Top 10 in Tech - What to know for Week ending January 24, 2025

SaaS METRIC OF THE WEEK: RULE OF 40

Back in 2021, OpenView observed that "investors have forgotten all about the Rule of 40.", which is a metric to measure if a company is balancing revenue growth and profit margins (a health indicator). For example, a 20% growth rate combined with a 20% profit margin achieves the Rule of 40. In recent years, we have seen the Rule of 40, "back from the dead." This year it's increasingly important but a very tough bar to continually achieve, which has Thibaut Claes ask the intellectual question: Is the Rule of 40 a bullshit Metric?

BUDGETS and FINANCE—DEEP DIVE

Because for some of you, the new Financial Year just started, here is a great six-part "fundamentals of startup finance" series from Bessemer: Part 1 (Goldilocks Budgets), Part 2 (Forecasts), Part 3 (Hiring), Part 4 (Growth and Profits), Part 5 (Pricing), and Part 6 (Metrics and benchmarks).

PROFITS

Just how profitable should a SaaS Company be? This article from OnlyCFO looks to benchmark profitability data in SaaS and here are the main takeaways: Gross Margins are Crucial: Companies with low gross margins (around 50%) face a hard limit on profitability, even with efficient operations (one of the reasons SaaS is favored); As SaaS companies grow decreases in OpEx as a percentage of revenue should occur, as should Sales and Marketing costs (typically the biggest component of OpEx).

AI

McKinsey's latest report on the Gen AI skills revolution dives into how companies are rethinking talent strategies with actionable steps to future-proof your team. The BIG takeaway for all of us is that roles are theoretically being combined as AI compresses the role surface areas enough. Actually, not even theoretically. Look at how Anthropic/Perplexity is merging roles in Product Roles. On top of that observation in the McKinsey Report, the other standout insight is that 75% of leaders plan to re-skill or hire for AI expertise in 2025.

CLOUD COSTS

Operations efficiency time. Cloud costs are on the rise, according to this Datadog report. GPU instances now make up 14% of compute spend, and 80% of container costs are being wasted on idle resources. Missed discounts and outdated infrastructure add to the problem—it's time to optimize your Cloud, y'all.

UNFAIR ADVANTAGES

Gaurav Vohra's Unfair Advantages Framework is a new addition to your tech dictionaries. It's all about identifying unique, hard-to-replicate strengths: Proprietary data, customer networks, and logged industry experience let you leverage what others can't—it's a startup superpower moat.

STRENGTHS AND WEAKNESSES

Expanding on to number 5 above, this article explores how to turn a competitor's strength into your own advantage: Reposition their wins as your opportunities to differentiate, pivot, and outpace - really critical in today's competitive SaaS markets (with some good examples)

COMPENSATION

This is the first Founder comp report of the year for you all. This one is from Creandum, whose third edition of their Founder Compensation report, which is fairly global, highlights that Founder salaries have increased across all stages (and significantly for bootstrapped and Pre-Seed companies). BONUS compensation calculator here.

TRENDS

Carilu's 2025 Tech Trends lays out how startups can thrive in 2025 (I like the rhyme). Key takeaways (things I often talk about here tbh): AI productization, deeper vertical SaaS adoption, and a continued focus on profitability over growth-at-all-costs. Also predicting that buyers will be back and budgets internally stay tight.

CASE STUDY

Here is the start of an incredible 3-part article from Notion covering the challenges faced by (VC-backed) startups towards $100m in revenue. Fun (?) fact: Only 1.2% of us achieve this milestone.