The Myth of “SaaS”

Software-as-a-Service (SaaS) has taken the technology world by storm. These days, all new software companies are SaaS which simply means they are based in the cloud and have subscription pricing. With the exception of mobile applications and e-commerce, almost all new companies are following this model.

It’s not surprising. The benefits of SaaS over older models of software delivery are clear. Cloud based software can be updated and improved much more rapidly than on-premise software, with a fraction of the cost of maintenance. Subscription pricing means that revenue continues to roll in month after month for the entire life of a customer. What is not to like?

However, many founders of SaaS companies have unusual levels of stress, even more so than typical founders. Your typical SaaS startup founder will:

  • Spend a few days every month trying to follow the latest SaaS metrics fad, based on blog posts like this*. They are searching for the perfect metric to compare themselves against other SaaS businesses.
  • Try desperately to reach a mythical MRR milestone that will magically open the door to raise their Series A.
  • They spend time meeting the best “SaaS” investors, even if those investors are completely unfamiliar with their space.

The ironic reality is that there is no such thing as SaaS anymore. SaaS has become so pervasive that the term is the equivalent of “Internet” or “Web” or “Software”. There are SaaS companies across every vertical, every market. Some charge millions of dollars a year and others charge $5 per month. Some are profitable with only 5 customers, others have 500,000 customers and still are in the red.

SaaS no longer means anything because the world of SaaS has become too large.

Those SaaS founders I mentioned earlier are under abnormal stress because they are chasing the myth of a “typical” SaaS business. There is no such thing as a “typical” SaaS business and all of the fancy metrics and analytics you hear about are attempts to normalize and compare SaaS businesses that are completely different. The only ones who benefit from such normalization are investors, who want help in picking and choosing which companies to support. As a founder, you only care about one business: yours.

The good news is that the world is much simpler when you abandon this myth of the “SaaS Business”. Your business, while it might be SaaS, is not governed by complex new metrics but by the The Most Important Equation for Your Business. Your MRR does not matter, there are businesses raising Series A rounds with $0 MRR everyday. What matters most is The Only Thing That Matters, just like with any other business. Investors will look at your rate of growth first and your MRR second.

In short, you are building a business. Just because it is SaaS does not mean the rules are different, only that there might be more distractions. Do whatever is right for your business.

Then, when you are successful, don’t be surprised when another founder tries to model themselves after you. It is SaaS, after all.

* This blog post is actually very good. I only point it out since every founder I meet that reads it finds it more confusing and intimidating than helpful. 

How to Get What You Need

I have many conversations with founders that start with “I need…”. “I need to raise money.” “I need to hire more people.” “I need to find some more customers.”

It is very easy to develop tunnel vision when building your company, as you are tackling difficult problems everyday. Your world consists of aggressive (maybe impossible) goals and you evaluate all the things you need to be able to achieve those goals. Those needs become your entire focus.

The problem with focusing on your needs is that no one else cares.

When prospective investors, employees or customers look at your company they don’t care about your needs, they care about what you can do for them. Investors don’t care that you need to raise money, they care about whether you can produce a return on their investment. Employees don’t care that you need to hire more people, they care that you offer unique and valuable opportunities. Customers don’t care that you need their business, they care about whether you help them solve a problem.

When you think about the world this way, you realize why many first time founders struggle. They focus too much on their needs and not on how to create enough value so that people will want to fulfill those needs.

Getting What You Need

In order to get what you need, you need to make the opportunity to give it to you such a great deal that no one would ever pass it by. So, if you need..

  • To Raise Funding: Make your company an amazingly attractive investment. This should be a combination of traction, team and vision (and perhaps revenue). Make the terms of investment friendly to both you and the investors so they don’t feel you are trying to take advantage of them.
  • To Hire People: Make your company an amazingly attractive place to work. Empower new hires to learn and expand their roles, giving them the freedom to be creative while holding the responsibility of delivering important parts of your strategy. Hire for passion as much as skills.
  • To Sell Customers: Make your product an amazingly attractive solution to a problem they have. Not only should your product be easy to use, it should be easy to get set up and priced to make it a clear decision for the customer.

Remember, when an investor, candidate or customer is considering whether or not to choose your company they are not deciding if you are a good company. They are deciding if you are better than the hundreds (or thousands) of other companies in the market, some of which may be in entirely different industries or businesses. You are competing with everyone to stand out, not just yourself.

So, next time you find yourself saying “I need” try to rephrase it as “Here is what I can offer”. It will greatly improve the chances that you get what you want.

You can’t always get what you want
But if you try sometimes you just might find
You just might find
You get what you need

– The Rolling Stones

The Renaissance Founder

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When I show people prototypes of projects I am working on these days, the most common response is: “You built this? You still code?” I used to wish they would focus on the prototype rather than my coding skills, but as of late I have found the question flattering. It means that I have succeed in my goal of staying well rounded.

As a founder, especially at the beginning, you need to do everything for your company. You need to build a product, market the product, sell customers, recruit more employees, maybe raise funding and then repeat. It is tough to find time for all those things with the limited number of hours in the day (See The Founder’s Schedule) but it is even more difficult to do them well. It is impossible to master every possible discipline required of you in those early days since it would take multiple lifetimes.

Many founders are experts in one particular area of their new company, such as an engineer building a prototype, a salesperson lining up potential customers or a marketer designing a great new brand. In these cases, you often need to outsource the functions you cannot do yourself. Engineers find sales people, Sales people find engineers and everyone tries to find marketers. Sometimes you get lucky and your founding team has all the skills you need.

But since that rarely happens, you can easily see how it is a critical advantage for the founders to be able to cover as many functions as possible. You may not be a master at everything, but being able to do many things well allows you to run faster and learn more in those early days. I refer to such people as Renaissance Founders – people who are good (but not great) at many things.

Becoming a Renaissance Founder

So, how do you become a Renaissance Founder? You practice skills you lack before you even become a founder.

  • Can’t build a prototype? Learn how. There are a wealth of both online and offline courses and learning materials that you can use to learn what you need. In a matter of months you can learn the basics of software development (Codecademy), hardware (TechShop), electronics (Arduino) or design (HackDesign). You don’t need to become a professional engineer, just proficient enough to demonstrate your idea.
  • Never marketed anything? Start now. Marketing is the art of knowing what your customers want, who your customers are and reaching them with your message. You can practice marketing right now by starting a crowdfunding project on Teespring, Kickstarter or Inkshares and trying to make it a success. You’ll learn quickly how hard it is to reach customers and quickly build some valuable skills. Experiment with Social Media (Twitter, Facebook), Advertising (Google Adwords, Facebook Ads) and other channels.
  • Never sold anything? Sell something. Selling is the act of convincing another person to give you money for a product or service. In comparison to marketing, sales is typically done in person or on the phone and requires you to be persuasive. If you have never sold anything, you can get started immediately by not throwing away your old table, couch or trading in your old car. Instead, post it on Craigslist and start negotiating with people who are interested in buying it. Try to get the highest price possible.

You will, eventually, hire experts in each discipline to work for your company and do these tasks extremely well. But your ability to do them at first will get you far enough that you will be in a position to hire them.

The Superman Trap

As a Renaissance Founder, your ability to do many things can tempt you to do everything. This is a very dangerous trap, since even a well rounded person cannot do everything. Stay very focused on only the most important things that need to get done and ignore everything else (See The Only Thing that Matters). When you do hire experts onto your team, trust them to complete the tasks you give them and do not look over their shoulder as they do.

The good news, is that you should be able to identify the best experts to add to your team since you are, at least somewhat, familiar with what they do. It is tough to hire an engineer if you’ve never done engineering, or to hire a sales person if you have never done sales. If you have done those things, you should have a good sense for the right person who will be much better at the job than you are.

Remember, you cannot be great at everything, but being good at a variety of skills can be a critical advantage when you are getting started. Besides, it’s fun to learn new things!

Image is a reproduction of a public domain painting (“Dirck Hals – Banquet Scene in a Renaissance Hall”) made available by Wikipedia. “Renaissance Founder” is a play on “Renaissance Man”, a phrase used to refer to Polymaths who are people skills in a wide variety of areas of knowledge.

The Founder’s Schedule

There has been a lot written about how to effectively manage your time as a leader when building a new company. Paul Graham has a famous essay where he divides the needs of the engineer from the needs of the manager through the Maker’s Schedule and Manager’s Schedule. More recently, Danielle Morrill of Mattermark wrote about the transition from the Maker’s Schedule to the Manager’s Schedule as her company grows.

I have found significantly less written about how to effectively manage your time in the very early days of founding a company. In those early days, you cannot have a Maker’s Schedule since you cannot be sure exactly what you should make. However, you cannot have a Manager’s Schedule since you have to work on making something or else you will never get started. Then, what is the ideal Founder’s Schedule?

For me, the ideal Founder’s Schedule makes time for both making and meeting, since one without the other means you are not effectively narrowing in on your business. At the same time, it needs to make sure that you don’t constantly switch from one to another as you would then run the risk of context switching cost slashing all of your productivity.

Now that I’m a founder again myself, I have settled on the following schedule which I think is a great template for a Founder’s Schedule:

While it seems like all of your time is blocked off, in reality it leaves a lot of flexibility on how you spend your time. All of your time is divided up by purpose:

  • Make: This is time when you are making. This does not mean always coding or building, it might mean writing, brainstorming or designing.
  • Meet: This is time when you meet with people who might help you. That includes potential customers, investors, advisors and friends.
  • Plan: This is when you plan what you’ll do tomorrow. Productivity studies show that you are more productive if you decide what you are going to do the night before, so we set that time aside at night. Likewise, we leave an hour or two on Friday to decide on the tasks for the following week.
  • Research: This is time when you work on crazy ideas. While it might seem like a waste of time, it is important to think outside of the box and make sure you don’t get into ruts of ideas. The easiest way to break out of that is working on something that sounds crazy.
  • Off: This is time when you aren’t working. You NEED this time to avoid burnout and keep the creative juices going. I guarantee you that you will be more productive all week if you take weekends to enjoy yourself. Bonus points if you exercise.

These purposes are then divided throughout the day to make the most of them.

  • Make in the morning. Studies have shown that your most productive hours are in the morning (usually from 10am-noon), and so these are the hours when you should focus on the hardest mental tasks of making. Ideally, you would not even check your email until this time is over, lest you find yourself wasting this precious time on communications. (See Going the Distance).
  • Meet in the afternoon. Lunch is an inherently social experience in our culture and you should take advantage of it, and the time after it, to meet and gather feedback. This will help you overcome the afternoon lull that would hit you sitting (or standing) at your desk trying to make.
  • Make in the evening. Everyone gets a second wind, and it’s a great time to get more things done. Hopefully, you were inspired by some of your meetings or were able to figure out a problem from the morning by stepping away and now you can make the most of that creative boost.

I know there will be many people who decry this as a bad schedule, since it does not fit the typical model of how founders should spend their time. When you imagine a founder building a new company, you likely envision them in a dark room all day working in front of a computer screen, or spending every waking hour on the road interviewing customers. Doing both at once seems, at first, like it is the worst of both worlds.

However, I can tell you from experience that it has made me more productive. I no longer spend time making things that customers do not want since I have reality checks everyday. At the same time, I never spend time waiting to work on a idea since that time is reserved everyday.

If you are a new founder working to get your company get started, I hope you give this a try. If you do, let me know how it goes. But only in the afternoon, in the morning I’ll be making.

Coaches vs Cheerleaders

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As a founder, you are constantly facing impossible odds. The natural reaction is to surround yourself with very supportive people, the kinds of people that believe in your vision and believe you can overcome those impossible odds. In fact, many of these people will believe in you so much that they won’t question you at all. I call these people Cheerleaders.

I used to be a Cheerleader.

I say that in the past tense because I learned the hard way that while founders need cheerleaders, you can be lead astray by them. Sometimes you need someone who will tell you that you’re wrong and force you to face the harsh truth. I call those people Coaches. Coaches support you when you struggle, but push you to be better. They celebrate your successes and help you learn from your failures. More than anything else, coaches are always honest with you, even if it is telling you something you do not want to hear.

Today, I’m a Coach.

While I’m sure you can understand the value of having both Cheerleaders and Coaches on your team, it can be hard to tell them apart in the fog of war. When you have people surrounding you telling you what are you doing is great, are they coaches or cheerleaders? How do you tell the difference?

They Might Be a Cheerleader If…

Cheerleaders are everywhere. Your friends, family and co-founders are all cheerleaders. They want you to succeed because they like you and believe in you, which gives them the bottomless well of support they lend to you. You will be humbled by the outpouring of support you receive during the early days of your company building.

Unfortunately, you will find that support will only go so far. Soon you will face real decisions with real consequences and you will need a different point of view. You will need someone to disagree with you, and here your cheerleaders will let you down. Few of them will understand enough of what you are doing to help, and the ones that do might fear hurting your feelings.

Nevertheless, you need these people around you for the entire journey. During your dark days, and there will be dark days, these are the people that will make it easier to deal with the darkness. These are the people that will always make you smile, and you need to smile.

They Might Be a Coach If…

Great coaches are a rare breed. Many seasoned entrepreneurs, while survivors of the company building struggle, are better at speaking than listening. Many others are biased by their personal experience and pathways to success and have difficulty adapting to new approaches. Both of these groups will seem like coaches at first, but will let you down when you fail to take their advice one or twice.

A true coach listens to you more than they talk. They don’t always know the right answer, but they can tell when you don’t know it either. They don’t try to prove they are smarter than you, they try to get you to show how smart you are yourself. In general, they will eschew the spotlight in favor of helping you step into it. Coaches are people who earn your confidence and with whom you can discuss anything and everything without fear of having it spread.

Not all coaches are right for all founders. Finding a great coach is like recruiting a co-founder or executive, you will meet a lot of people before finding the right one. However, if you find someone you like, who is honest with you and makes you better at your job you should hold onto them with all your might.

Building a Complete Team

I can’t emphasize how important it is to have both Cheerleaders and Coaches on your team. With only Cheerleaders you will lack the critical perspective that will help you improve. With only Coaches, you will struggle during the darkest days when you need unequivocal support.

So, where do you find them?

There are almost certainly Cheerleaders and Coaches in your personal social network already. Have a serious talk with the people around you about what you are doing, and what you think you need. Ask fellow founders for the best coaches they know, and think about which of your friends support you no matter what. Be honest with everyone and see how they react when you make yourself vulnerable.

Worst case, if you can’t find the right people in your network, start reaching out to people you respect. You’d be surprised how helpful those of us who have been in the game for a while will be for complete strangers.

After all, we need Cheerleaders and Coaches ourselves.

Image made available by Flickr user Yusuke Umezawa via Creative Commons.

Efficient Analytics for Start Ups

Years ago, being data driven in your decision making gave you a competitive advantage. These days, being data driven has become table stakes to compete in the hyper-competitive business world.

But, what does it mean to be data driven? How do you even get started?

Last week, I gave a talk to help answer those questions at the Alchemist Accelerator and I was told it was very helpful. You will find a video of the talk embedded below, optimized for your web viewing pleasure. I hope you find it useful.

If there are other topics you would like to see me publish talks about, please let me know.

The Last Startup Company

“Evernote is our life’s work. It’s my third company. The whole point is we don’t want to sell another company. We wanted the next thing to be sufficiently epic, so that we never want to do anything else. I hope to be involved in Evernote forever.”

Phil Libin, CEO of Evernote

There seems to be a growing trend of founders to want to create lasting, iconic companies. On a regular basis I hear founders describe their current startup as a “100-year company” or “my last startup”, implying the company will last for a very long time. Gone are the days when being a “serial entrepreneur” was the aspiration of founders, now they want to found the definitive companies of the next century.

Why the change?

I have no simple answer, nor enough data to create a complete picture of how large this trend might be. However, I do have some observations that I think shed light on why the thinking around entrepreneurship is changing:

  • The cost of starting a company has plummeted. There was a time when simply starting a company and bringing a product to market was a major achievement. These days, technology, automation and outsourcing means that high school students can launch revenue generating products between classes. With little value attached to simply founding a company, founders aspire to a higher standard.
  • Failure really sucks. Despite anything you might read, failure really sucks. Any entrepreneur that has failed at least once will actively avoid repeating that experience. If you’ve failed more than once, the idea of starting a company and running it forever sounds pretty great. It means you’ll never fail again (at least in that way) and can wrap yourself in the warm blanket of success.

Why does all this matter?

Whatever the reason, I admire the vision of creating a 100 year company while at the same time worry about how it changes the thinking of founders. In the same way that aiming for a short term acquisition will hurt your company (see Why You Don’t Want to be Acquired), aiming for a perpetual business may cause you to make decisions that are not ideal for the business.

For example, early in the life of your company you need to focus as much as possible (see The Only Thing That Matters). This means that you might need to pass on some big market opportunities or not build products that have large future potential. If you are focused on the present this decision is easy, but if you focus on the future you might be unwilling to give up so much future value. Once that decision becomes hard, you will start to make mistakes.

Likewise, you are much more likely to over-capitalize your company in the early days if you are aiming for the kind of company that lasts forever. Ensuring you have the right amount of funding for the stage of your company is important (see Fundraising Fever) and you can limit future options by over or under capitalizing. If you are focused on a 100 year plan, over-capitalizing might seem like a good idea and lead you to make mistakes.

These are just some examples and not all founders are blinded by their 100-year aspirations. However, no matter how self aware you might be you are shaped by your goals. Adding any goal, especially the goal of existing forever, will shape your thinking even if you don’t realize it.

100 years is a long time

If you aspire to creating a 100-year startup, I sincerely hope you succeed. I would love to know that in this age of short-term earnings focus it is possible to build a long-lasting company.

I will leave you with a list of the oldest companies in the world, according to Wikipedia. Unsurprisingly, the companies that last the longest are the ones who work in businesses that are fundamental parts of human life (hospitality, construction, food). I wonder if technology and especially software will ever be in that category.

Unfortunately you and I will never find out. 100 years is a long time, after all.