One of the most popular posts we did on SaaStr in the past 12 months was “What The Second Time SaaS CEOs Are All Doing.” What folks who are on their second successful SaaS company are doing better this time.
It is a fascinating topic. Because while product-market fit isn’t any easier the second, third, or 10th time around … everything after product-market fit just gets so much easier once you know how to execute The Playbook.
SaaStr is one such playbook. The whole point of SaaStr is so that you do even better than me, that you get to $2m, $10m, $20m, $100m faster. With less stress. And more success.
And we’ll expand on that with The Second Timers, their versions of The Playbook.
Below is Nick Mehta’s. Many in the SaaS world today know Nick well. He is CEO of Gainsight, one of the higher-profile next generation SaaS start-ups today, with an outstanding management team, and he’s raised $50m+ in venture capital in the past 12 months alone from Top Tier VCs. Nick sold his first SaaS start-up, LiveOffice, for nine figures. Not too shabby. But he’s going Even Bigger this time 🙂
Now first-timers can’t emulate everything second-timers can do. Capital is one clear reason. Second-timers get bigger checks, earlier and faster. (Turns out if you make VCs a few bucks, they tend to give you a few more for the next one.) But we can all at least take as much of the second-timer playbook as we can and bring it into our own SaaS businesses.
With that … Nick’s SaaS 2.0. learnings. His Top 10 Lessons Learning doing it the second time. It’s great so many are related to our SaaStr themes, but with a different perspective and take.
J.A.S.O.N. L.E.M.K.I.N. taught me how to be a SaaS CEO
By: Nick Mehta, CEO of Gainsight
- I’m very proud of that acronym – took me quite a while
- I truly have learned more from Jason’s copious writing than from anyone else in SaaS
- Sadly, when I was a first-time SaaS CEO in 2008, Lemkin was busy running EchoSign and wasn’t blogging,
- This post is a list of things I wish I had known back then.
- Consider this a letter to myself that I’ll send once we invent time machines.
[Ed.- Thanks Nick! 🙂 Now — On to the Top Things He’s Doing Even Better This Time.]
Lesson #1: Just ignore advice to be an “XYZ-oriented” CEO.
You can find lots of blog posts about how to be a CEO:
- You need to focus on product
- You need to be sales-oriented
- You need to be customer-centric
- You need to be all about culture
In fact, in my first company, I came in with the classic enterprise software mindset and early-on tried to focus only on sales. Boy was I wrong.
After massive network outages, almost running out of money, customer support challenges, product scalability issues and marketing struggles (not at the same time!), I realized that SaaS is very unique. The business model depends on all functions working in harmony.
You may have natural skills in one area more than others (e.g., for me, culture and customers). You might be epic at product. You might be rubbish at marketing.
But as a SaaS CEO, you need to be everything-oriented.
Lesson #2: ACV is everything.
If I ask only one question now about a startup I’m investing in or advising, I want to know the average per-customer, first-year Annual Contract Value.
At the end of the day, ACV is correlated with so much else:
- Enterprise or SMB?
- Field or inside sales model?
- Outbound or inbound lead gen?
- People or data-centric culture?
- Configurability or usability in product?
Many companies aren’t currently at their target ACV and end up with a big disconnect between where they are and where they need to be. I’ve realized that getting to my target ACV quickly is critical to driving everything else in my company. I’m not there at Gainsight yet, though we’re making a lot of progress.
Raj De Datta wrote a great piece on why we should all ideally opt for the extremes in ACV, if possible.
Learning #3: Success of your customers is hard and critical.
You’re thinking “here comes the Gainsight commercial.” So yes – buy Gainsight now – click here – and so on.
But the honest answer is that I joined Gainsight because Customer Success was by far the hardest thing for us at my last company. It was an onion that we kept peeling. Though we improved, Customer Success was always challenging:
- At first, I didn’t focus on it enough
- Then when I focused on it, I micromanaged it too much
- Then I was hard on the team.
- Then I was hard on the leadership.
- Then I realized that it wasn’t just about the Customer Success team but also about the other functions.
- Then I realized we also needed to up-level certain Customer Success team members.
- Then I realized the org was wrong and needed to be changed.
- And again.
- And again.
- Then I realized customers didn’t care about any of this internal stuff.
- And customers didn’t always do what we told them to do.
- Or even do what they said they’d do.
It’s freaking hard. Customer Success is really hard. With Gainsight, it’s easier but it’s still not easy.
Figuring out what your customer means by success, measuring it, helping to drive it and showing the client the results is a constant battle. But it’s a battle you need to win.
As Tomasz Tunguz wrote recently, you can never invest too much or too early in Customer Success.
Learning #4: One thing only you can do is manage your cost of capital.
As a CEO, you depend on your team for so much. You probably can’t scalably build every product feature, close every customer or solve every client issue.
But for a long time – until you’re public and probably beyond – you are the only person who can really influence one of the most important variables in your business – your cost of capital.
The faith of the investment community in you and in your business – your confidence, storytelling ability, passion, transparency, ethics – all of it – affect investors’ willingness to give you money. Whether you’re a seed funded startup or a multi-billion dollar NYSE-traded company, you are the #1 driver of your valuation and of your ability to raise money. You can’t outsource that.
And if you have a relatively lower cost of capital, you can grow faster, hire better and generally be more valuable long-term.
At my first startup, I don’t think I appreciated this enough and therefore we were constantly underinvested in the growth opportunity in front of us. I’m not making that mistake again.
Learning #5: Never stop hiring reps.
This is something I’m only learning now early into my second company.
Sales is one of the most measurable functions in any company. You can assess reps as easily as you can analyze any function in your company.
As such, prudence would say “hire a few reps and see if they work out.”
This is definitely the right strategy if you’re not sure if you’re onto something.
But if you believe in your market, hiring and waiting is a bad formula. Because you will hire reps that aren’t a perfect fit and will lose some (voluntarily or involuntarily).
Due to the ramp time for reps, if you have an “on-again, off-again” hiring strategy in sales, you’ll end up with an on-again, off-again growth rate.
In sales, Always Be Hiring – and Always Be Firing under-performers. Never stop.
Learning #6: Left brain + right brain = victory.
We did a crude personality test at our recent leadership meeting at Gainsight. I asked:
“If you have an extra hour in the day, would you rather spend it on people (customers, employees, etc.) or process (spreadsheets, workflows, plans, etc.)”
It’s amazing to see how the “extra hour” test clarifies our natural leanings. I’m 90% people (no surprise for people that know me!).
Given that “right brain” orientation, I’ve realized I need to surround myself with “left brain” oriented thinkers. At LiveOffice, I had an amazing COO. At Gainsight, I’ve hired a super analytical and process-oriented VP Business Operations. Both have been two of the best hiring decisions I’ve made thus far.
Learning #7: Ecosystems are essential.
In the cloud, integration isn’t easy but it’s MUCH simpler than in the old enterprise software world.
As such, your app is really just one piece of a massive puzzle from the client point of view.
Customers aren’t buying your landing page / A/B testing / scoring / marketing analytics product. They are trying to invest in an ecosystem of technologies to help them solve business problems.
The good news for all of us SaaS CEOs is that the relative ease of integration levels the playing field a bit and allows new vendors to come in. But we’re all living in the shadows of larger ecosystems and it’s better to just admit it and adjust to it.
At my last company, we were tying into corporate email, so we really lived in Microsoft’s (and later Google’s) world. We bet hard on integrating with Microsoft Office 365 which was one of the best decisions we ever made.
At Gainsight, we’re clearly in the ecosystems of the CRM technologies, so strong alignment with companies like Salesforce.com has been essential.
Learning #8: Marketing is a massive force multiplier.
At my previous startup, we built a double-digit million dollar ARR business “under the radar.” No billboards, limited PR and lots of brute force.
We wore that as a badge of honor because we did it “the hard way.”
Now at Gainsight, I’m realizing how much leverage you can get from marketing in hiring, fundraising and sales. It’s not just about lead gen. It’s about positioning your company in a way that’s relevant and exciting to your stakeholders.
Everything is easier with great marketing. If you don’t have a great marketing leader like I do, find one.
“We don’t do marketing” is not something to be proud of.
Learning #9: Keep both eyes on cash.
At LiveOffice, we had a near-death experience and almost ran out of money. I think I’m forever scarred and changed by that.
Going forward, I’ve learned to be a bit irrationally focused on:
- Making sure billing is working as you scale
- Micromanaging collections if receivables get too big
- Thinking of smart business policies to create cash flow (upfront payment incentives for customers and reps, paying reps closer to timing of cash receipts, etc.)
- Knowing when you need to brake hard on spending
- And pushing the brakes earlier than you need to
There’s only one “never f-ing let it happen” rule in being CEO. Don’t run out of money. And since I almost did it, I need to make sure it never happens again.
Learning #10: It will be good – your job is to make it great.
As Jason has written, once you have a few million in ARR, the way SaaS businesses work, you have something real.
Don’t take it for granted but be confident that you can now build a business.
Mathematically, with good cash management, efficient customer acquisition and low churn rates, you can ride your personal and investor equity in the company to compound much faster than any investment out there.
Our job as SaaS CEOs is to make the good great. How do we have an unreasonably low cost of acquisition? How do we enable a disgustingly high retention rate? How do we shift the economics of cash flow to our favor
In SaaS, once past a certain point, the odds are in your favor. But the CEO’s job is to rig the system.
Bonus Learning: Never forget you’re always a first-timer.
As I’m writing all of this, I’m realizing the MUCH larger list of things I’m learning for the first time, this second time around – often from first-timers!:
- How outbound prospecting can really scale (from companies like Zenefits, DoubleDutch and GuideSpark)
- How MQL scoring without some careful analytics is a joke (from companies like Infer, 6Sense and Fliptop)
- How you can do SO much with a small team (from my friends at Toutapp and Anyperk)
- How conferences can change everything (from my own head of marketing)
The biggest thing I’ve taken away from being a second-timer is to not overvalue my own experience. A “beginner’s mind” is everything.
That and reading Jason’s blog posts.
top image from here
(Cross-posted @ saastr)