Do you podcast?
If so, Cara Hogan of InsightSquared has kicked off a great SaaS podcast series of which I was fortune enough to participate.
We talked quite a bit about the learnings on the SaaS Journey. Feel free to listen below or download on iTunes here.
The draft notes and script I used (we went much deeper than below, but these were my pre-podcast notes) are below.
Welcome to Million Dollar Insights, the podcast that helps you run your business by the numbers. I’m your host, Cara Hogan, and today we’re speaking with Jason Lemkin, the Managing Director at Storm Ventures, an early-stage VC fund. Lemkin is one of the most respected names in Software-as-a-Service, after co-founding two successful SaaS startups: EchoSign, which was acquired by Adobe, and NanoGram Devices, which was acquired for $50 million only 13 months after founding. Now, Lemkin spends his time searching for the next great SaaS company and writing about everything SaaS for his influential blog, SaaStr.
- You co-founded and then sold two startups selling to the Enterprise, and talk a lot about the advantages of second-time SaaS CEOs. What did you understand when you founded your second company that you didn’t know the first time around?
Boy I wish it had been more helpful. That’s why I started SaaStr. I’m a second-time selling to the enterprise founder, but first time SaaS. I really wish I’d known more. Hence, SaaStr.
My real “unlearning” going to a recurring revenue world was how hard it is getting the engine going. In my first start-up, selling million dollar contracts, closing $6 million in Year 1 was easy. At EchoSign, starting at the bottom — I needed 2 years to get to $1m ARR, back in those days.
I will ill-equipped for the SaaStr Journey. So that’s where I try to help other founders.
- Now as a VC, what are the signs you look for before investing in a SaaS company? What are some leading indicators that a company has the potential to succeed in a crowded SaaS marketplace?
Because I’ve done it before as a SaaS CEO, I maybe see things a bit differently than other VCs. I don’t worry about competition or crowded spaces, or even absolute ARR growth.
Really I look for two things:
One, a better CEO than me, adjusted for time.
And two, undermaximized unit economics combined with decent early growth.
- While traditional sales metrics are vital, what do you think are some emerging SaaS metrics that are beginning to be important to both VCs and founders alike? (Lead velocity?)
Lead Velocity; Revenue Per Lead; Notional Bookings
- Finding initial traction in a market is a huge challenge for SaaS startups. What is the key to finding product-market fit?
Time. Time is key. It takes 24 months in SaaS from Day 0 to really know if you have something …
- Churn is of course one of the biggest risks for SaaS businesses. How can you drive down churn in the selling process, before you even get to customer service and account management?
What I think the Second Timers are doing now is not just spending more on Customer Success, but really driving that super early in the process, with a real strategy for deployment. You need to have a goal of 100% success in all deployments. There’s no excuse otherwise, not really. And if you can bring that down to 100% success in say 30 days, you have something. To do that, it can’t be a hand off to Customer Success or Account Management. It has to be an integrated, strategic process.
- You talk a lot about the challenge of hiring the right VP of Sales at the right time, when is the right time and how do you find the right candidate?
$1m ARR, plus or minus. And after you have 2 sales reps that are performing.
Tradeoffs …. hiring + target ACV next year.
- What is the most common mistake SaaS companies make when attempting to scale and reach the next level of growth?
If you read the press, it sounds like overspending. But they’re really talking about B2C.
The most common mistake is underinvesting once you hit Initial Traction, the first $1m or $1.5m in ARR. Right then and there, you need a full, complete management team. The first timers never get that right. And you’re leaving a ton of critical growth on the table that way in the most important growth phase.
- You recently held the first ever SaaStr Annual event. Why do you think it was important to engage SaaS leaders in person? What do you think you achieved with this event and what do you expect for next year’s SaaStr Annual?
Wow, it really exceeded my expectations. We had almost 2,000 SaaS founders, execs and investors there. The goal next year is to do the same, just better. We’ll cap it at 5,000.
We want to keep it, first of all, all about scaling revenue. Period. And also ensure at lesat 50% of the value is from The Lobby. The other great folks you meet. The A+ speakers are really in part just a vehicle to get post-revenue SaaS founders all together, learning from each other as well as the speakers.
The uber-goal now is to be the largest non-vendor SaaS founder event. Especially for post-revenue founders and execs.
Given the limited competition, we have a shot
- What’s the most dangerous thing you’ve ever done?
What is this, a Reddit AMA?
First of all, FWIW, I don’t think most CEOs are really high risk takers. Yes, they take crazy risks — but they see the future. Because they see the future, they really don’t see themselves taking the huge risks others too.
I view myself as a low risk taker, really. In fact, as crazy as this sounds as an early-stage VC, I feel like every single one of my investments will be a success. I don’t see risk in any of them, not real risk.
Probably, though, I’d say going to back to my first start-up job. Before that, I was in the services business. I was very good at it, in some aspects. I quit without any job prospects. My wife was kind of pissed.
That was my first experience without a safety. It felt great. I have no anxiety, no worries.
Once you’ve played without a safety net once — you can do it again, and again, and again.
Until you’ve done in once for real though, you’ll never know.
Because of that, in both my start-ups, in our darkest, darkest hours, I never lost faith. I knew I could always find a way. No matter what the objective evidence said otherwise.
(Cross-posted @ SaaStr)