State of the Cloud 2023 - Top Five Predictions with Janelle Teng, Bessemer Venture Partners (Episode #2)

**Ray Rike** (0:00)
Hello, I'm Ray Reich, Founder and CEO of RevOp Squared, and your host of the Metrics that Measure Up podcast. We talked to a wide variety of B2B, SaaS and Cloud thought leaders, executives, investors, and people just like you to discuss the metrics and benchmarks they use to make metrics and form decisions. Now on to today's show. Janelle, thank you so much for coming back and spending some more time with me, because I loved how we talked about what's been going on with the cloud market and what was in the cloud report. But let's talk about the future, because we're entrepreneurs, you're VC investors. The future is what's most important to us, right Janelle?

**Janelle Teng** (0:51)
Yeah, and I love the, what we talked about in the last episode was a little bit more doom and gloom and definitely looking forward. I think we have more optimism, so looking forward to this discussion.

**Ray Rike** (1:02)
But we did talk about efficient growth, and even though, you know, we're trying to balance growth and profitability, your number one prediction for 2023 was really interesting. And it talked a little bit about the importance of efficient growth and technologies enable that. So can you share a little bit more about your prediction number one?

**Janelle Teng** (1:23)
Yeah, as we talked about in the last episode, following the pullback, there is now a rising imperative for efficient growth.
And over the last year, we've seen many high growth companies in our portfolio really adapt to this new paradigm quickly. They start to implement strategies to drive efficient growth. One of the strategies was to adopt new solutions to help them optimize costs for existing software and cloud spend. And I know you might laugh, you know, it sounds a bit counterintuitive that you're adopting new software to fight existing software spend. But companies are realizing that they really have limited visibility into managing their software costs and risk, and therefore need to leverage really best-in-class third-party solutions to help them along this vector. And so as a result, we do anticipate an acceleration in adoption of tools, such as CloudFinUp software to help manage your cloud usage and costs. There are SaaS purchasing solutions to help rationalize vendor spend. And there are even engineering productivity tools to improve developer workflows and help to automate R&D resource allocation.

**Ray Rike** (2:28)
Yeah, it's interesting. I just did a whole series on SaaS spend management. We actually had one of your portfolio companies, founders and CEO, Eric Christopher from Zylo. And it's amazing the sprawl of SaaS spend, especially in the go-to-market functions. It really hasn't been controlled or managed. And there's great solutions out there that just don't help you reduce your costs, but actually increase the efficiency of buying new cloud technology, but doing it through a centralized process. But here's one thing I wanted to double click on. Cloud spend from a delivery of your SaaS solution. We have AWS or Azure or Google Cloud. Do you see more and more organizations looking at that cost of goods sold contributor, cloud spend as a major operational efficiency opportunity?

**Janelle Teng** (3:17)
Oh, most definitely. I think cloud spend is probably one of the important areas that folks are really paying attention to because that impacts gross margins. Gross margins are set the ceiling for profitability on your business. We like to say it's at least one of the most, if not the most important metrics for long-term health of any SaaS business, especially those built in the cloud. As an example, public cloud companies with gross margins under 50 percent, structurally find it difficult to then drive over 20 percent of free cash flow margin. Most SaaS companies actually prior to the paradigm shift really had no visibility into how much they were spending on Cloud services and even why, because they didn't have proper processes or systems to understand and manage their Cloud spend. In fact, with the paradigm shift in 2022, not only are folks now leveraging new software to help them really manage their Cloud FinOps, they are in fact even conducting systematic reviews of their code basis to understand what they can optimize and they're going into refactor code in order to have their code run more efficiently to subsequently drive lower Cloud hosting costs.

**Ray Rike** (4:29)
There's a lot of founders and COs and CFOs who listen to the podcast, and I'm sure they're like, yeah, I'd love to get my gross margin up from 64 percent to 70 percent. Are there any great early stage companies that are providing technology that might help them gain insights and visibility into that Janelle that you can just share?