10 years ago "ARR" took over as the metric of choice in evaluating startups, as everything moved to SaaS and it was a handy way to compare businesses in vastly different industries and markets.
It worked for a while, mostly because SaaS software margins are typically so high that most ARR was equivalent. SaaS businesses had so little COGS that you didn't need to think about it.
Now, in the age of AI, COGS are back! The cost of LLM APIs, or processing costs of running your own models, are high. Instead of 80% margins, you see companies with margins ranging from 0 to 80 and sometimes negative!
So, ARR is no longer the universal yardstick it once was. We are back to looking at all the fundamentals of a company, which is good news! Startups are complex and we need to use critical thinking to evaluate them.
Goodbye ARR, hello hard work.
Senior PMM @ Walnut | Storyteller | B2B SaaS
3moMama Walnut always knows best ☺️