How to Navigate Strategic Change for Growth with SaaStr CEO and Founder, Jason Lemkin

Thank you so much. You've always been so helpful with your guidance, and it's generous. You and your guests, uh, really big impact. Thank you.

Good to hear.

And the wins, uh, the weekly webinars are great. My question: for a large enterprise SaaS sales team, yeah, the AE ramp planning assumption is 6 months. Do you have any—

that's a stressor, isn't it?

Do you have any advice on moving it to 5? What, what might we suggest and do?

Oh, I don't want to move to 5. And listen, I know this is gonna sound trite. This is what a great VP of sales does. Until then, you can't do it. There are no shortcuts, but a great— Do you have a great VP of sales today?

Yes.

That should be her job. Take a month off it. Because what a great VP of sales does is create more urgency. A great VP of sales listens more. A great VP of sales talks to more stakeholders earlier in the process. A great VP of sales realizes that even though Jason inbounded on your form, Jason's not the buyer. Jason's never gonna write a check. You've got to get to Jim or Jane or Julia or Johnson. The junior AE is like, "Oh, hoo, I got this great deal that came in inbound. It's $1 million a year." But it's the wrong person, right? There's a million things a VP of sales will do to bring, to cut your sales cycles on the order of 20 to 30%, but not half. It's not possible. You can't accelerate procurement. You can't accelerate discovery past a certain point. If you need to do 5 discovery calls with 7 stakeholders, you can't do that in an hour. It can't be done. But I guarantee you, if— like, a great VP of sales should increase at least some things quickly 20%, make things 20% better. Maybe for yours it's not sales cycles. Like, maybe they're better at something else. That's okay. But I will tell you, in my experience, one of the first— when a VP of sales comes in, they know time's the enemy of deals. Right? So if you bring in a deal quicker, it has a higher chance of closing. Right? And they know how to create urgency when it doesn't exist. Right? And they know how to quickly identify who matters in a deal and who doesn't. Just add those 3 factors together, sales cycle shorten. They know. Right? And they know time's the enemy of deals.

Thank you.

Jason, appreciate you. Around $11 million in ARR.

Congratulations.

Bought the company a few years ago. We have 1 person in sales. Like a consultant, 100% inbound. We're just about to hire our first VP of sales.

So it's mostly self-serve, or how do you do it with one person?

Like, it's a consultative engineer who does—

does $11 million of sales herself.

It's, it's ARR, so it's like a 15-year-old company.

Okay, okay, so the growth's slow.

Okay, yeah, it was slow. Okay, just hiring the first one. I know you mentioned that we should have 2 AEs.

You gotta have 2. You have to have—

but we are doing the flip because we don't have a salesperson. This guy's in—

so after—

so we're gonna hire the salesperson and then salespeople.

You misheard me.

To be hiring the VP first, I know we're doing the flip side, so I'm just wondering.

It's— listen, you're at $11 million, it's very risky, but you can hire the VP of sales first. You have— you, you may not have an established sales process, but you certainly have an established business, right? So I get it. So you're gonna hire the head of sales first, okay.

So how long would you wait to hire the two AEs? Would you hire them immediately or would you have this person?

Can you, can you afford the two AEs?

Could.

Okay. So here's, here's my evolved, here's my evolved answer. And I've been thinking about this a lot lately. I'm going to update my Classics Astro post on it. You can hire, you have $11 million in revenue, so you can hire the VP of Sales. You don't need to hire a kid first, right? They've got to carry a bag and they've got to close a significant amount of revenue themselves. and then hire 2.

That's my question.

They have to hire 2.

How much revenue and how long?

If you're— hopefully not much more than a quarter because you're running out of time if it's more than a quarter, right? Listen, I have— there's something I wrote a long time ago that got misconstrued, so I got to deeply update it soon. I wrote a long time ago that— and now I'm going to put some asterisks and daggers next to it. I wrote a long time ago that in some senses, Like too many founders get cheap in the early days and they want a VP of sales to not only be the VP of sales, but hold a full quota, right? So they can pay for themselves. That doesn't work. You can't even in this day of side hustles and multi-hustles and everyone running a real estate business on the side and courses on the side. As a sales leader, you cannot own a full quota and manage 8 reps. It's not possible. If you can't afford it, you can't afford it. So what I said years ago was, look, whether they should, they hold the quota when they start or not. Sometimes, yes, but it can't last forever. Right. And that is true today. But people somewhat misconstrue that to think it doesn't matter if they ever hold the bag. What I have learned is if they already know the product, if they're already a customer, if they've already sold it, sure, like they could just be a manager. But I think 80% of VPs of sales today should close when they start. 80 to 90%, they got to close. Now, ideally, it's just a quarter or two and then they, then, then they assist deals. They join deals with their team. Because if you ask them to close themselves without any help for too long, you will run out. You can never grow. Right? But I would either ask them to hold a full quota or half a quota for a quarter, close 2, 3, 4 deals, and then bring in Jack, Jane, Jill, Joe, and Julia to fill it out. But the mistake I see, and I'm going to rewrite this to be clear. I see this again. I was just talking with the CEO out here at $15 million in ARR that I know who made this mistake. He hired a VP of sales that I know that's pretty good. Okay. And it's a complicated product. It's not technical, but it's very complicated workflow. So we hired a VP of sales that actually was good, but came from a slightly less complicated industry. So that's hard. You want to hire someone always from something that was a little harder or more complicated. That's the other cheat code in sales. It doesn't have to be 10 times. Hire someone from a little harder, more complicated, and it'll be like gravity is lower at your startup. It will be easier for them. I'll tell you a story in a minute. If you hire someone from something that is great, but easier to sell, and yours is harder, they will fail almost always. Okay? So this VP of sales came in to a product. He sold a product that was medium-hard to sell to one that was more complicated. And he never sold himself. He hired 5 A's. Okay? And I like this VP of sales. He closed nothing the first 6 months. He never learned it himself. And he could never train his reps. And he never closed anything the first 5 or 6 months. Nothing. Yeah.

[Speaker:AUDIENCE] Just to follow up, do you have an opinion on solution engineering as a department within the sales team? It, if it's a super technical sale, like 10 out of 10?

One way or another, you need a solution architect department, whether that's the CEO or the CTO in the early days, which is often the case, whether it's sometimes the customer success team will play that role, whether you grab one of your top engineers to do it. The reality is, if you have a technical sale, there's always a solution architect, solution engineer, sales engineer in there. They're always in there. Once in a while you'll get an AE that was an engineer themselves, so they're wearing two hats. But even if they're wearing two hats, here's the learning: there's always a sales engineer in the deal. So you got to figure out, do they have to have the title? Like, no. Sometimes if someone else on the team can do it, great. But the biggest mistake in technical sales is when you hire a generic AE and don't put anyone, no solution of any form. Yeah, no, no chance, right? Listen to their gong calls. You're gonna, you're gonna like blow your brains out when you listen to the dumb things they say. Like, "Does your product— wait, what's an API again? I think our API— yeah, our API does that. Yeah, a hook web? We might have those. I think, I think we do. Which of the SOCs do you want? We have all the SOCs. SOC 12? Of course, we've got all, we've got all—" You're like— and if you're, especially if you're selling to like a VP of Eng or CTO, they're gonna see through that in 3 seconds. They're going to just click X on the Zoom and be out of there, right? Yeah.

Hey, I'm Christina. I'm the founder of OneSchema. Thanks for coming. Yeah, thanks. So we've been thinking a lot about product roadmap lately, and a lot of companies invest in multiple product lines on their path to $100 million ARR.

We talked a lot about that here. Spencer from Amplitude did, Jack from Lattice. It was a big theme. We talked a lot about AI this year. But multi-product was a subtle theme, right? But Nick talked about it from Gainsight at the end. Yeah.

It can be incredibly distracting for both your engineering and product team and your go-to-market team to juggle multiple value propositions, customer types, and potentially neglect your core product. So how do you know when is the right time to invest in a new product line? Are there any red flags for when it's obviously the wrong time? And how do you think about what is fundamentally a new product line versus a very large feature?

A lot of really good questions. That could be a whole session, right? Um, let me give my overly simplistic answer to all of this. Um, 100, 1,000, 10,000. 100, 1,000, 10,000. Now let me explain. No matter what you do, you're gonna hit some TAM issues. People talk about multi-product, but the main reason great founders talk about it, like Spencer and Jack, is because they're starting to exhaust the market for their initial product. Right? It's not a weapon or to make— it's because they're worried that once you approach 10% market share in your— not in the whole world, but in your core ICP, your core market, it starts to slow down at 10%. The good news is your brand picks up at 10%. People have heard of you, they love you. So it starts to feel— it's weird as you cross 10% market share, because it's both easier and harder. The good news is you're in every deal. You're in every deal. But the good news is for reasons you're not sure of, things are still slowing down. Not radically. It's a weird thing. You're in every deal, but it's getting— it's because you're exhausting your micro TAM, your initial TAM. And in enterprise, it's often around 100 customers in a group. In mid-market, it's 1,000. And in SMB, you're lucky to get to 10,000 customers without hitting significant headwinds. Okay? So my rough, way too rough rules are enterprise, mid-market, SMB, before you get even halfway to 100, 1,000, or 10,000, you better have a plan to go multi-product. Or you will not go to zero, but you will slow down due to TAM exhaustion, right? So those are my numbers. But obviously enterprise is a smaller universe with bigger deals. So as you approach those, not cross them, approach them, you will exhaust your TAM. That's the tactic. And I've seen, we've gotten, when we did SaaStr Annual 2017 in Milgram, it's funny, we didn't know this. And I did two sessions back to back. I did Jeff Lawson, CEO of Twilio, and Peter Gassner of Vivo, who had just gone multi-product. And that was very innovative at the time because they were smaller, right? They were both crossing, coming up on $200 million and seeing these issues, right? And, but now it's well understood. You have to do it. But to answer your question, if you do it before TAM exhaustion, you may be stressing the team too much. You've got to get good at it. What you want to go in SaaS is from nothing to mini brand to brand. Mini brand is when the viral word of mouth loops in. You start to get pulled into deals magically. You don't know why. You get an inbound, "Hey, I heard of you from my friend Bob or Elena," or, "You know, I was at my last company, I was at Gainsight and went to Vitaly, and I want to bring you in." That's like a mini brand. Like, you know, the world hasn't heard of you, but like in your core ICB, they start to hear about you. That's magic because you start to get this inbound viral loop. And then as you become a real brand, it gets— you're in every deal. Like, not everyone picks Salesforce for CRM that's here, but everyone kicks— everyone thinks— everyone at least talks about it, don't they? They're in every deal. So you want to get there because life gets easier. But as soon as you get there, you're exhausting your team. So that's your job as a founder, is not to go too early because you'll burn the team out. And so you've got to do this. Am I approaching 10% market share? Not in the notional world, not every restaurant in the world, not every SMB. You've got to be— Your job as a founder is to be very rigorous and in this case, define your TAM narrowly, like your core ICP where you get the majority of your revenue. And are we approaching 10% market share? You better have a second product by that point.

Thank you. Yep.

Hi, Jason.

Nice to meet you. Thanks for coming. My name is Wayne. I'm a first-time founder of a generative AI startup. Good. It's funny that my question is pretty similar to the previous one, but potentially from different angle. A quick context is that we help businesses create their AI avatars and videos so they can scale up their video production.

Yep, it's a good space. It's a hot space right now. Right. Yep.

So the question is really simple, but we've been really struggling with that a bit. Do we go horizontal or vertical? So facing the possibility of using AI to create videos, there's lots of kind of sub-use cases. Yes. Like each one of them makes sense. There's real customers asking us to do that. And we definitely would want to try because no one else is doing that. And we have the competitive edge of doing us, you know, first mover advantage. We try some of them. They actually also work well. But the problem is that after we do 2 or 3 of them, our product becomes kind of weird. You know, it's like one product for not only one thing but like 2 or 3 things. So it's like it's getting hard to describe that. But it's like—

That's a problem. That's the problem with the horizontal platform. If it's hard to describe, it's tough, right? Right.

So it's a simple question, but we've been thinking back and forth all the time. We've been growing okay, but we don't know if it's a good decision to say, okay, let's focus, let's stay laser-focused, people say, or let's continue to expand to really do horizontal.

Look, I don't know the answer. Look, it's one of the great— if you build a broad-based platform, especially one that has a self-service element, right? Right. You want to be horizontal. You want to be Zoom or Slack or Canva, like, because that's the biggest ham. Of course you want to be horizontal. And as product builders, we also kind of enjoy horizontal products, right? But even horizontal products have segments where they outperform, right? And if you— again, if you went to the Monday.com session with Aron the first day, they built a horizontal platform at Monday. But once they started doing Facebook marketing, they found that insurance, churches, construction were the ones that performed. So they leaned the hell in, right? And so look, I think that the conceit, the founder arrogance or conceit, is that you can be totally horizontal. Because even in a horizontal, you're gonna have verticals and industries that want to use you, right? And you gotta get to 1 million, then you gotta get to 10 million, $10 million, you got to get— and you got to get momentum. And it's— and even these horizontal platforms are not— when you look, when you peek behind that, you'll often hear a story that a Loom really performed in this area, or Slack took off with developers early, became it— before we get broader, I would— if you love horizontal and you believe that's your future, I would, I would build an elegant, easy-to-use, onboarded PLG self-serve product that is magical, that is beautiful, that is elegant for content or whatever you're doing. And then wherever you have any concentration of customers, I would lean the hell in like a vertical. It's not either or, right? And going too horizontal is a dream because you still have to find the areas, the areas of strength where you're relative— you're— no matter what you say, everyone's feature poor at this stage, right? And everyone also has a magical feature or you would have no customers. So you've got to do that 2x2 of where Feature-poor is okay because I have a magical feature and you've got to lean like hell in there. And then, and then if you do, I'll give you one last bit of advice related to the prior question of multi-product. The biggest mistake I see from like $2-ish million to $10 million that founders make is they over-diversify. They cross a couple million in revenue. They finally have something. It's more than beer money. It's real. And they're like, okay, well, we're strong in insurance or I want to do all these other things. It's too early. You have rarely exhausted your TAM at $2 million. From $2 to $10, all you want to do is double down on what's working, get better and better and better. As you cross $10 million or so roughly, then go back more horizontal. Maybe for you it's horizontal to vertical to horizontal, even though we don't all think about horizontal to vertical to horizontal. But I think that's really the way most of us work, because you've got to focus once you have something and put almost all your energy into what's working. And then when you're— when you have some fat on the system, when you have extra engineers, extra salespeople, extra capital, then you can do more experiments and you can invest in things that are, that are more expensive or have lower ROI, right? But on the march to 10, don't do it.

Got it. Thank you. Thank you so much.

Hi, Jason. My name is Chase. I'm the Chief Period Officer at Sanico.us. Thanks for coming. I practically stalked you online on LinkedIn and Twitter. Good.

I love a good stalker. It's good to hear.

We've been building a B2B, just say Asana for Black period. We are building an employee productivity tool for women in the workplace. Okay, vertical Asana. Yeah, manage their menstrual, maternal, mental health. Okay. And we've been able to at least see that we're in the pre-seed stage. And currently, uh, our secret, uh, we wanted to be able to ask you for your secret sauce to be able to support pre-seed, uh, founders. Because truly, there's certain startups who will continuously get this funding, uh, because startups are not able to at least write the same language that investors are looking out for. The struggle to come for conferences like this and even getting the right investment or flights and hotel to be able to be participant of assessing—

that is expensive.

It's, it's really ridiculous. And we see ourselves like very resilient to doing this, but we want to be able to ask you your secret sauce to be able to at least see for the SaaS TL fund. Yeah, be able to support pre-seed funding And we would love to invite you to Tulsa, Oklahoma.

Thank you. Well, look, I'm going to— I'll give a quick— for me, I personally, what I invest— I don't invest before $10K MRR. I don't do any pre-seed because I'm not smart enough. I want to see 10 customers, 15 customers. I think my secret sauce as a SaaS founder that is passionate about go-to-market is if you're a great founder and you have 50 customers or 40, I'm pretty good at figuring out if you can get to 4,000. Pretty darn good at that. Figure out if you can go from 0 to 10 customers. My track record is muddled at best. So I don't ever do it as an investor. I'm very narrow. To the broader point of this chicken and the egg issue, how do I— I don't have traction. I didn't come out of Stripe. I don't have the perfect connections. It's unfair. How do I get this pre-seed funding? Right. It is unfair. And the real answer is, look, it sucks. And the only answer is, one, to raise— if you really need money, find angels. And I mean angels in the traditional sense, angels, because you have not— you haven't taken off yet, right? So there's nothing for a traditional financial investor to sink their teeth into. If you come to me and you're at $10K MRR, and you're tripling, and you have cool stuff, I can sink my teeth into something. I don't care where you went to college, or who you know, or whether you went through YC or Stanford. I don't— personally, I don't care about any of that. But I need some— everyone needs something to sink their teeth into except an angel. And that's why, as unfair as it is, why do the Stanford and MIT graduates so effortlessly get capital? And I don't care where anyone go to college. I don't think I've invested in any. But it's not irrational, because it's It's some indicator. It's something. You know, I was speaking with Michael Seibel from Y Combinator, because he was here this morning. 85% of their batch get funded. And they hit their funding target. You know why it's 85%? Well, one, most of them are pretty smart. There's a filter. But for investors, it's helpful, because it's a sign. Like, a lot of them are gonna fail, but you know what came out of— some good stuff came out of Y Combinator. So, the earlier you are, you gotta look for some kind of sign. You gotta look for something. Privilege sucks, and being a Stripe alum is unfair, and coming out of YC is unfair, and coming out of Stanford, it's all unfair. It is unfair. It is not fair. And I don't have the answers because the earlier you got to look for something, it is too risky to invest early unless you are genuinely, genuinely an angel. So it may take you 2 years to raise this money. You may have to talk to every person on planet Earth because you aren't the Stanford, YC, Stripe alum, perfect everything grad who also closed $100 million at Salesforce and was the secret co-founder of Dropbox. You're not that. And I— and it's not fair. But I know this is hard to hear for folks. It's not designed to be fair. Here's the last thing. People think that venture is supposed to be fair. It is not about fairness. It is— it— maybe it should be about access. but it is a niche, niche, niche, niche investing category. It is a niche of a niche of a niche of a niche. Most VC firms perform terribly. Most— it is a terrible investment. You will hear this again and again. It is true. Most VC firms take— meet with thousands of founders and still do terribly. They're still terrible assets, right? It is a brutal, terrible industry where if you actually saw the numbers, Most VC firms underperform NASDAQ. So why would you invest in venture if I can buy a QQQ ETF tomorrow and sell it if I don't like it? Why would I stick my money in venture where I don't get my money back for 12 years? It doesn't make— it's not fair. There are access issues, there are inequality, but the asset itself is so tiny and niche it cannot, it cannot create fairness. It is a, it is, it is a— and so if Your job. So, so there is a classic thing in venture, which is the further you are from obvious, the further you are from privilege and having all the boxes, the further you're going to have to go to raise venture capital. It is not fair, but it is also not unfair in the sense that you don't have the signs. It is unfair. Like, I'm not— but, but if you get frustrated with it or angry or you'll get nowhere. And you have to be honest with yourself. You have to say, look, this is a little bit unfair. But tell yourself, have you checked any boxes? Did you put the decade in at Slack, right? Were you the VP of whatever at Datadog, right? They deserve something, right? I mean, maybe not, but there's a lot of data to say that the best VPs at Datadog once in a while build another Datadog. Okay, there is data to suggest that, but you don't have any of that, right? So it's a come to Jesus thing where, again, I want to say it because people feel like it is unfair. and it is, and they feel like it's biased, and it is, it's fucking biased, and it's unfair. But you got to understand, it's not just a game. When this asset class doesn't outperform NASDAQ, like, it— understand the flip. You got to understand who's on the other side of the table, even if you don't like it, right? And they're— they may be making fees, and they may be driving a fancy car, and that's a different discussion of how— but they're not making a ton of money. I mean, they're not delivering a lot of results, and And so again, I say this just to be helpful that it won't— I don't think venture will get fairer for pre-seed. I don't think venture will get fairer for folks that don't check any boxes. It sucks, but venture is a business. And here's two last points. And I know founders, as founders especially, haven't gotten this last 4 or 5 years. Venture capital is a niche, niche, niche asset class only designed for outliers. It is— the job is to find an outlier. It is to find a GitLab. It is to find an Okta. It is to find a Stripe. It is to find an Algolia. That is the job. The job is not to find a $10 million exit or a $50 million or $100 million or even a $500 million exit. The job is to find outliers, right? And folks will take risk if there's signs you might be an outlier, right? The top engineer at Datadog, But if you've got nothing, you have to go further. You have to get— and then again, it's not fair. But typically, if you're not finding true angels, if you're not hustling and finding folks that meet you personally and love you and say, I'll give you $25 grand, I'll give you $50 grand because I met this kid I love. That happens all the time, right? Aaron Levy at Box couldn't get anyone to give him a nickel back in the day. But he met Mark Cuban, and Mark Cuban gave them $500,000 and said, I like these 20-year-old kids, right? Then he got mad and asked for his money back. 'Cause he didn't want them to go enterprise. He thought that was a terrible idea. And when they went from consumer to enterprise, he asked for his money back. But he liked those kids, okay? That's an angel, isn't it? Yeah. But until then, you gotta check at least one box. And that box, and I'm sorry, it's a rambly answer, I hold this elbow. For most folks with nothing, with no privilege, with no Stripe, with no Datadog, with no YC, with no nothing, the box is revenue. The box is revenue. And it's $5K, $10K MRR. If you come here next year, and I know it's hard, if you come here next year with $10K MRR and you're growing quickly and you do our Meet a VC program and you sign up and you share your numbers and your deck, you'll get 20 meetings. But that's because you checked the box, right? And I know it's not fair, but that's your job as a founder is to work the system, right? So thank you.

Would you be able to accept our invitation to visit Tulsa to speak to minority founders?

When you're at $10K MRR, I will. Before then, I would waste your time. OK, thank you. We got time for like these questions, but we'll probably have to wrap after these 4. Thank you. Hi, Jason. I'm a huge fan.

I've read a lot of your blogs on hiring the first AE. Thank you. And first 2 AEs.

My question is, you've written a lot about the magical SDR at some of these early-stage companies. Maybe the magical AE more than the magical SDR, but we can talk about a magical SDR too. Yeah.

My question is, I'm transitioning away from founder-led sales. At $1 million in ARR.

$1 million, you said? Yep. Ideally, you would.

I just hired my first AE about 3 days ago.

Just one. And then— but the post said hire 2, didn't it?

My plan for the second one is essentially that SDR that we hired about a year ago from college, who just really killed it over the last year, promoting him into that. You got— you have to, or she'll quit. Is that the second AE, or do I need someone with more sales experience and try to make it through?

No, you can promote her. Look, I mean, look, you got, first of all, not exactly the question you're asking. You have to be, if you have a great SDR, you got to be communicating. Like, I think it's one of the top problems in SaaS structurally. I've got to rewrite this, is that we don't have a good career path for SDRs. Lars from Cloudera, I mean, from, he was at Cloudera, sorry, at Snowflake last year. He's the head of outbound. You can watch, he's been doing outbound since the beginning. He's so great. Watch his session last year. We've talked a lot about this. He's trying at Snowflake now, but there's no great career path. The best SDR should be able to make $150,000, $180,000, $190,000 if they can bring in massive business. They should. But instead, they all want to quit after 8 months and be an AE. You can't fight it today. Maybe you can be the one, but you're trying to fight human nature. So when you have a good SDR, you got to be communicating with them. What are your goals? And maybe you ask them to be an SDR for another quarter or two. But most of them, unfortunately, and this is why it's exhausting to build an outbound team. The best ones will wait a year at most. So if she or he is saying, I want to be an AE, if you don't give it to them, they're going to quit anyway. So that's your second. So that's your second AE. And I think that's fine for your two and go hire another SDR. That's your A/B. Now, the beauty is this is great because you're going to run an A/B test. You're going to have one more experienced AE that doesn't know your company or product. Then you're going to have the SDR that probably will work out, but might not. But knows the product cold. And you're going to get your A/B test, and you'll see how they perform. And you'll do a better job of hiring number 3 or 4 AE based on the A/B test. So it's good. Perfect.

Just want to clarify.

Thank you.

Hello. Thanks for coming. Thank you. Switching tact a little bit, I want to talk about the journey from $10 million to $100 million.

OK. The inevitable.

The inevitable. Yeah. You've alluded a bit to the difference between seeing this as a PE-backed journey versus a VC-backed journey. Yeah. Or purely bootstrapped. But yes, or purely bootstrapped. So what advice might you have for someone who has seen this journey on a PE-backed financial engineering path a number of times as a leader in a SaaS company and is considering the VC-backed version of this? What are the key differences and what advice might you have?

Well, there's a lot of nuance to that that you and I could talk about offline, but might be too much for the audience. I think, look, it's VC-backed, at the end of the day, two things about being VC-backed. Most VCs, at the end of the day, if you give it your all and make the money, they're fine with the outcome. Here's the paradox. But at the same time, they only want to invest in companies that can IPO. So, you cannot make money in venture. Oh, thank you. You cannot make money in venture if at least per fund you don't have a couple billion dollar outcomes. There's a few exceptions, but as a rough rule, not— Let's say you do 30 investments in your venture fund. Not all 30 have to IPO, but if a couple don't, or at least one or two, you'll never triple your money. And VCs, if they don't triple their money, they don't get another fund and their business dies. It dies very slowly over a decade, but they fail. They eventually lose their job as slowly as a human can lose their job, but you have to— so you need an IPO or two. But so they're not— if you're, if you're a good VC, you will not invest in any startup that you don't think has a shot of IPOing or better, okay? But the mistake they make is, as long as you don't raise too much money and you don't lose your investors' money, if you've done your best and you raise $10 million and you sell for $20 million, that's not gonna make the fund, but no one's gonna be mad at you if that's the right outcome, as long as they make money. Okay, so that's kind of like the groundwork. So then, V versus P, it's not that simple because P doesn't do early investments, they don't do other things. But, you know, don't raise venture capital if you don't want IPO. That's what— that's what I'm connecting. Don't raise venture capital, or at least let me qualify it with an asterisk and a dagger. Don't raise more than $5 to $10 million. Don't go to the double digits if you don't want IPO. If you raise a seed round and you don't really want IPO, but you kind of tell the folks you do, it's okay. Like, it's not that much money in. Okay. Raise $10 million. The stakes go up. Raise $20 million, $30 million. You know, all these unicorns that are struggling that raised money, they're friggin miserable. They're not having fun. They raised $200, $300 million and they have good companies, but if you sell that company for $300 million, it's a disaster. And it's not only a disaster economically, I don't want to run that company. You want to spend 10 years of your life building a company to $300 million in value, but then you raise $300 million, so yeah, there's a little carve-out for management, but the employees make nothing, the investors barely make their money back. It's soul-crush— it's soul-crushing for the amount of our lives we put into these companies. So only raise double digits of venture if you're going for IPO. If not, PE is this fun— not fun, actually, it's not remotely fun— but this unexpected middle ground that may not be fun but is an off-ramp with good liquidity that people don't realize. Again, our fun case study from these weeks, when Andy from Logical sold for almost $300 million, They gave all cash, no escrow, no anything, and he just left the next day. He literally just got back from his first vacation in 10 years at the one hotel in Kauai. Is it great? In a couple years, might he look at it and say, you know, maybe I wish I was still running it? Maybe, we'll see. But that's a total off-ramp, right? Literally, you get acquired by HubSpot or Salesforce, they're gonna make you stay 3 years and be the SVP of something. You get acquired by PE and like, they got a guy down the hall, they have a guy, It could be a woman or a man, but they always have a problem down the hall. That's their job, to bring in another manager, another CEO. And so, you may not love it, but it— that's how I would think of it as a founder. Are you willing to IP— commit to IPO? And if not, and you raise more than $10 million, I think you're gonna be miserable in the end.

Hey, Jason.

Good to see you.

Thanks for coming. Thanks. Last time we spoke, after we went through the winter, YC, Batch. We were doing a lot of founder-led sales. Yep. As they all do. We were growing really quickly and we hired our first 2 AEs and we sell to construction companies. Okay. And we had a lot of like struggles teaching them how the founder-led sales worked. And construction companies don't answer the phone or look at emails. So we tried outside sales going to construction sites and their offices. And it started to work. So how do we know if we double down on that or continue down the, like, inside sales route?

Well, I suspect what happened was not only were you only doing inside sales, which didn't work, you were hiring, like, tech guys that didn't know the industry, and so no one would buy from them. I see this— you certainly see this in complicated technical products all the time, but I actually see this in vertical SaaS all the time. which is in vertical SaaS, the sales team needs some industry expertise. Right? In like developer-led sales, if the early reps don't understand software, they don't understand how to build it, they don't understand how to spell API, they can't sell anything. There's a different problem as you take an Outreach or a Gong or these great companies that know how to sell, that are salespeople selling sales tools, and you put them into construction, and they just give the dumbest friggin' answers. You know, do you, I was like, I need to do this with load-bearing concrete across this. Does it do— of course it does that. Are you sure? What's the, what's the amount of pounds per square foot for further? I, it's 7. And, and I see what I see again and again is I see founders who are pretty good at finding and they hire rep after rep after rep that worked at Dropbox or whatever and 100% failure rate again and again and again and again and again. So if that's what you're seeing or other folks, you're not alone. This is hard. You need to either be in deals with them or get them help or hire folks. We usually over-index on domain expertise. It's transferable to some extent, but what's not transferable is going to something harder and more complicated to sell. It's not transferable. Maybe if you came out of the chemicals industry and you were really good and you wanted to learn construction, you give them 30, 90 days, right? But you really understood the entire periodic table for sales. Maybe construction's easier. But we go the other way, right? We hire those and it fails. And so, now you're finding that field works. And field probably works because that's where they are. But it might also work because they know the product better, they know the industry better. It might be two factors you're conflating, right? But whatever it is, you gotta do more of that. Isn't it that simple? You gotta do more of that. But my point is, and maybe we can break on this, but That first group, and again, you're not— tons of folks do this. They hire the Dropbox or the whoever, the Ripley and the Checker, the cool ones, and they all fail in vertical SaaS, right? You're gonna— if you meet— if you ask who else is in vertical SaaS like you, you're gonna hear that. You're gonna have a beer here again. You're gonna hear the same story again and again and again and again, how they ripped through 10 and they just, you know, they were nice. Like, they went to the customer dinner and everybody liked Bob or or Bill or Eleanor, or, but they sold nothing. Yeah.

So take the risk on the construction worker that wants to work in tech versus the tech that wants to sell to—

That's super risky, but I don't know that you have a choice. The only other choice, there's a third path, which for some is the only answer, is you have to be in every deal. If you're willing to be in every deal, you can make a lot of personas work. That's— but, but, you know, you got to think about that. Right. And related to that, and then we— that's an option. But another point is that so many folks in vertical SaaS leave, exit founder-led sales too early. Again and again, they exit it too early. I'm going to make up something that I'm not sure is true, but I'm going to do some work and I think it's right. I think if you exit founder-led sales in vertical SaaS before $10 million, you fail. You gotta suck it up, and you gotta find the extra 20 hours a week. And I know you don't have time because you're doing product, and you're doing HR, and you're doing this, and this, and this. You're not gonna get it. You gotta be— you might have to be in every deal. You. I know it sucks. Yeah. But you might have— I see this again, and again, and again. They leave it too early. And yeah, you're selling the sales tool. You get some energy going. You hire a couple folks from Gong and Salesloft. You plug them in. Maybe you can kind of get out of a little bit of it. Never seen it work in vertical SaaS.

And wait until the AEs are just efficient before bringing on a VP at $10 million ARR.

But maybe bring in the— even when you— but here's the nuance. Even when you bring in the VP of sales, but you still have to be in every deal even when you bring in the VP of sales. This the relate— the real reason founders in vertical SaaS or complicated SaaS, the real reason they fail on the way to all the way to 10 is they finally hire the VP of sales and then they exit sales. And the VP of sales never understands construction. Or environmental science, or the deep weird niches of the contact center. They never understand it, and they run the genero playbook. Is it budgeted? Who are the stakeholders? And it just, it doesn't work. And so I would say whether you hire the VP of sales next week or in a year or whatever, you've got to be in every deal. At least think about it. Stepping out of the founder-led sales leads to just the plane crashing to the ground in vertical SaaS. So thank you. Thank you.

Hey Jason, thanks. It's my second SaaStr annual. It's been amazing. Good to hear. Yeah, so my name is David. I'm the CEO of Fondo. We make it easy for startups to file their taxes. Good.

That's what we all want, easier taxes. We all want, right? Can you get rid of our taxes too? Have you developed that product? Up to 5% back. This is the first time I've actually ever paid taxes, and it's not fun.

Yeah, it's not. We can help you get money back. Okay.

Um, but you've talked a lot about the IPO window opening up again in 2024. Yep. And which is really exciting, especially all of us who might be raising money or thinking about it, like, what is our valuation? What should we expect it to be?

Well, you're not going to like the valuation impacts.

Well, I was going to say, what do you think the multiples will be?

And, and today, and will it last? Look, today I, I don't mean to interrupt you, then I'll answer half of it, you can finish, and then we can— this will have to be our last one. The IPO went window opening up is going to be good. It's going to mean that VCs will do more deals. It's going to mean LPs, who are the limited partners that give VCs, will give them more money, because this last year was the driest year ever for VCs giving money back to LPs. VCs basically have 10 years to give the money back and more, but it ebbs and flows. 2021 into early '22 was a record of money that went back out. The last 12 months were a low point. Money is not— did not flow back. And it's all this great— you can even be cynical about it— it's all this great recycling, right? The LPs give the VCs money, the VCs give the startups money, the startups have liquidity, the VCs take 20% off themselves, they give 80% to the LPs, then the LPs give it all back to the VCs, and it's this virtuous circle. But for the last— the IPO market's been closed for 24 months, so the virtuous circle is broken right now. So when it reopens, liquidity will follow, VCs will get more money to invest, But if public— the average company is trading at 6x ARR, it's not gonna inflate valuations. It's gonna create more appetite for VCs to do deals, but it only at the margin will it increase valuations. Only at the margin, only where there's like hysteria to invest, like certain AI deals. But other than that, unless there's massive competition, the valuations will remain mediocre.

And what do you think it'll be the biggest impact on in the multiples once companies start going public?

Look, our job— listen, you know, I got to be honest. I've been— I was a founder for over a decade, and I've been investing for a decade too. I didn't even look at public multiples until like 2021, because I basically just— my whole life in SaaS, I basically just— all of us that came up early, we basically came up with the basic rule, which is that the public markets went up and down. They were pretty crappy for a while, but good startups were always valued at 10x ARR. Not forward multiple, not this or that. But when I did Adobe Sign, EchoSign, when David did Yammer, that was early. When Rene did Build.com, we all kind of came up together. When Peter did Viva, everything was like, it was either nothing or 10x. And once in a while there'd be a rare one that was so off the charts. But, but like, it was, it was very flat actually. It was either like you couldn't get funded. And if you were in this very elite group, it was always 10x, right? And, um, maybe because I'm tired, I'm actually losing track of my question for the first time today. I think that's kind of the world we're gonna be in again. Like, the public multiples are 6x, startups don't have to be at 6x, but everything's outside of, you know, some great stuff in the YC batch. That's the world you're gonna live in. It's back to a 10x world unless you're a crazy outlier, right? Thank you. Okay, thanks everybody. Really appreciate it. Thanks for coming this year. London in June and back here in September. So thank you. Really appreciate it. Woo!