A lot has been said about the software selloff in the last few weeks. This is an attempt to distill all of that into a framework to predict which companies are vulnerable and which are not.
Stellar writeup Dan. What kinds of actions do you think SaaS companies in the "Eroding Slowly" sector need to take to stay ahead and come out stronger than before?
A comprehensive essay, I enjoyed reading it, especially the way you brought in perspectives from different angles and essays.
The more I read about these topics, the more I’m convinced that one day your own customers can become your competitors (not competing for your business directly or for your EBITDA, but competing to create the best possible value for themselves). And naturally, no one is better positioned to serve their own interests than they are. I see many companies on the eroding list along this path.
That said, I also see a parallel with food, cooking at home vs hiring a personal chef vs ordering takeout. It has always been cheaper and healthier to cook at home. I see SaaS in a similar light here.
Very convincing framework. It was interesting to hear Jared Sleeper make the case on Odd Lots that Docusign’s shockingly high head count comes from hidden operational and legal/regulatory complexity that can’t be vibe coded. Trust is also a scale network effect.
I really like the ADP example. I used to work for them in IT audit and compliance. One issue and concern is that there is more to software than just writing some code. The security and compliance aspect and the integrity of the company is a factor that will make some tools unmarketable to smart businesses. The risk is the unsophisticated businesses that uses a poorly implemented third-part tool - the risk is not something people talk about. Vibe coding and letting AI agent run autonomously does not have the foundation safety nets in place. It's going to be a mess and the bad actors are just waiting.
Stellar writeup Dan. What kinds of actions do you think SaaS companies in the "Eroding Slowly" sector need to take to stay ahead and come out stronger than before?
Liked your content here so much, I referenced your diagram and writing in my post https://pragmaticprogression.substack.com/p/will-1-saas-aint-dead-its-just-pending
I think that group needs to be (1) building agentic workflows natively into the product and (2) expanding like crazy horizontally into new use cases
(This is an over-generalization of course, there are many different kinds of companies in this bucket, but I think it broadly holds)
A comprehensive essay, I enjoyed reading it, especially the way you brought in perspectives from different angles and essays.
The more I read about these topics, the more I’m convinced that one day your own customers can become your competitors (not competing for your business directly or for your EBITDA, but competing to create the best possible value for themselves). And naturally, no one is better positioned to serve their own interests than they are. I see many companies on the eroding list along this path.
That said, I also see a parallel with food, cooking at home vs hiring a personal chef vs ordering takeout. It has always been cheaper and healthier to cook at home. I see SaaS in a similar light here.
Very convincing framework. It was interesting to hear Jared Sleeper make the case on Odd Lots that Docusign’s shockingly high head count comes from hidden operational and legal/regulatory complexity that can’t be vibe coded. Trust is also a scale network effect.
Interesting - I need to dig more into the Docusign example
I really like the ADP example. I used to work for them in IT audit and compliance. One issue and concern is that there is more to software than just writing some code. The security and compliance aspect and the integrity of the company is a factor that will make some tools unmarketable to smart businesses. The risk is the unsophisticated businesses that uses a poorly implemented third-part tool - the risk is not something people talk about. Vibe coding and letting AI agent run autonomously does not have the foundation safety nets in place. It's going to be a mess and the bad actors are just waiting.
Absolutely. SaaS is the not the code but the business wrapped around it. In most cases the moats that turned them into great businesses still apply.
really good framework. the compounding value dimension is the one that matters most and it's the one the market is still figuring out how to price