Only in the world of startups is it true that if one formula works, so does the opposite. In life, decisions are right or wrong based on the circumstances around it, in startups even more so. Context is everything.
Many articles have been written about how to start a startup. Paul Graham's essay on the topic is the most thoughtful one. However, in the context of the SaaS industry and Indian founders, the advice on building a startup is very different from what Paul recommends.
Finding 'Your Idea' in Problem Value maze
A founder's first step is coming up with the idea. Here, Paul talks about solving your own itch. That may work for a consumer idea, but when it comes to B2B SaaS you usually don't have a business itch to scratch.
One easy way to get started is to pick a business problem that someone else is solving and solve it better. Find a SaaS startup that has a price range of a few hundred dollars and see how you can solve it way better.
Many would be horrified at the thought. Isn't that copying ?
A quick story on that.
Nine years ago I ran an accelerator at Intuit to champion grassroots innovation. I had a debate with a friend & mentor - then a lesser known angel investor in SaaS - where I argued that innovation is the journey of starting something brand new (novelty) and then progressing in the direction of predictable and repeatable value. However, he said it is not necessary to start with novelty. That it is easier to get started with taking inspiration from existing products in the market and doing a few things better to stand out and differentiate. I rested this case in my mind earlier this year when one of his investments made 9 years ago, based on that thesis, went public.
Even as babies we learn through mirroring. So taking baby steps and copying to learn from someone is not a bad thing. Many founders take offence at their idea being compared to another startup idea or an existing product. Don't be. Get inspired from what works and start there.
'A good founder doesn’t just have an idea,
s/he has a bird’s eye view of the idea maze'
In ideation, it's not where you start that matters. It's where you eventually find the conviction to settle down that does. It is therefore more useful to think in terms of the iteration of the idea you finally reach.
Angel investor Balaji Srinivasan has a good analogy, which he calls traversing the Idea Maze:
“Good founder doesn’t just have an idea, s/he has a bird’s eye view of the idea maze. Most of the time, end-users only see the solid path through the maze taken by one company. They don’t see the paths not taken by that company, and certainly don’t think much about all the dead companies that fell into various pits before reaching the customer.
A good idea means a bird’s eye view of the idea maze, understanding all the permutations of the idea and the branching of the decision tree, gaming things out to the end of each scenario.
Anyone can point out the entrance to the maze, but few can think through all the branches.
This is where historical perspective and market research is key.”
Through the idea maze:
Building domain understanding
The way to develop an eye to the idea maze is through deep domain understanding. If you don’t come from the industry you are building for and don’t have domain understanding then you have to spend time learning it.
That's the point WhatFix CEO Khadim Batti stresses on when he meets new SaaS founders: "If you don't know the domain, the first two years of the SaaS startup journey just go in understanding the domain itself. Sorry there is no shortcut around it.”
The way to get that understanding is through customer conversations, have at least 100 conversations in the particular area of the domain you are going after. Do it sooner than later, don’t wait for a coded up product to be available for alpha launch. Before building your SaaS product in code, write the definitive book on that domain. Take two years if you need that.
Domain understanding is what customers pay for
When Patrick Mckenzie of Stripe ran his SaaS startup from Japan, he would often get asked by his US customers why they should pay $29 for a scheduling software they could hack over a weekend. This was his response:
“You are not paying for the weekend of code that is written but the years it has taken me to understand all the corner case problem of doing scheduling across all types of business. And that expertise solved in code, instead of you discovering this problem one weekend at a time and then hack fixing it, which is not the best use of your time when running the business”
The sooner you have these conversations the faster you can exit the maze with confidence. Just this one step can help reduce time spent stuck inside the maze by at least three or four years.
The best place to start, therefore, is where you have deep domain understanding. This is where you have the highest Founder-Market fit. One of the things we get very excited about at Upekkha is knowing what domain the founder worked in and even helping them adjust to a place of highest Founder-Market fit.
Reaching for a high Problem Value idea:
Traps to avoid & how to get there
The most under-appreciated piece of settling on an idea can be called as the Problem Value in it.
Given how easy it is to build a SaaS startup, practically every idea gets built. However many get stuck after 500 customers with each paying a few dollars.
A quick look at the IndieHacker forums, FE International or MicroAcquire would show thousands if not hundreds of small-value SaaS founders looking to sell because they are stuck. Most of these are smaller features of a larger product. While these sites are supporting a meaningful path for those who would otherwise get thrown out - and that is a great thing - some of the low-value features should have been solving a much higher value problem at an earlier iteration.
Another variation of getting stuck at low value is when few customers give the illusion that there is value in it. But then the customers demand so much variation that SaaS is better served as bespoke instead of a product. This happens with geographies where customers are time-rich but money-poor.
What is a good problem value idea?
If the cost of the problem for a customer is not at least three thousand dollars a year, the marketing engine has to be beyond stellar - better than a consumer startup's - to support that idea to go to market.
Also ask if you are focussing on the right geography. Many SaaS startups have saved 2 years of their journey by focussing on the global market instead of the domestic market. It is far easier to earn a dollar than to earn a rupee.
No matter where you start, learning the domain through past experience or spending time now, and extracting a few thousand dollars of problem value, is where early stage founders spend 70% of the time.
Coolness is not in writing code but in understanding the customer, her problem and how she decides.
Zero to One is like escaping the Bermuda Triangle:
Bring your own playbook
Most first-time founders believe that the immediate next step after coming up with the idea of a startup is to fundraise.
Fundraise is not a bad thing; it stress tests the assumption you are making in the plan for your business. However having the money does not help you provide escape velocity in the Zero to One phase. In the age of abundant capital, what capital can't buy is escape velocity. The consumer startup world sometimes refers to this as Product-Market fit. In the world of SaaS, this is called creating the revenue flywheel.
Like in the Bermuda Triangle all directions are equally right and wrong, the key part is figuring out what works for you. Startups that were not supposed to take off suddenly do. While startups that had all resources at their disposal, including funds and experienced teams, can fall flat.
Following money and customer commitment as the compass to guide forward is the best way to escape. Not copying someone else's playbook. Look at what customers are willing to commit and pay or even pre-pay dollars for.
Other people's maps such as Gartner or Mary Meeker can help in storytelling for fundraising but rarely do they come in handy for escaping the Zero to One stage with customer traction.
The time it takes to reach US$ 1mn ARR:
Don't compare your baby steps with someone's Olympic race
Four years ago my partner Prasanna asked every known valley-based, early-stage SaaS investor, and no one wanted to take a guesstimate on how long it would take to get to a million dollar in annual recurring revenue (ARR). Even today nobody's willing to venture that bet.
In Upekkha’s experience it takes a minimum of 20 months, and at most 40 months, to get there. The difference is in the initial capital that you can pour into the business; it is possible to spend no more than a hundred fifty thousand dollars of any external capital to get to the first million, it may just take longer.
You would see many claiming that it took them 12 months or 6 months. When you hand someone a single metric, there are many ways to massage that metric. It is human ingenuity that proves that it is always easy to follow the rule but break the spirit of the principle behind it. Those claiming they reached a million in record time choose to keep the start time to suit their narrative. Therefore, you have to be careful what lessons you learn from such stories. This phase takes time, so have patience. Moreover it is better to not compare your baby steps with someone's Olympic race.
This mud and clay phase of the journey is going to be messy. You will have to pummel through it.
Build your team and people story to what works in your circumstances
When building a startup you need a team. Paul talks about the ‘two pizza rule’ or 6 members as a good constraint for the initial team. I heard about the ‘two pizza rule’ for building teams first from Brad Smith, the then CEO of Intuit. He himself quoted Jeff Bezos on why small-sized teams are important, while addressing engineers in the accelerator within Intuit that I ran. This rule says that you shouldn't have more than 6 people in the early phase.
My experience on many things including this is that much of the advice relevant to MountainView does not translate well for folks in Bangalore. First of all, a 2-pizza budget can feed way more than 6 when you are building that team in India. Across so many teams in Upekkha, we have noticed that a company at $100K ARR has 10 people, at $1m in ARR about 35 people and at $5m a little over 100 people.
A few years ago, an incubator head posted that dollar per employee in Indian SaaS startups is relatively bad compared to that of a US startup. Operating SaaS founders were quick to point out that metric is a meaningless one. It is far better to compare profitability, market share, enterprise value, and customer delight between two SaaS companies in the same category as opposed to dollars per employee.
Build the team size you need. At the very beginning you need to think of your SaaS team as building a cricket team. Like bowler, batsman, wicketkeeper and fielders you need diverse skill sets; a product/engineering lead, marketing lead & sales lead. Soon enough you will need a customer success lead as well. Not all of the initial 10 should be engineers. If engineers are the folks you attract, given that you yourself were an engineer, at least they should willing to learn and do the functions in marketing, sales and success.
Most founders are inward looking, they talk the language of engineering and features. When you are building a startup, it is not about the engine of the product or the sales engine that you are building. It is about the journey that you are going to get people to go through with you. People don't like to join something if it is not an interesting movement that they would like to be associated with.
Many investors use the St.Exupery line that "if you want to build a ship, don't drum up the men to gather wood, divide the work and give orders. Instead, teach them to yearn for the vast and endless sea.” And the engineer in the founder would say, that "In real life people who long for the endless immensity of the sea become pot smoking nuts who read such novels. Actual ship-builders long for stuff like proper joinery and decent welding". Even for those engineers, what can't be denied is that there is a future state of design that they desire, that is the journey that you should take them towards.
When you are in the messy zone, even the story would be messed up. But that journey of mess is what attracts early employees. You are not just building your startup, you are also building a story along with the start for which the end has not yet been written.
Make people imagine the premiere of the movie as when it will be launched. Most under-invest in that. Before you can build your Customer Value story, tell your origin story. That forms the foundation of your marketing. That marketing is the important arsenal for your hiring. This is one of the biggest areas where Indian founders under-invest but shouldn't.
Knowing the mechanics reduces odds of a bad outcome
Paul has argued that it is no use in knowing the mechanics of the startup -mechanics of incorporation, issuing stocks, fundraising, hiring teams and exits. Knowing the mechanics of a startup will definitely not help in building a billion dollar startup, Paul is right about that. However, making mistakes in the mechanics of a startup can kill your startup. At least for young Indian founders.
A different environment means a different experience. Ask any Indian founder and they will tell you that they spend 20-30% of their time working on the mechanics of a startup. When they have not done that, they have had to pay a heavy price.
If you have an overlap with Indian jurisdiction and or an India-based founder, the mechanics of operation can be very unforgiving. Making a mistake in incorporation can cause lot of downstream problems. There are countless horrific but true stories of how small mistakes early in the day have costed millions later. Many have learnt through painful experience that a cross-border credit card swipe to incorporate a company leads to getting ED notice, or even money in the bank post-acquisition getting pounded by RBI for more than two years.
On the topic of incorporation, views change depend on who you talk to and the same person flips their opinion every few months. Shekar my Partner has written an entire post on the topic and to date it has has had highest traffic on our site. Global investors are usually very savvy about this. Most of the time they are right in their recommendation, however when it comes to their incentive not being aligned with the founder, it can lead to poor choices for the founder. This usually happens when how they are taxed are different from the founder. Questioning the incentive behind the advice always helps understand the benefit of it for the founder.
This also highlights a key skill that every founder must learn - how to know which advice to accept and which one to drop. For almost every situation, a founder gets contradictory advice from different people. Raise money, don't raise money. Setup headquarters in India, don't set up Headquarters in India. Do inbound marketing, no do only outbound sales.
Neel Kothari, the Co-founder of iZooto, has a very good way to navigate such a conundrum:
“Advice is like getting a doctor's prescription. In areas like legal, finance, etc go to professionals who have spent years dealing with these issues. In those areas follow the prescription. However, when it comes to marketing, sales, etc., because a prescription that worked 5 or even 3 years ago is not going to be useful, do your own experiments."
One more tip that helps is to find a few set of founders who walked this in the recent past and take their advice.
Find peers to deal with emotions. Emotional ride is the hardest part
Resisting the urge to start writing code is easier said than done. Reach out to a fellow SaaS founder who is slightly ahead of you, but not too ahead, and ask them how they found Problem Value in their idea. Reach out to CPA/CA, lawyers who have at least ten years of experience in helping startups with global business building. Again, getting referrals from fellow founders is one of the best ways to filter to find good quality advisors.
Form a peer circle of founders that can not only share notes of their own iteration in either code but also emotions. Nothing is more powerful than leaning on a community as a shoulder of support when you are going through the heat of transformation.
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