4 Good Reasons Not to Start a SaaS Start-Up

There’s been one huge change in “entrepreneurship” IMHO over the past 10 years.

>> No, it’s not that it’s cheaper than ever to do a start-up.  That’s not even true.  In the old days, when software came on a disk, or a CD-ROM, it was even cheaper.  You didn’t even need a single server to start Microsoft, or Intuit, or Borland, or Lotus.  Though distribution today is far broader, if not cheaper.

>> And no, it’s not that the web and tech are so much bigger, creating so many more opportunties.  That’s true, but even when tech was smaller, you could scale very quickly.  Inflation-adjusted, Lotus 1-2-3 did over $100m its first year and IPO’d in its second year.  What SaaS company did that?

IMHO, what’s changed is the culture of “entrepreneurism.”  10 years ago, you were a bit of a nut to be a founder.  A bit of a mad scientist, a crazy kook, someone who didn’t realize the odds of success were 0.00001%.  Someone so smart, so gifted, so crazy, they did something crazy.  Founders were a breed apart.  You might have met some of then, but you could never imagine being one of them.  And 10 years ago, if you joined a start-up post traction, you were still taking a big risk.  You were stepping out of an accepted career path, and taking a big potential career hit.  And you were taking a big salary cut.  

Today, by contrast, being even a pre-traction entrepreneur is super-cool.  Even being just a wannapreneur can make you feel cool.  And the risk is low.  Failure is fine, and you can always just go join Facebook/Google/Zynga/Square if it doesn’t work out.  And joining a post-traction start-up?  No salary cuts necessary.  And your resume?  Enhanced by that cool, hyper-scaling start-up.  I.e., zero risk.

That’s OK by me.  But I think the disservice is that TechCrunch, Y Combinator, The Social Network, and all that have over-glamorized entrepreneurship.

My one piece of advice, is that,

you absolutely should not start a start-up unless it’s 100.0000% clear to you this is absolutely the best thing in the world to do, for you.

Why not?

  • First, your start-up will almost certainly fail, and while that’s OK, you  won’t really get any credit for it.   No one cares about your failed start-up that got no traction and that no one ever heard of.  They won’t judge you.  But they won’t care.
  • Second, the risk-adjusted economics s**k.  If you are smart and driven, then risk-adjusted, you’ll make more money joining, staying, and getting promoted at a top web company.  While the comp delta between a start-up and BigCo doesn’t seem huge at non-leadership levels, it really grows if you get promoted, and get into management.
  • Third, even if you want to do a start-up, you’re far better off joining an existing rockstar/super-strong team.  Great start-ups need great teams, which are rare.  Better to join one than try to start one from scratch, which is close to impossible.
  • Fourth, it’s far far harder than you can imagine.  The highers are higher, for sure, but the lows are so low.  Most people really aren’t up for that, the lows and can’t handle them properly, if at all.  E.g., are you OK signing a full recourse $750,000 promissory note to fund payroll, like I did at my first start-up, when all the funding fell through?

And yes, while you will have more “freedom” doing a start-up, it’s so all-consuming hard work, you probably won’t appreciate it, at least not enough, at least not while you are going through it.  It’s hard to appreciate the view when you’re glued to the screen.

Having said that, if it’s a calling, go for it.  I did.  But that’s really the only great reason to start a SaaS start-up.  The only logical reason.  Since it is illogical.  😉

You have to both see something the rest of the world doesn’t see, be so confident in it that you don’t see all the risk, AND have nothing in the end “better”/higher ROI (all things considered) than doing a raw start-up.  IMHO.

n.b.: this is an expanded version of a somewhat popular post I did on Quora here

Published on November 16, 2012

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