9 Things I Wish I Knew Before Starting My First SaaS Business
I started eCommHub in late 2009 while still a senior in high school. After 6 years on the rollercoaster and growing the business to 30 employees with $7.5M raised, here’s what I’d probably do differently next time around.
#1 Bring in a technical co-founder, at any cost
When I first started eCommHub, I was technical enough to be dangerous. I had built ecommerce websites before and knew front-end web development. I had just recently interned at a Ruby on Rails shop and was amazed by the agility at which one could build a new product using a framework like Rails. So I picked up the Ruby Pickaxe book and got to work.
I never finished the book, but I read enough to know the basics. I started building out a prototype for the idea using contractors on oDesk. I would code and style the front-end views, then have them “wire up” the backend stuff. It was a pretty good system that worked the first year or two (I was still in high school and Georgia Tech at the time).
While this was super scrappy and let me build up a base of a couple hundred “beta” customers (not paying). This early success fooled me into thinking I could get by without a technical co-founder. Instead, thinking that I could later hire a super talented developer or development team to take it over then.
What was wrong with this thinking? Well, a few things:
- Developers are expensive. Not to mention, incredibly difficult to find and attract in the first place.
- The developer(s) who inherit the pre-built application do not know its history. They also inherit all the bugs, problems, issues that come with it. This makes them less able to take full responsibility for its success, not to mention makes it difficult to fix bugs deep in the application’s guts without doing a complete re-write of the system.
- It’s super hard to hire a development team later without having someone technical on the founding team
About a year into eCommHub, around the time I dropped out of Georgia Tech, I actually did go on a hunt for a technical co-founder. We worked for a few months but things ended up not panning out for a variety of reasons. One of those reasons was we could not come to terms on equity. Looking back, this was a foolish mistake of my younger self. If he was the right guy (and he may have not been) the equity should have worked itself out. I think the mindset problem I had at the time was that I was “already a year and a half into this” and I was focused on the past versus solving for the future.
If I was to do it again, I would find the right technical co-founder from day zero and not let something as arbitrary as equity get in the way. There are also common vesting structures that protect the company if someone ends up walking away or not being the right fit.
#2 Don’t raise venture capital too early
I bootstrapped the company for the first 3 years. I got to 150 paying customers and nearly $20K MRR before we took $2.6M in venture capital. (Although, I did raise a small amount of angel capital along the way.)
Looking back, that was wayyyyyyy too early to raise VC money. Why? We had nailed the product but A) product/market fit is not stationary milestone and, more importantly, B) we had not figured out how to scale the growth side of the business yet. Everything up to the point had been inbound and organic. We had no predictable revenue or repeatable customer acquisition process yet.
So why did I raise money? To build a team.
Generally investors look for these things BEFORE they invest, in order of importance: Team > Market > Product. Somehow I had built up a business, but I had not built up a strong, foundational team. The team at the time of Series A was mostly part-time friends of mine that were helping man support and operations of the business (who were doing an awesome job by the way!)
It got to the point where the business was severely lacking resources in key areas (e.g. no dedicated customer support team, no in-house development team or leadership, no sales team even though we were closing some big deals). For instance, we had just closed a deal where the customer was paying $2.5K per month and $10K setup fee but I had to coordinate their implementation schedule around my team’s class schedule and finals. I knew I needed a team that was full-time and ideally one that was experienced. However, it felt like a chicken and egg problem as I did not have cashflow and credibility (or so I thought) to bring in an experienced team.
Now that I write this, it’s pretty obvious we were not ready for venture money. And I think that’s an important lesson as just because the money presents itself doesn’t mean you should always take it.
If I was to do it again, I would not raise VC money until I hit at least $1M ARR. I definitely think that’s doable with the resources available today (e.g. AWS, apps for everything, outsourcing) if you’re starting a SaaS business.
#3 Build an entrepreneurial support system
I met a lot of great people very early on in my journey, starting with Flashpoint the accelerator program I joined in 2011. I met other entrepreneurs that had been through it and were running some of most respected companies I looked up to. I had every opportunity to seek out mentors and advice from some of the best people in the business.
What did I do? I stayed heads down working on my startup. I figured my problems were so unique and times that I had reached out before I did not know how to ask for advice properly, so instead what I got was opinions. I found that the more opinions I got from smart people, the harder it was for me to make decisions.
Additionally, if you know me you probably know I tend to keep to myself. I am an introvert as hard as I pretend not to be. So the times I needed help most, it was that much harder to reach out when I had not maintained the relationships as well as I could have. It’s also hard for someone to provide useful feedback when it’s been 6 months since they’ve heard about the business.
If I was to do it again, I would seek advice from fewer people and I would focus on maintaining a regular cadence with those relationships (e.g. meeting for coffee once per month to talk about the good and the bad). Furthermore, I think every entrepreneur needs a person or two that they can use as a sounding board that’s totally independent. Who else can you go to about issues with your company, employees or investors? I find that other entrepreneurs makes great sounding boards because they have their own business to worry about, thus they don’t have a hidden agenda.
#4 Maintain a sane work/life balance
This one sounds obvious and something you could apply outside startups. But startups are particularly stressful environments because there is so much change and uncertainty. Each week brings new challenges and setbacks that have to be dealt with (e.g. employee issues, upcoming board meeting, new competition, etc.).
I used to deal with the stress by working more. I would routinely skip meals (not intentionally) and pull all nighters thinking I was being productive. I would view holidays and weekends as chances to “get ahead”. I was determined if my startup failed, it wasn’t going to be because I didn’t work hard enough.
Well, amateur mistake. I ended up having surgery 3 times for stress-induced collapsed lungs. That was a wake up call for me to make some life changes and take the whole work/life balance thing seriously. I started focusing on getting full night sleeps, always eating breakfast, “turning off” work at night, scheduling meetings around my makers schedule. Basic stuff, but it all makes a difference.
If I was to do it again, I would approach things like a marathon and not a sprint. The 18 hour work days and skipped meals catch up to you and are definitely not productive in the long run. It’s concerning that it’s almost become a startup badge of honor. It also sets a really bad example when you start hiring employees. Everyone’s work/life balance is different, but it’s important to find what works for you and not blow it off completely.
#5 Invest in training employees better
Startups are strapped for resources. There’s always some position that needed to be filled YESTERDAY.
Typical startup recruiting process: You spend weeks interviewing various candidates for a particular role. They get vetted by multiple members for things like culture fit. You’re half vetting and half selling on these people joining your team. When they finally do, you pat yourself on the back and get back to the next 5 positions you have to fill.
Typical startup onboarding process: Day one, person joins. Person gets walked around the office, introduced to some people. Gets set up with their laptop. Finds the ping pong room. Finds the snacks. That’s the extent of the training.
Intentional or not, startups tend to throw bodies at problems especially when they have money. When they do this, they focus too much on the recruiting and not enough on the training once their employees start.
I’m sure there’s some companies that are much more disciplined and better at this than we were. But we didn’t have any sort of formal process for the longest time and “training” was usually a person buddying up with someone in their area or being thrown straight into problems to solve them. This proved to be inefficient for a business like ours that had lots of domain expertise required.
Looking back, I would have spent a lot more time and effort on training employees about the business, product, and culture before taking the typical startup “baptism by fire” approach.
#6 Don’t hire C-levels right out of the gate
After raising the Series A, I wanted to bring in the best, most experienced people I could find to the business. As a solo founder, I figured building an executive team that was complementary was the best way to do this. I figured it would make later hiring easier as these people would have their own networks to pull on and also provide experience for younger employees to learn from.
What’s the problem with this? Well, 1) these people are expensive. 2) they bring a lot of baggage (cultural baggage) with them, 3) once you fill the C-Suite (including giving co-founders C-level titles), it leaves no room open for later senior hires.
Looking back, an executive team is not a replacement for a strong set of co-founders. And I think the “junior” team and I could have gotten a lot further than I thought, which brings me to my next point.
#7 Don’t place such a high premium on experience
Many startups are notorious for having a workforce with an average of in their 20’s. We were like that for a time. But then later it almost doubled.
I do strongly value experience, but it comes at a price. Experience can save you time (the most precious startup resource) when you have people that have solved a particular problem before. But running everything by the playbook from a last company can be devastatingly dangerous. Experience can blind you from opportunities and cause you to jump to conclusions too quickly before considering all the right options.
Worse, you may have people that play the “experience” trump card to put down other people’s ideas, especially younger employees. This is toxic and should be discouraged at all costs. Experience is a time-saving weapon, but it should be wielded collaboratively unless you want to kill your culture.
#8 Have a partner in the trenches with you
What happens when you bootstrap a business as a solo founder to a hundred paying customers, then raise a Series A and hire an experienced exec team? Well, you end up building an inverted pyramid of a company all on top of your shoulders.
No matter how great your team is and how much you trust your early employees and executive team, the fact is they were not there in the beginning, they do not have the same scars as you and when shit hits the fan, are not necessarily going to be in the trenches with you.
I learned this the hard way when I brought in an outside CEO to help me grow the business. While I built up a rapport and trusted this person, I later learned they were solely motivated in flipping the business I had started instead of working with me to build it into the long-term viable business I envisioned.
Looking back, I wish I had focused on TEAM first, then product and marketing. It’s important to have people in the trenches with you from the beginning that hold the same long-term vision and values.
#9 Don’t drop out of school
Sometimes I still wake up in the middle of the night and worry what’s gonna happen to me in 2030 without a degree. But then I remember I’m an entrepreneur and they don’t really have a great degree for that career path anyway.
If I was do it again, I would probably not have dropped out of Georgia Tech. Or I would have at least stayed a bit longer to finish some of the financial and accounting classes. Sure, “burn rate” and “runway” won’t mean the same thing until you see them in action. But managing the cashflow of a company, especially a startup is crucial to its survival.
I would encourage other young entrepreneurs to stick through school as long as you can. Soak up knowledge and connections while you are there. You may meet your future co-founder there. And don’t forget, it will most definitely be that much harder to go back later if you choose to do so.
Disclaimer: These lessons are specific to my own experiences and not meant to be startup truths. What are your startup lessons learned? I’d love to hear in the comments or write a blog post.
Thanks for reading,
~ Originally posted on my blog at http://kurtheinrich.com. ~