The Official SaaStr Podcast #6: Russell Fujioka, President @ Xero

Screen Shot 2016-03-22 at 8.10.23 AMScreen Shot 2016-03-22 at 7.40.27 AM Harry did a great deep dive with Russ Fujioka, President U.S. at Xero.  Xero seemed to come out of nowhere a few years back, with a seemingly strange New Zealand IPO, followed by a big investment by Peter Thiel … but there was a method to all of it.  Fast forward to today, and Xero is doing nine figures of ARR selling to small businesses — not an easy thing.  Let’s learn more straight from Russ and Harry. Check it out here on iTunes or by clicking the above or block images to go to ProductHunt. — Jason, ed. Screen Shot 2016-03-22 at 7.39.22 AM

I’m a fully vested founder, what challenges will I face raising our seed round?

None.  If you are upfront about it, and then when asked, acknowledge you are OK adding (back) vesting. To simplify David S. Rose‘s answer — just tell the new investors. If they are true angels, e.g., small checks at a Demo Day, they may not care. All VCs will care.  They’ll usually ask you to re-vest all or some.  As long as you are upfront you are currently 100% vested, but know it needs to change, it won’t be an issue. Sometimes, if it’s a small round, a small VC may “punt” and let the Bigger VC in the next round deal with the issue.  That may be OK but again only if you are transparent up-front. Also, bear in mind — this is a good chance to fix a situation.  The more committed founder strongly benefits when Continue reading "I’m a fully vested founder, what challenges will I face raising our seed round?"

Your Sales Efficiency Will Probably Plummet Toward $10m ARR. Plan For It.

Screen Shot 2016-03-20 at 5.49.30 PMWhen a great SaaS business starts to come together, and crosses Initial Traction ($1-$1.5m), growing nicely (8-10%+ Month-over-Month Growth) … often times, the founders start to see the first bit of real economic returns on the model.  It finally starts to make sense, this SaaS stuff. As you cross $2.5m, $3m in ARR, you can start to see a path to real cash flow and financial independence, even though you aren’t there quite yet.  Even if leads are still a bit lumpy, outbound is still stretching itself … you at least learn how to close by this point.  It’s repeating, and repeatable … finally. And often, if you are capital efficient, your marketing cost will be close to $0 at this point (you are barely spending anything to acquire most customers), and your sales costs are pretty predictable.  Your Magic Number is often well under 1.0 — you often
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Continue reading "Your Sales Efficiency Will Probably Plummet Toward $10m ARR. Plan For It."

Our VC is encouraging us to hire aggressively and increase the burn rate. Should we listen to them?

In my experience, about 66-70% of the time this is bad advice, especially if it is coming from a Very Large VC. You pretty much know how much to spend already.  Often, first-time founders, especially those who had to bootstrap a long-time to get to venture capital, don’t spend the capital they do raise quickly enough.  It takes them too long to get comfortable expanding the time horizon on the ROI they are investing. Most of the first-time founders I’ve invested in aren’t “spending enough” in that they are a bit too slow to make accretive hires. But … so what. Every SaaS founder I know, at least as they approach $6m, $8m ARR or so … they figure it out.  How to invest $X to get $Y out.  They don’t know at first, but they learn, as they cross 50, 100, 200 Continue reading "Our VC is encouraging us to hire aggressively and increase the burn rate. Should we listen to them?"

Are there more startups now than ever before?

In SaaS — on my goodness, yes. In ’05-’06 literally every SaaS start-up knew each other.  Salesforce could fit us all into one small ballroom for an event.  I think I knew every SaaS CEO personally in that cohort.  I didn’t.  But it felt that way. By ’07-’08 the numbers seemed to have gone up 10x. Today, the number of SaaS start-ups seems infinite, and more importantly, the number that have even achieved $1m ARR feels to be in the 1000s. As a result, it’s harder to break out, and the bar has gone up. But … The markets are bigger than ever.  So … when you hit it, you can really hit it big.  And grow faster than ever. See Questions On Quora View original question on quora

What were the first five hires after your startup reached product market fit?

My first 5 hires at EchoSign, beyond core team once we had paying customers and first, if early, product-marketing fit:
  • #1:  Full-time sales rep at $8k-ish MRR.  Should have hired two.  Should have hired him even early.  Hired once we were closing > 1 new, non self-service customer a week.
  • #2.  A great, paid, full-time-ish intern.  A great one is a terrific force multiplier.
  • #3:  VP of Marketing.  I hired at $20k MRR.  Should have hired even earlier.  Because all she had to do was improve our process and get us a few other good leads to pay for herself.
  • #4:  Head of Customer Support — a veteran.  I can’t believe I waited so long.  This made our customers 50x happier, and I didn’t have to force everyone in the company to take so many shifts Continue reading "What were the first five hires after your startup reached product market fit?"

What’s more common – paying commission on first year annual contract value or on first year plus subsequent year contract values for the initial term?

A few general practices:
  • It’s pretty common in start-ups to pay commission on all years under a multi-year contract IF all the cash is received up-front, and the contract is uncancellable.  Generally, the commission will be smaller for the second+ years, but only a bit … and not always.  This is a great deal for start-ups.  Pull Y2 and Y3 cash in early!!  You will probably trade a little MRR off here, b/c of a multi-year discount, but it’s almost always worth it for start-ups.
  • Start-ups rarely pay material commissions on multi-year contracts if only the first year is paid up front.  Maybe a little, but not too much.  Cash is king and the customer remains “at risk” no matter what the language says.  And really, for start-ups, this can be a bad deal because the rep will have Continue reading "What’s more common – paying commission on first year annual contract value or on first year plus subsequent year contract values for the initial term?"