What are the most common mistakes I see first time SaaS founders make?
Second-time SaaS founders make plenty of mistakes. But often different mistakes. They think they know more than they do. They spend too much. They often struggle to do things a new way.
First-time founders have many positives. But they also make mistakes we tend not to make with experience.
Here’s what I see most often, the Top 6+ Mistakes First Time SaaS Founders Make:
- Incomplete understanding of business model, and how it will scale. Many first-time founders have a decent understanding of how to charge for their product, but haven’t really rolled it up into a strategy to get to $10m, $20m, $100m in ARR. Focus and model often change as what it takes to get to the first $10m gets figured out.
- Too cheap — once you have something. Cheap is good. Capital is precious. But then a time comes at $1m, $2m, $4m ARR when you have to let it go. You have to pay folks market. You have to hire those extra few reps that we don’t really have leads for today. Do that extra trade show. Hire those extra engineers. It’s OK … it resolves itself over time. But first times tend to lose a chance on the road from $1m to $10m ARR to grow even faster.
- Tough transition from micromanager to “macro-manager”. Most second timers have evolved into macro-managers. They know to hire the best folks they can, and let them run. Most first-timers these days are such amazing founders, they can code, sell, support, upsell, and even hack marketing. That they can and do continue to do everything. Even once they hire people to do those functions. But once you hire real VPs, you have to stop micromanaging. Great VPs won’t be micromanaged. They won’t stand for it. Mediocre ones are OK with it, even prefer it, however.
- The VPs …
- A Stretch Too Far to Start. Related to the prior point, stretch VPs are great. But hiring folks that haven’t done it at all doesn’t scale past a few million in ARR. More here.
- And also, VPs With Too Fancy of a LinkedIn. We all fall prey to great brands, but too many first-timers that haven’t done it over-index on hiring someone from Stripe, from Datadog, from HubSpot. Great companies. But if they weren’t there at $10m ARR or less, they don’t really know how it got going. And often, they need a big team under them. Make sure they really did it. And that if they did, they still want to. More here.
- And Then, Really Struggle with Second Management Team. First timers often struggle with their first VPs but in the end find a way. But then when they need to hire the second team of VPs, at $20m, $30m, $50m ARR … they struggle. They end up hiring mediocre leaders from Big Tech Companies because they can’t attract the very best, driven more proven leaders to join them. Yes, this is very hard. Second Timers are constantly working on every management team.
- Capital “Hubris” (if angel / seed rounds are easy). I don’t see this always, but I almost never see it in second-time CEOs. But first-timers that have an easy time raising after Demo Days, don’t grock that the bar goes up for each round. They also assume their existing investors will bail them out. And they often don’t budget enough time for fundraising.
- Too much social-media based pattern matching. I know Palantir, Facebook, Datadog, Figma, Toast, Box etc. are all great companies. But it doesn’t mean an exec from there is a good fit for your 16-person company today, or that their advice is magically applicable to your little start-up. We can’t help this. But get more advice on your senior hires (and then ignore it if you want, but just get it).
Still.
First-timers overall do just as well, if not better, than second-timers. And they are much more capital-efficient on average. Not always, but often. And they lack the biases of second-timers.
Basically I only invest in first-timers.
Believing venture takes risks and wasting time fundraising. By the time you can raise, you don’t need money. That and most entrepreneurs still have little understanding of finance.