S5E14 – 7 ways to build a successful SaaS without big VC funding with Greg Head

What are the 7 ways to build a successful SaaS without big VC funding? In this episode of the Grow Your B2B SaaS Podcast, host Joran Hofman chats with Greg Head, a veteran in the software industry with over 30 years of experience. Greg has played a key role in the growth of multiple companies in the CRM space, such as Act, SalesLogix, and Infusionsoft. Currently, he advises SaaS founders through his Practical Founders group and hosts the Practical Founder podcast. In this episode, they explore his insights into building a successful SaaS business without the need for big venture capital (VC) funding.

This episode is essential for any SaaS founder exploring alternative paths to success. Whether you’re bootstrapping or considering alternative funding options, Greg Head’s insights are invaluable for building a thriving SaaS business.

The Myths Around VC Funding

Many startup founders believe that venture capital is the only route to success. However, Greg points out that VC funding is often overhyped and carries substantial risks. For instance, founders may end up losing control and equity of their businesses.

The Reality of VC Funding

Greg explains that the chances of succeeding with VC funding are slim. In fact, about 70% of founders who secure VC funding walk away with no equity value. Therefore, it’s important to consider other avenues for funding that come with fewer risks.

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What is a Practical SaaS Founder?

These are founders who build successful software businesses without the need for large-scale VC funding. This includes bootstrappers, or those who raise funding from alternative sources such as angel investors or personal savings.

Greg emphasizes the different ways founders can finance their startups outside of VC funding. These include personal savings, building from an existing service business, and raising angel investments, which are often more manageable and less risky than traditional VC routes.

Seven Success Paths for SaaS Founders

Greg shares seven potential paths SaaS founders can take to achieve success. These paths allow for flexibility and depend on the goals of the founders.

1. Long-Term Profitability: Building a sustainable and profitable company that the founder can enjoy running indefinitely.
2. Strategic Exit: Selling the company to a larger organization that values the product, often leading to a higher acquisition price.
3. Financial Buyer Exit: Selling to private equity firms, typically in two stages—first a partial buy-out, followed by a full exit.
4. Two Bites Exit: Selling part of the company to investors and then selling the remaining portion later for higher returns.
5. Profitable Lifestyle Business: Running a business that generates consistent profit without the pressure to grow quickly or sell.
6. Startup Flipper: Building and quickly selling smaller software businesses, similar to flipping houses in real estate.
7. Later VC Funding: Raising venture capital after the business is profitable and established, allowing founders to negotiate from a position of strength.

Practical Advice for Founders

Know the Game: Founders should understand the various paths to growth and select the one that best fits their goals and resources.

Focus on Value: In the early stages, securing 10 paying customers who find value in your product is a crucial milestone. This should be the primary focus, rather than chasing mass marketing or rapid expansion.

Building Scalable Processes: As the company grows to $10 million in annual recurring revenue (ARR), the focus should shift to developing repeatable and scalable processes for customer acquisition and service delivery.

Common Mistakes to Avoid

The Myth of “More is Better”: It’s easy to assume that spending more on marketing or adding more features will lead to success. However, Greg advises founders to focus on finding and refining the few strategies that work best, rather than trying to do everything at once.

Expecting Instant Success: Founders should be patient and recognize that success may take longer than expected. The key to success is persistence and the ability to survive through challenges while steadily building growth.

Conclusion

Greg Head’s insights provide valuable guidance for SaaS founders considering non-VC routes to success. By focusing on practical strategies that align with a founder’s vision, SaaS businesses can thrive without the need for large-scale venture capital. Greg’s advice encourages founders to build companies that are sustainable, profitable, and enjoyable in the long run.

Resources

• Practical Founders: For more insights into practical SaaS growth, visit PracticalFounders.com.
• Ebook: Download the free ebook “Seven Success Paths for SaaS Founders” from the Practical Founders website.
• (1:36) – Definition of a Practical SaaS Founder

Key Timestamps

• (2:56) – Understanding the Practical Founder Approach
• (3:07) – Building a SaaS Without Big VC Funding
• (4:23) – Should Founders Aim to Sell Their SaaS?
• (5:49) – Building a Profitable Software Company
• (7:07) – Seven Paths to Success for SaaS Founders
• (13:10) – The Cost of Starting a Software Business
• (14:08) – Understanding the Value of Strategic Exits
• (16:45) – The Two-Bite Exit Strategy
• (19:16) – Private Equity vs. Strategic Exits
• (23:03) – The Startup Flipper Path
• (28:29) – Later VC Funding as an Option
• (36:22) – Advice for Founders at 10K MRR
• (39:11) – Building a Reliable Go-To-Market Motion

Transcription

[00:00:00.000] – Greg

A lot of founders have this in their mind that I’m going to build a company and work hard, invest all the profits, keep growing this thing, and win the big prize and sell the company someday. How you sell companies these days has changed as well in the last five years. There’s the myth that you’re not cool or everybody raises VC funding. That’s just one of the paths, and it’s very risky for founders. It usually doesn’t work. 70% of founders who raise VC funding walk away with zero founder equity value, and sometimes it’s huge. That’s really the game. Vc funding is not bad or wrong. It’s just completely overprescribed in the SaaS community and misunderstood by most founders. Most founders really don’t know what drugs they’re signing up for when they say, I need some institutional funding.

[00:00:51.110] – Joran

Today, we’re going to talk about how to build a successful SaaS without big VC funding. It’s a topic I will discuss with Greg Head today. Greg calls himself a 30-year software veteran. He helped to grow three companies within the CRM market. In the ’90s, it was Act. After that, he co-founded SalesLogics, which was acquired in 2001 for 300 million. And finally, he worked at Infusionsoft, which he helped to grow from 15 million to 100 million before he started consulting SaaS Founders. That is what he’s currently doing. He’s advising 42 SaaS Founders in a group called Practical Founders. Next to this group, he’s the host of the Practical Founder podcast. And he has a weekly newsletter also called PracticalFounders. Com. Welcome to the show, Greg.

[00:01:35.460] – Greg

Thank you, Aran. Good to see you.

[00:01:36.840] – Joran

I think maybe the first question is, what is a Practical SaaS founder?

[00:01:41.660] – Greg

It’s my version of the name for the hidden majority of SaaS founders around the world, not just in Silicon Valley, that are building valuable software companies without big VC funding. So that includes bootstrappers who don’t have any outside funding, developers who build a product and start selling it. It also includes all the other ways you can create a software company and raise practical funding if you need it, a little angel funding, and there’s other practical funding versions that are different than the institutional VC funding that dominates so many of the headlines, especially here in the States, and the closer you get to Silicon Valley and the big cities. Here in the States, it’s still surprising that a new founder will show up and say, I’m looking for VC funding. I’ve got this idea and I need funding. But the reality is much different than that. I actually played the VC funding growth game a couple of times in my career. I’ve won that game, and I’ve lost that game. It That’s not the only way to do it, but the software industry has changed for software founders. Vc funding has always been for a small minority of software companies that want to play that game.

[00:02:56.330] – Greg

Vcs know this. So I call them practical founders. They’re building software companies and doing it their way and not trying to play the crazy VC funding growth game.

[00:03:07.630] – Joran

Yeah, and I think what you mentioned is not about not raising funds. It’s just doing it in a more practical way. You could be fully bootstrapped or you could raise it in any different way, which we’re going to discuss in a sec. So it’s not just you against funding, but it’s more as in doing it in a practical way.

[00:03:24.380] – Greg

Yeah, and it’s useful for founders to hear all the different ways you could do it that aren’t simple VC funding is the only way to do it, and you’re not cool unless you build a billion dollar company and bootstrapped, and you got to do it the way I did it. According to some bootstrappers, there’s all kinds of ways to do it. You can change your mind, start off bootstrapping and raise a little funding. It’s a whole different world for practical founders in that range. Most SaaS founders don’t even understand all the ways to do it. Most people in ecosystems are not really aware of it either. All the advisors and service providers, I call it the Funding Industrial Complex. Oh, you get funding, so you could spend it back on me, the recruiter or the law firm or whatever, that thing. There’s a lot more people pushing funding drugs out there, even in some parts of Europe. Of course, it’s less common in Europe, but the closer you get to London and some others, there’s more about funding. But in the States, the VC funding myth has been prevalent for a long time.

[00:04:23.570] – Joran

Luckily, most of our listeners are in the US, and they can learn from this. In the podcast, we’re going to talk about the seven different success ads for part of founders. But before I go there, if we go all the way to the beginning, shouldn’t founder always aim to sell their B2B SaaS, in your opinion?

[00:04:41.510] – Greg

When I say a valuable software company, it could be valuable to the founder, and they don’t have to sell it. One of the requirements, if you raise VC funding, you sell a piece of your company, raise 5 or 10 million or more in the modern era, you You’re committing to sell your company to pay those investors back. If you don’t have serious investors, there’s a lot of investors that investors invest to get paid back someday. The moment you take outside investing, you’re pretty much committing to selling your company someday to pay them back. That’s why you take their money, and I’ll pay you back someday when I sell it. A lot of founders have this in their mind that I’m going to build a company and work hard, invest all the profits, keep growing this thing, and win the big prize and sell the company someday. How you sell companies these days has changed as well in the last 5 to 10 years. There are a lot of founders out there in practical founder land. It is one of the success paths that I talk about in my ebook at practicalfounders. Com. That nobody’s talking about or very few people are talking about.

[00:05:49.700] – Greg

Jason Fried talks about it and others that, why don’t you build a software company? If you’re a builder, if you love doing it, why not build a software company that’s profitable, you have fun with and you can go a long time with. That’s completely possible these days if you don’t raise big funding.

[00:06:10.850] – Joran

Let’s dive into your eBook and the 7 Success Pads for practical founders. You mentioned for SaaS founders to win without raising the big VC funding.

[00:06:19.840] – Greg

It doesn’t mean that you’re not- There’s all kinds of ways to win. You could go long and make a software company that’s fun to work in every day with people you love and customers you love to help. You can grow it fast and sell it really quickly or sell it in parts. That’s the most common way to sell it in bites to private equity or growth equity investors. Sell to a strategic, that big win, somebody pays you a lot of money. On the Practical Founders podcast, all of those possibilities show up. Founders can find success with any one of them. It’s really more of a founder friendly path, whatever works for you. It’s more practical that way, whatever works.

[00:06:55.900] – Joran

Yeah. Different ones, I guess, founders can follow. Would you mind sharing, I guess, the seven parts people can take, and then we dive into each one of them after?

[00:07:07.530] – Greg

Sure. The first one is to build a sustainable, profitable software company and keep running it. And that’s the default case. I might sell it someday, but I’m running it today to be sustainable, profitable, better next year. And there’s varying growth rates from that. It’s a long term profitable, let’s say, core position. I might sell it someday. If something takes off, I might get funding and grow. But the default is to be long term profitable and sustainable. That’s the first position for a practical founder to create a software company that is most valuable to the founder. And so there’s the myth that you’re not cool or everybody raises VC funding. That’s just one of the paths, and it’s very risky for founders. It usually doesn’t work. 70% of founders who raise VC funding walk away with zero founder equity value. Sometimes it’s huge. That’s really the game over there. The default position for software founders, once they get up and running, is to be funding their customers, funding their business through revenues, spending less than you make and growing at a rate that makes sense for your company. Sometimes that’s a fast growing, doubling every year.

[00:08:24.060] – Greg

Sometimes it’s 20% or 30% growth, which compounding, you do that for 10 years, you get to be quite a large company. That’s one of the biggest differences. Practical founders who were steadily building their companies and getting better every year and more valuable didn’t really fall for the whole COVID era tech boom and all the funding and easy funding. Now they’re just chugging along doing fine. Yaran, you know that every founder that has a software company with generally more than a million in revenue in US dollars is getting pings every day on LinkedIn from investors and potential acquirers who want to buy this and generally make it a long-term profitable business. That’s the first position. Almost nobody’s talking about that. Yuran, do you know why nobody’s talking about that? Why aren’t ecosystems and books and conferences recommending that people hurry up and get to a sustainable, reasonably profitable with customer funding and revenues?

[00:09:25.610] – Joran

It probably doesn’t keep the economy going. Yes, it’s about the money.

[00:09:30.470] – Greg

Exactly. The Funding Industrial Complex says, take the funding, spend it on us. They’re the ones who put on the conferences. They’re paying for the conferences. It’s a machine, and there’s no machine around build something, be frugal, do the right things, don’t spend money on service providers that don’t add a lot of value. That doesn’t support a lot of the economy. There’s almost no money to be made supporting bootstrap founders. Yeah, exactly. There’s a ton of money to be made.

[00:09:57.780] – Joran

But as a bootstrap founder, you still have to make some cost, and you probably will be started next year’s job, or you maybe go full-time. Any advice on how to fund as a practical SaaS founder, the early stages?

[00:10:11.670] – Greg

On the Practical Founders podcast in the last two years, I interviewed 100 founders who built valuable software companies without VC funding. There’s all kinds of ways to do it. I know thousands of these founders, and I’ve done it, and I talk to these people all the time. Here are the most common ways that serious SaaS founders are getting up to customer revenues and profitability. They got to fund some of that investment. The first one is their own personal savings. So I was successful in my industry. I put some savings aside I’m going to invest some of that savings to build a first product that can sell. In the last 10 years, five years, the cost of making useful software that customers will pay for has gone straight down 10 times cheaper than 10 years ago. So it doesn’t take millions of dollars to build software anymore. That’s marketable. It takes a couple of hundred thousand or something like that. So a lot of people invest their savings from that, probably just as common, maybe 30 %, build a service business that creates revenues and a little profit and invest people in time and team to go build a software product out of that.

[00:11:22.690] – Greg

That’s Base Camp. They were a digital marketing agency and built Base Camp out of that agency and funded with Jason Fried. Others include a little angel funding. I put in a lot of my savings. I might stay, I haven’t quit my day job or my consulting or my services business. I might ask people I know for small checks to invest in the company. Angels are more like donations to your cause to help you support that, then a VC funding is like professional investors moving in. By the way, VC funding is not bad or wrong. It’s just completely overprescribed in the SaaS community and misunderstood by most founders. Most founders really don’t know what drugs they’re signing up for when they say, I need some institutional funding.

[00:12:17.070] – Joran

Yeah, and I think they only find out really later when things go wrong.

[00:12:20.450] – Greg

I’ve talked to thousands of them, and I could see it. I understand the game. It’s not religious for me that VC funding is bad. It’s just the odds are against you when Can you raise VC funding to win any prize. It’s possible. It’s just not the best way in the modern era. Half of this is having a little savings and getting a little thing going up. The reality is to get a software business up to revenue and sustainability, it’s way cheaper than it used to be. You don’t need big funding and millions of funding to get it going like you used to. That was the old tradition. You needed 10 engineers to go build a classic Windows product or get the servers and do all that. Now you can get a vertical market app or something very useful that people will pay for up and running for a couple of hundred thousand dollars if you do it wisely. So the game has changed.

[00:13:10.210] – Joran

Yeah. And it’s one of the first paths for cofounders long term profitability. Can we move over to the next one?

[00:13:18.740] – Greg

The next one that founders have in their mind is I grow the business. Maybe I raise a little funding, I bootstrap it, I use my own savings. We’re really frugal. We get to a where we’re growing revenues and we’re spending less in the company every year. We build something useful that’s a big company in the space. If you make software for dentists and it does this magical thing, the big dental software companies come knocking, and that’s a strategic exit. The big company wants to sell your little product with your little market that you got going to all of their big customers. That’s the traditional big win, where there’s a higher premium when you sell your company. They’re buying you for strategic value, not for a multiple of your meager revenues.

[00:14:08.660] – Joran

In this case, it’s not going to be just a multiplier of your ARR or EBITDA. They’re going to look at the actual value you is going to bring when they bring you on as a company.

[00:14:18.210] – Greg

That’s right. That used to be the most common way. Founders would sell their company and win a prize. I just had two founders on my podcast last month who bootstrapped frugally out of services companies, one out of personal savings, grew it as a scrappy little company, doing whatever they could for about five years. They found their way, both of them, and sold their companies for $250 and $300 million to strategic acquirers. That’s totally possible. It’s just not as common as it used to be. Strategic acquirers in your vertical space or big horizontal, Google buying you or something like that for a super premium. It’s not very common. 70% of software acquisitions, especially in the practical founder zone, are coming from private equity type investors. That’s different than a strategic buyer who buys you, pays cash, and says, See you later. We’ll take the product in the company. We’ll run it ourselves. I’ve been through that twice myself, that strategic exit game, and then gone back and done the next thing and so forth. But the private equity game is different. The first thing is, it’s It’s not all an acquisition at once. They don’t cash you out and say, Thank you very much.

[00:15:34.640] – Greg

We’ll take the product. You can go your own way. Usually, it’s a two-step or three-step acquisition, a partial buy out of a minority or majority. We call this the two bites exit. You sell a portion of your company to private equity investors, and there’s all kinds of private equity investors. Then you keep running the company and help them, or they put people in charge, and eventually, they grow a bigger business, and you sell the rest of it. So you become an investor in the company that acquired you in some sense. That’s different. The private equity is way more common these days. They’re buying software companies for a combination of revenue, growth, and profits that are within the business itself. So they’re more practical type investors, and they’re very different than strategic acquirers.

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[00:16:45.820] – Joran

When we look at your steps or your parts, actually to a financial buyer, that’s already step number three, where you can also split it into the two-bit exit you mentioned, doing a partial buy-out, and then later on as well.

[00:16:58.060] – Greg

Yeah. And most of the financial buyers have a two-bytes exit. So you’re not selling all of your company, which it’s not like a bad thing. Imagine somebody says, We have experience in the dental software industry. We own several companies that either you’re being acquired into or you’re going to create a new platform for them. We want to buy 50% of your company now and then grow this, acquire more, build a bigger company and sell it later. Private equity wants to sell it later. It’ll be even bigger. A lot of founders that I’ve interviewed on the podcast, and then I hear about make more money on their second bite of the apple when the company is sold five or six years later after growing much bigger, even if they sold, they still own the minority. You could sell a majority right now and make more money holding 30% of your company that’s worth much more later. It’s a different game, and it’s a different kinds of buyers there.

[00:17:55.260] – Joran

Yeah. And regarding this, I think many founders started started the business because they wanted to work for themselves, wanted to build something they like, and going under management of somebody else. Is that a challenge you see a lot happening that they don’t want to work within somebody else’s company anymore?

[00:18:12.840] – Greg

I would say 90% of serious founders don’t want to work in anybody’s company, regardless if they say, Oh, I’m joining the company. I’m really excited about joining the company. Usually six months or a year later, they’re like, I don’t want to do this. I don’t want to be part of somebody else’s team. With all all this management stuff of a bigger company. I’ve been there. Very few founders actually do that. But the private equity game is you’re not selling all your company. You still have to solve all your problems in your company. You still have to own the growth of the company, and you have other kinds of more financial type investors in your business who aren’t crazy founders. So it’s a very different culture game. You have to put up with that. Some founders like that, and they’re more attuned to that. I’ve built several companies, sold them, done my time inside the bigger company, learned a lot, and then went off and did it again. Most founders do it again. Most founders who sell their companies and make 20 million, 30 million, 50 million, $100 million, Yuran, they don’t stop building and go sit on the beach.

[00:19:16.860] – Greg

We’re not built for that.

[00:19:18.920] – Joran

It’s super funny you mentioned do your time. So I guess you will need to stay on for a while. You have to do your time. You’re going to move on.

[00:19:26.410] – Greg

Yeah.

[00:19:28.020] – Joran

Cool. And I think we’re going to already go to part number 5?

[00:19:31.970] – Greg

I would call that the profitable lifestyle business. If you get your business up and it’s profitable and sustainable, you are of optionality to sell it now, to grow it bigger and sell it in a few years, to exit to strategic buyers, private equity buyers. But a lot of founders say, none of that appeals to me. I know I don’t want to work for them. We’re profitable and I have money now. This is the most fun. This is Jason Fried at Base Camp saying, I love what I do every day. I just interviewed him on podcast, and he had a busy Monday after 20 years with Base Camp. He just loves it. So why not keep going and make it profitable so you can win the prize a little bit every year, exit a little bit every year, and have fun with your team and build with your customers and grow a larger business. If you grow a large enough business, you have to be comfortable not as a scrappy founder, but as a CEO of a larger team, maybe with 100 employees or more. But Somebody says you have to sell your company if it’s sustainable, profitable, and you like it.

[00:20:37.150] – Joran

I think typically, or correct me if I’m wrong, people see a lifestyle business as a smaller type of company with not a lot of employees which drives them enough for you to live the comfortable life they have. But you mentioned now the example of Base Camp, which is a lot bigger, right? So it doesn’t have to necessarily be a small company. It could be any size, just run it profitably and have fun while doing it.

[00:20:59.730] – Greg

You You have a lifestyle, whatever company you build. You do funding, VC funding? You have a life in there that’s very restricted. You’re all in. I did the VC Funding game, and I worked 80 hours a week for 15 years of my career. And and I had work and family and not much else. Actually, nothing else. So that was my lifestyle, and I chose it, and I was successful at it, and it was an adventure. It was exciting and all that. And VCs funders call this lifestyle business. How dare you make a software company that works for you, the founder, the employees, and the customers, and you get the profits of your own business. You get the spoils. What about us? How come we can’t get your money? It pisses me off that this lifestyle business, the practical founder way, you can have a life and a successful business and do it your way and make 50 million or 100 million when you sell it eventually. You can literally have it all. You can’t have it as quickly, and it’s always hard, you’re on, but you can have a life. Founders in my groups are taking vacations every quarter, almost European style, right?

[00:22:15.530] – Greg

Holidays and taking time and not working, crazy hours that you would see in Silicon Valley. There’s all kinds of ways to do it, but a long-term profitable business can be really fun. Most founders who’ve sold their company and I know more than 500 of them, and I’ve had 100 of them on my podcast. Most founders don’t sit on the beach, don’t retire, don’t stop working, even though they don’t need the money. We love building, we love solving problems, we love the puzzle of companies, we love changing the world. We love all that excitement. If you love all that, why not create a business that works for you?

[00:22:55.420] – Joran

I think it goes really well into the next one as well, which I think is number 6, which you call the startup flipper.

[00:23:03.290] – Greg

It’s not as common, but it’s out there. I just interviewed Troy Munson on my podcast, who is an enterprise software sales guy who’s been doing side gig software startups. He’s on his third software startups. He create these experiments and build a little product in a scrappy way and start selling it and see if there’s a business there in his spare time to see if he could pay off his mortgage by building a little software company and selling it. So they’re more like flippers, meaning in the States, we have that the real estate investing world. You buy a house, you fix it up and you flip it, you sell it quickly. You don’t have to go long and run it for 10 or 20 years. You can build something things, see an opportunity, build it fast, sell it hard, get it to a million in revenue and sell it for four million, or get it to two million in revenue and sell for 10 million or something like that, and then do it again. So these are the fast start founders that like to do something, and they’re going work really hard and do it faster than everybody else.

[00:24:03.010] – Greg

But you can fit your model around what you like to do as a founder, your style and your personality. I’m more of a long term builder. I don’t mind the scale journey, meaning I don’t mind having 100 employees, and I’ve been there several times. But other people say that’d be the worst thing. When it gets to 10 employees, I got to sell it. So there’s people who do that, and they fund their next business, they sell their business to fund their next business and they keep playing with it. But that’s another way to do it. That’s another way to fund a business. Start a little software company, sell it quickly to fund it, get a million dollars, and then do that thing. You don’t hear about it very often, but there’s tons of them out there, and they sell their companies on all of the websites where people are searching to buy little software companies.

[00:24:47.310] – Joran

For people listening, like I had Andrew, because they see from acquire. Com or have Blake Huttich from FIPPA. Those are two platforms which you can look at when you’re trying to sell.

[00:24:57.530] – Greg

By the way, no startup lawyer, no tech ecosystem pitch day, no mentor or advisor in an ecosystem or the tech media really doesn’t say much about that. Andrew talks about that with acquired and the rest, but it’s way more common. Imagine, I don’t know how many between flip and acquired all these websites, these brokerage websites, buy a software company websites. There’s probably thousands every year that get sold. And you’re on, there’s only like 10 or 20 very large software acquisitions or IPOs every year these days. So there’s 20, 50 times more acquisitions sub 50 million in enterprise value than there are these big ones that we hear about to make the headlines.

[00:25:53.730] – Joran

Yeah, and I think that’s as a founder, you want to know, do you need to have the goal to sell your company? And maybe the best question is, how How big of an exit do you want to make? Because going indeed for the big one is going to be super challenging. But going for a route like acquire. Com, flipa, you can already have life-changing money by selling your company for a couple of million or 10 million.

[00:26:13.580] – Greg

That’s another thing that’s changed in the last 5-10 years. It used to be that you needed VC funding to get enough engineers to build a product and then go to market and get all the servers. It was very expensive. This is in the 2000s and the ’90s. You could bootstrap back then, but it was more common to win the big game. You needed to get your company to 100 million, which I’ve done twice in revenues, to be acquired for a big amount or go public. But these days, if you get your company to a million ARR or three million ARR or five million ARR. 5 million ARR business that doesn’t suck. It’s pretty healthy. Reasonable growth, 20, 30% growth. You fixed your churn problems and customers like it, it’s efficient and you’re mildly profitable and it’s useful. Those are worth five times revenues these days. Most other business, a restaurant or whatever else is worth five times profit, but it’s still exciting. So five times 5 million is $25 million, which is more than most VCs make who pat you on the head and say, Sorry, you’re not your lifestyle business. You got to flip it upside down to see what’s really going on.

[00:27:24.080] – Joran

Exactly. We’re going to go to part number seven, later VC funding.

[00:27:29.940] – Greg

It is one of the possibilities. If you create a valuable software company that’s growing, you have optionality. By the way, if you raise big VC funding to start, you don’t have optionality. You have to go as fast as possible and throw more funding fuel on the fire and sell it within 5 to 7 years if you can. Otherwise, they want to shoot you, and it’s no fun. So that’s the default case. It doesn’t work. But what happens if you grow a little company out of a service business and you’re in a vertical market that’s moving slowly and you’re experimenting, you’re there on the frontier of this new thing, and you start building and it starts going. Then all of a sudden, the market takes off because your product has matured, and the understanding has matured, or the market has changed. Your industry finally realizes everybody needs this. You could go fast. This is actually the best way to raise VC funding if you’re going to do it. Build a company that you understand what it is, what you want, the dynamics and how you sell it. I’m not against raising institutional additional funding later if you do the math and it works for you.

[00:28:34.200] – Greg

Meaning if I wanted to raise $10 million or $20 million and grow fast, the market’s taking off and I’m competing with other venture-funded companies. I think Shopify did a version of this. Services company in consulting, and they spent a long time building it. It was bootstrap for a long time, and then they started going, and they needed rocket fuel for a rocket.

[00:28:58.140] – Joran

Yeah, makes full sense. If we look at the different parts, I’ve already mentioned it in a way, there’s no one size fits all. What advice would you give SaaS founders who are unsure about the path they should be taking to grow their SaaS?

[00:29:14.220] – Greg

The first rule of the game is to know the game you’re playing. Founders, if they are building something valuable, they have a responsibility to understand all the ways that you can grow a software business and win a prize that makes sense to them. It’s not like you need to understand it all when you start, but it is one of things. You figure out how to go to market and email your customers, build code, get paid, and so forth. You need to figure out what are the paths that make sense, start trying them on and think about them and talk to other founders. In our Practical founder peer groups with 40 CEOs, it’s one of the questions. People say, I’ve got it this far. Do you think I should sell it? Do you think I should go long? I’m thinking about that. Because if people say, What should I do about this? How should I market my product? It depends. What are you trying to do in the end? You should have a theory about that. And the best position to be is undeclared, but sustainable, profitable, and growing, so I don’t have to choose right now.

[00:30:15.470] – Greg

By the way, if you ever want to get investors, the only place that makes sense for a founder is I don’t have to sell it. If you’re ever trying to raise VC funding, that’s the best place to be. I don’t need your money. I might want it. I’m inviting you into my business and you have more leverage. The first thing is you should think about the ways you should do it, and that the simple answers of bootstrap it, no outside funding, don’t ever do it, and VC fund and create a unicorn and go for it, the cool kids do that, which is so pervasive in New York, Silicon Valley, and other places that people can’t even imagine bootstrapping a company, even though most software companies in the world, in Europe, India, and even in the United States, don’t have VC funding. Vcs know this, by the way. They talk to a thousand companies and invest in three. They know that the majority of founders are going to do just fine. They just can’t win themselves. When you’re growing it at 30% slowly and making it profitable, that’s not something they can make their money on.

[00:31:16.190] – Greg

They have their own math. That’d be the first advice is to know what game you’re playing. Keep trying them on. That’s why I wrote the eBook. It’s free on my website.

[00:31:24.530] – Joran

We’re definitely going to link to it so people can find out more about that. On a daily basis, advise SaaS founders, right? Yeah. Maybe to get some insights here on what strategies or processes do you teach your group of founders to follow to make sure that they can…

[00:31:42.320] – Greg

It’s less about some master method, the template, and it’s all about this. It’s all very… You can do it in different ways. The laws of nature are you have to build something that’s valuable to a certain slice of your market, your ICP customers, so valuable that they pay you for it and get way more value and tell your friends. When you do that, you can do it without spending money on paid advertising or outbound like PLG, or you could do it with sales and outbound. And so there’s all kinds of ways to do it. There’s more commonalities about what companies look like at 100,000 in MRR or half a million or 3 million or 10 million, then there are one template to it. And so it’s not like a workshop where they’re all talking to me. We’re sharing what’s working for you, everybody who’s succeeding with outbound this year. There’s some people succeeding with outbound sales for higher ticket B2B software. What are the different ways they are doing it? What’s succeeding for them, and how could I apply this in my business? Having those conversations between founders is really the goal of the peer groups, but there’s all kinds of ways to do these things.

[00:32:57.010] – Greg

Some generalizations that I could see about the ways to do it is the thing to grow a software business. The things that you used to be able to easily spend money on 5 and 10 years ago, raise VC funding, throw a pile of money at it, grow fast, win the prize, kill your competitors, They don’t work so well anymore. Paid ads, outbound ad salespeople, those kinds of things. Oh, we’re just going to create a pile of content, have AI do it, or something like that, hurry up and do it. They don’t work so well. The things that to grow your business, like you’re on here, what we do with our podcast, with insightful interviews. You just can’t throw money at that. You have some junior person or outsource it or something like that. The other ways to do it that also have a founder market fit, if you will. You have, as we do both, an appeal to have these conversations that are part of marketing for us, if you would say that. But it’s not for everybody.

[00:33:55.590] – Joran

To summarize it, build something valuable, have a conversation with peers to figure out what is working and don’t just throw money at things that won’t work. I guess maybe to dive deeper on the last one. That’s probably been a common mistake that people just think we’ll just throw money at it and then it will do something. Are there any other mistakes founders make?

[00:34:17.750] – Greg

That’s just the myth of more, that if I do more marketing, all the 12 things you could do, a little outbound, a little podcast, a little content, a little trade shows, a little partner marketing, that thing that you experiment with when you get started as a startup and you’re trying a whole bunch of stuff. But eventually, when you scale, you’re not going to do everything. You’re going to pick a few things that work really well. You have to get over the myth of more and find your focus. That’s about product market fit and ICP. Of the 20 things you could do in sales and marketing to get customers, what are the two or three things that really work for us? This is end of year. We’re having the end of year. We’re looking forward to next year conversations with the founders and the peer groups than the ones I advise one on one. These companies are making really big progress in their business. Sometimes that’s reflected in their growth rate, not always, but they’re building and it’s keeping going. But I would say, universally, all the founders say, Gosh, it’s taking me longer to get where I thought I’d be.

[00:35:17.890] – Greg

We’re in the right place and we’re doing it. So new founders ought to expect that go hard, go as fast as you can with the resources you have, be as efficient as possible. And it’ll probably take you longer to figure out how to unlock it than you think. But if you keep going, then you’re going to figure it out. So part of the game is surviving long enough to figure out the things that scale. So you can’t push it sometimes, right? It’s the product unlock, the go-to-market unlock. It’s that conversion on your website unlock. It’s you finally figured out how to onboard customers so they get it and go, Oh, this is amazing, within a month or something. Founders are figuring all that out. It takes tries and experiments and keep figuring it out.

[00:36:04.280] – Joran

Nice. I love it. I can never really relate to that. We’re going to dive into the final two questions which are revenue-related. Go free to repeat yourself a little bit here because we’re going to summarize these answers. What advice would you give a SaaS founder who’s just starting out and growing to 10K monthly recurring revenue?

[00:36:22.830] – Greg

I talk to founders all the time who are getting in the game and figuring it out. They’re hearing about funding, they’re hearing about go-to-market, all the playbooks, content, and YouTube, and so forth. But it’s pretty simple when you’re starting. You have a product, but you don’t have too many customers yet. The real goal, the only goal, literally, is to get 10 customers that like your product and will pay for it and are likely to continue to pay. So that sounds really simple and easy. But don’t think about, Gosh, how big is this company going to be? And do I need a bigger office or whatever? None of that makes sense. If If you can’t get 10 customers that say this product is really useful. I can’t wait for you to build more features and I’m happy to pay for it. It’s really changing our business. We love it. Then you don’t get to go to a million or 10 million or 100 million. It’s really a simplifying principle for new founders. You need to have 100 conversations to have 30 prospects to get 25 people to try your product, to get 10 people who like it.

[00:37:28.450] – Greg

Will somebody pay for it? What do they look like? How are they different than everybody else? What problem are we really solving? That’s the first milestone for any SaaS founder.

[00:37:38.850] – Joran

Let’s assume we pass this milestone, so we’re now past 10K MRR, and we’re going to make a huge step, I know What advice would you give SaaS founders who are growing towards 10 million ARR?

[00:37:50.520] – Greg

I think there’s some commonalities here. There’s some generalizations you can make that are pretty useful, 10 million in revenue. I say this all the time. At less than a million in revenue, you’re a startup, you’re figuring it out, it’s an experiment, you don’t really know, you’re trying to find it, what is it, and so forth. By the time you get to 10 million in revenue, whether your product has $100,000 a year per customer annual contract value or $300 a month contract value. By the time you get to $10 million in revenue, you have a factory that’s up and running. It’s no longer the scrappy startup founder, you are the CEO, and you have a leadership team that can deliver the value to the customers every day, marketing, sales, onboarding, product, R&D, and operations. You have a factory that can run, and the founder isn’t doing any of those jobs anymore. So you need a senior leadership team by the time you get to 10 million. Otherwise, it’s a mess, and you won’t get there. It’s a factory to deliver the value in a consistent and efficient way, in a reliable way. And by the time you get to 10 million, you have a factory for acquiring customers efficiently.

[00:39:11.040] – Greg

So you’re doing two things. You’re saying, I’m acquiring customers and I’m delivering value It’s not just, oh, I sold my this deal and I talked to that person and did it like a startup. It’s not a little bit of everything like a little bit more of a startup there. They have a reliable go-to-market motion. They’re adding layers to their revenue, expanding regions, expanding products, expanding their market, maybe expanding their vertical market focus, their ICP focus. They have a way to do it. Any $10 million software CEO will say, There’s a hundred things we can do to acquire customers, but we are awesome at these two things, and that accounts for 80% of how we get new customers. You also would need to have fixed your churn problem. So there’s phases of the churn problem. But by that time, you know who who the right customer is, you know how to get them on board, you know what features they want, you’ve segmented your customers, and you do different things with different customers, and you have a reasonable churn rate, and you can upsell them in the future. No software company gets to $10 million without fixing the logo churn problem and the revenue retention problem.

[00:40:21.790] – Joran

Yeah, because in the end, you don’t want to fit up a leaking bucket.

[00:40:25.430] – Greg

Yeah, there’s many ways to do it, but that $10 million milestone, which is why $10 million are worth more to acquirers and investors. You’ve figured out the factory. You’ve taken all this risk out of the business. It’s steam rolling. You’re probably even a leader in your space. Most customers know about you, potential customers know about you and think well of you by the time you hit 10 million in your dental software space or your marketing tools space. You’re probably well known. So it’s a very different animal getting to 10 million. And the next milestone is probably 30 million after that. Nice.

[00:41:00.810] – Joran

Let me try to summarize. So practical SaaS founders, I guess it’s a different route you take as a SaaS founder than the typical VC route. If you’re going to take VC money, you have to sell your company one day. When you look at the founder friendly parts, you will have seven different ones. First one, long term profitability, fund early stages with client revenue from saving services on the site or maybe an angel round. Second one, exit to a strategic buyer. You’re going to have a higher multiple because of the strategic value. Number three, exit to a financial buyer, private equity. You can do a partial buy-out, and it is going to be on an ARR multiple. Then you will have a two-bit exit, which could be related to selling to private equity. Second buy, it could actually be a bigger check. Do your time and hope for that. Fifth, one, profitable lifestyle business. Run it with fun, do it your way. Then you could be a startup flipper number six. Check out sites like acquire. Com, Flippa. We both have them on the podcast, their CEOs, and fund the next business by selling your previous one.

[00:42:03.910] – Joran

The other last one, later, VC funding, fuel for your growth. But you could get VC funds on your terms.

[00:42:10.850] – Greg

Yeah, if you have a rocket, it’s not for most founders. The typical way of VC funding. That’s the myth. It’s actually not typical. It’s very uncommon that VC-funded founders raise funding, and it’s uncommon that those who raise funding actually succeed with it. It’s so rare. Fewer than 5% 70% of all software companies raise VC funding and succeed with it. Why is that the default case?

[00:42:35.790] – Joran

Because what you mentioned, the quote you hear as well, 70% walk away with zero equity value when you take VC money. The best position you can be as a SaaS founder is profitable and not needing to sell your business. Cool. I’m going to link towards the ebook. It’s on practicalfounders. Com. Seven Success Pals to win the Startup Endgame. If you want to get in contact with you, Greg, how can they do?

[00:43:01.440] – Greg

Simplest Way is on LinkedIn. I’m an active contributor to LinkedIn, a top voice, but people can reach me there and DM me on LinkedIn. They can also go to practicalfounders. Com and see my blog, all the podcasts, and learn about the Practical Founder peer groups for CEOs.

[00:43:16.620] – Joran

Yeah, we’ll make sure we’ll link to that as well. For people listening, please leave us a review if you haven’t done so on Spotify or Apple podcast. We’re going to add a poll to this podcast again as well. Let us know what you thought of this one. Awesome. Thanks for coming on, Craig.

[00:43:30.750] – Greg

Thanks, Ron.

[00:43:31.600] – Joran

Thank you for watching this show of the Grow Your B2B SaaS podcast. You made it till the end, so I think we can assume you like this content. If you did, give us a thumbs up, subscribe to the channel. If you like this content, feel free to reach out if you want to sponsor the show. If you have a specific guest in mind, if you have a specific topic you want us to cover, reach out to me on LinkedIn. More than happy to take a look at it. If you want to know more about Reditus, feel free to reach out as well. But for now, have a great day and good luck growing your B2B SaaS.