Inc - How To Reverse-Engineer a $100M Exit

How do you reverse-engineer your first million as a SaaS startup founder? SaaStr founder and CEO Jason Lemkin chats with Sam Parr on the popular YouTube channel and podcast My First Million about what’s required to make it on the map for a $100M exit and then reverse engineers the steps to get there.

To the OG software people who read SaaStr, Jason is “the guy,” Sam says. He’s the person that the founders of Hubspot and companies that make tens of millions of dollars want to learn about software from.

For those who aren’t as familiar with our CEO and founder, here’s a highlight reel (as per Sam):

• Jason started a software company called EchoSign, which sold for nine figures.
• He’s invested in startups as a VC since 2013 and has 10x his fund.
• His first million came from a startup making implantable batteries from nanomaterials that sold for $50M after 12.5 months.

EchoSign, which Adobe bought, had $12M in ARR, growing 100%, with 120% revenue retention and cash flow positive. Today that would be a dream, but in 2011, people didn’t understand the metrics around recurring revenue businesses, so investors weren’t sure it was a good business.

If you want to build amazing stuff, you can reverse engineer it to figure out the rules of the game you need to play and optimize for those rules. So, what does it take to get to a $100M outcome?

Ok, get EXCITED for SaaStr Europa 2024, we’re back time in London!  We’re looking forward to hosting 4,000 SaaS founders, execs, and VCs in hip East London at Tobacco Docks across 2 packed days, 4-5 June.

About 70% of our sponsorships are sold out, but we’ve got some good stuff left!

• 1 Super Gold
• 2 Gold
• 1 Platinum

And some really, really good ancillary and related sponsorships are left:

• Registration (this is a good one — do this)
• Braindates and Mentorship (this is a good one)
• VC Lounge (get in front of the money people!)
• Espresso Lounge (high impact, little work)
• VIP Reception

This edition of the SaaStr Daily is sponsored in part by Stripe

Stripe Sessions brings together business leaders and builders to discuss the most important internet economy trends. In 2024, we’re focusing on what’s possible—and what’s inevitable—as technological advancements change the world and the global economy with it.

So a little ways back a bit of a Board of Directors soap opera broke out. The Information broke the story, with Sequoua asking its ex-active partner and leader Mike Moritz to step off the board of key portfolio company Klarna in favor of an active partner, Matthew Miller.

What exactly happened we may never know, but clearly it didn’t sit well with the CEO of Klarna or Moritz. WIthin a few days, Miller was off the board himself, and Moritz stayed put.

Now I haven’t been through this exact scenario myself, but I’ve been through and observed board-level investor changes multiple times over the years.

The most common scenario is when you raise growth rounds, and in essence, to make room for a board seat for growth investors, seed investors are asked to give up their seat(s).  Another is like the Sequoia example above, when a VC partner moves on from an active role or from the fund.

So when things get tougher, and deals get harder, it’s natural to reach for almost anything to close deals. There are only so many levers sales can pull. And discounting is one.

And while Atlassian and a few ones hold the line on never discounting at least some of their products, most of us need to employ discounting as a routine part of bigger deals and enterprise sales. In particular, at a practical level, you almost have to mark up your net targeted pricing by 20% … just so you can discount 10%-15%-20% on deals to get to your desired effective pricing.

But discounting has to be done right.  It’s mainly a tool as part of the quid-pro-quo of getting a deal over the finish line. If you use discounting for anything else, it rarely gets you anywhere.

And one thing that I see struggling teams do, and especially struggling reps if you don’t have good checks and processes … is over-discounting.

Disalignment.

A truly great salesperson is a resource. They help you:

• They educate you on the product.
• They honestly answer your questions.
• They address your concerns, seemingly patiently.
• They help you pilot / test the product first, in a way that drives things forward without too much pressure.
• They push the learn, buy, deploy process along, but don’t pressure you to buy if you aren’t ready.
• They ensure you get a fair price.

The best sales reps, well they are your agent. They help you make a buying decision. And yes, it benefits them. But they provide so much value during the process, you are appreciative.

Now …  How often have you felt that way? Especially these days?

Not that often. When sales incentives and training aren’t aligned to deliver the value above, it’s just … uncomfortable. And low value-add.

But the best sales execs in SaaS make you feel that way.

And that’s why enterprise buyers are happy to “talk to sales”. They’re looking for this sort of help.

The other day I met with a great founder doing about $40k in MRR that wanted to raise some extra money to “make sales more repeatable.”  Sounds good.

I started to dig in a bit to understand what this founder really meant though.  At this rough stage ($20k-$80k or so MRR), usually most SaaS startups finally have a regular stream of leads — just not that many. 10 a month, 20, 100, whatever it is. Leads now come in regularly because at least something is working, there just aren’t a lot of them. Not enough to grow fast enough, but enough to grow regularly.

So we dug into the math. This great start-up is closing about 5 new customers a month, and they want more. They want more “salespeople” and/or a magical VP of Sales to help them. But let’s dig into what’s really happening:

• 100 “sign-ups” a month
• Which they turn into 50 “MQLs” (marketing qualified leads)
• Of which 20 turn out to be bona fide prospects, or “SQLs” (sales qualified leads)
• Of those 20, 50% need features or functionality the product simply doesn’t provide yet.  So they can’t be serviced today at least.
• Of the 10 that are qualified AND can actually get benefit from the product — they close 5.  That month.
• So their close rate from an SQL they can actually deliver for is 50%!

That’s actually kind of amazingly good — a 50% close rate, with a sales cycle of less than 30 days — for a vendor in a very crowded space, with well-established competitors and zero brand awareness, that spends $0 on marketing.

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