April 4, 2018

A Mantra for Early-Stage SaaS Startups: Execute First. Optimize Later.


Early-stage SaaS founders should spend far more time executing instead of strategizing.The urgency to execute is particularly true for making financing decisions.We fund early-stage SaaS companies. Having spoken with 250+ Founders over the past year, here are the patterns I’ve seen:A surprising lack of:

  1. Commitment to acquiring capital.
  2. Urgency to close deals and bring in capital.
  3. Understanding of the capital raising process.

Many Founders are putting their businesses in a position of being undercapitalized on an ongoing basis and thereby unable to execute on growth opportunities.These findings have led us to wonder “Are Founders optimizing for the wrong outcomes and putting their companies at undue risk by doing so?” A Mantra for Early-Stage SaaS Startups as follows:

There are different proven ways to succeed

Tools come in different shapes and sizes. If you’re assembling a chair, you may need to use different types of screwdrivers to get the job done. There are minor variations but they do the same job. They help you build.This concept applies to business and is particularly relevant to capital. At the end of the day, capital is a tool for removing constraints and unlocking opportunities. It comes in many different forms along the way and ultimately manifests as cash to be put to work in your business.[/ctt]Funding from credit cards turns into cash from friends and family and then from angel investors. Then, the first institutional equity (seed) and initial institutional debt may come into play, which may turn into growth-stage venture capital or private equity and more debt capital and eventually an M&A event or IPO or cash flowing company you hold onto.The form (and cost) of capital changes along with the stage of your business.Get the tool (the cash), use it. Then, decide you need more tools that can help you refine the thing you are building (your company). So, execute first, optimize later.

Premature optimization applies to different aspects of business

The same concept applies to sales and marketing, hiring, and product development. The principle here is, in Facebook parlance, “Done is better than perfect.”For Sales and Marketing, get to market and start learning what may work. Acquire customers, work to improve the economics, but don’t cut off opportunities out of the gates because they’re not performing to preconceived notions of perfection. Get the metrics some time to improve.In Hiring, run a process, make a decision, and move forward. If it’s a disaster, solve for it then. As you grow, you’ll get better people.With Product Development, ship product now, refactor later.

Let’s Focus on Capital

Evolutions in the type of capital you utilize in your business are inevitable. These changes happen over time and depend on how your company’s fundamentals and potential look when you go to the capital markets to procure funding.There is a balance between being strategic and optimizing yourself out of a deal. Don’t get in the habit of doing the latter, especially not at the early stage. The capital raising process is inherently long and arduous. It may take you nine months from thinking “I could use some capital” to actually bringing it in the door. So, you have to own the process and always be pushing it forward in a focused fashion. At a high-level, that looks like:

  1. Deciding how much capital you need and how you intend to use it to get somewhere (i.e., hitting milestones)
  2. Identifying what types of capital are actually available to your business at this stage and building your list to get in front of the players
  3. Getting to and negotiating a term sheet (or hopefully multiple). A BIG gate in any capital raise. Unless you have a term sheet, you really don’t have anything.
  4. Superserving post term sheet. Cliche alert: Time kills deals. So, ensure you and your team are hyper-responsive and organized. You’re not the only deal the capital provider is working on, so this will help you stand out and will make the capital provider feel better and better about the deal along the way.

Go heads down executing on your business for the next 12-24 months, then resurface, rinse and repeat.When you do resurface the capital conversation, hopefully you’ve actually hit your milestones, proven yourself to be a good steward of capital, and can achieve another successful financing with better terms, now you’re in a position to do a bit of optimization. The same rules apply though, don’t be pennywise and pound foolish.

Let’s Recap

Spend more time doing than planning. At the early-stage, you just don’t have enough resources to plan, plan plan. This mix may shift for later stage companies with more breathing room.Make decisions and commit. Move quickly and focus. Iterate and optimize later. If it turns out your decision was wrong, course correct. Give it some time to play out though; otherwise you’ll be flailing.Recognize and utilize the tools at your disposal. If you are lacking resources to get identified jobs done, go get those tools.Speed and certainty matter when securing capital.