One Thing is Clear: AI Is Leading to 1000 New Competitors in SaaS

So is AI truly disrupting every category in SaaS and business software?  We’ll see.

It’s clearly radically disrupted many categories at least on one level — it’s created 1000s of new competitors. Fueled in part by billions and billions of venture capital flowing into AI. And 1000s of entrepreneurs excited to use AI to remake existing categories.

Up Next: Wednesday, October 23rd @ 10AM

Topic: An 8 Part Test to Identify Bad Investors Before Signing a Term Sheet

Speaker: Jason Lemkin, CEO and Founder at SaaStr

Workshop Wednesdays is our weekly series where we’ll be bringing some of the best SaaStr speakers to you LIVE, every Wednesday. 

Each workshop will be hosted in a live, interactive 30-minute format at 10am Pacific each and every Wednesday. This workshop will be 100% LIVE, not pre-recorded, and will be hosted in an, interactive 30-minute format, including Q&A.

We’ve talked a lot on SaaStr over the years about how to hire a great VP of Sales — and how to course-correct if you’ve made a mis-hire.

The two fastest-to-surface signs of a mis-hire:

• No one great joins them in the first 30 days. Every great VP of Sales has 1 or 2 folks that want to follow them from their last role.  And also has been quietly recruiting a few great folks anyway to join them at their next role.  Great VPs of Sales, even stretch VPs, are constantly networking to build the team they need both now — and later. 
• Nothing gets better in 1 sales cycle.  You don’t always need to see magic in your VP of Sales, especially at first.  Revenue doesn’t have to double in 1 sales cycle. But you do need to see things get better. OK, but some of you will still give them … more time.  Even if they sort of fail the above test.  Your investors will probably encourage you to give them more time.  You may not have the energy to deal with it.

So let me tell you the #1 sign a VP of Sales just isn’t going to make it:  It’s when they Hide from a Miss.

I’ve come to almost exclusively invest in founder-CEOs that are or were engineers. Or at least — where the co-founder CTO is a true equal partner to the CEO. I’ve found that works equally well. 

Why?

Well to get something off the ground,

• You need to build it. If you can’t help here in the early days, you better be a darn good salesperson.
• You need to recruit a great engineering team. Why at least in the early, pre-revenue days, do they want to work for a CEO that can’t also ship product? Maybe only if you have already done it before.
• You usually need to understand how and where technology is going. You don’t need to be an engineer to do this, but most “salespeople” CEOs can’t pull this off. At a minimum, you need to have steered a product from nothing to success to pull this off.
• You need to be able to build if not a jaw-dropping product, then at least, a very state-of-the-art one. Want to outsource it instead? How, in this day and age, you are going to build a great product that way, I don’t know.
• You have to beat the competition, at first with a great 10x feature or two, and later, almost everywhere.  Only the best CTOs can keep up after the early days.

How do you do this, if the CEO isn’t at least a pretty good engineer? It takes, best case, a lot more money. Maybe 3x-5x more money to get it off the ground. You need to pay up to recruit a “technical co-founder” and then she often will bring in 2x the engineers, at a higher price, than an engineer CEO.  Or worse, it’s outsourced to someone or a team that just isn’t great.

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You’re right, 10x isn’t enough. True angels invest so early, maybe only 2 out of 50 make any real money. Sometimes just 1 (or 0).

If it’s just 1 Big Winner out of 50 angel investments, to even just double your money, that winner has to do 100x.

So most successful angels in tech are seeking startups that can 100x their money.

That’s really 200x from the price they pay, because typically over the lifetime of an investment, total dilution is about 50%.

So if an angel invests at a $6m valuation, that’s a $1B exit to hit 100x net of dilution.

That’s why everyone is hunting true unicorns and decacorns.

The math doesn’t work otherwise.

It’s tough math. It really is. Especially for angels, who don’t get fees or salaries along the way.

And you can also see why many angels that are in it to make money (for some, it is more a hobby), have trouble investing as the valuation climbs.  It just gets harder and harder to see that 100x.

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