What is the top advice entrepreneurs never hear that they need to hear? In this week’s Workshop Wednesday, SaaStr founder and CEO Jason Lemkin shares 7 pieces of wisdom that founders are never (or rarely) told so you can course correct and do better.
#1: Don’t hire a VP (or anyone in the early days) that you aren’t 95% sure is great.
Founders between a million and $250M are talking about lowering the bar for hiring because they aren’t sure if the person is great or they’re trying to fill a gap. When you have something – a million in revenue or a 100 customers – it’s not all about the competition, feature gaps, and funding. It’s about attracting truly great talent to your company.
The best engineers and CTOs build and release better software faster than the competition. A truly great Head of Marketing or Demand Gen will get you more leads than the rest. A great Head of Sales will move the needle.
All that matters is people, and the number one mistake founders make is hiring a VP of anything that you aren’t 95% sure is great. A few months go by, and you hire someone that you know isn’t great, but you can’t do it all by yourself anymore.
You can’t do that. You have to commit to meeting at least 30 people for any role. If you aren’t meeting that many, you aren’t taking hiring seriously. But you get tired and lower the bar. It never works. That placeholder for the VP of Finance never gets the financials done, and the VP of Marketing talks and talks but hasn’t ever worked with a sales team.
There is a 0% chance it works. They won’t work out, and almost always, that functional area declines. When you hire that VP of Engineering who never learns the product, it doesn’t work. You end up worse off with features shipping more slowly. Then, they hire people under them who have never learned the product, and they burn money.
It’s better to go without help than hire someone who can’t do the role.
#2: The mentors and investors that give you the best advice often don’t sugarcoat it.
This has become more of an issue over the last two years because things have gotten harder for some people. Folks are sensitive, and sales folks don’t want to be told they have to hit quotas, and founders are more prickly about advice.
It sounds simple, but the best folks out there will give you advice you don’t want to hear. They won’t sugarcoat it. If you want to be a great founder, you have to be able to take this criticism.
Back in the Adobe EchoSign days, they were all SMBs and coming up on a million in revenue, but growth wasn’t fast enough, and they were running out of money. Jason spoke with a beloved mentor who he thought would give him a pep talk, but instead, he diagnosed the problem in 90 seconds and asked Jason who he had closed and how many of them he visited last month.
The answer was zero. The mentor said, “If you don’t visit them next week, you’ll fail.” No one wants to be critical today, and founders are getting participation credit. So, as a founder, you need to build up a thick skin in 2024 and draw out that advice from your mentors.
#3: How badly do you want it? Committing for 10+ years with a great co-founder is key.
This might sound basic, but it’s not. You need to know that all co-founders are committed to the next ten years. It’s harder now. The bar to IPO is high. The last three companies to IPO were all at $500M, growing 30% or more. You can IPO with less or get acquired, but it’s important to understand what this bar is.
Even 5-7 years ago, HubSpot IPOd at $100M in revenue. That used to be the bar. Now, it’s $500M, and the prize is 5x bigger. But if cofounders don’t want it more than life and it’s not bleeding out of their pores for ten years, you might not make it.
Read this classic post on the founder commitment test. Prove your commitment by forcing yourself to do ten-year vesting. If you’re cool with it and your co-founder says they want stock vested upfront, you’re not doing the math right.
This protects founders going long. Even with multiples and markets down, the prize in SaaS is bigger than in the past.
#4: You may be falling out of product market fit.
You should determine if you’re gaining or losing market share every month, if you can, every quarter, at minimum. This is a proxy for whether you’re falling in or out of product market fit. It’s especially important if you’re doing annual contracts because it could take two years to realize.
At best, it takes quarters to see the decay of product-market fit in B2B. Founders need to be honest about it, though. If nothing else, you always have to grow faster than competitors in tougher times.
If you’re in an impacted category and your growth slowed from 100% in 2021 to 30% today, that’s tough, but you better find out how your bigger competitor is doing. If your growth slowed from 100% to 30% but your competitor is growing 40%, you’re falling out of product market fit.
If you’re at 30% and a competitor is growing 10%, you can blame that on the market because you’re growing faster than them. At a bare minimum, you should gain market share.
However you do it, find out how quickly they’re growing and how much revenue they have.
#5: Bad investors really can hurt you.
This is a niche, subtle one that’s not always actionable, but it’s not discussed enough. If you’re raising venture capital or plan to, and you have choices, know that bad investors can hurt you.
You want investors who are there to support you, and no matter how fancy their brand is or how much you like them personally, you need to find out what that support looks like.
If your existing investors aren’t supportive when you need to raise more funding, it’s really hard. If you’re Wiz, everyone will want to invest in you as long as they can afford it, but most of us will have good-not-great growth, so it’s harder and takes time.
You want someone to support you who will be willing to write a bridge check when you need it. And, occasionally, a bad investor can create a crisis of confidence across your syndicate.
Doing founder diligence on VCs is surprisingly hard, but investors are kind of like hiring VPs. If you have more than one choice, slow it down. If someone says you have 24 hours to sign a term sheet, they’ll always give you 48 hours.
Ask for a little more time. Don’t be blinded by that logo and make the wrong decision.
#6: That VP who hasn’t leveled things up in 90 days? They never will.
This is the flip side of number one. You’ve made the hire, and around 40% of the time, they won’t work out. Even if you’re 95% sure of the hire, you don’t want to give them too much time. It’s a mistake.
Here’s the truth. A VP who hasn’t leveled things up in 90 days never will. That isn’t to say that everyone should go in and triple sales in the first 90 days or quintuple the number of leads for marketing. Sometimes, that might happen, but you have to see something happen in those first 90 days.
It could be as simple as having four reps. Two of them are hitting a quota, and two aren’t, so you move out the two that aren’t and bring in one of your friends. Now, you’ve got three performers, and that inherently increases revenue.
Revenue always goes up with a great VP of Sales, which happens in every function. Don’t wait until you’re at day 180 to make changes. Take a progress check at 90 or even 60 days, and take action that day.
They never get better in the second quarter, and you’re tired because it took six months to find that VP, but you’re better off with no one.
#6b: A VP that slows down for two quarters never speeds back up.
If a VP hasn’t put any points on the board or tilted the curve, it’s time to go. On a related point that is happening more often today, folks are seeing deceleration. It’s hard to hit the numbers, but emotionally, people struggle when sales get harder and revenue slows.
How many quarters do you give a VP to get back on track? You have to give everyone a mulligan if they’ve done well for a year. But after two off-quarters, they’ve lost the spark or confidence in almost every role and no longer believe.
You’ve got to move on. You never get your mojo back in sales, so you have to move on. VPs with two bad quarters never reaccelerate.
#7: You can’t spend your way out of a tough patch.
This point is only for a subset of folks. Most don’t have the luxury of having millions in the bank, but some of you will. You can’t spend your way out of a rough patch. If you’re lucky enough to raise millions or tens of millions, you must spend it like it’s your own money. When you open the news and see that a company raised $200M and ran out of money, you might wonder how that’s possible.
They tried to spend their way out of a tough patch. You can’t get growth back by spending more. It doesn’t work. You have product market fit issues, competitive issues, and team issues. You can’t spend your way out.
If venture capital seems alluring when you haven’t raised before, you’ll realize it’s extremely expensive, dilutive, and addictive. So, always spend it like it’s your own money. Talk to your mentors and investors if you’re in a tough spot, and ask them if your plan to get out of that situation is going to work. They’ll say no if you’re trying to spend your way out.
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