Ask HN: I need advice on my first B2B SaaS startup
We started working on the product 4 months ago, and are still in the validation phase of the idea, which is showing a lot of potential, yet this hasn't materialized into revenue / paying customers just yet. Trying to look objectively at our progress, it seems we have accomplished a lot in 4 months: we have a working product, 5 signed pilot agreements (to start once we finish a couple of features), and we definitely get a 'wow' impression when we showcase our product. Business process consultants seem to particularly see the potential of our platform.
We have only 8 months of runway left, and will need to raise capital to stay afloat. My questions are:
- Most blogs seem to suggest that in order to raise a seed round you need around $100k in ARR. How are we supposed to get anywhere near that, considering we started working on the product only 4 months ago? Even if we go through the rest of our savings, I don't think it is likely we can hit such a number in the next 8 months.
- Is the advice from these blogs for startups in a later stage? How likely are we to raise money without the kind of traction these blogs talk about?
- What strategy would you recommend for companies in our stage? Is friends & family / business angels our only option at this point? How much would be a good amount to raise from them? We think that if we could hire 4 - 6 people we would be able to move significantly faster. Even if we have a good product, it still needs a lot of work.
EDIT:
Product link: www.seliom.com
79 comments
[ 2.3 ms ] story [ 141 ms ] threadBut every where else that I have seen, your intuition is correct: friends/family.
This might be a good thing, because the sales is really what proves the product. Look at the dozens of low code platforms that compete in your space (if I understand your concept).
Good luck.
Taking funding might get you out of a short term hole, but it's a tradeoff with costs down the road that will be paid one way or another.
> We have only 8 months of runway left, and will need to raise capital to stay afloat.
Depending on your goals, there could be a number of paths open to you that don't involve outside funding.
> Depending on your goals, there could be a number of paths open to you that don't involve outside funding.
Could you elaborate on this? Thank you!
If those are the only goals, then they might be accomplished by either joining a company full time or consulting.
I hope you see what I'm getting at here. You'll need to be very specific about your goals and the company's goals before enumerating options.
You've picked one option - outside funding, but don't seem to have considered anything else.
As another example, you noted earlier:
> Our solution is a very horizontal process automation platform that has the potential to adapt to a lot of different industries and company sizes with the goal to automate pretty much any business process.
Your pricing model is $10/month. What other potential customer segments might there be which will pay 10x of that?
In other words, getting funding from your customers rather outside investors might be an option. You haven't said anything about what you tried in that respect.
We have not tried to get funding from customers, but I think that perhaps the idea of consulting + finding customers willing to pay for a solution that has not been built yet is a good option to consider.
pre-seed and/or angel investors
freelance to stay a float.
funding portals:
https://www.crowdfundinsider.com/2018/03/131246-finra-approv...
https://www.crowdfundinsider.com/2018/06/134408-there-are-no...
Push the people you have signed agreements with to start using the system. Maybe they don't need the features they asked for. Push them to pay you.
Do not pursue an investor until you have actual clients or money coming in. This is the first thing they will ask about and you will close doors if you approach them too early.
Use the stress of your short runway to push you to sell. Every conversation you have with potential customers should be about how you can get them to pay. Talk past their requests for features or whatever, something like "This is a great feature that we are working on for you and if you sign up for a year's service, we'll discount you until the feature is delivered".
Just a word of caution here. It would be important for you and the client to already be aligned on financial terms / paid pilot when based on feature development. When dealing with larger organizations, it’s not unusual do see B2B postmortems caused by ‘death by a thousand features’ where the deal never happens. Until the organization has to pay anything you may not have a deal at all (didn’t go through procurement, legal, etc).
1) It provides quick cash so it removes the stress of having to look for money too soon.
2) Direct customer feedback while working with them on day to day problems. At this point you really want to understand your customers pains so later you can solve them with technology.
3) Initial validation/traction for your product. At the beginning, customers will value your consulting way more than your product, but for every new customer, try to provide less consulting and cover the rest with your product. Check if your customers are equally happy.
If right now you're bootstraped, no revenue from SaaS yet, you and your cofounder are on your own and consulting, if related to your product, can give you 2) and 3) but more importantly 1), at a far bigger payout than you'll get from an early MRR.
This advice is opposed to common YC advise "don't lose focus, consulting IS losing focus" and I agree, but right now you're not funded, not accelerated, not incubated or anything and you're trying to finish your product. Stay afloat and don't burn your savings to the ground.
One more advice: finish your MVP soon, and at some point, early than you imagine, tell your first customers that's the version you're putting in production right now and it'll be like that for a while, because waiting for that customer(s) that "will definitely buy once we do X and Y" will KILL your roadmap and KILL your startup. You'll be doing features after features, won't focus on your core features and propositons, and won't discover what is your killer feature that you must polish. That's what will keep your first customers with you.
I would do the discovery phase for free, but I'm not sure how to phrase it. I fear using the word free, as I feel that changes the dynamics. And would set expectation for a cheap product down the line.
2) Even if your technology solves a company wide process, I wouldn't sell it like this at the beginning. Touching many departments it's a pain in the ass for your champion: need to convince a lot of people, etc, so it's unlikely they'll do it. Optimize for your champion pains and find a reduced version of your product that solves his pains.
3) Engage your champions in the product discovery, make them feel like if they're also defining the features (but don't build exactly what they asks for!!). Once they're excited about it start selling them the grand vision so they can sell it internally involving more departments.
Is there anything you can do to stretch the runway to 24?
I don’t think you want to raise a new round with 0-$40 in MRR.
- since you are just starting out, it is likely that your pricing is too low. Again, hard to say without understanding more about your product and market.
- at your stage it's probably best to try and close a few customers. Having >0 real, paying customers will help with fundraising (and maybe eliminate the need/desire to do any fundraising, who knows?)
- make a few extremely specific customers very very happy (instead of already aiming for "a lot of different industries and company sizes" as you put it.)
- pricing: once you have an idea on what type of customer to for first, figure out what your likely customer acquisition cost will be, and extrapolate your pricing from there. If it costs you 5k $ to get a customer, you probably want to get at least 3x from them over their lifetime.
I dont mean to burst your bubble but: if you're solving a problem that is serious enough businesses will give you money today. Usually (in my experience) these "once you add these features" are things that wont actually move the needle enough and you'll find yourself in continuous development of things that won't actually produce revenue.
If no money has exchanged hands, I'd suggest telling your sales cofounder to go get a pilot with actual money being handed over.
patio11: charge more
Seriously, unless you’re going to be selling exclusively into businesses with over 100 employees using b your service you need to charge more. The meetings to consider whether to use your product are going to cost the buyers more in employee time expressed in dollars than your product will.
Without knowing what business you are in, $10/month/seat sounds _way_ to cheap. You are working with businesses here, not consumers.
At this price point you would have to sell about a 1000 seats just to pay for yourself and your co-founder. If you want to bootstrap and hire 4-6 people, you would need to sell a whole lot more.
If you can really 'automate pretty much any business process' as you claim, than your product is worth much, much more than you are currently charging.
See if you can sell it at $1000/month/seat. Yes, sales will be twice as hard, but you'll need 2 orders of magnitude less customers to stay afloat. If you can't sell for that price, rethink your product or ditch the bootstrap idea.
Also reconsider your pricing model. Charging per user per month will place a limit on how many people use the service, limiting what you can learn. Get them focusing on the value you're adding more than optimizing price. What you learn from them will be hugely valuable.
I am sure you can play around with this but it feels like this product would benefit from getting into as many users hands as possible when you are establishing yourself in a client business. Atlassian is an example of this where all of their products (or almost all of them) are $10/10 users and once you hit 11 users, it goes up quite a bit. That might seem like quite a jump but imagine what you are paying in salaries at 11 people vs. what your JIRA subscription now costs?
Sales: Try to sell what you have and listen to customers who pay you. Pilot customers might request a lot of features that nobody wants to pay for later.
Consulting: I imagine that process automation is often implemented by management consulting firms with deep access to the company processes. You could try consulting clients while using your software. You will be able to understand better their needs and generate some revenue at the same time.
- 1 year is nothing. Do consulting up to two years.
- screw partnerships, pilots. They add nothing.
- Start blogging and evangelizing
- Do anything feasible to get 10 customers. Worry about pricing after that.
$10/month for a B2B product is very very low and companies don't sell $10/month products with sales people. It won't cover the cost of a sales person's time, or ads for that matter. If it costs $100 to get a client, you need them to stick for 10 months before you make anything. With an 8 month runway, your math won't work. It only works if you have great "free" inbound marketing and the time to wait. That's Netflix level pricing, where they have millions of clients and had the funding to cover initial losses while growing the user base.
My first advice is to raise your price! Either that or you need millions in funding to build a marketing campaign and to have the runway to wait until the CAC is covered. I would 10x your price at least, and then offer early adopter discounts to clients who pay for a year now, not when the product is ready, with extra off if they prepay for two years. Then each sale pays you enough to do some development and get the next sale, as opposed to paying you enough to eat at McDonalds once a month.
Also, list yourself on Sploda.com (no association) and update your profile every time something happens, so they start seeing progress.
John
This isn't true at all, even in Europe! Companies regularly raise seed rounds on significantly less progress than an MVP + 5 pilot agreements 4 months in, so if you want to raise some money, don't let the advice from these blogs stop you.
I've just gone through the process of raising a seed/pre-seed from a mix of both US and EU investors — happy to chat about the experience if you're interested: taimurabdaal@gmail.com
Also, as everyone else has said — charge more!
When we started we were all fresh out of (or still finishing) university and had fairly small savings. Definitely not a year of runway. So we found jobs that were relatively easy, well paying, and minimally distracting. Our goal was to earn only enough to live off, so while we kept the jobs we had infinite runway.
In my case I reached out to one of my uni lecturers and convinced him to add me to the tutoring team for one of his first year programming subjects. It was super easy content, the pay was pretty good, and I didn't have to think about it at all when I wasn't working on it. The other guys took other odd jobs around the university, for similar reasons. I am less a fan of the consulting strategy - it feels too easy for that to take over your focus.
Our internal goal was 100K ARR within our first year. If we did that, we'd all quit our other jobs and go full time on this, and start paying ourselves. We got pretty close to that target but went all in anyway.
If you can hit 100K ARR and keep your costs of living low, you won't need to raise a seed round. I don't know anything about you - we had just finished uni so we were in a good position to live cheap. We would make 100 meals for $100 and eat a lot of chilli con carne + rice: https://i.imgur.com/9BtnOkP.png
It was 6 months from first code written, to first customer paying us. And then about 9 months from there to 100K ARR. Our typical customer at the time was worth about $200/month ($2.4k ARR). Don't lose hope, you might be just on the cusp of some cash. The advice about charging more in this thread is bad advice without knowing how many users each business you sell to will have. In our case it was at least 20 (we sell a whole of business product, so it was defined by company size), which was totally sufficient.
We didn't hire anyone until we'd been going for about 18 months. Because we couldn't afford it. But in hindsight it helped. If you hire 4-6 devs now you're going to spend all your time managing them instead of learning what product you are building. Learning to be a manager takes a long time and you'll probably be bad at it at first - particularly if you'd rather be coding. Anecdotally I think we had a year lag from when we first hired a few extra devs, to when we got a significant increase in product output.
Don't do pilots. If you are building a feature for someone, make them sign a contract to actually buy the product contingent on that feature. Pilots give people an easy option to not buy after you've done a lot of free work.
Don't raise money from people other than customers if you don't have to.
My email is in my profile, reach out if you want to chat.
Clients who commit to pilots or trials without committing cash are not worth anything. You can offer fully refundable trials, but always take some sort of deposit.
Yes - friends and family rounds are a good source and I'd imagine common source of funds for early stage startups. It's as much a part of your network as the clients and employers you work with over the years. It almost goes without saying that you should only ask those who can afford to lose their investment. Awkward family functions can ensue if you lost Uncle Joe's much needed $10k savings pot.
Cold email can be useful (look at Steli Efti's e-books and tips on this subject). This was helpful to me when starting out and helped me find customers before committing to build my product: https://youtu.be/H0f0o5-liyM
Everyone you pitch - especially in enterprise - is time poor. Also when they commit to buying from a new startup they are putting their reputation at their firm on the line. Their natural inclination will be to defer the decision if they're interested. So if they gave any kind of indication that your product might be useful keep pinging them politely and semi-regularly - preferably with useful product updates which could meet their needs - until you get either a yes or a no. Introductions, warm referrals or partnering with a bigger vendor who can vouch for you can shorten the sales cycle significantly for enterprise.
Avoid falling prey to potential customers saying they'll bite if you give them 'feature X'. Do make a note of the conversations and feature requests though - sometimes if the use case crops up more than once it might be useful to consider adding to your backlog.
Consider blogging about what you guys do, how you do it, why you do it - this will help build social proof for not just the product but you. If the product itself doesn't work out all these articles are a nice thing to fall back on if you have to go back to full-time work.
See everything as a learning opportunity but know when to delegate. As a coder I wasn't very good at cold emailing or prospecting so I put everything into learning that skill. I now try and delegate it when possible. Similarly if you're not great at understanding Google Analytics etc. learn it - but know when to get a specialist in to help do a few days work for you.
Upwork is great for finding skilled freelancers to parachute in and do some work. Keep a list of all the top notch talent you work with, it's quite possible the best thing to come out of your venture is the network you build.
Finally take care of yourself. Mentally and physically. Know that even if this goes belly-up you are not your product - your product didn't work out - you however showed a lot of initiative, courage and smarts to get something new, that didn't exist before out the door and onto the market.
Good luck!
> Clients who commit to pilots or trials without committing cash are not worth anything. You can offer fully refundable trials, but always take some sort of deposit.
I second the recommendations of taking on some consulting projects to extend your runway.
Start listening to startupsfortherestofus.com, start in the archives.
Check out applying for the next round of tinyseed.com if you aren't profitable when getting close to the end of your runway.
build your saas is another good podcast for inspiration.
Oh, speaking of inspiration. https://www.youtube.com/watch?v=0CDXJ6bMkMY @DHH startup school 2008
Good luck growing your SaaS.
I'm going to take a different approach. Your audience so broad that you don't know who your real customers will be. From all those "industries", you need to pick one that will be the money maker and slowly expand to other ones.
You have no paying customers yet. But you are going with a "horizontal process automation platform" which means you are very generic. When you are starting out, it is better to find one specific niche and go hard at it. If you get great at it, you can then expand slowly.
If you are selling to everyone, you sell to no one (unless you are amazon but that takes 2 decades). You need to get more specific about the immediate value your product brings and to which audience ? Every business technically can automate their processes. But are you really selling to every business ? 99.9% chance you will fail if you are not established already.
Few more things:
"platform that has the potential to adapt to a lot of different industries and company sizes with the goal to automate pretty much any business process".. You are just starting out. This wouldn't work for now. Get more specific. Think of one industry to start with and then expand slowly.
"5 signed pilot agreements (to start once we finish a couple of features)"..Sorry but the moment the contract is contingent upon features, it is in trouble. The customer should have seen enough value already even though I am not undermining it completely. This is risky for you. What if you are not able to convince the customer that those features are now delivered. How specific were those features ? I would count this as no customer yet. brutally honest.
Ok, now the good news:
You have a working product. That is awesome. STOP DOING ANY MORE CODING. It is time for sales and marketing like yesterday. What marketing and sales strategies do you have in place if any between you and your cofounder ? When you say "my co founder does sales", what does that mean ? Right now, you both need to focus on Sales and Marketing.
Sorry for the long post but this hits close to my heart being a bootstrapped SAAS founder so I thought to share my own experiences.
As already pointed out, you are addressing too broad a market. The best way to address a specific niche is to have worked in that industry. To me that is the only way to know the jargon and the pain points.
You also could note that businesses are often time poor. So if it takes time and effort to incorporate your platform then many prospects will pass.
If I were in your position, I would go back to the pilot "customers", establish what value you bring to the table. Ask for, say 10% of that up front and make it work for them. Once you've accomplished that you have your reference s to back up future sales.
BTW if your product is that good then you could be charging $10000 / year / customer. That is like 1/5 of a single person's salary. I guess you could easily deliver such an improvement in productivity.
Every bubble that overlaps on the right two quadrants can work for b2b.
I run a marketing agency for B2B, and built the chart for people in OP's shoes.
When I first started my saas, I incorrectly didn't start by gunning for paying customers. You could make a cool product, but your goal is to make a cool product people will actually pay for.
The second lesson I learned was not charging enough, but once you actually get people in your paywall, those are things to refine later.
It is much, much easier when you don't have to justify what you are doing in your business to anyone other than yourselves. This is true even if you have the nicest and most understanding investors.