Hey Reader,

Welcome to The Middle, your midweek rundown of the most interesting things we've read this week.

Our Level Up Webinar Series is next week (May 22) on The Big 3 of Subscription Revenue, so I would be remiss not to share the link with you.

As for me, I’ve started my new job and drinking from the proverbial firehose. But it sure doesn’t feel like work when you pick the right job, right? Right.

Alright, enough -- it's time to jump into The Middle.

Jeff​

Q1 Software Earnings Are... not good

Listen, I hate to share bad news but... many publicly traded SaaS businesses reported earnings for Q1 and it’s not pretty.

Let’s see how they fared from Jamin Ball’s Clouded Judgement:

• 6 out of 40 companies (15%) saw ARR shrink from Q4 ‘23 to Q1 ‘24.

• Of companies who gave Q2 guidance, 20 out of 37 (54%) guided BELOW Q2 consensus.

• Of the 33 companies to guide to the full calendar year 2024 only 5 raised full year guidance by more than one percentage point compared to prior full-year guidance (Squarespace, AppFolio, Datadog, Olo and Klaviyo).

• The median “beat” (Q1 revenue versus Q1 consensus estimates) was 1.5%, which is the lowest it’s been in the last 4 years

Not great.

Especially when 54% of companies have adjusted their guidance below their original plan in Q2. They expect conditions to remain as soft as all those throw pillows we keep on the bed (why do we need so many pillows?!… anyway).

Where’s the problem coming from? Yamini Rangan summed it up in HubSpot’s Earnings Call:

Retention has most likely been tough during these conditions but what Rangan describes is pressure at both ends of the new business funnel.

It’s been tough to attract high-quality leads at the top of the funnel from key content and partners, so they have had to rely on outbound motions via sales reps. Then, with already fewer leads in the funnel, each deal is more complicated and takes longer to convert.

All of this screams SLOW.

I’d expect similar outcomes in private software companies too.

How many prospects are 'in market' now

“You’re lucky if even 10% of your potential, total customer base is ‘in market’ at any given time”

Jason Lemkin dropped this on Linkedin and expounded:

This is something that feels under-talked about.

Most companies capture 'in market' customers… that’s table stakes. The branded campaign, the competitive comparison, or even the form fill on the homepage. It’s “easy.”

Now, influencing your 'out of market' customers to make a change when they don't feel the need to, that's what few companies do well. The 90% that are 'out of market' need a nudge here and a nudge there; it's real marketing persuasion they need.

If 90% of your potential customers aren’t in-market, then:

• You have to make your solution desirable

• You have to be present where your customers exist

• You have to deliver value without an expectation in return

• You have to build a good product that can deliver an outcome

• You have to innovate and offer more solutions to stay relevant

There is no shortcut on the list.

High standards, Low expectations

Jensen Huang (CEO of NVIDIA) recently delivered a talk at Stanford about how he built NVIDIA into a $2.28 Trillion business on the philosophy of high standards and low expectations.

Bob Glazer, a renowned entrepreneur and leader, shared his perspective on that talk:

Huang references his struggles during his upbringing as what provided him with resilience and led him to have such low expectations. He doesn’t know how to teach that to others, it's innate from his background.

While you might not be able to teach resilience, I have found that great leaders empower their teams to have high standards and low expectations.

Here's Glazer again:

How do you set high standards?
By laying out a clear set of priorities and setting milestones with time-bound commitments to each other.

How do you set low expectations?
By creating an open, iterative process where the baseline is the starting point where great things will eventually happen.

Look at some of the great tech companies of recent memory and most of them had a culture of high standards and low expectations (Facebook comes to mind).

It seems to come naturally to the "move fast and break things" cultures of today.