At the end of Day 3 of SaaStr Annual 2022, Jason opened up the mic for an AMA. This episode is the first half of the session.

In this episode, Jason discusses:

  • Breaking rules
  • Setting goals
  • Technical debt
  • Black Swan events
  • Y Combinator

You can watch the full video below, and we’ve included a transcript of the episode. The second half of the session will be published in Episode 608.


Jason Lemkin:

Thank you for being a part of all of this. So again, I’ve got nothing, although I’m happy to make up some things, but if folks got questions, come up to the microphone and if I can help, I’ll certainly answer some or create a dialogue around stuff. What do people want to talk about?

Audience Member 1:

What’s been your biggest lesson from SaaStr the last two days?

Jason Lemkin:

Wow, that’s a trick question. My biggest… I should ask you what the biggest lesson is. I think that I’ll have to process that for a couple of days. I think it’s interesting… When I started, one of the things we did at SaaStr, the number one goal was to share the mistakes that I and others made so that the odds were lower you wouldn’t make them. But as time went on, we shared lessons, what best practices were in customer success and revenue retention and all these things are, right. We know what top tier NRR is and CAC and all of these things.

But it was super interesting that the two big interviews I did were with Ben Chestnut from Mailchimp yesterday and with Dharmesh and Brian from Hubspot. And it was interesting that they broke rules. And I don’t mean in an edgy way. What I mean is Ben broke the rule that he didn’t care what NRR and churn were. And of course, we need to care at some level, but as a bootstrapped business, it was top-line growth and bottom-line… And he said it differently, but it bit them a little bit as they got to 800 and growth slowed, and most of us would be thrilled to get to 800 million and see the growth slow, so it did catch up, but he did break those rules and the Hubspot thing today was they broke two rules, which I hadn’t really thought through. They had low NRR all the way until 30. They were aware of it, but startups that I work with closely or invested in, if they got all the way to 25 million with 75% NRR, I would tell them to quit today.

So it’s interesting that they knew what they were doing and then, I hadn’t really thought about how Hubspot went… We didn’t get to all of it, but HubSpot has five or six products. They have service and all this, but the second cloud for them was sales. And it really makes no sense because I’ve asked so many of the best SaaS CEOs that are public how to go multi-product. If you read SaaStr, it’s been a recurring theme.

And the best one of all, if you didn’t see it, we did it at one of our digital events this year was Spencer Skates, CEO of Amplitude, one of my favorite SaaS CEOs. And he did a whole one hour on his mistakes going multi-product into their IPO. And his point that many of the leaders say is the mistake is trying to sell something that’s really cool to a different buyer.

They wanted to sell the Amplitude product, I forget, to sales or somebody else, and that was their mistake. And the learning is sell two things to buyers. And the fact that Hubspot did the opposite and sold the sales product to salespeople, hooray, it started out freemium, but free doesn’t make it any easier to sell anything, does it? So I think my learning is just know the rules, know the KPIs, they’re all public, find public comps and copy them. But it’s okay to get there a little bit differently or break a rule or two if it’s intentional. If it’s intentional, so that’s my big lesson from both of them.

Audience Member 2:

I’ve been thinking about goal setting a lot lately for organizations and teams. And there seems to be sort two ways to think about it. One would be set ambitious, inspiring, impossible goals that have low chance of success, but sort of drive an organization in a direction that you kind of expect to fail towards. And then the other is to set reasonable objectives that you know you can hit and that everyone feels good about when there’s all greens on the chart. Have you noticed a pattern among, I don’t know, the ones that end up on this stage where they go one way or?

Jason Lemkin:

I think I noticed a pattern, and I wrote it up a couple of years ago and refreshed it, and then I’ll add a new anecdote. I wrote this years ago and then have updated it of the three plans you need to make as a founder. And I call them, no one’s really ever copied this nomenclature, but I call them C-10, C-60, and C-90 and C is the confidence factor. And C-10 is the big plan that there’s a 10%, chance you’re going to hit it. So talk about what if think we could do 9 million next year, but look, if the stars align, we did a Google sheet, it’s possible to do 12, that’s your 10%.

The 60 is probably where your core plan should be. We have a 60% chance that we can do it. More likely than not, but barely. That’s how you build your core model. Your core models for sales, for marketing spend, for hiring and engineering and product. And then with your finance person or yourself or your outsourced person, you build a C-90 plan, which is one, we’re 90% sure, even if sales slow, we’re going to hit this plan. In my experience, the 10 becomes your stretch plan, the 60 becomes your base and the 90 is the quiet plan you use to not run out of money. That’s how you manage your burn rate. And not enough people do that. And then you look, and you say, “Okay, let’s say next year, you think you’re going to grow a hundred, you think there’s a chance you can grow 120, but there’s a risk you grow 70%.”

I’m just making up the numbers. Do that 70% plan that there’s a 90% chance you’re going to hit and sometimes you end up burning more cash than you thought. And so you’ve got to readjust that so you don’t run out of money. So I like doing the C-90 so that you know you won’t fail, you won’t run out of money, 60 for the company, and then 10 is the stretch. And then what’s interesting is, I don’t know if you’re at the last session with Sam Blond, who was the CEO of Brex, he’s done other stuff. But when he came out to our Miami meetup, I think in March, he did a great… And go watch it on YouTube. He did a great presentation on how to set sales goals for his team and someone who’s been CRO of Brex from, I think maybe he was the tenth employee.

So first sale, then he did it at Zenefits, and he did it another company with me, he did it for me back in the day. These are insanely fast-growing companies. And he said… Even to him, he wants 80% of his reps to hit plan. So it’s not the same point, but he wants a successful sales team, a culture of winners. So you need most people hitting it. So anyhow, that’s my thought. You can look on SaaStr, but I really like the C-10, C-60. Founders don’t do it or they’re lazy and when they do it, their eyes always, always open when they do these plans.

Audience Member 2:

And so the C-60 is the one that gets communicated, the team is like on-

Jason Lemkin:

Our base. It’s just the base plan.

If you have more than a 60 per chance hitting it, it’s not ambitious. Ninety’s too conservative, isn’t it? We’re startups, but 10 is the crazy CEO. And then all the sales, a whole team quits when it’s 10%. So you can tweak those if you want, but they’re like a Fibonacci sequence. Everyone kind of knows what 60 is,10, and 90. And I think if you futz around, people don’t instantly know what those things mean.

Audience Member 3:

So from a former SaaS founder and investor’s perspective, early-stage startups, post MVP, post revenue, but pre-Seed, where do you strike that balance between, you’re trying to get product to market quickly, you’re trying to get the traction to get the numbers to attract the capital, but you’re going to have warts on the product from the MVP… Where do you see that balance struck where you start focusing more on the product quality and less on the speed? I mean, it’s kind of a hard thing. Is that something you would expect founders to be focusing on prior to their Seed?

Jason Lemkin:

Well look, I’ll answer the question in two ways. I’ll answer it devoid of capital, and then I’ll answer it related to raising money. As a founder, this is a trade-off going to… Were you at the session with Hubspot founders?

Audience Member 3:

I was. Yeah.

Jason Lemkin:

It was great. I mean, Brian said I took them 10 years to be proud of the product, right?

Audience Member 3:


Jason Lemkin:

So obviously that struggle is endemic to all of us. As founders, even if we’re deeply technical, we never get the product we want. And if we have the sales guy leading the company, there’s all these other issues and there’s always feature gaps and everyone has technical debt and almost everyone refactors the product once, or half refactors it and hits some sort of technical debt wall between two and 10. Most people don’t hit a technical debt wall on customer one because it’s not a lot of load on the servers. But everyone goes through these trade offs. But for raising capital, cry me a f**king river.

Jason Lemkin:

I’ll tell you the loser-est thing as a founder, you can say to a VC and make you sound like a loser… And I literally never used the word loser, right? But it’s true… Is, “We didn’t grow that fast last month because we were fundraising.” As an investor, when you hear that, there’s not even doors here, you’re going to run the hell out the door, aren’t you? And for many founders, it’s true. It’s so much work to meet, how could I meet 50 investors and also hit the plan when I’m the chief sales officer? How can you… Cry me a river. But you know who does it? All the people I just described. They all hit the number when they fundraised and all the great founders.

And I’m not saying it’s easy and it’s not just hours worked, it’s hard. So operationally, this is a trade off you’ll have for your entire, at least for 10 years, like at Hubspot. But for VCs, trust me, cry me a river. Yeah. Because again, going to the prior point, if you really want to unpack VCs, I got into this a little bit with Aileen this morning, but just… I know it’s… When you see the math that I described, you get it. VCs can only invest in outliers. You cannot make money outside of outliers. You just cannot make enough money so any signals that a company might do great but not be an outlier, you’ve got to run for the hills.

And the signal of, “I couldn’t do it because I was fundraising.” That’s a signal that more power to you as a human being, but you’ll never be an outlier. And so you got to quit. You got to quit, right? So don’t look like a fundraising VC loser and don’t let them see you sweat, and share the trade-offs in a good way. “I’m proud that we not only hit the plan for the month, but I did 50 investor meetings,” like, “Oh, that. I want to invest in her.” All right. Thanks for the question.

Audience Member 4:

I have two questions for you, about when you had to cancel SaaStr Annual in 2020. One, that was a disaster. Everyone can come in and support you, but then you are the leader. You are the one who was taking the heat. So how did you come out of this? Because this could happen to any business here. So when you have the events as industry was down, right? I mean no one could do anything and that was going on for the entire year. You had to postpone even by 18 months after.

So as a leader, what helped you to recover from a disaster like that? I’m just curious. What was your mindset and what steps did you take?

Jason Lemkin:

Well, it’s funny if you really want to talk about it. Did you hear the Hubspot session? Were you here for that?

Audience Member 4:

Unfortunately, no.

Jason Lemkin:

It’s okay if you weren’t. Well, so Brian Halligan, the co-founder’s here, I mean HubSpot’s worth almost 20 billion. Brian, right after COVID drove, had a horrible snowmobile accident, broke every bone in his body. Almost lost him.

And it’s crazy. And you can watch the session later, it’s great. I mean, he barely recovered. He’s great now, but it was a long road back from falling off a big cliff on a snowmobile in the dark and he had to be airlifted out and I think he broke 40 bones or something terrible. But from a corporate perspective, it’s a black swan event. It sounds crazy and my experience in my career, every five to seven years, I’ve had a black swan event, and I asked them if there were others at Hubspot and interesting they didn’t have another one.

But I can think back every four or five years, I can think of one. And if I wasn’t tired, I actually wrote a tweet and I listed all of the black swan events I’ve had in my career. And they happen somewhat, they’re unpredictable, but regularly on the four to six year cadence. And so when COVID hit and the night came that Santa Clara was shutting everything down and we had to cancel it two days before, the team was beyond upset. I mean how as a leader, I mean just ashen. And I was driving and pushing and pushing, and we had to shrink from three days or two days as speakers cancel. And we had to do all these things, and we were down to an afternoon event. By the end, we had a core group of folks that still wanted to do it, and we still would’ve done it.

And then the night before, I realized we had to call foul. There was just no more way. When this tweet went out that Santa Clara County was prohibiting any gathering, even though there was no COVID really in the US yet. Then I realized… I’d had black swan events before. And I want to give you another story at the end. And I went to Amelia, who you met, she was tough, our head of… I mean, the team was devastated and I just, “Okay, we’re done.” We sat down and for five hours until three in the morning, we just planned out our best responses and the team’s better than me and they’re great. But I had been through the black swan event, so immediately I went into black swan mode. Okay? It happened. I’m not expecting it to happen, but boom, I know what you do and you got to flip the plan and you got to immediately be a leader and change.

And I think… If you ask Poya, who’s our number one sales rep, he’s closed 28 million. He’s here, he’s so great. I don’t know if he’s here right now, but he was just devastated but he’d worked so hard and he is like… I thought I was a crappy leader, but he is like, “You were such a great leader through that because you were just… I don’t know how you were so calm…” But that’s what happens when you’ve been through a couple black swan events. As a leader, as crazy sounds, I think you have to look for black swan events. I think you have to look for them because you’ll start to see them. And in January of 2020, the CDC put out an email that said COVID might be an issue for travel.

And I wish I had it. I’d put on screen, I immediately forward it to Amelia and I said… My literal email was, “This is probably our black swan event this year,” because I knew the signs I’d felt it before. And every year for SaaStr, except for this year, this is our best year in terms of execution. But every other year for eight years, there was a little black swan event for us. Something blew up. One year, the person that ran it forgot to reserve the venue. That was pretty bad. Even this year, one of the big vendors for us quit three weeks ago. They quit three weeks ago. A key vendor that we’ve relied on for years. They just quit. They didn’t want to do the work. So those things used to destroy us. We built redundancy, we built resiliency. So the minute that vendor quit after four years, Ashley from Montgomery Entertainment, that produced this, she’s one of the best.

She just stepped up and Amelia stepped up and we fixed it. It wasn’t easy, but kudos to her. And she’s not hearing this. Hopefully, she sees my appreciation in the video. So now I plan for them. And so I’m not saying you literally have to plan for a snowmobile accident or a pandemic, but you want to think what kind of things could screw this company up? What if the round doesn’t happen? What if my co-founder quits? For example, someone on your executive team is going to quit that you don’t expect. And when I do, I don’t ask these questions of the CEOs anymore, but I used to in the early days. You watchin the videos, I’d always ask, “Was there a great VP that quit on you?” And everyone has this story. Aaron Levie of Box had this story in one of the interviews of how their first VP of Eng quit, and he thought they would never recover.

They lost their VP of Eng, he thought the world had ended, and it probably had. And now I always plan for a VP to leave. And you know the ones that won’t leave, but even then something could happen, something in their life. And so that’s one that every founder should plan for, which is that one of your most trusted teammates for some reason leaves, you lose them. It could be a snowmobile accident for Hubspot, it could be a personal issue, it could be a home issue. It could be you don’t realize how stressed they are and they just quit to go on a walkabout. But that’s one, if you plan for nothing else, plan on someone, a key right-hand person that you would never think leaving leave. And so have a calm plan. What would you do if they quit? How would you handle it?

Think about it on a walk when you’re calm, so then when something like that hits like losing 10 million, I knew I didn’t know exactly what to do, but I knew immediately what to do. We called the lawyers, we called the people, we called the vendors. The folks that do this AV stuff… This is a million and a half bucks, these lights. So the trucks had already started rolling from Texas. We immediately called them and saved about $700,000 because the trucks turned around. I mean, that’s a specific example, not to a SaaS company. But think about people black swan events, team black swan events. Don’t spend all your time on them, but if you’re going to go long, you’re going to have a snowmobile accident or a global pandemic or frigging Twin Towers being hit by an airplane. I mean, I’ve been doing startups long enough to remember the day when the Twin Towers went down, and it’s almost too morbid to talk about in the afternoon.

I mean, most of you weren’t founders in 2008, 2009, that… It was so bad in 2008 or nine, I can’t remember what, I’m sitting at an early SaaS corporate banking event at Pebble Beach on a beautiful day having wine with investment bankers or VCs. And I get a call on my phone from our bank, Citibank, Greg, my banker, for years through 2008, like, “Greg, how you doing? I’m at this event. But I love you.” He’s like, “You got to pull your money out of Citibank.” I’m like, “What do you mean? Citibank’s the largest bank in the world?” He’s like, “I think tomorrow Citibank’s going to fail.” And Citibank, it turned out, almost did fail. Lehman failed, Citibank almost failed. And I’m like, “Greg, where do I put my money? Do I put it in Silicon Valley Bank? What if they fail?”

And he didn’t know. He’s like, “At least, take half your money out because everyone in the office is talking about we’re going to do a press release tomorrow that Citibank’s going to fail.” Now, there was a bailout that night, and Citibank did not fail in the morning, but I’m just rambling through. I never, as a founder, thought my bank guy would call me and tell me to pull my money out. I didn’t know where… I didn’t know when one… The banks were closed at 3:00 PM. Where am I going to wire out half of my 8 million a venture capital? I don’t know.

So I could think of more of those. My co-founder at EchoSign, 10 months in. My muse walked out the door and never came back. Never came back. I never fully recovered from that. And so anyhow, rambly, but think about those… If you’re going short, don’t worry about this stuff. Don’t plan around it if you’re going short. Don’t worry. But if you think in terms of a decade like René from, calmly think about what you’re going to do when these things happen. And then when it happens, once every five years, you’ll spring into action like I did. So thanks for the question.

Audience Member 5:

So if you are a first-time founder and you get accepted to YC, but at the same time you have a Seed offering and you’re under 1 million ARR. Would you go for YC or skip it and immediately go to the VC stage? And what’s your thought process?

Jason Lemkin:

I’ve been through this. I’ve written a little bit about it on Quora, but maybe not SaaStr. I think that… And listen, I don’t work at YC, right? I think if you’re not sure, do it. Because the YC companies I’ve invested in, it… Look, YC’s expensive. It’s a lot of dilution for a little bit of capital. When the earlier waves, pre-YC that did this back when I was starting my career, you see it, they were founder ripoffs. Okay, give us 7% for one hour of a designer’s time. That was the biggest ripoff back in the day. But YC is not that… And listen, I’m not into brands. I don’t know where any founder I invested went to college, but YC is Stanford, Harvard, MIT, and Caltech all rolled into one. And even if you don’t learn a thing from the program, all things being equal, you might as well go to Harvard or Stanford or MIT, right? Not that I care. I don’t care. And I went to Harvard, and maybe that’s why I don’t really respect it or even ask founders I invest in where they went, but it doesn’t hurt.

And VCs so respect it. Now, look, there are like 220 companies in this batch. They can’t all be the next Stripe, right? There’s got to be a few that will struggle and a few dogs. But everyone’s looking for signals in this world. There are too many startups, there are too many companies to join. There are too many companies to fund. And the network at YC is powerful. And the first time I saw it, I’m a small investor in Front, which just raised 1.7 billion, and I saw the power to Matilde going through it. I invested in Algolia, which is here, which is worth 3 billion. They were very seasoned French entrepreneurs that raised a seed before YC and gave up a lot to do YC, and they will all tell you it was worth it to get them to the next level. And then later, for example, there’s a company called Treasury Prime, which is a banking as a service API I invested in.

And the best CTO I know in the world is the CEO. Back in the day at EchoSign/Adobe Sign, I offered him half my stock when we were at 10 million to join me and half million a year, and I would take nothing. He’s that good, okay? But he is a romantic. He didn’t join me. We would both be billionaires if he had, but whatever, Chris. If you’re watching this, dude, I love you, but you should’ve taken the offer I made. It would’ve benefited both of us. Anyhow, so then he went and he was a romantic and he did a search company, great engineer, hard problem, search. It didn’t quite work out, and he needed a job. And I connected him with a great YC founder who was building a company called Standard Treasury, really early in banking, way too early.

But they got bought by Silicon Valley Bank. He made a little bit of money. And anyhow, so he’d done this, he’d done another startup that sold for 200 million where he was the CTO, he’d had an exit, he was wicked smart, and he wanted to be a CEO this time and run the whole show. And he’s seasoned, I mean, he is not old, but he is not young and he had these wins and he could get VCs to give him the money, but he didn’t have the whole thing. And I said, “Listen, just do YC. This will create that missing slice that you’re lacking this confidence, this branding.” And he’s like, “I don’t know, I’m the wrong guy for YC.” I’m like, “Hold on, listen, I’ve never worked there. I’m going to write you a script.” And we practiced it, and immediately he got in and whatever in 60 seconds. It’s not that hard.

He’s like, “Hi, I’m Chris Dean. I was co-founder of Merced Systems. We were acquired for 200 million. Then I was the CTO at another YC company, Standard Treasury, acquired by Silicon Valley Bank. it became the core of their existing API. Now I’m running the whole show myself. I want to reinvent how banking is done in the 22nd century.” I mean, you’d fund that, wouldn’t you? Yeah, pretty good. Yeah. And I’ve tried to give that advice again. And then, most recently, there’s another one like Chris, one of the best CTOs in my life, right? I will do anything for them… That’s starting a company as a first-time CTO, he had a billion-dollar exit, another exit, wicked smart, and he had a little trouble raising money, but it wasn’t that hard, right? Because he is great in the grand scheme of things and I told him to do YC.

I said to him, “Look, you’re going to raise the money, but you’re missing this slice and YC is not magic. Watching a few things online, and now we can do it online.” And I love Gary Tan, I love all these folks. I’m like, “It’s not so much, but it’s going to solve this slice for you.” And he didn’t do it. And I’m 1000% sure for him it was a mistake. So if I had to distill it all down, if you think YC is not a good deal, a rip-off. If you think you can raise the money, I’m sure Parker Conrad from Rippling will tell you to do it. He did it again. He didn’t have to. Lots of folks will tell you. I say if you’re like Parker, maybe don’t…

Parker’s… I mean, it’s different. But if you don’t think there’s a benefit at YC, don’t do it. Right? If you’re so far along you can… And you think it’s a cool brand, but if you think there’s a chance, it will add that slice. That’s the advice I give it, just do it. That’s a rambly answer. But I think with some good examples, if you’re not sure, I always tell founders, just do it. Even if you have the revenue, even if there’s a missing slice, just go to Harvard, MIT, and Stanford, get it done. And it’s worth it.

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