Dear SaaStr: What Are The Top 10 Things to Know Before Starting a SaaS Company?
We’ve discussed most before individually, but let me throw ’em together:
- It may well take 24 months to get to true product-market fit and Initial Traction. If you budget any less, you probably will fail. This isn’t B2C and virality won’t accelerate the process enough in the early days.
- You really need a great CTO, not just a good business team. It’s just too competitive today. A mediocre tech team, a part-time CTO, or even just a decent CTO just doesn’t get you there. Wait until you find a great partner here.
- You will almost die somewhere between $2m-$10m ARR because there is too much to do and not enough people to do it. You will have a Year From Hell here. Finally you have great customers and traction — but you can’t afford to hire all the people you need to meet their needs. This is actually the most exhausting phase. More here.
- It takes 7–10 Years in SaaS to Get Anywhere. Even outliers like Slack, really, started much earlier. And 99% of SaaS companies will need 7–10 years to get to $100m ARR and beyond. If you can’t do the time, don’t do the startup.
- You have to love, or at least commit to, recruiting constantly. You have to hire so many functions in SaaS – VPS, VPM, VPP, VPCS, VPE, etc. If you’re not willing to constantly recruit cross-functionality … you’ll never attract the talent. True in B2C too of course. But the founders and CEOs need to attract even more types of managers, earlier, in SaaS.
- You’ll probably hire the wrong first VP of Sales. And it may burn up half your cash and a year of time. You absolutely have to hire someone that can recruit, and that has sold a SaaS product at least a smidge harder to sell than yours. Don’t be blinded by brands. Everyone is.
- Yes, you’re right. Your initial TAM probably is too small. A worry many founders have is their “TAM” — total addressable market — is too small. And here’s the thing, it probably use. Some SaaS companies start off with huge TAMs, for sure. But most are a wedge, and are lucky if their “True TAM” is $10m to start. Yes, you’ll have to add a lot more value over time, and go multi-product, and much more.
- You’ll probably have to move faster than the competition. Yes, eventually even in a slower-moving space. Just being cleverer at first, and filling some white space can get you to the first few million in ARR. But then as you start to compete directly more and more, if you are too slow, you will simply fall behind. Do you truly have a hyper-agile team?
- If you go long, don’t quit, and get to at least $20m ARR and are capital efficient, you’ll probably get a decent acquisition offer. But you gotta get there — and be capital efficient. More here.
- It actually never gets easier. Every month, the Net New Revenue dial goes back to $0. But. You do get better. Much better. You may not be great at all that much at $500k in MRR. You’ll be great at so much at $20m ARR.
(fastest wins image from here)
