Serial Entrepreneur Club – EP71: Building a SaaS Startup

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This is the Serial Entrepreneur Club hour. We do this discussion and podcast every Friday at two o’clock Eastern. And today we’re talking all about how to build a Saas business. And I know Jeffrey, you’ve got a lot of experience in this as well. Given your name, Jeffrey Sass, but we are talking about software as a service, which I also call, Subscription businesses or digital platforms that you can build and generate thousands, maybe tens of thousands, in some cases, even millions of dollars.

Uh, Michele’s gonna lead us today. I am driving. So I apologize about the, uh, if there’s any issues with the sound. Hello and happy Friday here at serial entrepreneur club. Thanks to all the members who are joining [00:01:00] the room right now. So today we are going to talk about specifically about the SAS software as a service business model.

So, you know, I’m sure there’s a lot of people in the room, a lot of members in the. Who either have been involved with a SA or they’re thinking about a platform because that’s what it is at the most basic level to build. And what are all the components of this from a technical, as well as business model and finance point of view.

Um, so today we’re going to, you know, concent. From the launching and more the economic side. So we’re gonna have Colin who is also the founder of serial entrepreneur club. Be ours guest. Colin is a veteran in this field. Probably gosh, uh, at least 20 years back, Colin [00:02:00] has taken SAS focused business model companies public on the Toronto stock exchange, as well as had very successful exes for businesses operating under this type of business model.

So, you know, just to kick us off, just thinking about. Um, we’re gonna go really quickly on this show to questions and feedback. Um, but here are a few things to think about, you know, when we think about businesses that are software as a service, um, they’re very, you know, attractive quite often time from the user’s side, whether it be an individual or, you know, a business because you know, it could be fast deployment.

You know, little or no hardware, which means little to no maintenance and programmers. They oftentimes, you know, really, you know, take care of all the legal compliance [00:03:00] as well as testing, uh, you know, building out the whole nine yards. So. What does it take to make a successful SaaS product platform and what are the economic and investor kind of considerations, um, that we face making it profitable and scalable.

So Colin, we’re gonna turn it right over to you while we start bringing people on the stage. But, you know, kind of give us like the five minute, like rundown, you know, what are the most important components from, from the person? The startup side side? Yeah. I mean, first of all, if you’re in, if you’re on stage where you’re in the audience and you would like to share this room, please do so it’s that button at the bottom there, you can share the room.

It’s uh, the SaaS companies for me are. One of the best models that you can ever launch [00:04:00] as an entrepreneur. And I’ve had the opportunity to do it in the nineties with ISP and hosting and the two thousands with the hosting platform. And then, uh, very recently I’m invested in three, uh, SAS based companies.

One is, uh, safety data sheets. Another is a, uh, domain management system. And the third is an accounting. They all have similar characteristics. They’re all subscription based businesses paid monthly, um, or even paid yearly as in the case of our domain business that Michele, Jeff and I ran called.club.

They’re all subscription based businesses in accretive. They were, they were also all accretive as, as the company continued. uh, live on all of the companies grew and they grew in a very predictable way. So we had a good understanding exactly when break even was gonna come and [00:05:00] unlike the eCommerce businesses that, uh, were invested here in, uh, Michele, Jeff and I, the companies who are invested, those ones tend to go up and down a lot when it comes to sales and performance.

The subscription businesses are very, very consistent. And I, I, I, I, I will tell you this. They’re also consistent in that it takes six to seven years for a lot of these companies to break even. And the value of your company, isn’t the profitability in the company. It’s the value of your subscriber base cable companies are often sold based on the valuation per survivor.

When we sold.club, they looked at the number of subscribers, paying subscribers, especially those who renew the domain names. They looked at that and they used that as a valuation metric. They never looked at the EBIDA quite frankly, the EBIDA numbers in, in all of my companies, [00:06:00] when we have sold them, they have been phenomenal.

I mean, like you’re talking 20 plus times. EBIDA. The other components that you need to look at at, in AAS platform is the user growth. Is it growing? Do you have pricing power? Are the customers who are using your platform stuck on your platform? Are there unique hooks that you’re you have in place? Also? I will add to, if you’re considering a SAS startup, I’ve seen too many platforms to.

there is a lot of opportunity on the internet today to build a platform. If you can find the right niche, if you can solve the right problem that exists today in a particular industry. And there may be a, a few companies that are working on that particular problem, but if it’s a niche, you have a much better shot [00:07:00] at succeeding.

If it’s a broad based, I’m gonna create the next face. That’s a tough one. That’s a real tough one. And I just, I’ve just seen too many platforms to know where, where entrepreneurs have invested hundreds of thousands, sometimes even millions building these platforms and nobody uses them. It’s, you know, it’s, it’s, uh, it’s a shame.

They’re my opening thoughts. Uh, Michele and sure. Take it from here. So, so you brought up some really interesting points, um, for our conversation. One of ’em was about recurring revenue. And I’m gonna add on a little here in lifetime value of a customer. So, you know, before we jump to, um, our members for questions, which we are gonna do, I promise real quickly here.

I, I, I would like to hear you, you know, talk about that a little bit more Collin, because you know, we know cuz we’ve been involved [00:08:00] in these companies. Oftentimes you do not make money for years. Oftentimes you’re on, you’re paying customers to be on your. You know, for a year or so before you become profitable with them just, just quickly.

What are your comments on that and how do you present that to investors? Yeah, I mean, the first thing I will say is, you know, most of these platforms that I’ve invested in have a very high, gross margin. So every dollar of incremental revenue is huge profits. It could be 60, 70, 80% in profits, and that’s just the nature of the fixed cost of running.

Digital platform, but then we’re gonna look at some key metrics. And if you’re interested, if you are interested in launching a SAS business, I’d, I’d suggest you look at the following first, you’re gonna wanna watch your cost of acquisition per customer. This is very critical because your cost of acquisition should drop over time.[00:09:00] 

As word of mouth picks up. Uh, and as your product becomes a little bit more entrenched in the industry. So cost of acquisitions. Another one you’re gonna wanna watch out for is your average revenue per user. What are you generating per month? Next is churn rate churn, C H U N. Ugh, churn. And what’s difficult about churn is when you get to be a larger, uh, if you, if you get a, to a larger customer base, um, that churn rate can sometimes be pretty impactful in the sense that if I have a million customers and I have a 2% churn, a.

I’m now losing 24% of my customers a year and I have to replace those customers, but then I also wanna show growth as well. And, and there’s a, there’s a metric called the rule of 40 for these subscription businesses. You’re gonna wanna have, um, if you were to add up the EBITDA plus the growth rate, you’re gonna [00:10:00] want it to exceed 40.

And, uh, so you can have, you know, negative 20% EBIDA and 60%. And you hit 40 and that’s sort of the key metric that investors are looking at when they’re considering investing in a platform business. It’s that rule of 40, you can Google it as well. It’s something that’s pretty easily found on the internet, but again, with investors, we want to be very, very careful not to over promise, uh, having a, an investor base that understands.

The time it takes and the investment needed to get to break even is important. And I I’ll tell you this. I’ve had a number of investors who have just freaked out on me and they just, they let me have it year after year. And in a lot of cases, I bought out their shares and, you know, there were fights and whatnot.

And then I had other investors who totally got it and were totally. and they continued to back us if we needed additional funds to get to that break even [00:11:00] point. All right. Excellent. Some great advice. Yeah. Jeffrey, let’s go right to you. Yeah. So I think, you know, Colin brings up some really good points. I also think if you’re thinking about whether your startup idea is gonna be good as a SAS business, you want to think about things.

Stickiness and dependency, meaning how, how dependent are your customers on the product and thus, how, how difficult is it for them to switch or leave? Cuz that’s gonna increase the lifetime value of the customer. So if you have a, a service. That someone only needs to use infrequently or one time and they’re done.

It’s not gonna be good for ongoing recurring revenue. Think about some of the successful SaaS businesses. Think about, well, even with, with.club, with the domain names, you know, when someone registers a domain, if they build a website on that domain, It’s hard for them to leave. They’re using it for email, they’re using it for their businesses, their [00:12:00] website.

So they have to keep renew, renewing that subscription. As long as they’re utilizing the product, think about something like Canva. If you start using Canva and you’ve uploaded your logos and you have all your projects there and that’s kind of your base of operations for all your creative designs, it’s hard for you to.

Because you’re gonna lose all that stuff or have to transfer it out. So think about how dependent your customer will be on the service and, and if it’s gonna be difficult for them to transfer or leave, and then, you know, you have something that’s gonna be lasting and have a lower churn rate and a longer lifetime value.

right. Excellent. I, I completely agree. Um, and in the beginning of the, that could be a competitive advance. You can quickly onboard. Competitive customers or new customers. So, and I just wanna mention Michele, one other SaaS. I think the popularity of [00:13:00] SAS businesses have made some companies go a little bit crazy because I recently read that BMW is gonna turn the heated seat into a SaaS.

Service meaning if you buy a BMW and it has capable, um, heated seats, they will not activate that function unless you pay a monthly subscription for the heated seats. So I’m not sure if that qualifies as a SAS business or not, but clearly everyone’s trying to capitalize on this notion of recurring revenue.

Well, it’s definitely an as business

oh, yes, it is. All right. Jacob, please. What is your question or comment for us here about SAS businesses, Jacob. Uh, yes. Uh, but, um, you know, I’m a, a investor and, uh, but actually we are interested, uh, [00:14:00] size very much. Uh, we have some project, uh, about from size, but, uh, my question is, um, Size is, uh, very, uh, good traditions, but the most important, uh, because I read many BP about size, how the most problem is how they are very difficult to make profit.

Of course, uh, expansion as if find is the first customers, because, uh, you know, uh, you can find mix some sales from, uh, P2 B or from some P2 C, but, uh, uh, to. Ly, you will find the first customer from B2B cause the big customer, they can give more money, but they also, they will, if they use the B2B, they will lose the customer.

So, uh, my is, uh, [00:15:00] uh, how to, uh, make the first customer or, uh, first, uh, uh, good profit for the size. This is because, uh, I meet, uh, many project, but as they always tell. The good business model, the good, uh, uh, technology, but they can’t make money. They can’t to find the series customer who they will really pay you.

This is probably, maybe all right. So Jacob, obviously you’re, you’re bringing up the point. Like you, you need customers obviously, but in these kind of businesses, because they’re so costly. Oftentimes you need many customers and or high paying customers. So Colin, what was your, you know, experience? What’s your advice like?

How do we get those customers? Very rapidly. Onboarded? [00:16:00] Yeah. Earlier I talked about the cost of acquisition per subscriber, and we’re gonna wanna watch that very closely because if it’s too high, if it exceeds the lifetime value of a. And there may be some rare cases early on with a platform where that is the case, but for the most part, if it exceeds the lifetime value, then you’re losing money for every customer.

You sign up to the platform and then if you, uh, use real dollars and you dis or discounting, um, you know, that’s, you’re still losing money. So we’re gonna want a cost of acquisition that’s as low as possible. And I’m, I look back at what we did at internet direct the ISSP or easy hosting the hosting. Or Hostopia the hosting an email company or, uh, with, uh, authentic web, very recently the domain management company, uh, with.club in all those cases, we focused on a distribution strategy.

So the very first [00:17:00] day that when.club went live, we had already sold 30,000 domain names. As Jeff and I were ringing a bell and GoDaddy cuz GoDaddy was reselling the do club domain names. So I think the first thing is distribution and I know PR is also a big thing, but I’ll leave that one for Jeff.

All right. So yeah, I would just add, you know, it depends on the product, right? , you know, is it viable to pay the marketing expenses to get the broad market adoption? Or if it is, you know, in that case you get a bosses model. Like what we just talked about with club, where we went through, uh, you know, the retail outlets, the distribution that already had the audience in our case, in that scenario, it was GoDaddy or is it, you know, a very expensive kind of cutting edge new [00:18:00] platform, like a clubhouse.

Right. I think it varies a lot and you have to really be prepared to spend the money. If it’s something you need to get out, uh, the word on a general public, or if it’s a highly specialized thing. Um, I think somebody in the chat actually was commenting or orient. I hope I’m saying the name correctly. Um, you would look for, you know, onboarding specialists, you would look for people, entrenched salespeople, business development, people entrenched in that, um, industry already would be different methods.

All right. And also it depends too on, you know, each type of business is different, but if you have a, a SAS business that also has network. Then getting it in hands of people who will spread slack. For example, when it started out, recognize that if they just got a couple of developers in a company to start using slack amongst themselves, eventually they would want [00:19:00] more and more people within their company to get on board.

And then they would get to the level where they’d have to have a paying account. So it’s gonna be a little different for each type of business. You really have to understand, you know, who your target customer. Uh, and how the word will spread. Is it something that has network effects where it gets better?

The more people are using it, or is it more of an individual thing where you have to show the value for the individual who’s paying the subscription? Yeah. And that virality is also measured very closely by the VCs. So if you’re growing by X, because X number of people. um, uh, X number of people refer X number of people.

I hope I’m not dunno if I’m saying that correctly, but the fact of the matter is if, if I use the app and I refer to four friends, you know, that’s a four to one virality rate and the VC’s investors are gonna be looking at that. And, uh, that’s why we often see platforms launch [00:20:00] for free at first because the free platforms have a higher viral.

and I was involved in one company called password box. Uh, and I was on the board of advisor advisors and we had raised about 8 million. Um, but we only had a hundred thousand dollars in revenue and we sold it to Intel and, uh, and it was for a very large, um, payout. Um, and that’s because they, they saw that we had a high virality rate that the number of customers were growing very quickly based on word of.

All right. Excellent. So, you know, very diverse businesses, so very diverse, uh, go to market strategies, Adam. Um, welcome back to the stage, Adam, what is your question or comment? Hello, everybody. Hello. I, I really, I really love the spaces that are managed by Michele. They’re always like the [00:21:00] most entertaining ever.

So, um, so me, um, my question is because I, I really have like this really, really great idea and. I have like a billion ideas like per day, you know, it is very, it is a very busy intersection in my mind, but when there’s an idea that really strikes me, you know, I, I really write it down and, you know, plan it out and everything I have, like the, the whole app idea planned out everything.

The only thing I have as a question is can I have like some hard cost? Like how, how much is it gonna cost to build an. Uh, with the subscription based, um, uh, way of monetizing, uh, and, and what, what are some things that usually people like the startup founders, uh, overpay that isn’t necessary? I think that’s really my, my question, cuz I have everything planned out for it.[00:22:00] 

Yeah. So we’re gonna want to get to MVP the very first thing, when we, when we build these C. Um, don’t make the mistake that I made in two thousands and start scaling up to 30, 40 people when we didn’t have a product ready until 2002. Uh, the best thing you can do is scale your product. Sorry, keep it very lean in your organization.

If you can use offshore resources to help reduce your costs, uh, that, that can also be a. Idea. Uh, I’m a business partner in a company called geeks for less, and we have 800 programmers in Ukraine, uh, and some, uh, customer service in Philippines as well. But you can get a programmer for probably a third of what they would cost in the United States.

United States. It can be very expensive. [00:23:00] Now. I’m not suggesting you get in a plane and fly to Ukraine, especially in today’s current environ. Uh, but I am suggesting that, um, if you have a need for a lot of programs, I usually say five or more. You should be looking at India or Ukraine. I U it used to be Russia as well, but no longer.

Um, and, and that can help you really get to where you need to get without spending a lot of money. Now, if it’s a simple app, uh, and you only need one or two programmers to work on. locally is probably a better way to go. And if it’s too expensive to hire locally, then there you’re gonna want to do some type of partnership.

If you can convince the coders of your idea, your concepts, and you can give them options in the company where they can get a piece of it, if it, if it works out well, that’s another way of sort of the costs. [00:24:00] Um, I’ll have to say I, I failed at, at, at. These models sometimes as well. I, I tried to launch a company called shareholder blockchain and

think you’re got a little bit of all right, calling you you’re coming in and out. Yeah. Michele, if I can add about the apps, um, for Adam. Yes. You know, another, another thing to do apps, obviously the cost of developing an app is going to. Depend a lot on the complexity of the app. The other thing is, if you have an idea for an app, you know, you can test it first as a website, which will be much faster and much easier, and you won’t have to deal with approvals from the app store and all the other things, you know, you can test your concept, including with a subscription service, cuz it’s very easy now to build a website.

All of the eCommerce platforms have subscription capabilities built in, so you can start it with the subscription. Um, almost all of the web [00:25:00] development platforms now are, are mobile responsive. So you can have something that resembles an app and has the functionality without it being a native app. And you can test the concept first that way.

Faster and less expensively. And then when you find that product market fit, Perver the proverbial product market fit. Then you can invest in actually building a native app for iOS or Android, which will take time and more money, but you can prove your concept with a website and still people can use it on their phones.

Use it as a mobile website and see if you can get some traction. See if it’s working the way you want. See if people are willing to. And subscribe for it before you invest in the time and money, uh, of building a native app. Uh, um, so, so basically because yeah, you mentioned that like, it depends on the complexity of, of the app.

Okay. So first of all, I’m not a programmer in respect to anybody that’s a coder or a programmer, [00:26:00] but. For, uh, let me just give a little bit of detail before, you know, uh, my time is up here. Uh, like for example, the app is going to be like a reading app is going to be at the same time, a marketplace, you know, to get some, uh, uh, to get the books.

And at the same time is gonna be new technology on how to read, um, these books. So basically it’s going to be like serial, like, uh, instead of like reading lines, it’s going to be word by word. Would that be complex or in my mind, does it just seem so simple that it, maybe it could be easy. Can I, can I jump in and answer this question for, um, so as the app developer, right?

Like the first thing that I would say is, um, Go out first and get the wire frames done right. Before you even talk to any developers, they’re gonna have to see exactly how many screens they have to build. Right. So, and then after that, you can kind of get a quote and then, and then you can actually figure out the complexity and, and actually map out how your whole app is gonna work.

So I think that would be the first step.[00:27:00] 

Yeah. That’s great advice. Our thank you for that. Um, you know, for me, I would also. , you know, sometimes the cost is not all in the technical aspects, but it’s having a successful launch and getting critical mass. So in addition, you know, to our R’s advice, I, you know, have a, at least to one page marketing plan, an honest one about how much is going to cost to really get customers and get to that critical mass.

And. That could oftentimes be very expensive. So that’s a big part of the equation as well, because it’s not built it and they’ll come typically. It’s not anyways. Okay. Let’s go to Shelly. Hi, Shelly. What is your question or comment today, please? Hello there. So, um, [00:28:00] my question is definitely no comments, cause I’m unused is really been about integration.

I am someone who’s been working in that real estate and sales space and I’ve been building websites. Oh my God. For a couple of decades now, but I’m not a coder I’m working on. Website that responsive looks like an app, but it’s in everything. It’s the digital business card. It’s the website it’s, you know, gonna have it converted into progressive web application and where I’ve been asking myself, if I should do an affiliate relationship or go white label, some sort of a funnel software or something.

And I was hoping that maybe you guys could give me some. On white labeling. I don’t have the skillset or the resources to start trying to go and create software from scratch. And I keep hearing pro and cons and I was [00:29:00] hoping you could give me some good opinion, please. Yeah, absolutely. Um, so I think white labeling is a very strong alternative.

It could give you the chance. If you have the customers, you can drive demand. to see if it is a viable product that you wanna build out in the future while making money and learning today, you can learn a lot and get a lot of customers potentially by using somebody else’s system. So, you know, I think the thing to learn there is, you know, what, you know, how much support and how much customization is possible.

Um, you know, from any vendor that you’re looking to white label, and then there’s a lot of degrees of white label. It could be a complete custom, they have an API, you customize everything, or it could be as straightforward [00:30:00] as you could change a few colors and put your own logo. But it absolutely I’ve worked on, um, products where.

Actually in the real estate market from some top real estate software platforms where we allowed people to do different levels of customization. Um, and I would highly recommend in my opinion, to start off with the basic one where maybe you could change some colors, have your own emails that’s important, right.

And your own logo. Okay. That, that sounds fantastic. I’ve spent thousands of dollars already over the last 18 months, working all on all of this. And I’ve got the designs and the presentation down. So every time I present myself in beta I’m, you know, I’m, I’m passing the go, I’m getting through the gauntlet with flying colors, but now it’s about, okay, so what, what is necessary?

So I was hung up on that and I do [00:31:00] appreciate it. So I, I won’t be overly. I was just, um, I wanted to hear a confirmation of what my thought process was. It’s it’s, it’s a difficult space and I don’t wanna spend another several thousand dollars to throw it in the trash can. It’s just. R and D is, is killer with that yield look forward to hearing, you know, how it works out.

And it looks like we have column back on. How long did you wanna add anything for, um, you know, when you do private label or white label, it can actually be very expensive. It’s, uh, a lot of, um, development requirements that the end customers have, but consider co-brand and affiliates. You mentioned affiliates.

Affiliates or co-brand. Yeah. All right. I will absolutely, uh, add the affiliate of the co-branding. I have been approached by someone, but I haven’t gone that way because I think she’s just another white label, but I [00:32:00] will see if I can go to the source and make that proposal. Cause I do have a really great platform sometimes, uh, at, at Hostopia, you know, we would.

Suggest that the customer do a co-brand as a test to see the demand. And that was sort of our way of wiggling in there. And more often than not, once it was up and running and they’re getting a check every month, they’re like, eh, it’s, it’s working fine for me. I don’t need to do the private label. So it, maybe you can suggest that we set up a co-brand as a test.

Okay. I will receive that. And the benchmark I’d given myself was to get five new customers, a. Do you think that I could go to them with less? Or do you think that that’s a good goal for me to set? You know, just to be able to say, okay, I’m bringing on five, I’m onboarding five people a day for the last 90 days.

So, you know, here’s the value I bring to the table? Um, I would say it’s always good [00:33:00] to, you know, have stretch goals, right. For yourself. Otherwise, you know, you kind of can spin out of, you know, control and not accomplish. I would, you know, be aggressive for yourself, but not hard on yourself. Right. At least that will force you to think about what you need to do that.

I think it’s anal. Yeah. If you can think of it in terms of an equation or formula your business, what’s my cost of acquisition for those five customers. If my cost of acquisition for those five customers is. Substantially below the lifetime value of those customers. Then it’s simply a matter of presenting that to investors and getting to under getting them to understand the economics so that you can scale to 50 customers per day.

If you can do five and you can do it profitably, you can scale to 50. If it’s just a function of funding. And let me say this when, uh, when Jeff and I went to, [00:34:00] uh, venture. Atlanta, uh, to, to a pitch competition. Uh, we, we were told that 70, 80% of the pitches were subscription companies and that Silicon valley bank who understands SaaS based companies, the vast majority were still losing money.

Um, so there’s a good bank to work with. They understand subscriptions. They tend not to do loans until you get to about five or 6 million. But, um, there. Investors who, who are more inclined to invest in your type of business? If the economics makes sense? Well, I will try not to talk too much, but what’s funny and it’s really not funny.

I was outsourcing and I had that, you know, that me be happy day where you realize you’re making money and you you’re out at you’re wake, you’re sleeping, or you’re out at dinner and you hear that little chit in your account, so to speak and it got turned. [00:35:00] Then, then I didn’t know what to do. So I’ve actually learned a lot.

So everything that I have, I’ve built myself. I’m not outsourcing any of it. I, so my cost has been in my education and in my pain of arriving at this destination. So really moving forward, including any additional partnerships, you know, co-branding affiliate white label, whatever it is, it’s really gonna be at cost per month for that relationship either per month or per.

I’m in a really good spot and my cost to bring people in, um, gym, nothing. Cause again, I’ve, I’ve purchased everything, I own everything. So I take what you guys have said and let that push me through the next of thinking I’m gonna be coming out and going into beta September 1st and really excited. Yeah.

So thank you guys. Exciting. Exciting. And you’ll have to tell us how it goes. I I’m just gonna add this real quickly and then we’re gonna get onto the next [00:36:00] member. Okay. I think you said it’s a real estate application. I actually worked in like kind of these personalized websites that were through actually title and MLS.

I know that’s a lot of. And, but, you know, there’s a lot of opportunities. Um, but one thing I would say is you’re probably dealing with a less technically sophisticated client. So just keep that in mind too, which I’m sure that you already know. I, I, I, I want us to move forward, but that’s the, that I had to crack and that’s why I didn’t release.

I had to make it user friendly. And I finally got a site that a five year old can. So yeah, with that. Thank you guys. Are you great, great example too, um, to our members about a niche play. So we’ll look forward to hearing about your success, Shelly. Um, let’s go to rag off. Hey, thank you, Michele. Um, I think my question was partly answered by Colin, but I’m gonna be improvising that, so that, [00:37:00] uh, the other part of my question can be answered.

So, uh, what should SaaS companies focus on, uh, in their first to three to four years? Is it, is it getting more subscribers or adding more features? Uh, how should we see money or as a subscriber equate? Uh, at what time they should draw a line. um, you know, trying to balance it, like, you know, is it subscription or is how much money is left in the bank.

Right. And is there a public facing website that shows the subscriptions assess company has and I’ll start there. Okay. So the first thing we’re gonna wanna do is set a stage gate and that stage gate is MVP, and we’re gonna run a really lean, lean company like Shelly talked about. We’re gonna, once we get to that MVP, we’re now in a position to present to investors, but I will ha I will put out a warning here.

Most investors [00:38:00] still wanna see that you can prove the model that you don’t have a platform to nowhere. So the longer you can go, the better it is for raising money, the more you can prove your. so you hit your first stage gate of an MVP. At least you got something to show investors, right. And that does make a difference wire frames.

You know, I’ve seen that done before, too, where you have photos and you’ve designed it really nicely on paper, but not an actual coder. You know, you know, you can do that, but obviously an MVP is, is critical, a minimum viable product. The next stage gate we’re gonna wanna do is prove that this concept can work.

And sometimes you can do that locally. If it’s. It’s a localized app that you can take, you know, to multiple cities down the road, but we’re gonna wanna prove that we can actually gain subscribers and it, where we, the, the sweet spot is that your cost of acquisition per subscriber is [00:39:00] demonstrating that you can operate on a positive contribution margin, um, based on the lifetime value of the customer.

So if you actually can acquire customers and. When I say positive contribution margin, I’m not suggesting you’re profitable. And, and I don’t think it’s reasonable to expect profitability in a SAS based company for at least three to five years. Um, and sometimes seven to eight years. And it’s, it’s, it’s, it’s acceptable as long as you’re growing that subscriber base.

But if you can hit your second stage gate where you’re actually proving the concepts and then. Take the third stage gate is gonna be to prove it in a much larger scale. So if you could prove it in one city, oh my gosh. Now you’re starting to talk. The investors are starting to get excited and by the way, it’s a heck of a lot easier to raise money at a higher evaluation.

And it is at a lower valuation for a, uh, uh, a concepts. If you could prove your concept, but [00:40:00] then we’re gonna take it from that one city, just like Facebook took it from one high, from one college. And you’re gonna now expand to multiple colleges. You’re gonna wanna expand to 10 different cities or 10 colleges, and then you’re gonna wanna expand to a hundred in the case of Hostopia we did 10, uh, 10 in Canada.

Uh, and then we went to, you know, a hundred or so distributors in the United States. And then we went to south America and then we went to Europe and eventually. In your niche in your product category, the dominoes will fall and you can become the standard bearer of that technology. It does happen. So there’s sort of like four or five stage gates to think about.

Right. Excellent. Yeah, I would, I would agree. Especially since, you know, as, as we’ve all talked about it, there can. , you know, a lot of barriers to entry, but also barriers to success. So we really need to make sure that we’re [00:41:00] going down the right path. Okay. Rich. I know you’ve, um, had some comments and some questions that I saw in the chat.

Love to hear, um, what your question or comment is. Yeah. Hi, Michele. Thank you for bringing me up. Um, my question really was, you know, asking the panel about, you know, what advice would you have for a disruptive, um, B2B, um, SAS platform company? Um, so that’s, that’s really my question. And, um, we can go from there.

Yeah. I, I think I remember back to Jeffrey, um, Jeffrey Moore, who was on our show, who talked about the adoption life cycle of technology adoption. And, uh, let us B to B or B to C. We’re really gonna wanna position. We’re gonna wanna, hopefully we positioned our platform at the right time [00:42:00] in that cycle where we’re just beginning to hit the early majority more often than not, uh, a new industry and call it like NFT platform or something like.

You know, you start it. And then the whole market crashes, like we saw that with NFTs and then it doesn’t come back for another five years. And that’s what Jeffrey Moore calls the chasm, that’s a difficult position to be in. And we it’s a, it can, uh, it can bankrupt a lot of the early technology, uh, companies, uh, in a, in a particular industry.

So we wanna really survive that chasm and then catch the wave of the early majority, cuz when that takes. the person who wins is the one who can deliver the fastest. The reason AOL one is cuz they sent just gets out everywhere, you know? Um, so that’s something to consider, uh, just positioning it right on the technology adoption curve.

You know, if you, if you’re, if, if you’re already down the path and [00:43:00] you, um, you know, you’re not in the early majority, you’re in sort of the later stage or whatever it. , there are some techniques that you could use to gain customers and B2B. One of the ones we used the most was our winning RFPs. And a trick that we did was that we helped our customers write the RFPs and more than not, they, you know, they were generally pretty lazy.

They didn’t wanna go out and do the homework, but, um, we would, when we made contact with a potential. Say, oh, well we have a contract with.dot dot and you say, well, can we just send you a copy of our sample RFP, just so you can check to see, um, what would be involved, you know, in, in doing a migration or, or signing up, uh, sending up a new platform.

And so we would send them, our RFP in our, our RFP would have a lot of traps in it. You know, things like, you know, do you have this, these patents that, um, people might have sued for? Or do you. [00:44:00] Multi langu language like the French and English for Canada, Spanish and English for the United States. We’d always try to find unique things that we have in our platform that they don’t have.

And then we would add that to the RFP.

That’s great. I, I, that is such a good suggestion. Oh my gosh. And even if they weren’t looking right, like you’re in the top of their, uh, mind when they’re thinking about how their platforms are perform. All right. So we have about 15 minutes left of this session. We’ve had a lot of great member interaction.

Um, are there any more questions before we move on? From the folks on the stage here or anyone who wants to come on stage? Yeah. Could I go? I, I didn’t really. Yeah. Yeah, absolutely. Yeah. all right. Cool. Cool, cool. Um, yeah, so I had a question, right? So I’m in the web three space. I created a product it’s [00:45:00] more of a SAS, right.

So I’m trying to figure out, so I’m trying to figure out whether or not it should be subscription based or if, for B to C or if I should go the B to B route. Right. But I think, uh, it’s more of. So, what I did is I created a CMS where I created a lot of features and then I mix it into one. So then now I have a dashboard and then I have a site where you can basically see all the stuff that you entered into the dashboard.

Right. So I’m trying to figure out how I should structure the subs. Should I go the subscription route or, or should I just white label it? That’s kinda like my question on that.

Okay. So. This is similar to the, um, decision that we had to make when we launched Hostopia back in two thousands, GoDaddy had already launched into the marketplace. So we were behind, uh, we tried to launch a direct, you know, a it’s still B to B, but B a small business. And our [00:46:00] passive acquisition per subscriber for that channel was around $1,500 was insane.

We were not making a profit. We were. $450,000 a month. Then we came up with this idea that why don’t we private label it or white label it through distribution partners and they can, um, then we can acquire subscribers at a much faster pace at a lower cost. So we went and we signed up bell, Canada, and eventually at and T both phone telecom

to drive much higher growth rates and ultimately sell and go public and sell to a fortune 500.

All right. I think we all, so Colin, I think we lost you at the end there. Yeah. All right. So I think the suggestion was, um, from your experience, depending on, you [00:47:00] know, what the, what the application is, it might be worth it to invest gate going, you know, through distributors. In other words, B2B. Um, I, I would just say there’s yeah, go ahead.

There’s a little bit of extra work that you need to do for private label that, um, That can increase your development costs. Uh, but you can, sometimes we talked earlier about a co-brand like you can sometimes set it up and just test the market and talk to some potential distributors, uh, about doing it.

And again, I mentioned earlier, a co-brand is one way of entering the market sort of a hybrid between affiliate and, um, and private label. But, uh, if you do wanna do private label really. And you need to add an extra layer to your platform. So we had, you know, our main focus was end customers, no matter what, you know, building websites, using email, that kind of stuff.

But then we had to build a [00:48:00] platform or sort of a, a secondary, um, platform for the management of all the subscribers and that had to be multilingual. And it had to have certain standards that, that, um, these big, large corporations wanted to have in. Um, so that’s a consideration your R and D costs are gonna go up when you go private label, but I’ll tell you, I love the distribution, the power of using your, using your customers or distributors your business.

Ultimately it is, it will drive your cost down of acquisition.

Right? So our, I would just add, um, to what Colin said, You know, it’s a different customer that you’re supporting, right? So, you know, you just need to have those tools for a secondary support team. To be able to help their customers, that kind of thing, as [00:49:00] well as, you know, access into maybe a, a, a different level of, um, you know, reporting and data.

So if you can get a distributor distribution and go B2B, like you could potentially grow a lot faster, right? Because you get to leverage their clients. Yeah. Yeah, definitely. Yeah. Thank you so much. Yeah, I created a, so I’m, I’m the main developer, right? So I built all this on my own. So, um, yeah, Def what I might do is just talk to other, um, collections that have a community and see what their take is on the product.

And then probably talk to some of these larger marketplaces and then see, talk about integration and then see how that goes. Yeah. I think that’s a great idea. All right. We have hope now here on the stage, um, hope looking forward to hearing your questions or comments for the panel in co. [00:50:00] Oh, hi Michele.

And, uh, hi Colin and Jeffrey, everyone. Uh, so I’m based in the UK and I have a SaaS company that I’ve just recently, uh, developed and launched. And, uh, so my question really is. Um, geared around, uh, hiring sales people. So I’m looking at a, at a annual revenue per customer of about 830 British pounds. And so I’m thinking, is it, is it wise to hire people and pay them commission or is it better to get, uh, in-house sales team?

Thank you.

Go ahead. My Internet’s struggling Jeff. So if you could take the, but the, so the question was whether to, to hire an outside sales team or build a sales team. In-house that was the question. Yes, that’s correct. Yes. Yeah. I mean, [00:51:00] a lot of it will depend at the stage you’re at and the finances the company has, obviously it’ll.

Potentially less expensive upfront, but more expensive, long term to use an external sales, uh, team. Um, and again, there is some variation based on what your product is, you know, at the end of the day, nobody is gonna sell your product as well as your own sales team. Um, and when you use. Reps, you know, outside reps who are representing other product lines.

When they go in to see a customer, again, this varies by vertical, but if they’re going into a customer, they just want to close a sale, not necessarily the sale of your products. So, you know, you’re not gonna get the same. Level that said in certain industries, you know, having a great sales rep, um, when I was in the video game industry years ago, you know, sales reps were crucial to our sales and distribution, but we also had our in sale in-house sales team, [00:52:00] working side by side with those reps.

So it’s certainly okay. In the early days to start out, trying to, um, use outside sources, but as, as early as it’s practical, um, You know, no one’s gonna sell your product or service as well as an in-house team. That’s a hundred percent focused on it that knows the product inside and out. And that really is relying solely on the success of your products or services.

That’s my opinion. Yeah. I think it’s about testing. It’s about going back to the cost of acquisition for subscriber. We’re gonna wanna find the lowest cost of acquisition. So it could be you set up a Google SCM program with inside sales people, or it could. I have all outbound sales people with a higher commission, or it could be, I advertise on Facebook and I generate, you know, there’s many different ways or approaches to the marketplace and you’re gonna wanna find which one works and which one doesn’t.

And then obviously [00:53:00] when you find one that connects, we’re gonna wanna, um, scale that acquisition of those subscribers, um, By tens. You’re gonna wanna say, okay. If I can get a hundred subscribers, let’s get them funding to generate a thousand, uh, a thousand subscribers.

Thank you, Colin. Thank you, Jeffrey. I really appreciate your advice. Thank you. Yeah, and I, I would just say head on for me, like, I think, especially at the beginning, any way that you can economically get more customers is. You know that you should be trying to do, and then you can figure out where to turn up that lever.

I mean, it might be that you have a very defined sales process, whereas in, if it’s, I’m just making this up, maybe it’s airplane, air conditioners, whatever. Right. There’s probably some very specific people that can [00:54:00] sell into that product very well, but they may not. you know, wanna come to work for you full time.

So if you could have some kind of, you know, system where they could be rewarded for sending on leads that convert, and there’s a very defined, elegant handoff to your team, like that might work for you. So I think just depending on the product, and if you can get to the right people that have those contacts, you do it and you do it all day long and you have some insight people.

Um, because no one’s gonna care, you know, as much I would say for the most part about your customers and working through the operational details and onboarding, then probably somebody that’s working for you, but figure out, um, every single way you can get a lead that converts. Thank you. Thank you. Yeah.

With one of our companies also, we’re looking to hire a salesperson for the safety data sheet company. And so we’re considering [00:55:00] targeting, uh, an X employee. Of our competitor, who has a Rolodex who can hit the ground running and make us money fast. And, uh, so it really depends, but we’re gonna wanna hire people who have a Rolodex or have done it before.

Um, time is not on your side. When you have a platform that needs to break even, uh, we wanna acquire subscribers as fast as possible, and we’re gonna, at a certain point, we are gonna wanna shift our, our resources from R and D. To sales and we wanna transform into a sales organization when Hostopia started.

It was probably about four years before we truly became a sales organization. And we’re gonna wanna learn everything about that. Um, we learned a lot from Jack Dailey and burn Harnish. I know both of those speakers have been on this show and, uh, you can catch them on the, in the podcasts or you can just.

Startup club, Jack Daley or Verne Harnish. [00:56:00] And you can hear about, you know, what it takes to really run a sales organization. And I’m telling you, you’re gonna wanna switch from R and D to sales. Brilliant. Thank you very much, guys. I really appreciate your help. Thank you. Thank you. And thanks all the members, um, for attending today’s session, we’ve had a great session, a lot of good information, um, and this is gonna make a great podcast and blog article.

So be sure to check back sometime mid next week to ww.startup.club. So you can get the notes. I think in this, um, blog post Mimi, we could probably even add, um, links to some of the prior. Um, shows that talked about. so let’s go ahead and wrap up. Um, just a reminder, please, um, sign up for our email newsletter and follow people, you know, right next door to you or [00:57:00] above you on the stage that you’ve gotten value out of.

It’s a way that we can all contribute to each other. And if you sign up for the email newsletters, you’ll be sure to not miss anything. We send out email alerts. About once a week, um, in terms of giving you information about new or exciting events that are, that are coming up. So thank you, everyone. Colin, why don’t you give a few parting words and, um, it will be a wrap for this week.

Colin.

All right. Maybe he does. There. He is. There he is. I’m back. Um, I’m on the wrong screen. Any, in any case you. It is one of the most frustrating businesses to start. You do lose money. It’s all about communicating with investors and setting clear goals and stage gates. And if you do that, you’ll find that your hard work and the years you put into it [00:58:00] will pay off one day.

I’ve sold for these companies already. And, and I not made the money on the actual operations, but the sale of those companies. So stick with it.

All right. Excellent. All right, so thank you, everyone. This has been part of the, um, startup.club network and check out the website. There’s hundreds of pass episodes as well as blog articles. And now we have this show actually as a podcast on all your favorite podcast networks. Thank you. Be well and have a wonderful.

Thanks everyone. Thanks Michele. Thanks Colin. Thank you.