Adi's Newsletter #002

Rule of 40 in SaaS

I have now heard about this rule multiple times—a few times at work, a few times in the All-In podcast and then on Twitter. Rule of 40 is a rule of thumb through which you can check if a SaaS company (late stage) is growing sustainably by keeping its profitability and operating margins under check.

Growth at all costs without keeping the burn & churn under check is a recipe for disaster. Most SaaS startups got cheap money during the ZIRP (Zero Interest Rate Policy) era. It was challenging to say no to more money and easier to kick the can of efficiency to the future. That future is now, and all startups and their investors seek cost efficiency.

As a principle, if you can grow sustainably at 30-40% yearly and keep the operating margin at break-even or 5-10%, it should be okay. Not many companies can do this. Those who can do it attract investors (late stage and PE). You can, of course, grow at 100% and not care about the profit % but sooner than later, the burn will catch up, and you don’t want to be found wanting. It is easier to become efficient incrementally than getting up one fine day and saying, “Let’s get efficient today”.

Growth(%) + Profit (%) = Rule of 40.

Here’s an interesting database of all public companies and how they fare on the rule of 40 measure.

Animal

I watched Animal on Netflix. Having grown up on Telugu cinema, many scenes reminded me of the devices used by the Telugu directors. Sandeep Reddy Vanga does know how to entice the audience by mixing the right peppy music with high-octane moments in the movie. However, that alone cannot carry the film. This movie was too long, and it felt like set pieces were brought together without much continuity. Sandeep does not have restraint in his style, and the climax is unnecessarily grotesque. It can be accepted if it serves the story, but it does nothing for it. It felt like he was sending a message to the specific audience that he could do what he wanted to, and nobody was stopping him. When you make the story about yourself and not the story itself, you have failed cinema.

Australian Open Finale

I am surprised how every finale of a major grand slam is a five-set match. It feels like they are following a script, but that is untrue. Medvedev has now lost five finals and has only one major win to his credit. Sinner, at the young age of 22, has won his maiden grand slam tournament. The top tennis and other sports athletes are playing a mental game more than a physical one. You have to be fit to compete at the top level, but it’s a mental game once you are there. To come back after losing five finals and trying it again requires incredible resolve. Sports allow them to test their chance inner strength and discipline. Nothing comes close to sports in life that help teach so much, and it's no wonder we all love watching them.

Bonus Points

• Life hacks worth reading and practising.

• I loved this quote: “In the midst of winter, I found there was, within me, an invincible summer" - Albert Camus.

• Excellent career advice that will help you grow at a rapid pace.

Thank you for reading. I am in the middle of changing jobs, so keeping up with the newsletter writing will be tough. However, I want to keep writing to hone my skills and keep showing up unapologetically.

If you find even one helpful thing, please share the newsletter widely and help me increase my audience. It will help me find my voice and give me the strength to write authentically. Thank you!