What a 📉 means for SaaS; 50 SaaS debt 🏛️s (and their terms); Hiring generalists vs. specialists
|Oct 10, 2019|| 4|
Scrolling through Product Hunt is one of our favorite forms of procrastination because you can almost convince yourself that looking for nifty productivity tools is work. Well, our procrastinating paid off last week when we found a real gem in the Startup Fundraising Calculator.
It’s a great free tool for modeling out how different scenarios like an equity raise or an option pool will affect your Cap table. Give it a look—it should put you in a much better position when it comes time to negotiate that next term sheet, and definitely beats Excel!
🤠 While everyone is murmuring about the potential downturn, we can’t help but wonder how it would affect the SaaS businesses near and dear to our hearts. Former EchoSign founder Jason Lempkin is convinced SaaS will survive, and this isn’t his first rodeo—he successfully led EchoSign through the ‘08 recession. Here’s how he thinks SaaS businesses will be impacted:
SMB churn will skyrocket as small businesses go under or cut cost. In ‘08, EchoSign saw their churn almost double.
Larger enterprises will renew, but are more likely to try to negotiate a sweet discount in these hard times. Can you blame them?
Upsells will slow down if your pricing is based off of user count, due to fewer hires being made.
Businesses won’t have enough sales reps when things do turn around. EchoSign’s sales doubled in ‘09, and they were unprepared for the bounce back.
⛽ If you’re a growing SaaS company looking for non-dilutive capital to add some fuel to the fire without the burn, you’re in luck, because it’s never been easier to raise debt for SaaS than it is today. Nathan Latka does a great job of comparing these debt offerings to more traditional forms of capital (see below). He also compiled a list that specifically comparies 50 debt providers in the market. One option we weren’t too familiar with was SEALS, where if a company is generating profits, the lender receives a 3-5x return over a specified period of time while still having the chance to participate in equity (similar to a SAFE).
🍻 One of the most common phrases you’ll hear in a hiring conversation is “culture fit”. Would the candidate mesh well with the existing team? Do they embody the same values as the team? For most employers this means hiring people you want to have a beer with. The issue with only selecting these candidates who fit in seamlessly is that you run the risk of breeding a monoculture, where everyone looks, acts, and thinks the same. We do this subconsciously, because we tend to look for traits in candidates that make us feel good about ourselves (aka, people like us), which is known as the “looking glass merit.” The best hires aren’t actually what we would call culture fits, they’re those that find your company’s business goals motivational.
⌛ Over the past decade we’ve seen an increase in specialized positions across all SaaS functions (especially in marketing). Malcolm Gladwell’s Outliers pushes this line of thinking, and introduced the famous 10,000 hour rule, which states that success in any field can be achieved by practicing it for 20 hours a week over 10 years. While there’s no question that there is a need for some specialization, we see a larger need for generalists in early stage startups. Generalists use lateral thinking to see problems in a different light, and are more likely to change their view based off newly introduced evidence than specialists, who tend to be more set in their ways.
🌱 SaaS investors like Peter Thiel, Dharmesh Shah, and Sam Altman have said it’s best to ignore competitors and to give 100% of your focus to customers. This may have made sense in the past when there was less SaaS competition, but today new challengers are constantly sprouting up, some with the tailwind of a giant funding round behind them. You should be researching these competitors because they are attempting to achieve the same thing as you: meeting your shared target market’s ever changing needs. Digging into your competitors’ strategy and features can actually help you better understand your own customers.
📕 No CEO looks forward to having the difficult yet crucial conversations that come with the gig like telling a VP they aren’t meeting expectations, or letting investors know the company won’t be hitting this quarter’s goal. Crucial Conversations states that the 3 common factors you can count on in tough conversations are that opinions will differ, the stakes will be high, and emotions will be even higher. The book provides a strategy (and a whole lot of acronyms) to have better success in these situations. In our opinion, the most important skill here is the ability to hear the other side’s perspective and show empathy. Much like negotiating, mirroring the other side’s language will help them feel more comfortable and understood.