size funds, the Pre-Seed and Seed panorama offers an outstanding roster of professional funds laser focused on the growth of the Nordics ecosystem too. Just to name a few: Lifeline Ventures and Inventure in Finland, Heartcore Capital and Seed Capital in Denmark, Industrifonden and Norrsken VC in Sweden, and Skyfall Ventures in Norway.

Even in terms of acceleration programs and community events the region stands out. Nearly 12’000 people attend Helsinki-based Slush conference each year, which has fast become one of the world’s top tech and startup events. There’s also a slew of tech accelerators that have been a huge asset to the region’s popularity in the startup space. Apart from the international ones with a presence in the Scandinavian area like Seedcamp, Antler and Startupbootcamp, the region presents original programs with a strong success path like the Danish Accelerace or Sting, that since 2002 have supported hundreds of promising Stockholm-based startups.

This combination of government support in both financial and infrastructure aspects, large amount of private money interest and a vibrant community, creates a very unique fertile terrain for startup to be founded and then scaled.

The high-quality education system in the Nordic region produces a skilled workforce extremely keen on entrepreneurship

The Nordic region’s education system is considered one of the most successful in the world. When adjusted for GDP, Finland’s higher education system is the best in the world, according to the Universitas 21 (U21) rankings. Denmark and Sweden, are also both present in the top 5. This achievement is the result of a strong tradition of investing in education and providing equal opportunities for all students. The education systems are designed to foster creativity, critical thinking, and problem-solving skills, rather than simply focusing on academic achievement. Nordics students practice the most useful soft-skill in entrepreneurship since their school days. In Sweden, they even practice the hard-skills: entrepreneurship training for high school students started already in 1980. The number of students who participated in the training grew steadily and entrepreneurship eventually became part of the national curricula for both elementary and upper secondary schools in 2011.

Moreover, Nordic countries have a strong focus on research and development with a particular attention to the scientific fields. The Technical University of Denmark (DTU) is a top-ranked university that excels in engineering and environmental science research. KTH Royal Institute of Technology, located in Stockholm, Sweden, is known for its world-class research in areas such as information and communication technology, energy, and transport. Chalmers University of Technology, located in Gothenburg, Sweden, is a highly ranked engineering and technology university with a strong focus on collaboration with industry. Aalto University, located in Espoo, Finland, is a multidisciplinary university that excels in innovation and entrepreneurship in fields such as science, engineering, and design. Finally, the University of Helsinki, the largest and oldest university in Finland, is renowned for its research in fields such as ecology, materials science, and quantum physics. These universities share a common commitment to research, academic excellence, and innovation, making them among the top scientific and engineering schools in the world.

Sustainability is an intrinsic value in the Nordics, it’s not just an objective

Nordic Regions rank first in almost all reports about sustainability. In 2022 (and even in previous editions) Finland, Sweden and Denmark monopolized the podium of the Europe Sustainable Development Report with regards to the percentage of SDGs achievement analyzed. The Nordics have a long and established tradition about sustainability that is embodied and delineated in each aspect of the society, both in the local cultures and in political agendas. The Nordic Council, has identified three priority strategic areas in a joint statement on which all countries involved commit to work together as a unique identity. These areas are the transition to a green economy, promoting social sustainability, and ensuring competitiveness in the region. Denmark for example, has taken the lead in the transition to a green economy, successfully reducing CO2 emissions by more than 50% since 1996. On the other hand, Finland has set an example for sustainable use of resources and is the first country to establish a detailed roadmap for it.

The attention to the sustainability is an issue that is becoming increasingly important especially in the consumers space, driving a significant shift in a market that has been crucial for the development of the Nordics ecosystem. But even from an investor perspective, this theme is becoming more and more relevant. First of all, investment portfolios face significant risks from climate change and global warming, so that investors are starting to prioritize impact investing to hedge their positions. Institutional investors have been noting that hazards associated with ESG matters can significantly impact a company’s market value and public image. Companies have witnessed a reduction in their earnings and gains due to occurrences such as work-related accidents, environmental damage or contamination, and supply chain disruptions caused by weather and social conditions, or even bad governance. Adding to that, sustainability is core to align fund strategies with the priorities of beneficiaries and broader stakeholders. According to US Trust, two-thirds of high-net-worth millennials implement their investment decision expressing their social, political and environmental values, indeed.

Given the primary position the Nordics hold in the sustainability space, both in terms of social engagement and technological development, the region gravitates at the center of the most discussed and material theme of the next decades.

What’s next
So far, the optimism is definitely predominant and the overall sentiment is that the Nordic startup boom will continue into 2023 and beyond, due to the region’s global approach, intrinsic tradition for innovation, and risk-taking mentality.

The Nordics are the new SV. What is behind the success of the region in the startup ecosystem? was originally published in Marcau Partners on Medium, where people are continuing the conversation by highlighting and responding to this story.

Rough sea for consumer startups — how to cope with it! Part 2

Written by Marcau’s David Hug and Andrea Annese, with the collaboration of Luca Michas and Rudi Skogman

In Part 1 of this article, we tried to analyze the current consumer market and how startups operating in this space need to rethink their strategies in the face of a situation we have not been used to in the last 10 years.

It has become apparent that, while inflation rates have skyrocketed and the cost of basic services like food and transportation have reached record highs, consumers are increasingly looking for cheaper alternatives and changing their brand preferences more frequently than before. On the flipside, consumer-facing startups find themselves in a peculiar situation where they need to explore new acquisition strategies, rethink revenue models, and improve user experience due to increased CAC in traditional channels and new customer habits.

In Part 2, we will explore the experiences navigating the current market conditions of two startups founders from our Ringier Digital Ventures Portfolio. Luca Michas from Yamo and Rudi Skogman from Blok will share their insights on the challenges they have faced, as well as their strategies for adapting to changing consumer habits and to the uncertain economic environment.

How has the current market affected Yamo and Blok’s customers’ behavior?
“Consumers are reconciling their financial caution with their consumption and spending impulse by being much more selective about their brand and product preferences”. This is the opening answer from Luca, which also hints how some segments like baby and kids food are more resilient to uncertain economic situations. On the other hand, this is not the case for the private residential real-estate as confirmed by Rudi: “The rising interest rates drive people to postpone decisions and make them unsure of their own financial future. At the same time the prices of their own homes have come down in the past 12 months leaving less money to buy a new apartment even if the prices are lower in general[…]The change after the start of the war in March was almost instant”. The constant variable in their words is that there is less wallet space for luxuries as people are more cautious in high-ticket purchases in each category.

How has the current market affected your company instead? Based on what KPI did you notice these changes? Did you change your KPI scorecard accordingly?
According to both founders there is a big problem in acquiring new customers, both in terms of acquisition cost and in conversion rates. For Yamo, “big advertising platforms like Google, Facebook [are] increasing their media prices”, which caused an increase in CAC to “almost all e-commerce businesses”. For Blok’s proptech market instead, “we’ve noticed that our own conversion started going down dramatically” reflecting “market statistics that show that the housing market volumes [in Finland] are down 50–60% YoY”. Consequently both founders are focusing on monitoring the conversion value chain, from CPM, CPC and CVR . More generally, Rudi points out the importance of balancing revenues and costs to withstand this peculiar circumstance.

What measures have you taken to meet the challenges?
Very interestingly both companies have acted on their revenue streams, pursuing long term diversification strategies and aiming at increasing retention and LTV.
Rudi : “We’ve done 2 things specifically — Cut costs […] and diversify our revenue streams, making sure we’re not dependent solely on one place for all our revenue. This is still work in progress but has helped us already tremendously as we’ve been able to grow revenues from a new product in a new stream from 0 to 600k ARR in a matter of months.”

Luca: “ […] we focused a lot on retention and LTV. From a product point of view, we are working on improving the quality and our service even more with different measures. But we also adapted the D2C business model itself, offering more attractive pricing for customers who want to commit to a 3 or 5 box plan. We are creating a win-win situation both for the customer and for us. The customer profits from cheaper product prices, and we secure higher customer lifetime revenues with the first purchase.”

Looking ahead to 2023, what environment are you expecting? And how are you preparing for it?
When thinking about the immediate future, uncertainty is often the first thing that comes to mind. With so many macro factors at play, such as the reactions of central banks to rising interest rates and ongoing international conflicts, it is difficult to make reliable predictions. It is thus not surprising that both Luca and Rudi are focusing on their core business, strengthening current revenue streams, and rekindling partnerships, while approaching the immediate future with caution.

Rudi: “ I expect 2023 to be as bad or worse than 2022. Most likely towards the end of 2023 we’ll start seeing some light at the end of the tunnel but until then […] buckle up! We’re preparing for 2023 by strengthening our revenue diversification efforts and making sure we’re using all possible channels for revenue creation. At the same time we want to build new lasting partnerships with larger players in the market to mutually benefit from the synergies created.”

Luca: “In the coming year, we expect continued uncertainty in the market and then either a stronger slump in the markets or a slow recovery, depending on what the Fed decides and how the war in Ukraine develops. For us this means: caution is the mother of wisdom. We will postpone exciting opportunities that have the potential to distract the organization too much until further notice. In concrete terms, this means that focusing on the core issues is absolutely essential for us.”

Has the relationship with your investors changed over time? What are your expectations of investors in the current period?
The purpose of a VC investment is not only the one of re-filling accounts, investors have also the duty to support founders, opening doors in their network, providing strategic advice and, especially, they need to be the right sparring partner for founders. But in challenging times startups leaders need even more, they need empathy and support, even for small decisions. As Luca points out: “especially in stormier times, founders experience countless small to medium-sized challenges and dramas within the startup on a weekly basis. Empathy, i.e. understanding of the business but also the personal situation of the founders is immensely important in such times. Compassion is then the next level of this. Being there for founding teams when things become tough is crucial. Can the founder call you at 10 in the evening, even if just to vent?”. It is important also to remember that VCs are navigating the same waters as their investees and open communication and shared knowledge have never been as important as today on both sides.
Quoting Rudi: “ Our investors have supported us tremendously through this tough year and always had our back.[…] They are in an equally tight spot to companies. The fundraising market from LP’s has gotten a lot worse as well, so it’s understandable that investors are very careful in making new investment decisions and/or supporting all of their portfolio companies. I would however really wish that investors generally would make sure that most of their portfolio would make it through this market because the companies that do make it out alive will be stronger than ever as competition will have died and markets will again be booming.”

While there is already much food for thought from these conversations up to this point, we could not leave our founders without asking them a very important final question.

What advice would you give to early-stage founders trying to build a consumer-oriented startup while navigating this rough sea?
TLDR: Focus on product market fit and try to extend your runway as much as possible!

Rudi: “ I would say that most consumers will be trying to cut down on spending next year so anything that offers a lot of value at a low cost is likely to succeed. Concentrate on customer experience and customer satisfaction. Luxuries are off the list for now, so I would advice to steer clear of that space for the near future.”

Luca: “ Focus 100% on your product market fit. This means building a product that your target audience loves and will tell their friends about. Don’t scale too early. Understand what the flywheel of your product is. Think about how you would build the business without external capital. What would you do if you received venture funding? How would you invest it? What could you do differently/better with the money? Think about “product-led growth”, find your niche where you can build the best product and grow out of it.”

With Christmas just around the corner, we were very grateful for the gift Luca and Rudi gave us by sharing with us their valuable experience gained on their boat in the rough seas of the consumer environment. For the uncertain year of 2023, it’ll be crucial to understand the changes in consumer behavior while focusing on core activities. Also, support from the right investor will continue to be essential for startups, and we at Marcau Partners, who’ve been involved with consumer-facing companies for decades, can’t wait to hear from you. If you’re building a consumer-focused startup, don’t hesitate to contact us!

Have a happy holidays season and we’ll see you in 2023!

Rough sea for consumer startups — how to cope with it! Part 2 was originally published in Marcau Partners on Medium, where people are continuing the conversation by highlighting and responding to this story.

Rough sea for consumer startups — how to cope with it!

As consumers change their consumption habits and navigate through challenging times, consumer-facing startups need to rethink how they reach new customers and how they engage with existing ones.

Written By Marcau’s David Hug and Andrea Annese

The world is changing
When the pandemic officially began in November 2019, few people could have predicted the long series of events that have changed our lives and the economic environment in ways not seen in decades. The global economy began to show scary signs of a downturn, the geopolitical balance swung from west to east, while interest rates skyrocketed and a recession seemed just around the corner. So it’s not surprising that anxiety about the future has increased, with more than 60% of consumers around the world not expecting the economy to recover in the near term. Meanwhile, the Consumer Confidence Index (CCI) has reached its lowest level since 2008.

Inflation and changing of attitudes

Consumers’ fears of recession and cost-of-living increases are more than justified when you look at current inflation rates across Europe. Even in the strongest economies, rates are over 10%, far above the ideal 2% target set by ECB.

What does this mean for consumers?
Figures like these concretely change the lives of consumers in their daily activities and strongly influence their purchasing power and attitudes. Let’s just remember that the cost of basic services such as housing, energy, food, and transportation has reached record highs, sometimes exceeding 20% per year.

In addition, over the past three years, consumers have been in a constant state of crisis and have changed their consumption habits, preferring to replace spending rather than simply reducing it:

• The brand loyalty: traditional scheme has been disrupted by COVID, with 75% of consumers changing their brand preferences amid latest global developments.
• Cheaper alternatives: premium offers have left space to high value for money products in essential segments, with 48% of consumers shifting to cheaper alternatives.
• Brand Purpose: notwithstanding the problems in the affordability of premium prices for sustainable products, consumers will not sacrifice sustainability. They are increasing their spending in alternatives, like in second hands and refurbished products while reducing expenses into top brands not doing enough, or harming, the planet. Brand purpose is among the most important drivers when consumers decide to try a new brand.

What does this mean for consumer-facing companies? — some food for thought

The complicated times we went through and those we see on the horizon have affected businesses in the same way they have done with consumers. Lockdowns due to the COVID crisis, the global supply chain inefficiency, the resource scarcity and the latest changes in consumers’ spending habits, will force B2C companies to rethink their strategies. But what is the best way to face this new environment? On the one hand, companies need to reduce cost pressures without compromising the perceived value of their offerings; on the other, they want to keep prices competitive. As if this complex equation were not complicated enough, consumers facing business will have to cope with a new variable:

The tried and tested “Massively BUY customers through paid marketing, than SEO and CRM” is out of its equilibrium.

Digital advertising paid channels’ cost have presented a tremendous upward trend during last quarters. CPM (cost per thousand) has surged up to 185% on TitTok, and similar numbers can be presented for Facebook, Instagram and even Google, with a 75% year over year increase in its programmatic display CPM.

Aside from higher costs, digital advertising campaigns are also becoming less effective at targeting the right audience as customers become better at avoiding unwanted ads and more concerned about how their data is used (see for instance Apple’s new data policy ).

What to do next? It is time to discard old thought patterns and tread new paths. Be creative!

Here some of the lessons Marcau Partners learnt supporting Ringier Digital Ventures, specialized in consumer-facing start-ups.

1. How to reach new customers and engage existing ones

• Diversify customers acquisition channels from the start: reducing the dependency on Meta, Google and the rest of the paid ads mafia not only can reduce cost, but it can contribute to an easier scaling process for new (and established) businesses.
• Focus more on content marketing: it’s incredible how quickly content can go viral these days. Creating engaging content on a consistent and programmed schedule can go a long way toward reaching a large audience in a quick and cost-effective way. One of the best example of this strategy can be admired on Teta’s TikTok profile. One of the first videos posted on the platform got viral attracting thousands of viewers, for free and in record time!
• Affiliate programs: It’s undeniable that affiliate promo codes (also known as “coupons”, “discount codes” or “gift codes”) are a powerful way to incentivize people to engage with your brand. We all love a good deal from time to time, don’t we? The opportunities offered by thousands of micro-influencers on social media are endless these days, and the chances of your promo codes going viral and reaching thousands of viewers are very high. Sometimes, influencers become even more than just affiliate, they become true brand ambassadors, like the fit-army of micro-influencers sponsoring the Portuguese Prozis.
• Leverage customer-generated content: Get your customers to sell the products themselves by making them a part of it. Supporting your best customers and making them feel important can have two important effects: First, it increases brand value and second, there’s the added chance that your products will go viral. A good way to pursue this strategy is to offer areas on your channels (websites/social channels/etc.) where customers and fans can show how they use the products, or create a community of brand ambassadors. The best example of this strategy is GoPro: At least six thousand GoPro-tagged videos are uploaded to YouTube every day!
• Build proprietary channels: Today’s world offers a wide variety of relatively inexpensive ways to build your own channels to attract customers.The oldest and probably the best known is the newsletter ( owned or in partnership).
  More and more companies also rely on proprietary podcast next to sponsoring third parties’ ones. Masters and Vanguard from Shopify and Open Account by Umpqua Bank are two great examples of this strategy from the startup ecosystem.
• The craft of good SEO is often underestimated or neglected: The daily search queries on online search portals harbor huge opportunities. If you have done your SEO homework properly and have a clear strategy, you will certainly have seen what it means to be on the first page for matching key words and not on the second or third.
• Explore new channels: when digital ads are out of the question, other channels must be explored. Following the same pattern of aiming at virality through original content on social media, the same can be tested in traditional media channels. Be creative and reach customers where they spend most of their time: reading blogs, watching TV, reading newsletters. Again, content is king.
  Our Ringier Digital Ventures portfolio company Carvolution is using paid content in cooperation with media houses to promote its services. This way of advertising offers more room for explanation, delivers more insights for the potential customer and qualifies the potential click. This channel became one of the main driver for new leads.
  Here are other examples of alternative paid channels:
• Content-Cooperation with media companies
• Cooperation with other brands that have matching touch points with your potential customers or overlapping demographics. Spotify has always mastered this technique, creating amazing partnerships with Starbucks and with Uber, among the others.
• Out of Home: outdoor advertising is recovering very well from the pandemic and it is going far beyond billboards. It is worth to mention at-home health test kit brand LetsGetChecked that set up a giant couch in New York City’s Flatiron Plaza, to promote its kits. Another interesting case can be admired looking at Casavo’s offline campaigns in Italian streets, where the company created a piece of street art in the heart of the Milan city center. The beauty of OOH is that it cannot be overlooked by skipping, fast-forwarding or paying more to avoid ads. But, most importantly, it perfectly fits GenZ and GenY profiles.
• Even TV could be an alternative

2. How to improve the underlying business

In times when customer acquisition costs are skyrocketing, it is important to focus on building the right scorecard with a larger variety of KPIs.

• Average Basket Size: Shopping carts with a certain size and a high CM1 margin offer more breathing space for customer acquisition. Regularly review the size of your shopping carts and give customers the opportunity to buy more than a single product from you. A wider shopping cart assortment not only means a higher ARPA, but also increases the likelihood that customers will fall in love with your products and come back again for them. Bundles, mixed packages, and personalized recommendations are popular ways to achieve better cart size.
• Average Contrubution Margin: Focus on a good margin from day one and if there are higher and lower margin products in your offering — try to bundle them. For example, combine physical and digital products. In our Ringier Digital Ventures portfolio, Makerist (as part of The Creative Club) gives the customer the opportunity to buy e-books with do-it-yourself instructions and the necessary materials on the same platform.
• Life time value (LTV): Even if you are already profitable (after marketing) with the first purchase transaction with the customer, it is important to work on the life time value.

How can consumers oriented businesses improve their customers’ LTV? Here are some points to pay attention to:

• Business model: one-time vs. subscription. Yamo, from our Ringier Digital Ventures portfolio, offered both one-off transactions and subscriptions on its website in the past. Management had the courage to take a bold step and offer only subscriptions. In order to be able to offer something suitable to as many customers as possible, three plans with different durations and price points were drawn up. The hypothesis derived from previous customer behavior was that 80% would choose the shortest option (with the lowest customer commitment). The (ad)venture paid off: 50% of customers have opted for the shortest option since the changeover, 30% for the medium option and 20% for the longest option. They were happy to accept the corresponding price reductions. For Yamo, this behavior brings a major advantage in the form of a higher LTV on the first purchase.
• Re-ordering: make sure the process is as seamless as possible and avoid thousands of clicks. To simplify this procedure, add a one-click reorder feature so customers don’t have to search again for the product they want.
• Top of mind awareness: stay present with the customer (between possible transactions)
• Pricing: test the right strategy to get the necessary commitment from the customer.
• UX: 88% of customers are less likely to return to a website after a poor UX. It is therefore important to provide them with a smooth, error-free and amazing journey. Make sure your offering includes the best features from top performing marketplaces: browsing history, one-click social login, wishlists, related product recommendations, rewards programs, order status tracking, to name a few.

What’s next?

There is no escaping the fact that we are facing a unique combination of new patterns in the consumers environment, but it is in times of change that new opportunities arise. It is a good moment for mental reframing, to get out of the comfort zone and seize new opportunities!

Since we at Marcau Partners have been involved with consumer-facing businesses for decades, we thought it would be really helpful to share our experiences along with those of our founders. So hold on, part 2 of “Rough sea for consumer start-ups — how to cope with it” is coming soon!

Rough sea for consumer startups — how to cope with it! was originally published in Marcau Partners on Medium, where people are continuing the conversation by highlighting and responding to this story.

By Lightbird’s Thomas Meier and Thuy-Linh Uong

At Lightbird, we have long been strong believers in the power of communities as a fundament and multiplier for growth. Like other observers, we too are convinced that community engagement will become the lifeblood and core of many companies. When done right, a community-led approach can rapidly transform a community to become one of the company’s most valuable asset, as asserted by hundreds of companies including the likes of Notion, Hopin, Deel, or Lattice.

The strategic and commercial role of communities become particularly evident for developer-first companies, such as those following an open-source approach. It is for instance estimated that developers typically constitute >30% of any community participants, and developers are also well-known as particularly collaborative, supportive and vocal members. As such, developer communities have represented critical resources for co-creation and innovation, product feedback, retention and customer acquisition. Open source projects, in particular, are a major tailwind for community building, because they are truly collaborative environments where members can steer a project and thereby accelerate its development, popularity and commercialisation. React (one of Facebook / Meta’s first open source projects) for instance, with its community of millions of developers, has already released its version 18, while a competing framework, Vue, with a smaller community, is now only on major version 3.

There is hence true power behind a developer community. Yet, building, growing and maintaining a thriving community isn’t an easy task. For one, online community members are typically spread across many different channels and tools: Discord or Slack for chatting with each other, Airmeet or Luma for community events, LinkedIn or Twitter for new connections. For the company and its community managers, it becomes rapidly challenging to keep an overview of what’s going on in their community and to know who the members are. Not only that, the very fragmented community tech stack makes it almost impossible to truly understand, engage and monitor the community via key metrics (e.g., level of engagement, topics of interest, number of new members) and to ultimately optimize community-building efforts into input for growth.

But where there is fragmentation, there is also the opportunity for a platform solution that would allow communities to tie all their point solutions together. And so, here comes crowd.dev, the single control center for all community activities in developer-first companies.

At its core, crowd.dev aggregates data across relevant community tools, automates repetitive tasks (e.g., new member onboarding, newsletter send out), and provides required analytics and insights for developer-first companies to more systematically harness the power of their community members. To further support their community-led growth approach, users can make use of additional premium features to, for instance, easily find potential new community members, discover across relevant channels the right content to engage with or automatically generate support content discoverable by search engines.

While a few others have also adopted a community infrastructure play (see the likes of Orbit (US, 2019, $21M), Commsor (US, 2019, $66M), Common Room (US, 2020, $53M)), we are convinced that crowd.dev’s approach and value proposition are truly unique and will make them stand out. Here’s a few reasons why:

🎯 The case for a verticalized solution: Crowd.dev is one of the few solutions built specifically for one specific community type, and the very first to be dedicated to the developer community. By striving to offer a curated experience to developer-first companies, crowd.dev ensures it is prioritizing the product features and integrations that really matter to their communities (e.g., GitHub, Discord) and that other more horizontal players would not focus on. As a matter of fact, many OSS founders we spoke to confirmed that generalist community platforms have a developer use case, but don’t cater enough to their specific needs. And so, there is a case for a verticalized solution like crowd.dev. Indeed: today, already 300+ companies have signed up to crowd.dev’s closed beta.

💫 At the crossroads of two massive and mutually reinforcing global trends (CLG x Open Source = a compelling “why now”): We talked about our conviction in community-led growth for the future. Not only is crowd.dev enabling this global trend, but thanks to its focus on developer-first companies, the product surfs as well on the rise of open source software for which communities are at the very heart of success. Only a few years ago, open source was met with great skepticism from investors, fearing the viability of these business models. Fast forward to today, the relevance of open source software is undeniable. To name a few examples: open source Linux powered 75% of all public cloud workload in 2020, 85% of world’s smartphones are run on Android and some of the most popular software development stack (MEAN: MongoDB, Express.js, AngularJS, Node.js) are all open source. If at first rather in the ranks of the sceptics, Microsoft is today one of the most famous advocates of OSS, and sealed its commitment when acquiring GitHub for $7.5bn in 2018. All of this has also led to a significant increase in open source venture funding and deals, cumulating to around $4B in 2021 alone. Other estimates show that companies with open source roots have accumulated over $200B of market cap to date.

For crowd.dev to be specifically targeting open source and developer-first companies to power their community-led growth strategy means tapping into the market potential of two nascent but massive and rapidly growing global trends.

🤩 Backing a team of strong believers: Having built developer communities from scratch at his previous roles, Jonathan experienced first hand the challenges as well as the power of community-led growth. In Joan, he not only found a co-founder with a complementary skillset, but also a friend who shares the same dedication, hungriness to learn, and a common vision and advocacy for developer communities. So much so that crowd.dev literally embraces what it preaches: the platform is the only developer community tool currently available as open source! Additionally, in the spirit of “giving back to their community”, the team has been extremely active in producing high-quality content and relevant resources, e.g., their directory of open source alternatives to proprietary SaaS tools or their data base of open source VC investors.

We are proud to finally announce the EUR 2.2M investment in crowd.dev, that we co-led alongside Seedcamp, and with the participation of Possible Ventures, Angel Invest, NevrSeen as well as notable angels, including Russ Heddleston (Co-Founder of DocSend), Cedric Sellin, Christian Stiebner and Matthäus Krzykowski. We cannot be more excited to partner with Jonathan, Joan and the rest of the crowd.dev crew in their mission to help developer-first companies transform the power of their communities for growth. Let the journey begin!

Find out more about crowd.dev on their website and GitHub repository, as well as here, and on Techcrunch.

Backing crowd.dev, the community-led growth platform for developer-first companies was originally published in Marcau Partners on Medium, where people are continuing the conversation by highlighting and responding to this story.

Ever since Alice (literally) fell down the rabbit hole in Lewis Carroll’s “Alice’s Adventures in Wonderland”, the meaning of the phrase has changed to a metaphor for extreme distraction on the Internet with no clear destination.

Not long ago, we too fell into a rabbit hole: the modern data stack. Data & Analytics is a core theme for us at Lightbird. After talking to many experts in the space and getting lost in said rabbit hole, we have defined one thesis we believe will spark innovation in different areas based on existing challenges in the space and summarized core aspects we consider when talking to Data & Analytics founders.

TL;DR: As more data gets generated, it becomes critical for unique business insight and value creation. With the data stack consolidating around a small set of cloud-based vendors and the cloud data warehouse becoming the system of record, new areas for innovation emerge. We are particularly excited about warehouse-native applications and reverse ETL, providing better, real-time insights on the whole customer lifecycle. Driven by increasing complexity and dependency, we also believe that data teams will focus more strongly on data operations. Therefore, data quality, monitoring, observability as well as management and governance are getting more important. Lastly, when assessing solutions in the Data & Analytics space, we particularly focus on the strength of the community and low barriers for adoption combined with a 10x better user experience.

Data, data everywhere

There is little doubt among technology leaders on the overall importance of data to derive insights, drive decision-making and ultimately increase business value. The drivers among others are the move to the cloud, the amount of data generated and the overall defensibility achieved through data. Cloud spending is increasing and expected to reach $374bn in 2022, an estimation conducted by Bain even before the COVID-19 pandemic. The same consultancy firm also expects SaaS and cloud solutions to receive the largest spending increases in 2022. What’s more, the average amount of SaaS applications used by organizations has risen to an average of 110 SaaS tools. Consequently, more data is generated, captured, copied and consumed worldwide — an estimated 181 zettabytes by 2025. Lastly, data is seen as a strategic asset and differentiator, fueling product innovation, customer insights and business value.

However, businesses aspiring to be truly data-driven still face many challenges. While speaking to data experts at startups as well as more established corporations, it became clear that the path to (data) success remains long for many.

🔮 Expectation vs. reality: Data is often seen as the magic bullet solving all problems. Yet, more than 70% of enterprises derive low value from their data and/or have low integration of data in their strategy, operations and culture. The main reason is the lack of resources and skills to do so (see next point).

🧠 Data mindset ≠ data skills: Despite the fact that many organizations want to be data-driven, they don’t know where to start or lack the resources and skills. Across all stages, this lack of data specialists is prevalent. According to a survey by Gallup for the Business-Higher Education Forum, 69% of US employers expect candidates with Data Science & Analytics skills to get preference for jobs in their organizations. However, only 23% of college and university leaders say their graduates will have those skills. With the increasing flywheel of more data produced → more data knowledge required, this gap will only become more urgent to be filled.

🏚️ Legacy systems: The pace of innovation in the data & analytics space has exploded in recent years (check out this market map by Firstmark to better understand what we mean). Especially in more mature companies, the main driver for data headaches are old and distributed systems. With data, it’s always easier to build new things in the data stack than to maintain old systems. A company starting today has a significant competitive advantage with its data stack over one starting 3–5 years ago.

🛡️ Data siloes: Data teams are often siloed from data consumers or business units and might even, to quote one of our data experts, get requests in a freaking ticketing system like Jira. Democratizing access to data, enabling data customers and business teams to understand, find and use data is thus critical to a) take away the burden from the data teams and b) unlock more value from the available data to become actually, truly data-driven.

The modern data stack

Despite these challenges mentioned above, huge innovation has happened in the data space. The major one is the adoption of cloud software and the cloud data warehouse as the critical infrastructure component for the emergence of the modern data stack. Why is this? The cloud data warehouse enables cheap and scalable storage, handling many different data types, timeframes and speeds. It answers the core question of where to store it all?, standardizing and centralizing data from different sources and consequently becoming a system of record.

In this context, a16z voices the platform hypothesis, proposing that the whole “backend” of the data stack — not just the data warehouse but the data ingestion, storage, processing and transformation — is consolidating around a relatively small set of cloud-based vendors. As shown in the simplified illustration below, previously isolated data from different data sources is fed into the cloud data warehouse (illustrated in red below). It then gets transformed and made available in BI tools like tableau, in data science notebooks like Deepnote and more.

Following this thesis around the cloud data warehouse becoming the system of record or single source of truth for data, we want to highlight two areas that we are particularly excited about. The first concerns warehouse-native applications built on top of the data warehouse and Reverse ETL (Extract, Transform, Load). The second, a bit wider area, deals with the challenges arising from opening up more data systems and linking them to the cloud: Data Quality and Governance.

Warehouse-native applications & Reverse ETL

As the “backend” of the data stack starts to consolidate and monolithic, closed data systems get opened up, there is a huge potential for warehouse-native applications to emerge and to put previously siloed data into context through Reverse ETL.

💡 A wide range of new applications are emerging with a “warehouse-native” architecture in place. These applications provide better, real-time insights on the whole customer lifecycle including product usage and user journeys.

As the adoption of SaaS solutions increases, more data gets created and made available in the cloud. This data from the likes of Hubspot or Stripe can not only be fed into a data warehouse, it can also get enriched by the data from the data warehouse and synced back to the respective tool through Reverse ETL. Providers like Census or Hightouch enable this as a service. Consequently, data customers and business teams derive new and better insights right in their main OS and can execute them in real-time — taking away workload from oftentimes already overworked data teams.

In addition to that, as the data warehouse becomes the system of record, it allows “frontend” developers to use it as a single point of integration (aka standardization) to build many applications on top.

We see verticalized solutions for different business functions emerging that leverage these new ways of creating, storing and using data: Fullview, Planhat or Vitally for Customer Success; Weflow for Sales and Endgame, June, Correlated, Pocus for product analytics and Product-Led Growth (check out our previous series on PLG if you’d like to dig deeper into the topic). There are also more generalist platforms like Breyta or PoggioLabs, and enablement tools like Y42, Whaly or Weld to sync user data across different SaaS tools.

A core challenge with Reverse ETL however, which is also discussed by Priyanka Somrah in her newsletter “The Data Source”, is to maintain low latency in order to avoid inconsistencies between data updated in the warehouse and data that is fed into third-party applications like Salesforce or Zendesk. There, business users need the most up-to-date versions of the data in order to execute the insights. Snowflake has already launched Change Data Capture (CDC) to address this challenge.

Data Quality & Governance

One drawback of connecting more diverse data sources and the explosion of new warehouse-native applications is that it creates huge dependencies and complexities. Petr Janda, former CTO of Pleo, has illustrated this problem in the following image:

Finding, understanding as well as securing data while ensuring high quality and trust is still a challenge for many. Yet, it is a critical fundament upon which data success and literacy are built. Therefore, inspired by Ethan Aaron, we expect data teams to expand their mandate from analytics into operations — similar to what we see with the rise of DevOps in engineering.

💡 There needs to be better integration, visualization, security, and control capabilities that reduce repetitive and laborious tasks required to deliver clean, compliant data repeatedly to the end user/application.

DataOps and the respective tools help users find, understand, access and secure data as well as create trust in its quality. It answers questions such as What data do we have available? Where does it live? How is it structured and used? Who has access to it? How can it be shared in a secure way?

Data Ops is particularly relevant as it deals with physical systems, data models, processes and human beings. DataOps is designed to build high-quality data and analytics solutions at an increasingly accelerated pace, and with higher reliability. It can be broken down into different sub-categories.

🔎 Data quality, monitoring & observability: Here, the goal is to help users trust the data they find. This is especially critical as mastering data and data quality management has been and still is one of the most important trends in Data, BI and Analytics according to a report on the Top Business Intelligence Trends 2022 by BARC.

Companies are constantly battling with insufficient data quality as a hurdle to making better use of the data.

Soda, a Belgium-based company, helps enterprises monitor the quality of their data and brings together different departments to collaborate and investigate data challenges together. Other players in the space are Monte Carlo, Datafold, and BigEye.

🏛️ Data management & governance

The survey from BARC also found that data governance is equally significant to ensuring high-quality data to work with. Data Management and Governance includes the access and collaboration aspect of working with data which defines how you handle permissions and exchanges of data, both internally and with other organizations. Companies addressing these challenges are Harbr, Oblivous and Decentriq.

Another challenge is to make data discoverable within the organization and to establish standardized metrics across all the teams to ensure alignment between the business and the data teams. Data Catalogues aim to solve exactly that and give insights on what data is actually available, where it can be found and how it is structured and being used. Tools like Castor, Atlan or Lyft’s open source program Amundsen provide such solutions.

Lastly, in order to be able to track data across repositories and pipelines for troubleshooting and/or compliance purposes, Data Lineage is critical. Manta, helps enterprises understand and visualize the flow of information through the organization and brings visibility into the where, how and what of their data assets. Another well-established player in this field is Collibra which has raised almost $600M in funding so far.

Assessment Criteria

When we assess opportunities in the areas mentioned above and by talking to data experts, it became clear that the bar to try and buy data tools is very high. Founders building in the Data & Analytics space should thus address the following questions of users and buyers when defining their value proposition:

🚧 Barriers to adoption: How applicable is the tool to the current tech stack and existing data sources? How well is it integrated with other tools? What are the switching and implementation costs?

📊 Data types: How fast (batch vs. real-time) and in which format (structured vs. unstructured, new vs. old) should the data be made available?

💐 Control: How much of the data stack should be kept in-house vs. outsourced? Should it be on-premise, in the cloud, or offer a hybrid solution?

💙 Community: Where can one get help? How responsive and growing is the community? Is there clear documentation available?

💨 Varia: Other aspects that were mentioned included the reliability and stability of the tech, the calculation and loading performance, data security/GDPR, access and release management as well as version history.

At Lightbird, we emphasize the strength of the communities and low barriers to adoption as important assessment criteria as well as a 10x better user experience. Many of the data experts we spoke to mentioned that having an open-source approach with an engaged and growing community has a strong signaling effect and increases trust for them — not only in how the solution is being developed over time but also in how they can get support.

We will continue to go deeper into the Data Rabbit Hole as time goes by since there is still much more to unpack. Nonetheless, we hope that this article has given you a good first overview of the drivers, challenges as well as opportunities for builders in this space. Founders focusing on building strong, sustainable communities around their products while providing a 10x better user experience than the status quo still have many areas to disrupt — and we’re bullish to partner with them, so please reach out!

And to stay up to date about everything at Lightbird, make sure to sign up for our newsletter here.

This article would not have been possible without the support of the experts that helped us nurture our understanding of the space. Many thanks to Janine Lee, Matthew Brandt, Macarena Beigier, Martin Seifer, Sarah Schneeberger, Lingxuan Zhang, Livia Kaiser, Osmo Salomaa and many more🙏

Bonus: Data Bookshelf

There are a couple of very insightful articles describing the modern data stack which we used to get started when we first fell into the rabbit hole. They might be helpful for you as well 👉 check them out here.

Navigating the Data Rabbit Hole was originally published in Marcau Partners on Medium, where people are continuing the conversation by highlighting and responding to this story.

We are more than excited to announce our investment in the UK-based company trumpet alongside Triple Point, Haatch and Anamcara and a number of high-profile angels 🙌

Learn more about our thesis and experience for yourself why we believe Rory, Nick and Andrew are going to revolutionize the way B2B software is sold by clicking here!

Simplifying the SaaS buyer journey: Why we invested in trumpet was originally published in Marcau Partners on Medium, where people are continuing the conversation by highlighting and responding to this story.

Co-written by Marcau/ Lightbird’s Thuy-Linh, Keen Ventures’ Djoni, No Such Ventures’ Sophie, Headline’s Anna and Paua Ventures’ Charlotte

In autumn 2021, after working 3 years in strategy consulting, I (Thuy-Linh) was starting a new chapter of my professional journey as a VC investor at Marcau Partners /Lightbird, full of energy and expectations for an industry that was relatively new to me. And, boy, how new indeed! I was expecting changes from my previous work and work environment but quickly realized I had underestimated some fundamental differences.

Reaching out to peers that are going or went through similar career transitions, and sharing how much we enjoy our new roles, I also quickly found out that our reflections and challenges were very much the same. So, together with friends Djoni (Keen Ventures), Sophie (No Such Ventures), Anna (Headline) and Charlotte (Paua Ventures), we decided to share our own experiences as well as our tips & tricks to successfully embrace and best settle in your role as an ex-consultant/now-tech investor.

Consulting vs. Venture Capital: 2 working cultures

“Ah, so you are now in VC? Shouldn’t be too much of a change for you then?”

Duh, we got this question over and over again… So let’s go through some important differences in working culture between a consultant and an investor role that you should expect and that make both worlds very distinct.

1. Dobby is free!…but what now? — While in consulting you mostly had someone telling you what needed to be done by when (👋 to our ex managers, partners, clients), in VC you are often given the liberty to decide what you want to do, who you want to talk to, what opportunities to pursue and when you want to do all of this. Amazing, no? Truth is, it does take time to embrace this new freedom (and responsibility!). The challenge is also that you often don’t get a lot of guidance on where to start, how to reach out to people, how you should decide which opportunity to pursue. Down the line, it also requires you to be much more proactive, agile and flexible in your job.
2. Mirror, mirror, tell me I am a good investor — Being project-based, consulting is a perfect environment to get regular feedback on your performance. VC does not offer this institutionalized setup where your performance can be easily reviewed against well-defined criteria and clear deliverables. Some days as an investor, even if you made X outreaches, spoke to Y founders and read Z articles, you look back and wonder “what have I really been doing and delivering today?”. In VC, there generally will be little guidance on whether you are actually any “good at this job” (only time, and a good portion of luck too, will tell: even unicorn investments take years to unfold), how you can possibly get better at it and how to progress your career.
3. The Solo Fighter — While VC remains a team-based work, it can sometimes feel lonely, as, ultimately, it is really about you as an investor and how you create your place in the ecosystem that matters. No more hiding behind a big brand, a client, partner, manager (👋 again) to go out there and make decisions: you will be asked to decide for yourself what investor you want to be, decide which opportunity to purse, own this decision and process end-to-end, hustle to build your own personal brand, show conviction and form an opinion on (almost) everything. And so, it requires some adaptation for someone like us who was previously trained to always give three potential options with all pro’s and cons, but with zero skin in the game.
4. It’s a marathon, not a sprint — In consulting, work usually comes in short but intense waves, after which you are allowed some time to take a breath. In VC, if you are a procrastinator who needs set targets to get going, beware, as deadlines are much more fluid and work, in a way, never really stops: you could go on forever researching a space, looking for interesting opportunities, talking to people. Even when you just closed a deal, you are already arranging meetings with the next founders, attending the next networking events, … Bottom line, the VC game is really about endurance.

Feeling a bit lost in your new role? Here a few of our tips & tricks

• 🧑‍🤝‍🧑Build your tribe: Go out there and network. VC is a world full of motivated, friendly and approachable folks. Find people with whom you connect and like to spend time with, sharing the latest deals, gossip, best places to eat in Berlin/Paris/London/Bali (yes, looking at you lucky ones!) and most importantly helping each other to grow in your respective roles. So sign up to these meetups, don’t be afraid of reaching out cold via LinkedIn, and get your social game going! Hint: Don’t know where to start? It might help to connect with people with the same career background as you 😉
• 🎯Set yourself goals and celebrate small accomplishments: Use your analytical and methodological consulting skills to put more structure in your work. For instance, find things you would like to do or try out, design some “strategies” to get there and commit to them. This does not have to be in the form of OKRs, but rather small personal goals you would like to achieve for this year, month or even week: a glorified to-do list if you will, but it helps giving yourself some direction and also a sense of having “delivered” something (#impact).
• 🔭Allow yourself an exploratory phase: When transitioning from consulting to VC, you usually already have a couple of years of professional experience in your bag. And thus, you feel like you should hit the ground running when starting your new role (e.g., already know which industry you like, make your first deals in the first months). Don’t worry if this isn’t the case. On the contrary, take the time for a “walk” to understand how key processes work, to explore different topics and industries, to discover what it means for you to be an investor. You will sooner or later realize that there is not one single way of being successful at this job. Plus, no one is expecting you to find the next unicorn in your first months in the team, so be kind to yourself, and take your time.
• 💬Ask for feedback and look for mentors: We all know, feedback loops in VC are long. But do you really need to wait 5–7 years to know how you are doing as an investor? If your team doesn’t yet have a very structured feedback culture, take it on yourself to introduce one: it can take the form of formal performance review sessions with your team, of casual coffee catch ups with your partners, of mentorship and shadowing opportunities, etc. Feedback is so important to grow in your role, so be proactive about it. It is truly an opportunity for you to shape your role in a way that no one else has before. And, like many things in VC, if you don’t do anything about it, nothing is going to happen.

Congrats again on your new role in VC! We hope that you recognize yourself in the points in this article and found some useful tips to help you start on this exciting journey. Please don’t hesitate to reach out to us, we always love a chat!

Transitioning from Consulting to VC: Things we wished we’d have known was originally published in Marcau Partners on Medium, where people are continuing the conversation by highlighting and responding to this story.

At Lightbird we have long been convinced that payroll will be the next big thing, the next frontier, for open finance and fintech in general. And when we first met Max, we knew that we finally found someone who, like us, was obsessed with this topic.

The information contained in payroll data, e.g., one’s earnings, employment status, identity, retirement and savings contributions, tax withholding, etc. is critical to access essential financial services such as credit, mortgage applications and insurances as it provides a more holistic view of a consumer’s financial situation. Yet, payroll systems are one of the last business systems without a modern API infrastructure: for lenders, verifying payroll information still relies on phone calls and other manual processes vulnerable to fraudulent actions (costly and inefficient) — for instance, more than 1 in 10 adults in the UK still think it is “reasonable” to exaggerate income on a mortgage application; for users and loan applicants, accessing their payroll data requires to individually log into their payroll accounts, download and share relevant information electronically or to even sometimes physically bring the documents to the next local credit branch (inconvenient and unsafe). Ultimately, these archaic processes defer and deter objective lending, renting and insurance decisions and represent great barriers to universal financial access.

Mistho, as one of the first European players enabling access to employee payroll information via a standard API, contributes to, not one, but two revolutionary movements:

• First, it implements and drives the idea of open payroll in Europe, which allows consumers to regain full control over their HR and financial data and to share it directly with third parties. Just as open banking solutions improved consumer access to their personal account data, mistho wants to do the same with HR and payroll.
• Second, it simplifies access to financial services and redefines individual credit-worthiness by ensuring access to real-time, reliable and consumer-permissioned data independently of the payroll systems in which they are hosted.

And so, we could not be more excited to accompany Max and Shervin on their mission towards more financial inclusion.

Here are a few other reasons why we decided to lead the €3M seed investment in mistho alongside Flash Ventures, GFC, FinVC and Nauta Capital:

🌊Open payroll or an ocean of opportunities: We talked about achieving more financial fairness for consumers, but by digitizing and facilitating the access to payroll data, mistho also provides immediate value to lenders, landlords, insurers and banks — think of processes such as identify, income and employment verifications, or also more generally of more precise KYC and risk profile definitions. Beyond this initial use case, we also believe that mistho’s solution and built integrations to payroll providers could be applicable in a variety of other exciting areas — think for instance of direct deposit account switching for neobanks.

💎First mover in Europe: Mistho is one of the pioneers providing a simple, easy-to-implement solution for income and employment verification in Europe. While players like Atomic (2019, $69M), Argyle (2018, $78M) and even Plaid (2013, $734M) are betting on open payroll in the US, we believe that the payroll market remains a massive opportunity still largely underserved by European startups.

🏆A “go and get-it” mindset: Shervin and Max are not at their first venture. And as they met to work on mistho, their respective roles just came naturally: Max = the Why (we told you, he is obsessed with the problem), Shervin = the How (you should once quiz him about History, the guy is a walking encyclopaedia!). Not only are they complimentary in their roles as founders, Max and Shervin also share a love for home-made oven-backed pizzas and more importantly an unbeatable work ethic, execution power and commitment. Proof is, in the past 9 months only, the mistho team was able to build a product able to cover more than 70% of UK employees.

We are incredibly proud to be backing mistho leading the way to new standards in dealing with payroll data in Europe and universal financial access, and look forward to continue working closely with the team as they expand in the UK and other European markets.

Find out more about mistho on their website, or read here and here for more information on the funding round.

Our journey towards more financial inclusion with mistho was originally published in Marcau Partners on Medium, where people are continuing the conversation by highlighting and responding to this story.

Following up on our previous piece, this second article draws closer on CFOs’ relationship to tech. Read on to find out more about the digital adoption in finance, key buying criteria and what we consider as key success factors for players in the CFO tech stack space.

📈 The incremental digital adoption of finance teams

The COVID pandemic has been the catalyst for the acceleration of digitization in many industries. Yet, when speaking with CFOs and finance teams working in startups, scale-ups and enterprises alike, no one seems to have experienced an accelerated digital adoption in their respective teams or department: “not much changed really… I would see digital adoption as rather incremental in finance” said Niklaus, Lead Business Controller at Swisscom. And indeed, digitization in finance has been rather progressive and slower compared to other industries, leading some observers to advise CFOs to better adopt digital in finance or ”get left back”.

So is there no way to accelerate the rate of digital adoption in finance? For our interviewees, much has to do with the overall company’s strategy. In startups or scale-ups, the pandemic did not have much of an impact “because we were anyway already digital-first!” as stated by Bernhard, CFO at Carvolution. In large enterprises, where it usually takes time for new technologies to make their way through the corporate bureaucracy, the willingness to digitize finance and necessary support for CFOs to lead the digital transformation has to come from the top. There are also other drivers than the pandemic, such as the advances in technologies like AI / ML, that could accelerate the rate of digital adoption in finance in the upcoming years. One of these drivers repeatedly mentioned in our interviews was simply the change in the finance workforce with the arrival of younger, more tech-affine talent.

✔️ CFOs’ buying criteria — The must-have’s of every tech tool

With respect to trying out new tools, the finance professionals we spoke to are generally open, but do not want to spend too much time optimizing their tech stack. Here’s a short list of key criteria they will look out for when considering a new tool:

• Integration with existing stack: Data that do not reconcile, totals that do not add up and numbers that seem to “just pop up” out of nowhere is a great source of frustration for financial professionals. When adopting a new tool, the number one priority is that it does not disrupt the existing work and data flows within the finance team and its systems. Hence a seamless integration with the current stack is essential to any buying decision.
• UX / UI: In finance departments, Excel is still the go-to tool, despite all its limitations, just because it is too convenient, flexible and everybody knows how to use it — “If you’re going to build something to replace Excel, it better be 100X better than Excel because 10X ain’t gonna cut it” tweets Siqi Chen who is building Runway (USA, 2021, $4.5M)* to rethink the role of financial data in any organization. While finance teams would be open to try better tools, they don’t have the time to learn new user skills. For Boris, CFO at SMG “we just really cannot lose time with new technology”: intuitive, no-code interfaces that are fun to work with are key.
• Speed of implementation & customer service: linked to the above, adoption must be as easy as 1,2,3. This includes a seamless and rapid implementation and high-quality customer service when required.
• Return on Investment / Price: this is especially true for SMBs with limited budget to spend on different tools. The costs of a new tool must be justified by the value it brings (e.g., through faster, more reliable processes).
• References / user community: The CFO is a large and active community, often underrated by startups in their go-to-market strategies. Yet, many interviewees cited their community as the go-to source for new tools (hint: cold LinkedIn outreaches from providers are not well received!). References from peers and the user community are an important factor in the final buying decision.

*(Country, Founding year, Funds raised)

Medha Agarwal and Urvashi Barooah wrote a compelling article on buyer personas in the finance tech stack if you want to dig deeper in this topic.

🚀 Success factors for players in the CFO tech stack space

We summarized the key findings and highlights of our conversations with CFOs on their relationship to tech. Based on those conversations and additional research, we want to conclude this article with what we at Lightbird believe could be key differentiative and success factors for players willing to create true value for finance teams and potentially win in a crowded market.

Often cited characteristics of future winning finance tools will ensure to fill the common gaps of existing ones, e.g.:

• ensure seamless integration with other systems and apps, potentially allowing for real-time features
• come in a user-friendly, intuitive interface allowing and offering best-in-class customer support when required
• facilitate collaboration across teams beyond the finance department (e.g., cloud-based solutions for data collection and reconciliation)

All the above are critical, however in our opinion not necessarily differentiative in a highly competitive environment. We consider that true value-creating tools would also be able to:

• allow for true customization — as complex areas such as forecasting, scenario and risk modelling where tech can better support CFOs are fundamentally specific to each business, features that allow flexibility and customization over standardization are preferred.
• make complex things seem simple — tools should come with a neat and intuitive user-interface, yet are based on very nitty-gritty details (that can be viewed if necessary) and able to reliably process, integrate and reconcile complex data.
• ensure more data governance & transparency: data is the core of every finance activity and so ensuring that it is processed securely, reliably, transparently and in compliance with any obligations is key. Ultimately, it comes down to helping finance professionals better trust the technology and data they work with — so “I can sleep better at night” concludes Fabian from The Creative Club.

As a final note, we would like to thank all CFOs and finance professionals who accepted to spend some time with us to share insights and reflexions about their work, challenges and tech habits. We hope we were able to give you a glimpse into those great, honest conversations through these articles.

Thank you for reading and as always, we welcome any comments and questions on the topic. Are you a founder building something or just generally interested in this space? We’d love to have a chat with you, feel free to get in touch with us via Email. Also, sign up to our newsletter to stay updated on everything happening at Lightbird 🙂

Finance 2.0: A Conversation with CFOs on their Relationship to Tech (II/II) was originally published in Marcau Partners on Medium, where people are continuing the conversation by highlighting and responding to this story.

Digitization in finance isn’t something new. Over the past decade, startups and legacy providers have conquered this market, leading to a myriad of scattered tools fighting for a place in the CFO and finance professionals’ tech stack. The market is crowded and competitive — yet new startups keep on coming for this space and similarly, investors’ money and attention haven’t faded away. So at Lightbird in the past couple of weeks, we decided to sit down and conduct several interviews with CFOs and finance professionals to better understand why the CFO tech stack remains an attractive space for innovation and where we see the biggest future opportunities.

TL;DR: The evolution of the CFO role has had a significant impact on the key challenges finance teams face every day. Consequently, opportunities to create value for finance professionals lie in technology that a) further automates basic finance tasks to reduce errors and increase efficiency, b) better connects the (data) dots, and/or c) enables better collaboration with business partners.

🤠 Beyond finance: The multiple hats of a CFO

Finance departments have long been seen as a back-office black box for the rest of the organization, dealing with number-crunching and reporting activities no one else understands or likes to do. While finance professionals still take care of the core transactional, record keeping and reporting activities of a company (see the bottom of the pyramid as illustrated below), their role and particularly the role of the CFO has drastically evolved over the past decade to become more strategic than ever. Today, CFOs and their teams are considered gatekeepers of essential data and insights, key to strategic decisions and the future of a company. Hence, they are asked to focus their time on more valuable activities such as financial planning, forecasting and risk management (see the top of the pyramid).

For finance professionals today, daily activities span across many core aspects of the company: from traditional and transactional finance activities, to strategic finance including even resource management / HR tasks in some smaller companies. Risk management and data governance are other important activities that oftentimes fall under the responsibility of CFOs. As Fabian, CFO at The Creative Club, told us: “Previously, the CFO was, in essence, the “Chief Accounting Officer”. But nowadays, bookkeeping is just one nuance of the job— my role is more focused on strategy and growth projects in close collaboration with my CEO”.

This evolution in the CFO’s remit impacts the kind of challenges finance teams face today and subsequently defines their needs and relationship with tech.

⚡ The key challenges and pain points of finance teams

While the activities and needs of finance professionals working for startups, SMBs or large companies can widely diverge, they still share key challenges and pain points, as revealed by our interviews:

• Tech black box and inefficient data reconciliation: Among the things that can make finance professionals stay up at night are data that do not reconcile, totals that do not add up and numbers that seem to “just pop up” out of nowhere. As Niklaus, Lead Business Controller at Swisscom, puts it: “It is crucial that the flow of data is continuous — otherwise it’s just “garbage in / garbage out!”. For many CFOs, the current tools in use remain “a black box they cannot trust”: how is the data processed by these tools? How is it consolidated? Why do I get this result and why doesn’t it make sense? And when mistakes arise in processes that should be well-oiled and error-free (e.g. reporting, invoicing, record keeping), finance teams have to spend too much time understanding where errors come from and find workarounds to manually fix them.

• Data, data, data everywhere: Data is at the core of what finance teams do. Every day, finance teams have to deal with a massive amount of data to be collected, cleaned, consolidated and eventually interpreted from a variety of internal as well as external sources. Yet, as mentioned above, a lot of time is still wasted on the data collection, cleaning and reconciliation part, rather than on the more challenging and essential analysis and interpretation. For many CFOs, a key challenge for their organization remains how to truly make sense of all the data they collect and to derive insightful conclusions.
• The complexity of being future-proof: budgeting and forecasting have always been part of the central tasks for a CFO. While planning future scenarios typically happens punctually at pre-defined periods of the year, the recent pandemic highlighted the importance of rolling forecasts and short-term planning. CFOs are therefore increasingly asked to keep a constant eye on how the business is evolving, using real-time data, and to provide business partners with more precise forecasts and relevant risk management measures. With that and the overall shift towards more strategic responsibilities, CFOs face the challenge of taking on tasks with a new level of complexity.
• Communication or the power of being understood: the inherent complexity of what finance teams do is often misunderstood. Like some of our interviewees mentioned, many stakeholders still have the wrong belief that finance is “simply” about number crunching and neat reporting. And so, for finance professionals, another often cited pain point is the ability to communicate and showcase the complexity of their work in a simple and easily digestible format to their stakeholders.

⭐ Where tech can support and bring the most value

Based on the challenges and pain points CFOs are facing, we identified three opportunity areas where tech can provide the most value to finance teams:

• Making basic finance tasks more automated, error-free and efficient: the majority of existing tools in the market today focus on automating basic activities in finance (e.g., transacting, record keeping, reporting, spend management) — yet there is still more to do! In this space, the future opportunity lies in offering tools that make basic finance tasks even more automated and efficient, as well as more transparent and error-free, so that finance professionals can truly trust the systems they work with and focus on more complex activities. LiveFlow (UK, 2021, $4M)* is an interesting example in this space as they aim to speed up financial reporting by automatically updating excel spreadsheets.
• Connecting the dots: when asked about their wish-list of tools, many of our interviewees mentioned something in the likes of “a tool that could bring more clarity in the interconnectivity of data” or a “super app that would collect, consolidate and make the connections between the available data” especially in complex activity areas such as FP&A, Treasury Management and Risk Management. In essence, CFOs wish for tools powered by AI / ML to i) more efficiently connect and consolidate data otherwise scattered or isolated across different sources, ii) to suggest predictions / scenarios of potential outcomes based on the interconnections found in the available data, and iii) to help make better sense from the data in real time to derive more insightful decisions. Startups such as Pigment (FR, 2019, $99M)* and Modern Treasury (USA, 2018, $133M)* are designed to help CFOs better connect the dots between different sources.
• Enabling cross-teams collaboration: Another opportunity consists in helping CFOs in communicating their insights to business partners. Tech tools can support finance teams in better visualizing and sharing easily digestible financial insights. In that sense, self-service dashboards or financial cockpits that are also adapted to non-financial audiences come in particularly handy. Solutions like Abacum (USA, 2020, $32M)* and Pectus Finance (GER, 2021, n.a.)* put collaboration with business partners at the core of their product.

*(Country, Founding year, Funds raised)

In the second part of this article, we dig deeper into CFOs’ relationship to tech, their willingness to adopt new tools, buying criteria and conclude with what we consider as success factors for potential winners in this space.

Are you a founder building something or just generally interested in this space? We’d love to have a chat with you, feel free to get in touch with us via Email. Also, sign up to our newsletter to stay updated on everything happening at Lightbird 🙂

Finance 2.0: A Conversation with CFOs on their Relationship to Tech (I/II) was originally published in Marcau Partners on Medium, where people are continuing the conversation by highlighting and responding to this story.

Welcome to the second part of the PLG Playbook — Europe Edition. If you haven’t read the first part, make sure to check it out before reading on. The first two steps of the PLG Playbook we discussed were: (1) Focusing on the end user to define the core value proposition and (2) getting in front of them through waitlists and referrals, leveraging utility and virality, SEO and community.

The remaining three steps to be discussed in the PLG Playbook are the following: early value creation for users, data-driven conversion & retention optimization, and — last but not least — sales-led expansion to get the full picture. Let’s jump right in!

💡 Create value before charging anything

One of the core aspects of the PLG Playbook is to let the users try the product before they buy it. It is the product that onboards and trains the users.

Users should take the least number of steps to understand a product’s value and to get to their “aha moment“ before paying anything.

Freemium or free trials are a good way to provide value before charging users. Zendesk (DK, 2007, NYSE:ZEN) is an example of a product applying the free trial pricing strategy. Users choose their plan depending on their respective feature requirements and try out the full Zendesk product during a certain time period. It’s like a test drive for a new car: you try to provide as much value as possible in a short period of time. A free trial strategy is usually more suitable for high price and high complexity products.

Pitch (GER, 2018, $137.7M), a collaborative presentation software, offers a freemium pricing strategy, i.e. providing access to parts of the product for free without a time limit. Their pricing page is easy to understand, applies the three pricing tiers approach and has a clear call to action. Furthermore, the whole onboarding process is super smooth, allowing users to sign up with Google and Apple SSO. During onboarding, you can invite team members to the workspace and a pop-up explains the product in four simple steps with clear advice on where to start (user activation).

Both companies charge on a per user per month basis, billed annually. However, there are many other potential value metrics —such as per message, per API call, per seat — based on which to define your pricing. Initially, you can get the value metric through qualitative user interviews by asking users to rank the value drivers of your product. Later on, you should optimize the value metric through product usage data and move towards a more quantitative approach.

Zendesk and Pitch also have different tiers for different user segments, such as individuals, teams, enterprises. Thereby, different feature requirements can be better addressed.

Julian Lehr from Stripe wrote a great overview on how to experiment with your pricing strategy if you want to dig deeper into the topic.

💎 Generating leads for your B2B SaaS product is closely linked to how you price it and how convenient it is for users to onboard. Lucy Chen has written a great post on how to make onboarding more effective if you need some inspiration. Successful companies aim for low friction, self-serve onboarding in combination with a freemium or free trial pricing model — you can only monetize something that provides actual value.

🔎 Optimize for conversion & retention with data

The main challenge in PLG is to convert enthusiastic users into paying customers. To succeed in doing so, you first need to understand how your product is being used, where users struggle and churn, and which features best solve their problems. A solid data-driven understanding of product activation and usage — both qualitative and quantitative, ideally shared across the whole organization — will help you increase your paying user base.

Qualitative data points can be derived from user feedback through support, success and sales teams. Ideally, the product is set up in a way that customers opt-in to talk to you, resulting in a continuous pipeline of users to get insights from. We also see more and more tools providing quantitative insights for PLG-driven companies, leveraging and productizing best practices from hundreds of top tech companies. They shed light on real-time product usage, user journeys before payment and other sales-relevant aspects of your product and make it available across all sub-teams. Players from the US include Endgame (USA, 2020, $47.5M), Appcues (USA, 2013, $13.7M) and Calixa (USA, 2020, $16.3M). In Europe, June.so (remote, 2020, $2.4M) allows anyone to self-serve actionable metrics and to identify opportunities in seconds. According to Enzo Avigo, Co-founder and CEO of June, the benefits of leveraging product data with June are threefold: 1) better access to data results in a deeper understanding of what users do; 2) better initiatives since data helps to draw and test hypotheses at scale; 3) more initiatives as data provided through June is fast to query. Sensible.app (DK, 2021, n.a.) also aims to build a system of intelligence that helps traditional, sales-led companies better understand the whole user journey through (product) data.

When looking for relevant metrics to track, activation, active user growth (MAUs, WAUs, DAUs) as well as funnel conversions are key aspects to focus on. User activation measures certain actions that are predictive for future retention and are correlated to business performance, such as scheduling five meetings or inviting 3 colleagues to collaborate. Based on your most relevant metrics, defining Product Qualified Leads (PQL) as the highest potential leads should be the next step. PQLs are users that fit your target segment and “that have used the product and reached pre-defined triggers that signify a strong likelihood to become paying customers”.

OpenView has recently published a Product Benchmarks Report based on a survey with 258 startups with a variety of growth rates, ARR, and product types. You can find the most important metrics in the table below.

💎 A critical part of the PLG Playbook consists of understanding how your users interact and engage with the product and how the funnel looks like. Just as important is building a data-driven culture across all relevant teams. Data, user research and feedback — both quantitative and qualitative — are critical to develop new features, prioritize improvements within the product, increase conversion rates and ensure retention.

💸 Expand with sales-led distribution

The last part of the PLG Playbook takes place when you layer top-down sales on top of the bottom-up approach. After some time, many self-serve SaaS startups hit a growth ceiling. This is shown in smaller pockets of adoption, continual churn, and churn of larger customers to more enterprise-class solutions.

Sarah Guo, GP at Greylock, discusses this in her article Designing for Buying.

To fully capture the value of Product-Led Sales, salespeople double as solutions architects and/or customer success. They nurture existing users to become paid customers, to upgrade, or to expand within the organization. Consistently providing the best service is highly knowledge-intensive. Workbounce (UK, 2021, n.a.), a Collaborative Enablement platform, is building a system of intelligence that sits between sales reps, documentation, and FAQs from across the stack. This lets salespeople find the content and answers they need fast, through a Slack integration and Chrome extension.

However, the push for moving up-market is quite a delicate timing question. David Peterson, Partner at Angular Ventures, even argues that fast-growing software companies aren’t afraid to go after the enterprise market from day one. A recent survey by Pocus and FirstRound has shown that 48% of respondents made their first sales hire between $500K and $1M in ARR and that hire typically reported directly to the CEO/Founder.

97% of respondents either have sales AND PLG or plan to add a sales team to their PLG motion.

This post by Lenny Rachitsky takes a closer look at how the distribution approach of B2B SaaS companies changed over time. To take the example of Zendesk again, it started by selling to founders and early hires at smaller companies and then layered a sales-led distribution approach on top later on. In this article on Future by Sarah Wang and David George, it is mentioned that Zendesk switched to enterprise sales when a lead wanted to purchase more than 15 seats. The conversation was likely shifting towards more security and legal topics, resulting in a more complex sales process. Further learnings on transitioning to enterprise sales in a product-led growth organization can also be found in this recent post by Bessemer Venture Partners.

💎 A purely product-led sales motion eventually hits a growth ceiling. Layering a sales-led distribution approach on top of the bottom-up approach allows expanding from users to teams to the whole organization, catering to more demanding accounts and increasing the ACV (for bigger customers).

Conclusion

What fascinates us about the PLG Playbook is that it is all about the user and how to solve his or her pain point. As Caryn Marooney and Madhu Muthukumar have said in their talk on Trends and tactics from the frontlines of product-led growth: there is one thing that everyone in your company has in common 👉 serving the user! And while PLG has many advantages, such as higher efficiency of sales, organic customer growth, and more proactive product journeys, you still have to do the work of the other GTM building blocks.

Ultimately, product-led growth touches every part of your company. It’s a culture, not a product.

We hope to have given you an actionable playbook to get back to when thinking about growing product-led while highlighting exciting European companies along the way! If you are a founder working on PLG as your growth strategy and want to geek out over it, feel free to get in touch with us via Email & Twitter. And sign up for our newsletter to stay up to date about all things Lightbird.

The Product-Led Growth Playbook: Europe Edition (Pt. 2) was originally published in Marcau Partners on Medium, where people are continuing the conversation by highlighting and responding to this story.