A few bits of advice you hear a lot in SaaS that I think often don’t really work in practice:
- Move to annual contracts to generate more cash. Sure, if customers want to pay annually for a discount — do it. Do it. But if your product is cheap, many will prefer to pay monthly. Force them to go annual, and you are just adding friction to the sales process.
- Focus, focus, focus on 1 core product. This is often pretty critical in the early days and even all the way to $10m-$20m ARR. But after that, sometimes you really do need to be working on a big second product. Sometimes, the market just isn’t big enough for Product #1 alone to get you to $100m+ ARR growing at a decent clip.
- Your customer acquisition costs need to be low — in all segments of the market. Here’s a subtle but very important mistake so many VCs, blogs, social media, etc. get wrong. Yes, as you scale you do need to maintain efficiency in sales and marketing. But not necessarily in new segments of the market you are expanding into. As long as your core customer can be acquired efficiently, it often makes sense to spend $1 to make $1 when you are growing into new markets, new segments, etc. where your playbook is still evolving.
- Never build a custom feature. This advice is certainly accurate in the narrow sense. You can’t afford to build one-off custom features to make bigger customers happy. But … but … 9 times out of 10, there’s another customer that also will want that exact same feature. So instead of saying No, ask yourself if others would also value it. And then just charge more for it.
- Give that VP of Sales / Marketing / Engineering more time. It does take time to turn the ship. More time, the bigger the ship. It does take time to deliver some results. But others can be seen in just a few weeks. You can move deals down the pipe faster. You can go visit all the top customers ASAP. You can bring in 1 or 2 great sales execs to the team. You can get a new marketing initiative going this week. You need to see some tangible improvements quickly from any true VP. You’ll see.
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To me the “strangest” thing I learned is that you get pretty good around Year 3–4. Almost automatically. And somewhere around Year 5 at least, if you make it that long — you know exactly what to do.
I always had imposter syndrome as a CEO and founder — and still do. I never thought I could be as good as any of the successful founders I knew. And I probably wasn’t that good in the beginning.
But what I’ve learned twice now is if you make it to Year 3 or 4 or so … you get pretty darn good. Whatever domain gaps, management gaps, vision gaps you had … you figure it out by then at least. You can really see the future by $8m-$10m ARR.
So if you are worried you aren’t good enough to go the distance … well maybe you aren’t. But don’t throw in the towel. Wait and see how good you are on Day 1000 (measured after first revenues).
If you still don’t think you are good enough then … well that’s one thing. But give yourself time to grow until then.
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A lot of VC advice is a bit self-serving. Not necessarily wrong, but self-serving. Is raising VC capital at a “too high” valuation a bad thing, as so many VCs say? It’s mixed.
There are risks with a too-high valuation — but also benefits:
A high valuation isn’t necessarily bad. It just has dangers. We’re seeing a ton of that now with unicorns that raised at very high revenue multiples that now are unfundable. But like many things, it’s nuanced.
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I try to work with (and invest in) CEOs that are better than me.
I found, when I was a SaaS CEO, that the CEOs that complained about needing a COO early, that it was too hard (which it is), etc. … they all failed or came up way short.
I felt part of your core job as CEO was to assemble a management team, not complain about how you couldn’t get it all done. Or didn’t want to do sales. Or couldn’t stand your CTO.
I still believe this. When I hear a CEO want to not deal with a functional area anymore that isn’t yet built out, that’s a big flag. When I hear an early stage CEO say at $1m, $2m it’s too much, they need a COO … I almost think there is no chance.
But …I didn’t fully get how complex it all gets after $10m-$20m ARR if you really want to go big. If growth is accelerating, especially.
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We’ve talked a lot on SaaStr about the challenges in getting from nothing to that first $1m-$1.5m in ARR, “Initial Traction”. That it takes longer than you think. That if you get 10 customers, you can get another 10, 100, and so on.
There’s a particular moment in time I want to focus on here on the path to Initial Traction. It’s when there isn’t enough revenue to make it, to get there. But there’s too much that you just can’t quit. You can’t. Period.
I think that’s around $50k MRR. At this point — Money Is No Longer an Excuse.
This doesn’t mean money isn’t an issue. Money really won’t “not be an issue” usually until about $6-$8m ARR, sometimes later. By that point, you’ll have enough cash coming in to fund the core team of 50-70 you need to properly run a SaaS company — if you are scrappy. As you approach $10m ARR, Initial Scale, money per se shouldn’t be an issue, other than the rate at which you can and should invest it. But the core business will be self-sustaining as long as you have happy customers, a mini-brand, and strong word-of-mouth, and second order revenue.
So let’s roll back in time to $50k MRR.
This isn’t a lot. But — it is enough to pay for a couple of engineers, below market rate. Maybe a crummy office, if you need one. And a couple of sales folks, running in part, on commission. And yes maybe almost nothing for you and your co-founder.
And this is the time when it can start to get hard. Yes, you finally got 10 Unaffiliated Customers! That felt great. And then as you approach $10k a month, $20k a month in MRR … that’s no longer beer money. It starts to feel real.
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So for those of us who having been doing SaaS for a long time, downtown Palo Alto often still holds a special place in our hearts.
Downtown SF was the HQ of SaaS at least from 2012-2020. It may be today, as well. I think it is, even if it’s smaller and different.
But when the web finally came back after the “Dot Com” era, it came back in large part in Palo Alto actually at first.
Before that, Google and HP started in downtown Palo Alto, and then outgrew it. Steve Jobs had an office there. And Facebook moved there from Boston to scale, eventually taking over every single office in downtown (and blowing up housing rents). Before Facebook left, downtown Palo Alto was its campus. I personally walked down the street to close our first contract with them. It was a crazy time. Everyone sat on bean bags, Windows was banned, and there was an informal ban on anyone over 30 working there. Crazy times, indeed.
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In tech at least, there are two big issues:
#1. Revenues Multiples Are Down
Even the best public SaaS companies are worth ~10x revenue today. In 2021, they were often worth 40x revenue. So that seems to make deals more expensive in terms of how much stock (if not cash) it takes to buy something. And it also makes it harder to meet the “ask” of a startup that might want a much higher revenue multiple.
When times are really good, more deals get done.
E.g., Salesforce bought Slack for $27 Billion when Slack was doing $1B in revenue. Both the markets and Salesforce’s revenue multiple were much stronger then.
#2. Antitrust Review is Way Up
It’s gotten so, so much harder — and takes longer — to get larger M&A deals approved by global antitrust regulators. Adobe giving up on trying to buy Figma was a wake-up call for many in the industry. Big deals way slowed way down after that. A deal agreed to but not closing is very risky for both sides.
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