When Erlich Bachmann paid a street artist $10,000 to make a logo for PiedPiper in HBO’s Silicon Valley, I had one of those ‘too real’ moments. A few years ago, my company People Pattern hosted a SxSW party at our office in Austin. The neighbors were spray paint artists, and our marketer at the time invited them to the party to do a live outdoor street art session – you know, for all the guests who would be inside eating BBQ and not caring.
I hated the idea of spending $500 on street art, but I wasn’t about to tell our neighbors no. You don’t stiff street artists, especially when they work next door. So now, I have $500 worth of People Pattern street art sitting in our new office (it’s good quality, I must admit).
The point is that, just like Erlich, our former marketer and too many other entrepreneurs, we can fall into believing that a software-as-a-service (SaaS) start-up has to act grander than it is to become anything at all. Unlike traditional enterprise business models where customers pay up front to purchase and install software on their servers, SaaS companies ask clients to rent software hosted in the cloud and pay as they go for usage.
When you’re running a SaaS business, you lose a ton of money upfront to acquire users but make it up in the long run. Because of accounting conventions, you can't recognize revenue all at once. For instance, if you sell a contract for $1 million, you can only acknowledge one twelfth of that month over month. Since startups can’t magically disappear the dissonance between revenue and expenses, they choose to ‘fake it until they make it,’ instead.
This mentality can lead entrepreneurs to behave as if they’re printing cash before they even have a working product. By absorbing the extravagances and idiosyncrasies of a tech culture that seems to mint new millionaires weekly, young SaaS startups stack the odds further against themselves.
The truth is that SaaS, more than any other model, puts a premium on execution over flash. To thrive, a SaaS business has to continuously re-earn all its customers, month after month and year after year. Clients pull the plug if they don’t see results, no matter what cool band plays at your events.
Creating a long-term, durable SaaS business means putting craftsmanship over showmanship. For all the entrepreneurs who want to build an enduring SaaS company, I offer the following playbook.
1. Don’t invest in anything upfront but product
Why spend $25,000 on branding when your product doesn’t exist? Invest your capital in product engineering, design, the road map and problems worth solving.
In SaaS, your first five to ten hires should all be developers.
2. Establish product-market fit
Talk with potential customers. People love giving their opinions. Your mother, a random guy on a bus, an industry analyst or old colleagues could all be invaluable commentators depending on what you are building. Tell them what you’re trying to solve and how you plan to do it; demand cold, critical feedback.
No one will steal your idea. In fact, assume that some other entrepreneur has already come up with your idea and will try to do it better.
3. Invest in marketing when the product is 90 percent ready for market
Features, tools and use cases change, which is why you should wait until the product is 90% ready before you market it. Frankly, you’ll drive marketers and PR people insane if you ask them to promote a product that changes week to week.
Here’s a good litmus test: if you asked the marketers to draft a product announcement, could they do it yet? Would it be compelling? If not, let the mash ferment a bit more.
4. Don’t hire a traditional sales team
Traditional sales teams thrive on guidelines, case studies and pre-screened marketing literature; new startup products have none of that. You need nontraditional sellers who can run with your initial messaging, ‘wing it’ when necessary and then A/B test different approaches. This jack of all trades should be able to return to your marketers and describe what content is needed.
Nontraditional salespeople may end up changing your entire narrative to close business, and that’s fine. As the company scales, don’t be surprised if nontraditional salespeople get bored and move on.
5. Become friends with your customers
From launching three SaaS companies, I’ve learned that the best customers always become close friends of mine. Initially, your company has no track record, so the first adopters have to trust and respect your team. This will create a tight bond.
Never forget the risk people take when they trust your startup the moment of truth. Go above and beyond for those brave customers.
Craft First, Show Later
SaaS companies fail when they try to become brands without anything to sell. First, create a business that has legs to it. Don’t waste money on ephemeral things. A 25,000 square foot office or logo by the Bay Area’s most legendary street art artist won’t make your company any better.
Good things come to those entrepreneurs who do the work.
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