4 Good Reasons Not to Start a SaaS Start-Up

There’s been one huge change in “entrepreneurship” IMHO over the past 10 years.

>> No, it’s not that it’s cheaper than ever to do a start-up.  That’s not even true.  In the old days, when software came on a disk, or a CD-ROM, it was even cheaper.  You didn’t even need a single server to start Microsoft, or Intuit, or Borland, or Lotus.  Though distribution today is far broader, if not cheaper.

>> And no, it’s not that the web and tech are so much bigger, creating so many more opportunties.  That’s true, but even when tech was smaller, you could scale very quickly.  Inflation-adjusted, Lotus 1-2-3 did over $100m its first year and IPO’d in its second year.  What SaaS company did that?

IMHO, what’s changed is the culture of “entrepreneurism.”  10 years ago, you were a bit of a nut to be a founder.  A bit of a mad scientist, a crazy kook, someone who didn’t realize the odds of success were 0.00001%.  Someone so smart, so gifted, so crazy, they did something crazy.  Founders were a breed apart.  You might have met some of then, but you could never imagine being one of them.  And 10 years ago, if you joined a start-up post traction, you were still taking a big risk.  You were stepping out of an accepted career path, and taking a big potential career hit.  And you were taking a big salary cut.  

Today, by contrast, being even a pre-traction entrepreneur is super-cool.  Even being just a wannapreneur can make you feel cool.  And the risk is low.  Failure is fine, and you can always just go join Facebook/Google/Zynga/Square if it doesn’t work out.  And joining a post-traction start-up?  No salary cuts necessary.  And your resume?  Enhanced by that cool, hyper-scaling start-up.  I.e., zero risk.

That’s OK by me.  But I think the disservice is that TechCrunch, Y Combinator, The Social Network, and all that have over-glamorized entrepreneurship.

My one piece of advice, is that,

you absolutely should not start a start-up unless it’s 100.0000% clear to you this is absolutely the best thing in the world to do, for you.

Why not?

  • First, your start-up will almost certainly fail, and while that’s OK, you  won’t really get any credit for it.   No one cares about your failed start-up that got no traction and that no one ever heard of.  They won’t judge you.  But they won’t care.
  • Second, the risk-adjusted economics s**k.  If you are smart and driven, then risk-adjusted, you’ll make more money joining, staying, and getting promoted at a top web company.  While the comp delta between a start-up and BigCo doesn’t seem huge at non-leadership levels, it really grows if you get promoted, and get into management.
  • Third, even if you want to do a start-up, you’re far better off joining an existing rockstar/super-strong team.  Great start-ups need great teams, which are rare.  Better to join one than try to start one from scratch, which is close to impossible.
  • Fourth, it’s far far harder than you can imagine.  The highers are higher, for sure, but the lows are so low.  Most people really aren’t up for that, the lows and can’t handle them properly, if at all.  E.g., are you OK signing a full recourse $750,000 promissory note to fund payroll, like I did at my first start-up, when all the funding fell through?

And yes, while you will have more “freedom” doing a start-up, it’s so all-consuming hard work, you probably won’t appreciate it, at least not enough, at least not while you are going through it.  It’s hard to appreciate the view when you’re glued to the screen.

Having said that, if it’s a calling, go for it.  I did.  But that’s really the only great reason to start a SaaS start-up.  The only logical reason.  Since it is illogical.  ;)

You have to both see something the rest of the world doesn’t see, be so confident in it that you don’t see all the risk, AND have nothing in the end “better”/higher ROI (all things considered) than doing a raw start-up.  IMHO.

n.b.: this is an expanded version of a somewhat popular post I did on Quora here

7 comments

  1. Enjoying reading your blog. Curious to know your thoughts on lifestyle SaaS businesses.
    It seems much more attainable to build a one-person, $300K per year business today than in the past.

  2. Have an upcoming post on The Myth of the SaaS Lifestyle Business ;)

  3. Awesome post, Jason. Completely agree on the advice of joining a rockstar teams until your illogical insanity comes calling.

  4. markokenya

    Hang on there Jason…..
    I’m very happy nobody managed to dissuade you when you were thinking of starting Echosign. And if they tried, they failed.
    I encourage EVERYONE to try founding and forging a startup. Because it sucks, and it’s way harder than you think, and most people you meet are assholes who really don’t plan to invest but are trying to profit from you as you spend your last $400K of your own money that will never come back, or are positioning themselves as incredibly wise “advisors” but are too busy to actually advise you when you have a crunch decision – instead they like to pontificate, hopefully to an audience.
    If you’re reading this and thinking of starting your own thing, DO IT. What’s the worst that can happen? You can go broke (I am). You can grow older at a 5x rate while doing this (I am). You can lose some friends (I have). You can miss your desk job making less than $200K sweating it out at someone else’s startup, only to learn the stock stack made the acquisition valuation 100% preferred stock: you just worked your ass off for 4 years for free.
    The market is supposed to deter wannabe entrepreneurs. It’s always been that way. And successful entrepreneurs are supposed to ignore all that shit. And do it anyway. Because if it were that easy, everyone would be a successful founder, CEO, visionary, philanthropist.
    A parting note: I find it WAY less stressful to dance on the cliff edge, facing poverty and oblivion, than working a safe job reporting to an idiot who doesn’t listen.

  5. I agree if people want to go for it, they should. But many actually are slightly on the fence. Those should not, IMHO, start a start-up. Join one post-traction, sure. But not from scratch. You’ll learn almost as much on the mgmt team of an early-stage but successful start-up as you will starting you own, with far less risk and drama.

    I admit I didn’t follow this advice, twice, and it worked out well in the end, and I loved it. But from that experience, I know risk and odds-adjusted, it was a “bad” idea, logically speaking, as a Vulcan.

    • markokenya

      Clicking Like :) Here’s to all the Bad Ideas people have had over the centuries. Thanks for your blog posts, which I enjoy a great deal

  6. Pingback: This week’s Learning Hero: Jason Lempkin | Growth Engineering

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