Thoughts on SaaS in 2017

When we started boldstart in 2010, a core thesis of ours was to invest in next-gen SaaS which we called SaaS 2.0 at the time and best highlighted in our end of 2015 review:

SaaS 2.0, reinventing for the mobile first workforce will continue to remain robust. We also see older school SaaS companies being rebuilt with more flexible back-end technologies like microservices and reimagined with a more responsive and beautiful UI.

While we continue to be excited about opportunities in SaaS startups, it is clear that the game has changed substantially since 2010. Despite the amazing productivity gains from open source, AWS, microservices and other new technologies, we have seen the time to launch extending and the cost of getting a minimally viable product (MVP) out the door increasing. So why is this the case?

  1. Most SaaS categories have multiple players and to build a transformative SaaS app means the bar to what a “minimally viable product” is much higher than it was 5 years ago. In other words, a MVP of 5–6 core features may now need 8–10 core. This takes more time, money, and resources. Founders need to make tough decisions on what their definition of feature parity is and what that one unique product angle will be to rise above the noise (more to come in a follow up post).
  2. The competition for talent has and continues to be fierce so as tech costs go down, human capital costs continue to increase.
  3. Cost of getting message to market has increased due to the noise from the many competitors in a particular space.

So what can a founder and investor do in this changing world?

  1. Go niche — pick a vertical, say old archaic tech and SaaS-ify it — my friends at appfolio have done a great job of this rearchitecting property management software, secure documents, and legal case management and they are growing nicely.
  2. Go big — you can’t be afraid to go after incumbents in the large markets because as they grow they can lose focus and underinvest in their technology and platforms. Salesforce is 15 years old and Workday is already 11 years old. We’ve taken this approach by investing in experienced founders with unique takes on old school large markets in certain categories like email, CRM, BI, or BPM and going after the big players from the bottom up. Many of these companies start with a simple wedge
  3. New category killers — make bets on the next potential category killers and SORs (systems of records) like collaborative data science, enterprise PII, or SaaS for professional services.

With respect to #2 above, we have always been believers in the idea that technology moves in waves and cycles. The larger an incumbent gets, the more it is tied to the short term public markets which moving upstream to larger customers and losing focus on product. Key to this is going bottom up, having an amazing product experience, and growing from there. Neal Conlon who used and loved salesforce at 8 different companies sums it up nicely in a recent post:

So a few months ago when I needed to invest in a CRM for my latest business it only made sense that as the CEO I #eatwhatIsell and reach out and get SalesForce. Like I love, love, love SalesForce. The easiest deal to close ever.

And yet the process for onboarding, the regurgitating of mundane process when I’ve asked for help, and the fact that the sales team knows nothing about me even with all the above mentioned data points are available just makes this customer journey painful. Nobody even looked up my social profiles during the buying process to get some insights.

This is happening across the board at these incumbents — small accounts don’t matter, they need to extract more money from their customers, and they need to get larger customers. This is all great news for startups.

Our approach at boldstart has been to go after 2 and 3, but we know many other investors that have done quite well going after 1. Whatever happens over the next few years, be prepared to spend more money and to take more time to get a product out the door.  The bar is substanitally higher to deliver a MVP and also for raising funds.

Be prepared for a shifting landscape on the feature parity front again in 2017 as we see an intelligent layer weaved across existing platforms, SaaS 3.0:

SaaS 3.0, many of leading SaaS companies are 8–10 years old on archaic platforms, opportunity to rebuild with new stack from back-end to front-end and go after large incumbents (our pitch in 2016 and continues in 2017). SaaS 3.0 is adding an intelligent layer to this new platform.

Revenues kill the dream counterintuitive - short term revenue can sometimes come at cost to long term opportunity...

I was on the phone yesterday with the CEO of one of our portfolio companies, and we were talking about goals for the next few months and in particular, what the company needed to get a Series A done.

Her answer was quite simply “make the product delightful.” She continued: “I want to iterate to continue to make the product faster, better, and easier to use. I want to get the user to the “a ha” moment even faster.”

And with that I knew that she got it. The company paid user base is already growing rapidly but rather than focus on a couple of features that can boost MRR in the near term, she would rather focus on the longer term.

This reminds me of a quote from Yossi Vardi, founding investor in ICQ (creators of IM and sold to AOL).

“Revenues kill the dream.”

It may sound counter-intuitive but what Yossi is really saying is don’t sacrifice long term opportunity for short term revenue…

Branding first starts with your team External branding starts with developing a consistent, internal message first

External branding starts with developing a consistent, internal message first. When you think of branding and positioning, remember that your first line of offense and the most important representation of your company comes from your employees.  Make sure you have a succinct, crisp and clear 2-3 sentence pitch on what you do and that everyone from the CEO down to the engineer or QA can repeat the same mantra.  Whether your employees are doing sales pitch or at a conference or cocktail party, they should all be starting with the same message.  The more it is said the easier the message spreads. We live in a sound-byte generation with information overload so if you can cut through the clutter with a powerful and succinct message, you will not be forgotten.

It reminds me of the old kids game “telephone” where one player starts with a message and passes it down the line and in the end the last player repeats what they heard.  Many times the message is completely different from the initial version.  Obviously if you think of messaging in terms of the game “telephone” you will quickly recognize that the crisper and simpler it is, the harder it will be to get lost in translation.  You want the next degree of relationships to be able to explain just as easily as your employees – this is how great buzz builds.

At Cisco, it was “we network networks” or at Tableau Software which went public today “we help people see and understand data” Obviously what goes into sentence 2 can provide a little more detail on how or why you are special (see my blog post from 2007 on why vision statements matter and how to craft one.  In Tableau’s case, it is “we help anyone quickly analyze, visualize and share information.”  And sentence 3 is the build and ah-hah moment – “More than 10,000 organizations get rapid results with Tableau in the office and on-the-go.”  Yes, that is strong messaging to the outside world and in the written word but it can also be simplified for strong messaging from employees in the spoken word.

So remember when it comes to messaging and positioning, keep it simple, easily remembered and to the point. What is your message and does everyone on your team know it? When your startup is out in the market meeting with customers and VCs, will everyone you meet be able to say the same message – “yeah, i met this cool company today and they do “x”.  If so, you off to a great start!

Camping out and closing deals

I am sure you can see a common thread in many of my recent posts – Sales, Sales, Sales!  I don’t care how great your product is because without an ability to articulate the value proposition succinctly, tell the world about it in a capital efficient manner, and sell the damn thing, you are SOL (yes, shit out of luck!).

So what does camping out have to do with selling? Let me explain.  In sales I am sure you have heard about all of the various models to prospect, push leads through a funnel, and get to closing.  One underestimated method is the “camp out sale.”  What is it and how do you do it?  Well quite simply, when things begin to stall you basically pick up the phone or send an email and tell the prospect you will be in town the next day or week and would love to come by.  You then “camp out” and don’t leave until you get an answer, presumably yes.  I have to warn you that you need to employ this method selectively and have the right criteria (relationship with sales prospect, size of deal, timing, etc) in place because if done the wrong way you can waste a ton of money and time trying to close deals.  Email, phone calls, and video chats are great, but sometimes you just need to be there to move a process forward.  I have seen this done right many a time and can’t tell you how effective just showing up can be.

To that end, I was on the phone with an entrepreneur yesterday who was trying to get their round closed.  The investor wanted to set up a call to meet the other co-founder before making a decision.  Like any great entrepreneur would do, he simply said I will be there tomorrow and proceeded to book a flight for first thing the next morning.  I will let you know how this story ends but I can assume that an entrepreneur who shows that kind of hustle and willingness to walk through walls to make their company a success will surely leave a great impression regardless!

Cutco Knives and startups everyone in a startup needs to learn how to sell

When I worked for Cutco Knives one summer in college selling the world’s finest cutlery, my dream was to sell the Homemaker +8 at every meeting.  It was the Rolls Royce of knife sets and in every sales call I had, I always tried to flog the deluxe set.  Of course, more often than not, I left with selling a spatula spreader or much smaller set.  Many a memory was brought back yesterday as my wife and I went through a sales pitch for Cutco knives from an enterprising college student.  His pitch was great…and entertaining…and the same from 20+ years ago – cut the penny with the scissors, cut some rope, lay out the catalog, and even the close.  Would you like the Homemaker +8 or the Homemaker +4?

How about the Essentials +5 or the Essentials.  As I sat in on the sales call, what I remember most about selling knives was that it was a tough and lonely job and my friends teased me the whole summer about being little more than a “door-to-door” salesman flogging kitchen utensils.  Looking back on that experience, I recognize that I learned so many valuable skills about selling and more importantly about myself in terms of constantly being rejected but still having the optimism and fight to move on to the next opportunity.  I am sure by now you are thinking, what does selling knives have to do with startups?I strongly believe that every entrepreneur should take a sales job at one point in their life, even for a summer.  Whether you are a tech guy or product guy or executive, you have to remember that you are always selling – not just to the external world like customers and VCs and partners but also internally as well, drumming up support, getting the team to buy into your ideas, and much more.  I believe there is sometimes a stigma for being a sales person but in reality no business can ever succeed without someone selling your product or service.

Selling Cutco Knives was great because I went through sales training which at the time seemed incredibly cheesy, became enamored with trying to win salesperson of the week and month, and learned how to use referral based lead generation to create sales appointments.  I learned about creating a great script to use on the initial sales call (great understanding for understanding the life of an inside sales rep), how to use a presumptive close (can we meet this Wednesday at 3 or 5), how to properly make a sales call, how to read my potential customer, and ultimately how to manage my own personal sales pipeline and funnel.  From that experience I went on to start my own window washing business and develop a deep appreciation for sales reps and how hard their job really is.  And I find myself selling every single day in my life as a venture capitalist – selling to potential investors, selling my value add to startups, selling to portfolio company CEOs on why they might try another way to accomplish a certain goal, and selling my own partner on why we should or shouldn’t do a certain deal.  If you are wondering what happened at the end of our sales call, my wife and I ended up buying the lovely Homemaker +8 and gave our rep a boatload of referrals.

Startups and Intellectual Property (IP)

Lately questions about Intellectual Property or IP have been cropping up left and right.  Eliot Durbin (my partner at BOLDstart Ventures) and I had a long discussion this morning in preparation for his panel today about IP and patents.  Last week, we met with a company and when we asked about their core IP, they launched into a 5 minute discussion about the various patents they filed.  Do startups really think patents are going to make or break their business?  Yes, having core tech or IP matters but patents are a different question altogether.  Your best protection is continuing to focus on building your business, your product, and getting market share.  So what is my and BOLDstart’s stance on IP and startups.

1. We look at the team and the product and market first

2. We like to think that all of our investments have IP.

3. IP does not mean patent.  IP in our mind is your “secret sauce” for doing what you do better, cheaper, and faster than anyone else. Its great if you filed for a patent but that is a long process taking 18-24 months and by the time you get a patent the market opportunity may have already passed you.  Focus on building your product and market share, not on patents.  That is your best protection and competitive advantage.  Waiting for the patent office to tell you that you have a patent is a nice to have, not a must have.

4. Even if you have a patent, it takes tons of time and shitloads of dollars to defend.  Trust me, I’ve been there, and it seems to me that the only person making money in these cases are lawyers.  In addition when defending patents you will inevitably fight with the big boys with billion dollar balance sheets so that is not a place to spend your time and money.

5. Don’t start a company where there is already a patent battle brewing like email on phones.  We are looking for innovations, the next big thing, not yesterday’s way of doing it.

Hopefully that gives you a good perspective on our view on IP, patents, and startups.

2 horse race in mobile – iphone and android android is going to blow past ios

I just caught this blog post from Seth Weintraub from Fortune on Android:

Andy Rubin just Tweeted that Google (GOOG) is activating 300,000 phones a day. That passes Apple’s (AAPL) iOS, that passes Blackberry (RIMM). That even matches any figures that Symbian has ever put up. Google is closing in on an astounding 10 million phones per month. Recall that Apple just had its biggest quarter ever with 14.1 million iPhones sold

It is no secret why every mobile company I have seed funded through BOLDstart Ventures is either already on the Android platform or soon will be.  This whole battle of licensing the OS vs. maintaining control of the full ecosystem from OS to hardware reminds me of the early days of Microsoft and Apple.  We all know who won back then – Apple had the best damn product but Microsoft had more distribution.  I am not saying it will play out the same way but looking at the early numbers it is pretty clear that the Android OS will eventually be in more hands.

This brings me to another point.  Right now we are looking mostly at consumers but what about the enterprises?  RIMM is still the dominant player in large enterprises like banks, etc but as well know RIMM does not have a fighting chance.  Smartphones are entering the workforce and enterprise whether IT likes it or not so how best to deal with it?  Will Apple or Google focus their efforts here?  I just made an investment in a stealth company that solves this problem for Android.  By downloading an app, a user can now run another instance of Android on their device which is secure and can be managed through the cloud by IT with various policies.  Think of it as a virtual machine running on the handset.  This can be great for corporate as now their employees can buy their own Android smartphones, use it personally, but also live within the confines of IT policy by simply clicking on the App and entering work mode, for example.  More to come on this in the future.  Why not start with the iPhone?  Well Apple’s strict policies for applications prevented the company from doing so.  Either way, this will be a great battle to watch in the future.