For a second straight year, I attended the annual SaaStr conference in the Bay Area. SaaStr is a community of thousands of people – Founder CEOs, VC & PE investors, operators, and service providers of all stripes – that focus their business efforts around the proliferation of software-as-a-service, which is arguably the dominant business model of our day, penetrating all corners of the economy. There are so many rich takeaways from the conference that it’s impossible to do it justice in a short narrative — but three key learnings come to mind and are summarized below:
- Do not underestimate the value of a Business Operations leader: One of my favorite sessions was with the Co-Founder/CEO of Glassdoor, Robert Hohman, and Neeraj Agrawal of Battery Ventures, a leading Silicon Valley VC firm. Robert spoke about how critical it was to fill various ops roles, including sales ops and, most notably, “biz ops.” Robert spoke about a conversation he had with one of his board members from Google about how critical this position was in Google’s early days; hiring for it ultimately transformed Glassdoor. The Biz Ops leader’s function is to understand the key drivers of the business at a deep level, and work horizontally across every part of the business to answer questions. Allowing this position to go unfilled will come back to haunt you. It is not an obvious hire because there is often not an immediate payback. When this position was filled at Glassdoor, about two years late according to Robert, it was not one big thing wrong with the company, but 50 medium things – and it took three months just to unpack it all. Those 50 things can add up to be an existential threat to the company, since you know something major in the company is going to break, but it is impossible to even identify the break point. Once identified, it takes courage to make the necessary decisions to fix it, but the only way to make these decisions is to have a business operations leader who understands how everything in the business is tied together.
- The biggest challenge founders face in scaling up their organizations: Many of the sessions at SaaStr were devoted to the intricacies and hiring path necessary to scale businesses. Of course “scaling” means different things at different stages ($5mm ARR, $20mm ARR, $50mm ARR, etc.), but from a founder’s perspective, Hubspot CEO Brian Halligan’s paraphrase of Aaron Levie, CEO of Box, made the point perfectly: “Your success in the early days of your startup is largely a function of you getting very good at doing all the jobs that must be done, while the success factors in a founder’s scale-up is to get really good at doing none of those jobs. You must get out of everyone’s way and allow people to specialize at doing their respective jobs really well. Your superhero strengths in startup mode – being a control freak – becomes kryptonite at scale. You must find a way to back out of the day-to-day, and find other things to do to add value.” Your greatest strengths as a founder can often become your greatest weaknesses in the scale-up process of your company.
- Is your SaaS startup growing fast enough to attract venture capital?: Rory O’Driscoll from Scale Venture Partners gave a compelling argument that a “Mendoza” line exists for startups – essentially a curve plotted against various ARR and growth rates – above which a company makes for an interesting venture capital investment, while below it would imperil the chances for a VC investment and eventual IPO. This is not a hard and fast rule, but rather a handy rule-of-thumb as well as an aspirational goal:
A corollary to this rule is that best-in-class SaaS companies, after reaching $10 million in ARR, exhibit growth rates that decline at a fairly predictable rate: roughly 80%-85% of the prior year’s growth rate. Rory’s term for this rule is “growth persistence” – the above table uses a growth persistence of 82%. Although the vast majority of successful SaaS companies lie above this curve, faltering below it does not spell doom – it is possible to reaccelerate again, but recovery and maintaining at a high level is never easy once altitude has been lost. Rory’s blog post can be found here.
Software penetration into the economy remains in the early innings. As much as technology has been weaved into our everyday life, there is still a long way to go. One of the gratifying things about this year’s SaaStr conference was seeing the large number of non-Silicon Valley CEO founders and companies – not just getting funded, but prospering. World class business models and cutting-edge business practices are proliferating in mini tech hubs across the country and world. The abundance of capital will continue to fund countless new products and services, and the number of fortunes to be made will not abate for the foreseeable future.