The #1 Mistake New Founders Make When They Start a SaaS Business | With Doug Brown

At Horizon Capital, where, you know, we're at, that's generally what we see when we work with founders looking to sell their companies. They're, you know, generally 5, 6, 7 years in, they've built a good company, there's good traction, they've got good revenue, they're profitable, But they just get to a point where they burn out. They're like, I don't enjoy working on this. I want to move on. And they're just like, their mindshare is gone. And I mean, that's good for us, but they probably didn't think it through from the beginning, right?

I agree. And likely, they built it on their back. So, that's part of the challenge too, right? So then, when they want to sell, they're the pivot point. And so, it's like having a doctor in a practice that everybody just loves that doctor. As soon as you remove that doctor, the practice, if it wasn't a practice, it, you know, numbers dropped significantly.

Exactly.

So, yeah, and my father had that happen to him. I, you know, fortunately, through his mistake, I learned this, you know, after 18 years in business, one day, thriving business, it was doing great. I was in the military. And I remember one day getting a call. And he said, hey, I shut the business down. And I went, what do you mean? He said, well, I walked in there, I turned the key in the lock. And I haven't been back since. And I'm like, wow, you know, and he had thousands of customers that relied upon it, but he— and then he went fishing, you know what I mean? So he bought a boat, went commercial fishing, did that for almost the remainder of his life, and as well as a couple other businesses. But yeah, I mean, people can, if they don't figure out the personal side, Then they tend to structure the business in the wrong model, which then leads them to exactly what you just said.

Exactly. Yeah. And I'm always an advocate for that, right? Like, don't just build a business because, you know, it seems cool and it seems profitable. It seems like the right thing, you know, build for what works for you. And you said it's on the personal level, you know, adding to that, what does success mean to you on the personal side?

Having discretionary time to spend with my daughters and my wife. There's nothing more that makes me happier in life than doing that. So, you know, I structure my days and my business around that. And, you know, my daughters are getting older, they're almost out of the house.

Yep.

So, you know, as a father who really cares about them, I mean, I want to spend as much time with them as possible, right? That's just the way it is. So, Yeah, for me, that's, that's, that's the measuring stick for myself.

That's the ultimate form of freedom, right? Time with people you love. Cool. So let's dig in more. You know, many of our listeners listening today, they're founders of B2B SaaS companies. So before we get into, you know, what's working well, I'd love to hear your take on what you typically see them doing wrong. You come in, you see these blind spots that you find, whether that's in their business model or whatever you see. that basically limits their growth and reaching their full potential?

So on the SaaS side or on— okay.

Oh, I mean, I mean, the SaaS founders, I mean, you can speak general that, I mean, it would apply across them as well.

Yeah. I mean, for SaaS companies, the number one thing that I see that SaaS companies make a mistake is they forget they're dealing with humans. They're trying to grow their revenues without talking to people.

Right?

Especially after the first sale. So what ends up happening is they have poor communication and what tends to happen is they are not reselling to the same client base. They're not using upsells, cross-sells, downsells. They're not innovating on that process. They're not doing a great job on referrals. And, you know, so if you sell somebody and leave them alone, a certain percentage will stick. And if a company's just looking at like, okay, top line, you know what, we just want this, then it's okay to run that model. But if they really want to grow year after year after year, they must expand the sale because otherwise they're just working hard. And, you know, without that sales expansion, I mean, that— and a lot of times that sales expansion is huge, high profit for them. But they don't do a really good job and they don't follow up or follow through. I know, you know, I probably use, I don't know, 10, 12 different SaaS applications in my business, and there's only been 1 out of the 10 or 12 that has ever called me to talk to me to find out how I'm doing and what's going on. But the last time they did that, I re-upped for 2 years.

Right. I mean, that makes complete sense. I mean, I don't remember the last time somebody called me after signing up for whether it's a trial or some kind of product. I get a couple of onboarding emails and I never even check out. I usually unsubscribe. But yeah, if somebody called me and said, hey, like, I'm happy to give you, walk you through, explain everything. And hey, I'm your point of contact if you get stuck on anything. I mean, wow, now I'm connected. So that seems so simple.

Look, business is easy when you remove people. Right from the equation. But when you add people, there's always a corporate objective, but the person who's buying always has a corporate and a personal objective.

Right.

And right now I'm about to dump one of the SaaS providers that I have because I've only been there 2 months. I'm having a little challenge figuring it out. I'm busy. I don't have time to do this. I'd pay for it, but every time I send something in, I get it. I get a generic frequently asked questions list back. Right. So it's like, I don't know. I mean, you know, if we had, you know, even took 5 logins for, you know, 10 years with this company, that's a lot of money they're dropping based on what they charge per user.

It's funny. I mean, yeah, they're trying to balance that, you know, scalability with, you know, less human interaction, but it's actually getting worse. I see that, you know, now they removed the phone number. They also removed a way to email them or chat with them. They just send you to like a knowledge base, like read all this stuff and figure it out. I was like, I just want to talk to somebody. I need to figure this out.

But— Well, and there's always a segment, you know, I mean, not to downplay Google. I like Google as a company. But, you know, I'm having some communications challenges with them right now. And every time I send it in, it's like, okay, well, you know, it was on YouTube TV, right? They double billed me for 3 months. No one will talk to me about it. No one. And so, so Google, if you're hearing this, um, you know, so I ended up pushing back on my American Express, you know, Platinum card, and they just like, hey, look, okay, push back. And so that's how we resolve the problem. But that does not leave a good feeling for me to, you know, if somebody asks me a question like, what do you do for television? And I tell, you know, I'm not gonna tell them, oh, Google TV, because then my reputation's at stake if they double bill them. So it's all about human to human. Every business, really, Akeel, if we think about this, there was no internet 40 or 50 years ago that was standardized, right?

Right.

There was no online. So if we run an online business as we were going to run an offline business and use the technology and leverage that the online business will give us, we'll have a much more profitable SaaS company.

Absolutely. Love it. Cool. I mean, so for, you know, B2B SaaS companies, they're looking to optimize their sales conversions within their sales process. So we obviously love to hear more, you know, takeaways that they can implement today. You mentioned that some of the— most founders, you know, when they work with you in the first 3 to 6 months are seeing, you know, somewhere between 12% and 39% increase in their sales. What are some things you suggest to them that they can start looking at within their business and what are ways they can start implementing those today?

So re-engagement strategies for one. So this, one of the big mistakes that people make is they have past clients or they have dormant clients and they leave them past or they leave them dormant. And the reality is, if they go back and they just start touching base with those past clients, there's already familiarity there, right? So it's not like this is a cold lead. An amount of them, you know, a percentage of them will reengage and rebuy, right? So it's untapped revenue and profit at that point because they've already spent their marketing expense in getting the client, then they lost the client, right? So I see companies in general are really poor at doing this. And, you know, they think I'm a genius. I'll come into their company, I'll help them, we'll go back after their old client base. All of a sudden, they're starting to generate sales and they're like, man, this guy's smart, right? I'm not dumb, but the reality is a re-engagement strategy is usually the number one thing to start looking at. The number 2 thing would be what is going on with your existing clients. So get in touch with the existing clients, find out what they're using, how they're using it, what they need, right? Because there's upsell opportunities within the existing client base. There's also referral opportunities within the dormant client base and the existing client base. You know, measuring every single metric on a micro level is really important for any company. Most companies are really not good at this. They look at top line and, you know, they're not measuring things from like, okay, we got a lead, we got a lead. Okay, what's the next step that that lead's supposed to take? Then what's that measurement, right? Because— I had a laugh one time, a company was generating thousands literally of leads a week. And they had a really big sales force. So they asked me to take a look, and I discovered that 62% of their leads that came in were never contacted.

62%?

62%, right? Now, they were making money, but 62% never made it into stage 1 because they never were contacted. So I went back to the owner of this company. were doing $48 million at the time. And I told him, and he said, he told me, no, I'm crazy, right? That's impossible. So, I showed him all the numbers. And a day later, he called me back and he said, okay, I've got over my pride. What do we do? Right? And within the first couple of months, that 62% was cut in half. And he had a static close rate on the back of it. If we got them into stage 2, We knew it was going to close. So, over the next 2 years, they grew from $48 million to $110 million because they kept reducing that ratio and then adding some other things in as well. But I mean, yeah. So, that would be another one. Measure all the ratios. Referrals are critical and most companies are terrible at doing referrals. And so, referrals are easy. You put a process in, but you got to have an active referral program, not a passive one. That means active means you're proactively, you know, synergizing this whole thing through marketing and sales throughout the process. So referrals are happening and expected. And I think the last one would be follow-up for a lot of companies. They're very— some companies are inept in follow-up. They don't follow up at all, right? And I'll give you an example. I'm trying to buy LinkedIn software right now. So anybody who's listening, when you get my contact information, if you have LinkedIn software, contact me. I'm actively looking to buy in 2020. So that means over the next 8 days or 2021, whatever it is. I talked to a gentleman and it was about $4,000 pay in full for a year for this service. And it was back in October. And I told him, I said, look, I can't pull the trigger on this right now because I just have all these year-end initiatives, but this is going to happen for Q1. So let's get back in December. And I'll— I'm a buyer, just call me, like, just ask for my credit card. We don't need to talk anymore. Do you know I've never got a call?

I'm not surprised. Right?

So, so imagine that's $4,000 and that's happening 300 times in a year. Right? Just amongst a sales force.

Yeah.

You know, or 1,000 times a year. You know, that's, it's a lot of money per year that is not being gathered, and I'm sure the owners of those companies would not be happy with this conversation.

Right.