The top 13 actionable learnings to sail smoothly through this startup crisis
This week I attended Saastr Europa, the biggest SaaS event in Europe. Of course, everybody talked about the current SaaS "situation".
If you couldn't attend, don't worry. I got you covered.
Here are the top 13 actionable learnings to sail smoothly through this crisis.
1. The crash is real for public companies, not so real for early stage.
SaaS as a category is growing.
But none of that matters. Uncertainty and doubt trickles down. VCs are going to be very cautious for the next months.
Plan for that.
2. Bessemer benchmarked SaaS companies YoY growth
- $1-10M, average 200%. Top 230%+
- $10-25M, average 115%. Top 135%+
- $25-50M, average 95%. Top 110%+
Where are you located?
3. Increase runway!
- Promote yearly upfront payments with an attractive discount
- Improve collections and renegotiate with vendors
- Reduce paid mkt spend. Acquisition for the bottom 20% customers is inefficient, quit those
4. On international expansion
Don't think it's a silver bullet to improve your metrics.
Similar to an unhappy couple having a baby. You will not find PMF in country 2 if you haven't found it in country 1.
Do a lot of research with your early customers.
5. On providing professional services
The true value is not in software but in a solution.
Solution = SaaS + PS
Make PS recurring and pay attention to Gross Margin.
6. Logo retention > ARR Churn
Keeping big logos is important, not only strategically but also because it means you have stickiness and are doing things right.
A VP Sales should be obsessive about logo retention.
7. Transitioning from founder-led sales to a sales team is difficult
Early people are hungry and curious.
Later people are focused on results and process.
Move early people to "builder" projects even outside sales to keep them active or they will leave.
8. Measure Customer Success using an honest metric:
- Slack: messages sent
- Dropbox: files added
- Hubspot: features used
CS is the perimeter of your company. Pay close attention to it and you will see the future.
9. Increase your prices!
40% of companies have already done it.
Avg increase by ticket size:
- $11-25: 18%
- $500+: 34%
Increases in between follow a linear gradient.
10. Don't try to optimise your tech organisation too early.
Technical debt can kill your company after 10 years. But obsessing about practices and optimising processes too early will kill it BEFORE you make it to 10.
Focus on PMF and iterate fast.
11. Let go of bottom 10% performers
If somebody is a clear underperformer it's a great time to let go of them.
Your team knows who's good and who's not. It will improve overall team morale.
12. Net New ARR > ARR
ARR is too big of a metric and can make slight deviations from the plan seem insignificant
NN ARR allows you to discover future cashflow problems much earlier.
13. USA ≠ EU
You cannot open the USA as "just another country". Reserve around $5M to start operations there.
"Looking too European" is a mistake, so is taking American resumes at face value.
Tags: startups
Living in a disrupted economy
There is this continuing discussion on whether technology destroys more jobs than it creates. Every few years, yet another tech revolution occurs, journalists publish articles, pundits share their opinions, politicians try to catch up, and those affected always voice their concerns. These couple years have been no exception, thanks to Uber, Airbnb, and the called sharing economy.
I'm a technologist and a relatively young person, so I am naturally biased towards technological disruption. After all, it is people like me who are trying to make a living by taking over older jobs.
I suggest that you take a few minutes to read a fantastic article titled The $3500 shirt. That essay reveals how horrible some industries were before they could be automated or replaced by something better. Go on, please read it now, it will only take three minutes.
Now, imagine you had to spend a couple of weeks of your time to make a t-shirt from scratch. Would that be acceptable? I guess we all more or less agree that the textile revolution was a net gain for society. Nevertheless, when it occurred, some Luddites probably complained, arguing that the loom put seamstresses out of work.
History is packed with dead industries. We killed the ice business with the modern fridge. We burn less coal for energy, so miners go unemployed. And let's not forget the basis of modern civilization, the agricultural revolution, which is the only reason us humans can feed ourselves. Without greenhouses, nitrates, tractors, pest protection and advancements in farming, humanity would starve.
Admittedly, it transformed the first sector from a 65% in workforce quota into the current 10%. Isn't it great that most of us don't need to wake up before sunrise to water our crops? In hindsight, can you imagine proclaiming that the 1800s way of farming is better because it preserves farming jobs?
The bottom line is that all economic transformations are a net gain for society. They may not be flawless, but they have allowed us humans to live a better life.
So why do some characters fight against current industry disruptions if history will prove them wrong?
As a European and a social democrat, I believe that States must regulate some economies to avoid monopolies and abuses, supporting the greater good. Furthermore, I sympathize with the affected workforce, both personally and in a macroeconomic level. All taxi drivers suddenly going jobless because of Uber is detrimental to society.
However, it pains me to see that European politicians are taking the opposite stance, brandishing law and tradition as excuses to hinder progress.
Laws must serve people, not the other way around. If we analyze the taxi example, we learn that there is a regulation which requires taxi drivers to pay a huge sum of money up front to operate. Therefore, letting anybody get in that business for free is unfair and breaks the rules of the game. Unsurprisingly, this situation is unfair not because of the new players, but because that regulation is obsolete.
It isn't ethically right that somebody who spent a lot of money to get a license sees their job at risk. But the solution isn't to block other players, especially when it's regulation which is at fault. Let's sit down, think how to establish a transition period, and maybe even reimburse drivers part of that money with the earnings from increased taxes due to a higher employment and economic activity.
There is a middle ground solution: don't change the rules drastically, but don't use these them as an excuse to impede progress.
At the end of the day, some careers are condemned to extinction. That is a real social drama, however, what should we do? Artificially stop innovation to save jobs which are not efficient and, when automated or improved, they make the world better for everyone?
Us millennials have learned that the concept of a single, lifetime profession just does not exist anymore. Previous generations do not want to accept that reality. I understand that reconverting an older person to a new career may be difficult, but if the alternative is letting that person obstruct younger people's opportunities, that's not fair.
Most professions decline organically, by the very nature of society and economy. It is the politicians' responsibility to mediate when this process is accelerated by a new industry or technology. New or automated trades will take their place, usually providing a bigger collective benefit, like healthcare, education, or modern farming.
Our duty as a society is to make sure everyone lives a happy and comfortable life. Artificially blocking new technologies and economic models harms everyone. If it were for some Luddites, we'd be still paying $3500 for a shirt, and that seamstress would never have been a nurse or a scientist.
Bots lack metaphors, and that is their biggest asset
Bots are the hot topic this 2016. They need no presentation, so I'm not going to introduce them. Let's get to the point.
We can all agree that bots are an interesting idea. However, there's this debate regarding whether bots are going to be the user interface of the future.
Many critics argue against a future where bots rule user interaction. Some are philosophical, others are somehow short-sighted, and many are just contrarian per se.
I'm not saying they're wrong, but they overlook some strong arguments that we should have learned by observing the history of computing.
What computer history taught us
The most important thing we learned since the 70s is that people do not want quicker and faster interfaces, they want better interfaces.
In the 80s, during the GUI revolution, they had critics too. GUI detractors claimed that the GUI was just a gimmick, or that real computer users preferred the command line. We should know better by now.
Critics were right in some points: GUIs weren't faster or more potent than the command line. However, this wasn't the winning argument.
GUIs won because the general public will always prefer a tool that is easier to use and understand than one which is more powerful but harder to use.
Are bots a command line?
See how there is a simile, but in fact, bots are the exact opposite from a command line.
Bot critics equate bots with CLIs and thus reach the conclusion that they are a step backward compared to GUIs. The main argument is that bots do not have discoverability, that is, users will not know what they're capable of since they don't have a menu with the available options. Whenever you're presented with a blank sheet, how to start using it?
However, I believe this comparison is wrong. People don't have a post-it note on their forehead stating their available commands, but we manage to work together, don't we?
We've been learning how to interact with people our whole lives; that's the point of living in society. When we walk into a coffee shop, we don't need an instruction manual to know how to ask for an espresso, or the menu, or request further assistance from the barista.
Bots can present buttons and images besides using text so, at the very least, they can emulate a traditional GUI. This is not a killer feature but contributes to refute the discoverability criticism and provide a transition period for users.
Bots lack metaphors, and that is their biggest asset
Bots will win because they speak natural language, even if it is only a dumbed down version. Their goal, at least in the beginning, is to specialize in one use case: ordering a pizza, requesting weather information, managing your agenda. After all, 90% of your interactions with your barista can be reduced to about ten sentences.
Being able to use natural language means there is no learning curve. And, for once in the history of computing, users will be able to use a UI that lacks what all other UIs required to function: metaphors.
This is critical since metaphors are what regular people hate about computers.
Who cares if one needs to press seventy buttons to order a pizza with a bot instead of just three with an app. People will use the product which is easier to use, not the one which saves them more keystrokes--not to mention that you can send commands with your voice. Didn't we learn from GUIs?
The death of the metaphor
Every metaphor has been moving both hardware and software towards a more human way of working.
Files, folders, commands, the mouse, windows, disk drives, applications, all these have been bright ideas that emerged at some point and then died when the next thing appeared. We even tried to style apps with leather and linen, buttons and switches to make them more understandable and relatable to the real world.
By definition, metaphors are a compromise. Both users and developers have a love-hate relationship with them, as they have been necessary to operate computers, but they also impose a barrier between thought and action.
Thanks to metaphors, this metallic thing which made funny noises and whose lights blinked continuously in 1975 has now evolved to a very easy to use smartphone. But that smartphone still clearly is a computer, with buttons, windows, and text boxes.
Bots, if done correctly, may be the end of the computing metaphor.
Metaphors have an expiration date
This is not intrinsic of computers.
At some point in time, a watch was a metaphor for counting time. We designed a device with a hand pointing to numbers from 1 to 12 and we matched it to the sun cycle. Advances in technology and culture have converted it in a fashion item and, while it still bears a metaphoric value, both four-year-olds and ninety-year-olds can use it without much thinking.
It's like driving: once you master it, your brain operates the car in the background. Your eyes still look at the road, but unless there is any unexpected issue, your conscious mind does not need to be driving.
I feel like the computing world, in general, is mature enough for this. Bots are a natural progression. They will not replace everything, like bicycles do not replace trucks. For most people, however, interacting with a computer as they do with a person is indeed the clincher
Ultimately, a tool is just a means to an end, and people want to do things, not mess with tools. Some of us engineers do, but we're in the minority.
Can we foresee the future?
So, why bots and not another UI?
I haven't reached this conclusion myself, strong as some arguments may be. I just follow the trend that thinkers have created.
The future is written in cyberpunk novels and philosophical AI movies, in music, in cinema. Not in blogs, not in engineer forums, not in the mind of some visionary CEO.
People will use what people want, and the best demand creation machine is imagination, in the form of art and mass media.
What people will want is what artists have represented: futuristic VR and human-like --but not too human-looking-- software
And now for the final question. Chat bots and expert systems have been around since the 1960s, so why is now the right time?
All paths lead to Rome
First and foremost, now is the right time because we believe it is. Everything is pushing towards chat UIs: big players, money, startups, the media.
Marketing and news articles can make people like things, hate things, and love things. People are told that they will be able to talk to their computers, and they've been baited with Siris and Alexas. Those are not perfect, but hint of a better future.
Consumers imagine a plan for a better future and generate demand. And demand is the driver of innovation. That's why in tech, self-fulfilled prophecies work, and predictions can be incredibly accurate even over hundreds of years
At a technical level, both hardware and software are advanced enough for real-time audio and text processing with natural language. APIs are everywhere, and some IA problems which were too hard ten years ago have been solved by either commercial packages or free software libraries
Finally, the customer's computing environment is as close to bots as it can be. Chat apps are the most used feature of a smartphone because they're straightforward and personal. People write or talk, and they get text or audio back. Not buttons, not forms, just a text box and a sentence.
My contrarian side feels a bit odd by tagging along the current big wave, but both rationally and by intuition I really do believe that now is the right moment. And I feel that I had to share my reasons.
For what it's worth, I'm putting my money where my mouth is, developing bots at Paradoxa. Who knows what will happen anyway. Undeniably, nobody has a crystal ball.
But isn't trying to predict the future enjoyable? Just imagining it is half the fun.
Puput, mail without internet
Here's my new project: Puput, a service which lets you listen to your email when you have no internet.
I honestly think it's pretty cool, the project has a strong R+D component for which we filed a patent, and it has lots of potential to integrate into IMs like Slack and close the communication gap for people who are offline.
It's free, so please be my guest and give it a try! It's surprisingly awesome to be able to listen to your email when you're abroad without an internet connection.
Even though we have been absorbing a lot of startups-related material these last months, nothing will prepare you for a real product launch. Everybody says it, and I agree:
- The last 20% of the work consumes us 80% of the time. That is, UI, UX, the website, and the marketing strategy
- Selling is hard.
- Selling is even harder when you first invent a new technology and then try to find use cases for it. Yes, the lean startup recommends doing the opposite, it is a common first timer mistake :(
- I'll say it again, do product/market fit first, then start coding.
- Raising money is nearly impossible in the Spanish startup scene. Obviously we're nobodies, but I've also talked to many other founders, with great products, thousands of clients and two-digit monthly growth, who find it incredibly frustrating to raise even 200k€
- Launch day is scary so you find excuses not to launch. Adding more features is one of them. Establish hard deadlines and try to respect them as much as possible.
- It turns out it isn't that scary anyways, in fact, getting users and attention is difficult at first. Dying from success is unrealistically represented in sites like HN, it doesn't apply to 99% of the startups.
Anyway, launching a product is hard, teaches you many things about the world, and makes you respect people who have done it successfully.
Cheers to all first time founders.
Tags: internet, software, startups, projects
Startup school
The amazing How to start a startup class just finished today.
How fortunate we are to live in a world where the most successful minds of our time can teach the whole planet through the Internet, and decide to allow that possibility.
Open education isn't just a fad, it's been a fight for a long time, and now it's starting to root strongly. Thanks to all who have joined on this fight, the world is becoming a better place.
If you're interested in education as a source of progress, don't miss the XPRIZE episode of the Tim Ferriss podcast, definitely my favorite podcast now
Request for startups
Y Combinator have posted a request for startups, where they give founders-to-be some big ideas to work on.
It is interesting to see how things have shifted since just two years ago, when pg posted his "Frighteningly Ambitious Startup Ideas". In just 24 months, we have shifted from internet applications into real life-changing ideas. Biotech has resurrected after its own bubble blew up around 2008. Human augmentation seems to be more than a gimmick now. Fitness is increasingly important for a number of people.
Those ideas seem out of reach for first founders, but after some business success and gathering a bit of experience, momentum and capital, they look like dream jobs. Who wouldn't like to disrupt Hollywood? Transportation? Travel?
What's better, these ideas look feasible with each passing day. Open APIs, Github and the second coming of free software, cheap hardware everywhere, drones. We have spent about 20 years, since around 1995, building great ideas and infrastructure. It seems the right time to connect the dots and do awesome stuff.
Stop for a second and think about it. We really are living in the future.
Tags: startups