A Mantra for Early-Stage SaaS Startups

Early-stage SaaS founders should spend far more time executing instead of strategizing. The key to doing this lies in the mantra: Execute First; Optimize Later.

The urgency to execute is particularly true for making financing decisions. At Bigfoot Capital, we fund early-stage SaaS companies. Having spoken with 250+ Founders over the past year, there are a few different patterns that we’ve seen.

These patterns revolve around 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?”

If you’re a Founder and are wanting to avoid the undue risks associated with not having enough capital, here’s a mantra to live by.

Capital comes in many shapes and sizes

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. Capital in many different forms along the way and ultimately manifests as cash to be put to work in your business.

Funding from credit cards turns into cash from friends and family and then from angel investors. Followed by the first institutional equity (seed) and initial institutional debt, this may just turn into growth-stage venture capital or private equity. From here, more debt capital is taken on and eventually an M&A event or IPO leading to a cash flowing company you hold onto.

One thing to remember is that the form (and cost) of capital changes along with the stage of your business.

Utilize the tool (cash), and put it to work for your business. This enables you to make the decision of whether or not you need more cash to refine the thing you are building. 

The gist? Capital for your SaaS startup is a means to accelerate growth and the only way you do that is by utilizing this tool. 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.

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.
5. Lastly, GET THE DEAL DONE and GET BACK TO WORK!

Once you’ve acquired the capital necessary, go heads down executing in 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

The key to living by the mantra “execute first, optimize later” is simple: spend more time doing than planning (at least to start).

In the early-stages, you just don’t have enough resources to plan, plan, plan. This mix may shift for later stage companies with more breathing room. For those just getting things off the ground:

• Iterate and optimize later
• Move quickly and stay focused
• Make decisions now and just commit
• Recognize and utilize the tools at your disposal
• If it turns out your decision was wrong, course correct

Be patient and give some time to for things to play out, and “let the dust settle” if you will. If after some time you find your company lacking the resources to get identified jobs done, go get those tools (capital).

At the end of the day, speed and certainty matter most when securing capital for your SaaS company. Be sure to “execute first, optimize later.”

Source: https://baremetrics.com/blog/a-mantra-for-early-stage-saas-startups