Exiting my SaaS!

26 Apr

Seven Observations

The big news (for me, at least) is that I exited the SaaS business I co-founded, ScreenCloud, a few weeks ago. The business is now backed by private equity firm Tenzing, who’ve come onboard to support the next stage of growth.

Building something from scratch and seeing it reach this kind of scale is an achievement, and I’m grateful for the journey. It’s been a life-changing event for me, and I’m still getting my head around it all. But perhaps more relevant to this newsletter is the fact that it brings a neat close to the story of transitioning from Agency to SaaS… and now, to a successful exit.

I thought, I’d share 7 key things I learnt along my journey in the hope that it’s of interest to you on yours. Why 7? I dunno, 10 seemed a bit too contrived….

1. You can’t build an idea in isolation.

You can have a strong vision, but you need customer input early and often. It’s tempting to hide away and build the “perfect” product, but momentum comes from feedback, not code.

I have written about idea validation often and it’s so important. You can be lucky and just nail it without talking to a single prospective customer, but you likely will miss something. And given that these people are already out there and can give you their opinions for free, why wouldn’t you ask them what their most pressing problems are before deciding on the idea you think you are going to ask them to buy from you?

2. Product Market Fit before everything else

After we raised our first bit of money, we started spending it on marketing before we’d properly found Product Market Fit. The result, as I’ve often written about, is that without PMF, that money isn’t going to be as effectively deployed. It’s like pumping up a tyre (tire) with a puncture. Yes, it’ll probably inflate but nowhere near as well as a hole-free alternative.

Finding PMF takes time and effort, but it’s something you need to get right first before throwing too much fuel on the fire.

3. It takes a while to build up a head of steam, but when you do….

Often you are selling your SaaS for way less than you are selling your consultancy projects - not always, but often. What happens is that to begin with it feels like you will never get to where you want to be. Adding a few hundred dollars in MRR each month feels like a trickle. Until it doesn’t.

If you have found PMF and figured out a predictable revenue growth approach, the layering of revenues upon existing revenues suddenly takes off. As a stupid illustration, if in your first month you only add $10, but you double every month from then on, by month 12 that figure is over $20k. Compounding growth in SaaS, especially in the early days, turns that trickle into a torrent before long, if you do things well.

4. Not all growth is worth chasing

Focussing on doing one thing well has been something that I’ve learnt to accept over time. It feels counter-intuitive to turn away anyone who wants to give you money. It’s why we had an agency and several side projects before we made the bold decision to sell everything and focus on our one big bet.

The same rule applies to customers. You need to find the customers that love what you do the most. The ones that convert quickly. The ones that don’t churn. If you can focus your entire company around those customers (assuming that gives you a large enough Addressable Market), then each unit of effort is going to deliver the best return. And sometimes that means walking away from other opportunities, however much your inner-voice is screaming at you to take the money.

Winning the wrong customers will take longer, even if you are randomly lucky with one or two of them. Plus they won’t appreciate the value and will churn. And they will distract you from the better prize.

5. Raising money is hard and time consuming

You think you can raise money on the side. And once you get a term sheet, you think you’ve pretty much reached the finish line. But raising money is like taking on a second job. We were quite lucky in that there were three of us as co-founders so our investment round efforts could be shared out a bit.

On top of that, especially when it’s your first round, the change in status that it inevitably confers is also something to deal with. On the one hand, it’s a big show of credibility to get an investor on board. But on the other, when you read through your term sheet and you realise that with it comes a load of potential restrictions and trip hazards that could see you losing everything you’ve worked for, that can be kind of scary. I definitely lost sleep worrying that we were about to embark on something we’d later regret.

As it turned out, we were fine :-)

6. What you like doing at the beginning, you probably won’t be doing at the end

When you start out, you’re doing a bit of everything: writing, designing, talking, selling, negotiating, hiring, consulting, financing, lawyering. You basically wear every hat at some stage.

But as time goes on, you start to fill up those gaps with people who genuinely know what they are doing, rather than founders making stuff up as they go along.

I loved writing and building revenue models, analysing sales and marketing efforts. But by the end of my time there, I was mainly managing people who were doing the things that I loved doing. It’s not better, it’s not worse, but it’s different.

You might start out doing product, sales, support, but over time, you’re managing people, dealing with ops, fundraising, etc. If that shift doesn’t energise you, it’s not a failure to step away. It might be the healthiest move.

7. Leaving your startup is emotional, not just financial.

We like to imagine that we are 100% rational people when it comes to all things ‘business’. But even a good outcome can be hard. There’s grief, relief, identity shifts. Nobody tells you that. You don’t just leave a business you started, you say goodbye to a chapter of yourself.

David Hart