Rand I don’t know you but this is truly a fantastic post. There are three big observations I want to make:
- Avoid the shiny light which is big VC. I’m willing to bet that after the $1.1mm was raised in 2007, Rand and team built a beautiful business all the way through 2012 BEFORE they took the $18mm round. Once that money was taken though, the VC kept pushing for growth, increasing the burn along the way and putting the company in a position where even at $40mm ARR, it wouldn’t be ready for exit. Once you take VC money, everything changes and you have to swing for the fences at the risk of losing it all. Avoid VC if you can and build a real business the old fashioned way. I say this, and I’m a VC (albeit a small one).
- Everyone likes to say SaaS has great margins. It doesn’t. What SaaS has is tremendous fixed costs which when you cut them, put growth at risk. Take a look at the EBITDA margins of the public SaaS businesses in Bessemer’s index and you’ll see they’re generally terrible on median (most are not profitable). Because SaaS is a business so dependent on people and everyone is important (the developers, the CS team, the sales reps), if you cut anything, it creates a hole in the ship which eventually sinks it.
- Rand and his team did something that takes incredible guts: they made cuts while they still had 12 months of runway. Too many entrepreneurs wait until the very last second to make cuts, and by then they’re out of cash and the cuts are too late. Cut while you still have cash, so that the new business actually has a bit of a war chest.
Rand, fantastic post. Thank you for sharing.