Start-Up Success in SaaS? You Have to Bend the Odds In Your Favor. Some Thoughts on How to Do It.

Mark Suster put together a presentation (and a blog post) a few weeks ago that has really stuck with me me. I never, perhaps intentionally, looked at the odds of achieving a solid exit in a start-up.

Actually it’s just this one slide that has really stayed with me … It turns out the odds of having a successful exit are actually quite terrible:

Screen Shot 2012-12-05 at 3.23.56 PM

Ok so apparently there are 10,000 seed-funded start-ups a year, or so.  And of those 10,000 … only about 60 start-ups on average sell for > $100m each year, and of those, many have raised huge sums of money (i.e., bad return), and many probably aren’t really on point any way (biotech, etc.).

So what does that leave us each year with, forget about the Facebooks, even the Yammers and Instagrams.  How many good solid exits are there a year?  Maybe 20-30 of those 60?  Oy vey.  The odds I guess are 0.2% of having any success.

Those have to be the worst odds I have ever heard.  I am really glad I never knew.

And yet.

>> I have to tell you.  Most of the entrepreneurs I know well have found a way.  Most.

In fact, in a hyper-local statistically insignificant case study, even single subtenant we had at EchoSign had a solid exit or success of some sort (EchoSign, Pinterest, Meebo, SGN, etc.).  How odd is that?  Does some measure of lightning simply strike at 635 High Street  in downtown Palo Alto again and again?  No.  I think you make your own odds in start-up success.  And I think most people go into it these days because they “want to do a start-up” with a few great guys, some pals … and end up handicapping themselves.

So what can you do to maximize your odds of success at the onset of your prospective SaaS venture?

I would suggest you need 3 things.  I’m hardly providing any real insights listing the 3 factors, but let me review them as a checklist and dig in one level deeper than typical … and if you don’t have them, don’t do that start-up.  If you do, and you want it almost more than life itself … then do it.  Then you bend the odds:

  • Great Team — All Around, And For the Long Haul.  Not just you.  Or even you and your co-founder.  But a truly, great team.  A good team simply isn’t enough, unless the market just explodes under you almost instantly, and you can’t predict that.  And the team has to be truly committed, and make up for each other’s weaknesses.  It’s a 7-10 year journey — there’s no room for short-termers.  There are no Instagrams in SaaS;
  • Great Market That You Understand With Crystal Clarity.  The market has to be real, large, and either emerging or ripe for disruption.  OK most everyone gets that.  But in SaaS, when they seem to get it wrong, often — is that you really, really need to vet and understand the market.  Don’t wing it.  Do the work.  Interview prospective customers.  Build a prototype and wire-frames and show them.  Talk to everyone senior you can in your segment.  Get hyper-critical feedback from people in the industry.  Prove it.  To yourself at least.  It’s especially important in SaaS, because you Can’t do Cr*P with a seed round in SaaS …;
  • Crystal Clear Vision to Success, to a $100m ARR.  This is the one where I think people come up the most short.  Even if you have the Great Team, and are pursuing a theoretically Huge Market Opp, and are Convinced People Will Buy Based on Real Market Intell and Real Legwork — do you and the team 100% clearly see how to build your start-up into a $100m business?  Yes, you may be wrong in so many details, you will have to tilt and evolve and all that.  But if you lack crystal clarity on how to get to $100m in SaaS at least — assuming you hit all your tactical goals and execute to almost perfection — if you don’t know how that at least gets you to $100m in ARR, I don’t see how you ever get off on the right foot.  You will waste so much time, time you don’t really have.  I would pass on doing that start-up.  I know some will say we’ll figure it out.  Maybe that works with eyeballs in consumer.  Maybe.  In SaaS.  Not so much.  SaaS doesn’t explode — It Compounds.

Because if you don’t have all 3 going for you, then, I think — the odds are just way, way too low.

If you have all 3, then I think … you bend the Odds in Your Favor.  And that 0.2% goes way, way up.  Maybe 100x or so.

6 comments

  1. Hate to sound old fashioned, but SaaS is a way of doing business, and businesses aren’t just about exits. Can’t a guy just earn an honest buck in SaaS for the long-haul?

  2. Mohammad Ocean

    Great suggestions but it certainly can’t hurt to try and locate yourself on the hallowed ground that is 635 High Street. I miss those digs dearly.

    Zach Holman from Github gave a great presentation on scaling that touches on the importance of your first point – the team needs to stick together. Not just the founders, the entire team. Give it a look:

    http://zachholman.com/talk/scaling-github/

  3. Great point regarding being strategic and having crystal clear vision to get $100 ARR. -> One of the greatest challenges in the startup world. I gues that is the reason why only about 50/60 startups (out of 10,000) have the $100mm exit.

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