"...wish we had raised less and later" 💸⏰
Product (first five minutes) over growth (multi-year contracts), figuring out founder-led sales, and the false assurances of "successful" fundraising.
Welcome to the thirty-third edition of The Baton. A fortnightly newsletter that brings you three, hand-curated pieces of advice drawn from the thoughtful founder-to-founder exchanges and interviews taking place on Relay and the interwebz. So, stay tuned!
In this edition, you’ll find instructive and inspiring pickings from the brains of Hypercontext’s Brennan McEachran, Dock’s Alex Kracov, and Mode’s Derek Steer.
#1: The unsuspected dangers of chasing sales and unit economics too early — Hypercontext’s co-founder and CEO, Brennan McEachran, recounts a foundational mistake. (Source: Hacker Noon)
This might sound a bit controversial. When we started out we were bootstrapped, so that forced us to move fast on product and make sales. I think that’s smart and fine.
Once we got something working, we gained breathing room on our runway, but instead of taking that room and investing deeper on product concepts, we spent further on revenue. We focused on driving sales and unit economics. Looking back, we were too early for that. Should have listened.
By focusing on bigger contracts, we needed a bigger scaled product. Then, pushing further, we were selling multi-year contracts to increase our LTV.
The problem was, it would then take us two to three years to truly find out if our product could retain a large customer. It took us years to truly find out if we did a good job.
In other words, if you look at a retention curve, we were almost solely focused on 365-day retention and beyond. That was a stupid mistake.
Because before you can focus on that long-term retention, before you can even focus on your 14-day retention, you need to focus on the first five minutes. Make an amazing onboarding experience. Even smaller — make an amazing first step of your on-boarding program. And keep iterating on it until you have 90% of people sticking around. Then move to the first day. Then the first week.
The common analogy is that a great SaaS product is a bucket. Your customer base is water. Marketing pours water in, and the goal is to retain as much of that water as possible. We were trying to plug a few tiny holes in the bucket — even though the entire bottom was missing.
There’s no point in focusing on those tiny holes when no water is even reaching them. What I’m talking about is ruthless prioritization of your product. Don’t focus on growth. Don’t focus on economics. Focus on getting the most retention in those first five minutes — then go from there.
It either sounds obvious or stupid. Start at the start and fail at the start. Learn, iterate, try again. Don’t learn after 365 days that you need x% adoption in order to retain an enterprise customer. It’s too late.
#2: Approaching founder-led sales — Notes from Dock’s (formerly Lattice’s VP of Marketing) co-founder and CEO, Alex Kracov, on the inexact, evolving call-by-call, pre-product-market-fit days of selling. (Source: Kracov.co)
The biggest thing that makes founder-led sales different is that you’re trying to get to product-market fit and have to build a sales process from scratch.
In post-product-market fit sales, you have a solidified pitch, formal pricing, qualification questions and process you’re trying to run. You’re confident in the product and the pitch because it’s been battle tested. You and the salespeople on your team have done it a hundred times. You know what resonates and you know what to look for as a red flag.
When it comes to early stage sales, you’re still figuring everything out. You have a barebones process, a pitch you’re not sure will work, a product that’s still being developed and likely no formal pricing proposal. This makes the sales process very different. It needs to be a creative process that you’re constantly iterating on the fly. After every call, you need to look and think about how you can evolve the pitch. This is one of the many reasons why a founder needs to do sales themselves.
…
While on demo calls and between calls, I was trying to find patterns across these calls. I wanted to answer questions like…
Are we building the right overall product? Is our vision correct?
What features do we need to build?
What’s the order of features we need to build? How do we prioritize?
Am I talking to the right person? Is this our ICP?
What do I say to explain what we’re building? What words resonate with different ICPs?
I would take notes on calls, but these questions were just constantly floating through my head as I talked to people and reflected on the calls. When patterns emerged across features (multiple people asking for the same thing), then that helped to inform what we needed to build and in what order.
While the tactical features were important, what I was really looking for on all of these calls (especially in the super early days) was the level of enthusiasm the person I was talking to had for the idea and our vision.
I could generally tell when someone was suspicious of what we were building vs. when someone was excited about the concept, even though it didn’t have all the features they really needed to use it. The enthusiastic folks quickly become our ICP and who we would build for. When we started to have more “enthusiastic’’ conversations, I started to feel more confident in our vision and the product we were building.
As I did more demo calls and we built more features, the calls got easier over time. We started to have more features to meet customer needs and I started to learn what I could say on a call to better explain what we’re building and our value proposition to our customers. This constant iteration over the last six months between product and customer calls has helped us to build a much stronger company.
Related reading from the Relay archives: Why “the most important way to enter a new market is founder-led sales”, learning to sell as a technical founder, and making the transition to onboard the first sales hire.
#3: “I actually wish we had raised less and later” — Mode’s co-founder and CEO, Derek Steer, having raised multiple rounds, bemoans the pursuit of ever-higher early-stage valuations. (Source: Founder Views)
This is one of the things that I really bemoan about silicon valley or the culture of fundraising, is that everyone’s got an idea of what it should look like and if you can raise a round, then you should go and raise the biggest, most highest valuation round from the biggest name VC that you can and that’s what success looks like.
And I really don’t think that’s right.
When we left Yammer, there was another team that left Yammer that had tons of credibility, connections to investors already and went out and on day one raised a bunch of money at a very high valuation. Much higher than what even YC companies were getting at the time.
I looked at that and I thought, in fact, the founder of that company said to me, ‘Oh yeah, Derek you should be able to get terms like this. No problem.’ And we weren’t.
And I was bummed about it at first but I got some other good advice from a guy named Mark Woolway, who was Yammer’s CFO. He basically said, ‘I don’t think that’s good for companies. Raising a ton of money is not super great. I’m a big believer in the traditional path. Raise an appropriately sized seed round and go from there.’
So that’s what we did. And I actually wish we had raised less and later. I wish we had imposed some hunger on ourselves, very early on. Because for the first few years of the company it was very easy for us to raise money.
And I think the hunger sharpens you, it directs you more quickly toward the problems that are the biggest for customers who’ll pay you money. It forces you to get traction. And by virtue of being able to raise money easily, we didn’t have exactly the same issues.
So we played around with ideas that we thought were going to be cool, things that were effectively experiments that mostly didn’t work out. And then when we got around to making a product for businesses to use, to make their analytics teams more effective.
Which is the thing we really knew how to make, by the time we did that, we had spent a few months…like we tried to make this kinda open data thing work, open source/community à la Github, and it really didn’t take off for a variety of reasons.
Had we just skipped that entirely, we would have ended up with a simpler product, we would have brought it to market faster. The product would have been better. It would have been just sharper all the way around. I think that’s what we would have done if we didn’t raise money early.
Recently on Relay:
Heuristics and Hunches: Founder Notes on Building a Culture-First Hiring Process: An Exchange with CodeSee’s Shanea Leven
Until next time,