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Hey SaaStr Community,

So there’s a pickle a lot of you will get yourselves into.

That critical team member, that you just have to have, that you need — that’s also toxic.

I remember when it happened to me.

In my first start-up, there were literally only a handful of engineers who understood our technology.  The best we made our CTO.  

The second best, “William”?  Well he was toxic.  Literally no one wanted to work with him. No one.  He was cruel, snarky, and had burnt every bridge you could burn.

But I pulled our team together and said look — I know no one wants to work with William.  But what if our CTO gets hit by a bus? We can’t have no one who can make it all work.  

We owe it to our investors, our customers, our team members to have some basic redundancy here.  The team’s heads hung low, but they finally agreed.  They never thought they’d have to work with William.  But we needed one more here.  He was off the charts in his skill set.

I’ve envolved my learnings and thinking here.

Until a few years ago, my advice for CS hire #1 was: just hire a veteran.

I didn’t mean a true VP of Customer Success in the early days of revenues … you’re not ready for that yet.

But my advice until recently was always hire an experienced individual contributor to start in CS with:

• at least a few years of CS experience;
• at roughly the high-end of your price point; that
• you believe in and would trust with your hard-won customers.

I still think this is the right combo, if you can get it.  And yes, there are 1000s of CS veterans around now, so go interview 30+ of them!

I used to say:

Don’t hire someone without CS experience. You need that, and there are plenty of folks with experience now.  There’s no reason to take that risk any more in most cases.

And don’t hire someone to manage $250k ACV customers that did $2.5k ACV customers in their last job, no matter how much you like them.  They won’t understand your customer base.

Don’t hire someone you don’t intuitively believe in, no matter what their experience. They need to make you comfortable in the interview process with your product and processes. If they don’t make you comfortable — they won’t make the customers comfortable, either.

To get off the ground, if you hire a vet you believe in, the customers will too. If she’s done a good job at the ACV of your largest customers … that will be a huge upgrade from an all reactive / support model.

This edition of the SaaStr Weekly is sponsored in part by New Zealand Trade & Enterprise 

We think globally from day one and understand how to partner internationally, scale at speed, and deliver localized solutions to meet the needs of markets worldwide. There’s a reason why our companies are trusted by some of the biggest brands in the world.

My Top 5 Things to Remember When Starting a Company:

#1. Fixing the Founding Team is Very, Very Painful. Take the time to get it right.

I was unstoppable when I had aligned, great co-founders. I also almost died when I had great — but dis-aligned — co-founders.

#2. Your market research is probably wrong, or at least off. Do more of it.

If you don’t have true, deep domain expertise in your space — you are probably dealing with surface and superficial insights. If you want to understand if your initial market really needs your product, don’t shoot from the hip. Take the extra meeting. Do the extra mock-up and get feedback. If time and money don’t matter, sure, just push a product out to market. But if they do matter. Double-down on your market understanding, research, and customer interviews. 

#3. Give yourself 24 months to get to a Minimum Sellable Product.

I’ve said this before, but I can’t say it enough. 12 months is almost never enough in SaaS to get to a great product “enough” customers pay for. 18 is rarely enough, either. You have to budget 24 months to get to first base, to an MSP and any material revenue. If you can’t “afford it” — too bad. Find a way.

How much optionality do you give up when you raise venture capital?  Your VCs may be hoping to make 50x-100x their investment, but they are expecting to make at least 3x.

So each time you raise money at a certain valuation, you’re raising the price you have to sell for, and in that sense, decreasing optionality.Every time, think at least 3x:

 If you raise a seed round at a $10m valuation, can you sell for at least $30m?  Maybe, maybe not, but that’s not so high you usually need to worry too much.

If you raise a Series A at a $40m valuation, now you have to sell for at least $120m for the math to work out.  Now it starts to get harder.  There aren’t as many $100m+ acquisitions as you might think.  Now there is a bit of a target on your back.  IMHO, only raise a Series A round once you’re sure you have something good, with real value.

If you raise a Series B at a $100m valuation, now you have to sell for at least $300m for the math to work out.  This starts to get pretty hard.  These deals happen, but you probably have to hit $30m+ ARR for real to have a real shot at it.  Do you see that coming anytime soon?  If not, maybe don’t raise the round.

And here’s the thing … at any price much more than $100m valuation, you start to enter … IPO or Bust land.  There just are so, so few acquisitions at $500m+ out there in SaaS to deliver that basic 3x or more.  You have to just be planning to IPO, period.

So let me boil it all down to at least one point:  I don’t think you need to overanalyze exit options and optionality if you just raise a small seed round.

This edition of the SaaStr Weekly is sponsored in part by Booking.com

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My time as an investor is really the first time I’ve ever worked with CEOs who weren’t formally (or at least, informally) trained as managers.  My bosses all came up through the ranks.  

I went from Director to VP to Founder to CEO.  Most of my SaaS CEO peers, back in the day, had management experience under their belt.

It’s fine. You can learn this stuff, and all that really matters is attracting a great team under you. Really, that’s all that matters post-Initial Traction.

But if you come up through the ranks — you at least get to observe how others do it. If you skip past all this, you may have missed seeing some basic stuff in practice that just helps.

So if you haven’t hired and managed managers before, my learning is that a few simple-ish processes can make being a Better Manager as simple as pie.

So we’ve been saying for a while that the back half of 2024 could be good for SaaS IPOs, we just needed a few of the break-out winners to IPO to get the engine rolling again.  The SaaS IPO window really closed in late 2021 with HashiCorp as the last great one to IPO in December 2021.

And now we have that first great IPO filing since 2021 — Klaviyo.

You may not have heard of Klaviyo if you are outside of e-commerce, but in the e-comm world, it’s the #1 B2B player.  It dominates the Shopify marketing ecosystem and others as well.

And it’s got the full package:

• True Scale:  Almost $600m ARR
• Epic Growth:  Still growing 57% at $600m ARR — wow!
• Top Tier NRR: 119%
• Profitable:  Klaviyo has gotten leaner, and has been profitable the past 6+ months.

There’s nothing to knock here, folks.   And … it was essentially incredibly capital-efficient as well.  Borderline bootstrapped (more to come here on SaaStr).  They only burned $15 million to get to $585m in ARR and an IPO filing!

We were fortunate enough to return to 20VC to help support the new format with multiple guests, and the deep dive on venture was a good one.

Per Harry:

“VC markups have corrupted VC. We will see a rise of mega-funds once again and RIFs should be an embarrassment for all SaaS founders.

Not enough discussions are direct and honest.

Here are my 10 biggest lessons from our 20VC today with Jason M. Lemkin and Rick Zullo. 

• SaaStr 682: The Top 10 Worst Pieces of SaaS Advice to Avoid with SaaStr CEO and Founder Jason Lemkin               

• SaaStr 681: Scaling to $5B with Cockroach Labs' CEO Spencer Kimball's Formula for Sustained Growth and Resilience                

• SaaStr 680: The Most Important SaaS Metrics of 2023 with monday.com Co-Founders and SaaStr Founder Jason Lemkin 

Listen on Apple Podcast, Google Podcasts or Spotify

For a long while, you probably aren't a great CEO

But you know the customers

The software

The feature gaps

The roadmap

The competition

How to sell it

How to market it

How to build it

So maybe as flawed as you are

You are still the best CEO

I recently did an analysis of my 20 best investments

The 4 that had highest burn rates at $1m ARR .. also did at $10m ARR

The 4 that had lowest burn rates at $1m ARR .. 3/4 still lowest at $10m ARR All are good ones

The learning is just that a high burn rate is ... sticky

When I founded my first start-up,

* I had to sign a full recourse note to my VCs for $750,000 to get a tiny bridge * We had to sell 60% of the company in the first round

* I had to agree to step down as CEO whenever they wanted

Man, let me tell you, it’s easier these days

© SaaStr 2023

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