The Top 10 Mistakes First Time SaaS Founders Make (The Tougher Times Edition)

We've done quite a few "Top Mistakes Founders Make" type posts at SaaStr, and I was curious how one of our classics held up in these times. The answer is pretty well. Here's an updated list of The Top 10 Mistakes I See First Time SaaS Founders Make. (Also, I made most of them myself.)

__________

Second-timers know the playbook and can execute against it faster. But often times, they also have a bit of healthy skepticism, a bit of baggage, from the last time. First-timers often know very little, but are baggage free. That can be very powerful.

I’ve had a chance to watch a whole cohort of SaaS first-time founders go from $1m to $10m ARR in 5 quarters or less and just been awestruck by how much better than me they are as founders, and how much better they’ve done quantitatively. In awe.  And yet, they/we all tend to make the same mistakes. At least, some of them.

I thought I’d catalog them. You may only make 1 or 2 of these mistakes. You may make all 10. Who knows. At least, consider using this list to challenge yourself to do even better. Even if you just blew out last month and last quarter.

Mistake #1: Hiring Too Inexperienced and Junior Managers and “VPs”. Stretch VPs can do amazing things if you get it right. More on that here. But a stretch VP is one thing. Hiring someone who’s never really been a manager at all, for a management role, for a true “owner” role … is usually a stretch too far. You can’t make someone who’s never been an owner into a VP. It just doesn’t work. It’s not enough to have worked at Slack / Okta / Intercom. You have to have owned at least a big piece of the product. To be a true VP of Sales, you have to have hired at least a handful of reps that hit quota. For real.

If in tougher times you can't afford even a stretch VP, then wait. Find a way to just keep doing it yourself for now. It will be more expensive to hire someone that can't really do. Even if he/she seems a bit cheaper.

Mistake #2: Being too cheap. This can be related to the prior point, but not always. “She’s too expensive. She needs $150,000.” It’s tough when you only took out $30k last year as CEO. I know. But … the market sets salaries. Not you. Don’t hire a junior resource at $80k instead of a senior one at $150k. You’ll lose money saving money here. Imagine that Director of VP of Marketing gets you just 2 more customers at $30k each. She’ll have more than paid for her salary difference right there, over than junior content marketer that can’t own anything.

And remember — salary vests. A $120k salary is really only $10k a month ?? (ignoring benefits, taxes, etc.) One senior hire is not a big a financial risk as it sounds, as long she or he ends up accretive in her first 90 days or so.

Mistake #3: Micromanaging too much, too long.  This can be a tough transition for all of us. It can be one of the things that can really kill you. And something you'll be tempted to do more of in tougher times.

But ultimately, the only way you are going to get any leverage on your time is if you trust your team to take ownership of their functional areas. Even with their flaws and limitations. I know you wrote the 1.0 version of the app. I know you closed the first six-figure deal. And you just might be the best customer success manager the company will ever have. I know. But … let it go. Hire the best people you can, as experienced as you can … and let them run with it. You need leverage. You need to scale.

If you don’t stop micromanaging at least around $4-$5m at the latest, you’ll hit a human capital wall.

And if you under-hire too much (Mistake #1) and/or underpay (Mistake #2) … you’ll never get out of this trap.

Mistake #4: Falling in love with Logos (in hiring, etc.). I know Box and Twilio are exciting companies. I know Salesforce has done it all in the enterprise. But … that doesn’t mean you should hire from there. Logos give you a false sense of security if you haven’t done it before. And in many cases, those logos are way, way too late stage for your company.

You do want been there, done that managers, directors and VPs. But don’t let the logo blind you to their flaws, or more importantly, blind you to the risks if they aren’t a stage-appropriate hire.

And don’t let a logo especially blind you to the fact that they may never have actually hired anyone directly before, or owned a number, or a product, or project, or lead commit, etc.

How many folks at Box today have owned a core feature? Have owned a true lead commit? Have hired an entire sales team under them, not just inherited one? Not that many that are there today. But tons of smart folks have worked in these functional areas.

We’re all guilty here. Even fourth-timers. Just don’t let it blind you.

Mistake #5: Not being merciless. This is different than being inhumane. Bad hires are always your fault. Most especially up to 50 employees or so, when you’ll be directly involved in the hiring process. If a hire doesn’t work out, you screwed up. You did. But be merciless. Make a change. Now.

• Be merciless about going up-market (next point).
• Be merciless about raising prices. Not on existing customers. Grandfather them, especially in these tougher times. But if your product is more valuable, usually, you need to find a way to drive up your ACV.
• Be merciless about setting real quotas that maybe only your top reps can meet at first.
• Be merciless about requiring a true lead commit from marketing, not “best efforts”.
• Be merciless about security and the product roadmap.
• About making sure your enterprise customers give you the highest possible NPS. There's nothing worse than closing incredible accounts -- and not have them grow to 140%+ net revenue retention.

Be full of mercy. You will make so many mistakes. But be merciless in driving the company to where it needs to go.

Mistake #6: Not going up-market fast enough. If you have one $100k customer, you can get 2, and then 10. And if you have one $100k customer, you really think the next one can’t pay $150k? Of course they can. Don’t be scared. Don’t be timid. Push up market as fast and as hard as you can. Make the ask. Do it.

Don’t invent new categories of pricing if there’s no demand. But when you see yourself going more enterprise, into bigger deals, don’t be timid. Be grateful. Treat your customers with utmost respect and appreciation. But on deal sizes and going up-market … be merciless.

This isn’t to say all apps should go enterprise. If you can get to $5m, $10m, $20m+ with a freemium or self-serviced product, do that by all means. Don’t go upmarket if you purely, 95-100% an SMB product. But if you are going to go upmarket, if it’s starting organically already — then do it faster.

Mistake #7: Not focusing almost entirely on what’s working. There can be a huge temptation from $1m to $10m to find new categories, new types of customers, new products. Especially in tougher times. Don’t. Find your natural pattern of customers (more on that here), small, medium and large. Figure out the organic ratio here. And just keep selling in that ratio, with an appropriate allocation of scarce resources.

If 90% of your revenue at $2m ARR is from SMBs … then, I know the enterprise logos feel good, I know it’s exciting to have Facebook as a customer … but the fastest way to $10m ARR is going to be from SMBs (mostly). Even if churn has gone way up here.

If 60% of your revenue at $2m ARR is from big customers … but the sales cycles are loooong … so what. Get used to it. Don’t start looking for magic at the bottom of the market. That’ll just slow you down. Dramatically. Suck it up. Double down on what’s working.  Even if it’s taking longer than you want.

Drive from $2m to $10m ARR on the path of least resistance. 9 times out of 10 the path of least resistance, the fastest way to $10m ARR, is just what you’re already doing. But better, with higher ACVs, and a more practiced sales and marketing engine. And with strategic upgrades to the team.

And these days, it's also important to segment your customers into the segments that are still growing, those that aren't, and those in trouble. Treat all with deep compassion. But it's important to set different goals for each "health segment". Otherwise everyone will get very confused.

Mistake #8: Not backfilling enough.  Once you’ve figured out how not to micromanage, and get out of the way … now you need to learn a new skill. How to backfill. Just enough. In the right places.

Don’t get mad because your VP of Product really isn’t that great at say, UI/UX. Don’t get frustrated because your VP of Marketing is great at generating leads, but her case studies are ugly and her prose is boooring. Don’t get all bent out of shape that your VP of Sales, even though she’s killing the plan, is too quantiative. Or is too qualitative. Or only wants to do big deals. Or only wants to do inside sales. Or doesn’t do great board slides. Whatever.

No VP has the full package of skills. Not one. And even if they do, they are biased in favor of what they did last time. Or at the very least, they are much better at some parts of the job than others.

As CEO and founders, your job isn’t to meddle in what your VPs and leadership team already know how to do. It’s to help backfill the areas they are a little weaker in. To help them get that extra help. To drop into the right deals, but not the ones they don’t need help on. To get on a plane when they can’t, or when they need a wing man. To spec out that one big feature they can’t see.

Whatever it is. Backfilling a great team is how you scale from $2m to $10m and beyond.

Mistake #9: Hiding from your investors, and/or treating your investors as the enemy. I get this. I sort of felt that way sometimes as a founder. But in tougher times, especially, this will backfire. Your investors are wired for bad times, at least the more experienced of them. Don't hide. Share the tough news. Pair it with a revised plan, and realistic goals for Q2.

Mistake #10: Taking too much advice.  Ok, now, thanks for reading. Read up and absorb all the advice out there. But be careful. On advice:

• A lot of advice isn’t stage appropriate to you. Operators who haven't done a start-up at your stage often don't really know.
• A lot of advice isn’t ACV appropriate (someone doing $500k deals really can’t tell you how to do $5k deals).
• A lot of advice is too dated. Not all 2009 advice works in 2020.
• A bunch of advice (especially VC stuff) has a bias or hidden agenda. Like cut everything today.
• Some of it is from pattern matching, but be wary of taking operational advice from folks without the operational experience to back it up. Be careful here.
• And worse — quite a bit of it is from founders that have built a product — be wary of advice from other founders that haven’t actually done it yet. Be super skeptical there. I’d almost entirely ignore advice from folks that haven’t at least gotten to $8-$10m ARR. Or at least, 2-3 stages beyond you.

If you are doing any of these 10, just pick a few and improve.  I can almost guarantee you it will have a positive effect on your business.