Want to Do a SaaS Startup? Pass This 5 Part Test First

Hey everybody. It seems like everyone wants to start a SaaS startup today in general. And I don't know if you've been on Clubhouse lately, it's quite an interesting application. But God, there's so many pitch rooms where everyone is just so excited to get their startup going. And that's great. These are the best of times in SaaS and cloud. There are over 400 SaaS and cloud unicorns. I'm sure we'll be at a thousand soon. And now's your time. If you can really do it, if you can build something big in SaaS, you want to go for it. Now. The markets are bigger than ever, but they're not totally immature. We're still only 30 to 40% away through this cycle of everything becoming SaaS and Cloudified, according to not just me, but every leading CEO in the industry, from the CEOs of Box and datadog Slack, Everyone thinks we're really just 30% away or so into this cycle. So go for it. Now is the time. But there's no point in wasting your time. There's no point in doing a startup if you're handicapping yourself so much that it cannot succeed. So I want to give you a five point test. A five point test if you're really ready to do that SaaS startup. And if you're not, it doesn't mean don't do it. What it means is slow it down and maybe take your time until you go for it. The first one Is your co founder good enough. Now look, not everyone needs a co founder. Eric Wan founded Zoom. Without one, of course. He had also been the head of engineering at Webex before, so he knew the space in the application cold. Jeff Lawson at Twilio arguably didn't really have a co founder. There's a few others and you can go to sasra.com and search. There are a handful of SaaS founders that are public that did not have a co founder, but it ain't many. And the only thing in fact that's harder than not having a co founder for both of us is having a weak one. So be honest. Be honest. Is your co founder better than you? That's what you want if you don't really know how to code. Is your co founder a great programmer, a great developer, great engineer, just the best one you can find if you know how to code. But your product's going to need sales and marketing expertise. Is your co founder a really good hustler? Are they great? Will they get your brand out there? Will they get you customers, will they get you on product Hunt and TechCrunch and will they be everywhere all the time or are they just the best business person you know? Stop, stop. Make sure your co founder is good enough and is better than you in a couple key areas. Or I would say push on. Even if you feel like that opportun that window's going to close like your great idea, if you don't execute it now, it'll be gone. You'll come up with another one. It's a better idea to find a great co founder and come up with a new idea together than to partner with a mediocre co founder. 98 times out of 102nd key point, if you want to start your startup in SaaS, you have to budget 24 months to get to a minimal viable business. To get to a business that's just big enough to pay your salary. And I've been saying this for years, every year at least before COVID I was invited to Stanford Business School to give an entrepreneurism talk. And I would always shock the GSB students. The Stanford Business School when I say you need 24 months and they'd be like, well, I don't have enough money, I don't have enough savings. How am I going to get to 24 months? It's not anybody's problem but yours. Okay, the simple fact of the matter is SAS takes longer to explode. Sometimes a B2C, a consumer application will explode quickly. A clubhouse or something. Sometimes. Sometimes. But sas, when you need paying customers, it's almost always a couple years until material revenue. Especially if you don't even have any angel funding or funding at all. So if you're only going to budget eight to 12 months to see how it goes, or just as bad if your co founder only has 8 to 12 months, assume you fail. Assume you fail. Because just think about it for a minute. Even if you're good, it's probably going to take you six months from go to go get your first version out the door. That's material. Okay, that first version probably isn't quite sellable yet. You'll probably need a couple revs of narration. So it might take you a year until you truly have three iterations in a truly sellable product that more than anyone or even more than a couple people will pay for. I call it a minimum sellable product. So that's a year. And unless your product's a million bucks a year, you're not going to have much revenue. What if your product's $20 a month? And you have five customers and that's 100 bucks a month, you'll quit. You'll quit if you don't budget 24 months. But if you keep building from the point when you have a minimum sellable product and keep doing better and better every month, it will build on itself. And probably by month 24, you'll have something. You'll have something more than beer money each month. But again, if you only give yourself 10, 12, even 15 or 18 months, it's not long enough in SaaS to build up a corpus of recurring revenue. So somehow I know it's hard. I know most of us do not have the privilege of many of the folks we see on Twitter and social media, but if you don't find a way to give yourself 24 months from go, you're probably not going to make it. Point three folks do not do enough good customer interviews before they start a SaaS stuff. Why? Just because you think you know how to build a better Slack or a better Asana or a better Trello or a better whatever smartsheet? Maybe you do. But like that doesn't mean anyone's going to buy it, right? And it doesn't mean that the thing that you think is better really matters to customers. So look, talking to customers pre product has limited benefits, okay? Unless they can touch it. Unless unless they can put a credit card in and pay for it. The feedback in many cases is suspect, but at least you could really understand if you're hitting a problem that they'll pay for. Okay, go talk to 30 folks if you want to build a better whatever, a better, a better asana. Go talk to 30 Asana customers or folks in their target and say look, if I built did this one thing Asana doesn't do, would you really pay? And what are your real problems? Ask them what their real problems and what help they need and make sure your skating to the right place. Because way too many folks build what they think folks want. And if you're consumer and you can iterate every day, I guess that can work with Facebook and Snap and others. But boy so many founders I see build a great SaaS application to solve a problem but that problem's not important enough or it's not monetizable enough, right? There's so in every space from payments to contracts to anything you can think about to billing, there's so many problems but customers can't afford to pay for a thousand SaaS apps. I mean today folks are paying for a hundred SaaS apps apps in their businesses so they'll solve 100 problems. But you better pick the hundred and not the 100 first. Or no matter how cool your product is, they won't pay for it. So you've got to do at least 20, ideally 30 customer interviews before you write a line of code.4 related to this and the customer interviews will help. Be honest, do you have a 10x feature you're building? A 10x feature isn't something you think is cool. It isn't a flaw you see in Salesforce's 22 year old Core UI. It's something that is enough better than something to market that people will pay for. Right? Yes. Zoom is amazing. I'm recording this on Zoom. We use Zoom all the time. But there are plenty of pieces of the market that Zoom isn't playing in aggressively on.24, just IPO'd by having marketing specific features. They're not as big as Zoom, but they're worth billions. Right? Because they have this 10x feature, which is a way to really make webinars trackable in a way Zoom webinars aren't. That's an example of a 10x feature. What is yours? Because 80% to 90% of SaaS companies are really new versions of old products. Take a look again, search Sasser and you'll see that post. And that's great, right? Slack was not the first chat tool and Zoom was not the first conferencing tool. And Asana was not the first product management tool, nor was Trello. It's okay. But they had a 10x feature, a core feature that would, that was so much better than the competition, even though the rest of the product inherently is feature poor. In the beginning, you can't do as much as the guys that have had a decade to build thousands, thousands of features. But if you have a 10x piece, something that's 10x better than the competition, you can win in if they'll pay for it. So be honest, be honest with your co founder. Do you have a 10x feature and are you architecting your launch in your first 6 months? 12 months, 18 months around that 10x win? Not just something that's a smidge better or not something that you would like to use yourself. It's not enough in SaaS. Okay, final point 5. Ask you and your co founder this question. Typically when you start something, you're passionate about the problem, right? You understand a problem in the marketplace. There's something you want to build and it's personal to you. But I would say at least Half the time the customer you end up having and the software you have to build is not where you thought in the beginning. Not that sometimes it's a radical tilt, sometimes the product like Slack started off as a gaming company, became a sort of a self service developer focused chat company, then became an enterprise collaboration company. Boy, that's a dramatic chat, right? From gaming to developer focused enterprise. Slack's crazy, but Stuart stuck with it. Stuart didn't quit. Stuart made it happen even when he had to lay off the majority of the early employees as they tilted to a B2B application. Will you stick it out if the product and the customers are different? Where I see this especially play out is when you have founders that really only want to build a self service product, right? They don't like sales, they don't like marketing, they like to build cool software. And then it turns out, you know what, maybe your product's not that valuable to tiny SMBs who don't have time, but you're valuable in mid market or bigger customers. This happens all the time. That 10x feature. SMBs don't care. But to a big company, you're solving a half million, a million, a $10 million problem. They'll pay you for it, but they expect a lot. And I see a lot of founders not willing to go enterprise, not willing to do the SOC compliance, all the other things you have to do, not willing to staff up an enterprise sales team. So ask, ask yourself, your founder, are you willing to go the distance? Are you willing to go seven to 10 years in general to build something big that's important? And that's why I recommend long vesting periods. Take a look at the founder commitment test on Saster. Why I recommend long vesting for founders, not short, because that protects the founders that stay. Think about it. But are you both going to do this for 7 to 10 years no matter who the customer ends up being? And be honest. Listen, what if we go enterprise? What if we go into a different vertical? What if our customers end up being, you know, retail, not, not, not tech folks like Monday.com Monday.com has crushed it in its project management and collaboration by focusing on normal businesses, right? Not the folks that, that all the techies are focused on. They've crushed it and they went where the market took them. But will you do that? I'm surprised how many co founders won't. How many co founders are only interested in one type of user, one type of customer? Because you're going to find this different than you expect, more time than not talk about these five points with your co founders. There's a post summarizing it on Saster. Are you ready to do a SaaS startup? The five part test. Google it. Be honest. Be honest. Make sure you have the right co founder. Make sure you guys both can give it 24 months with no revenue. I know it's hard. Do 20 to 30 customer interviews for real. Make sure you have a 10x feature and believe it. And make sure you're all committed even when it all changes. If you do that, you got a chance.