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If I was a first-time startup founder, I would not aim to build a $1B unicorn. VCs will hate this, but here's why you should think SMALLER and try to create a $3m-5m ARR profitable SaaS instead: 1. It’s relatively easy to get a small, profitable SaaS working. One extreme of entrepreneurship is the solo consultant, the other is sending people to Mars. SaaS is somewhere in the middle. Smaller goals mean smaller teams and less complicated products, probably no management layers, no big expensive tech, no SOC2, etc. 2. It’s much easier to bootstrap a small, profitable SaaS. If all you’re trying to do is get to sub-$5m ARR, you can very likely build a solution that exploits a small hole in a very large market, and do it quite profitably. You won’t need VCs to sign off on your idea, which means far more ideas are available to you. 3. Your odds of success are much higher if you are aiming lower. According to Notion Capital, 3% of startups make it to $100m ARR, whereas 60% stall out between $3m-$10m ARR. You are 20x more likely to be successful if your endgame is single-digit ARR. This might be a hard pill to swallow, but as a first-time founder you are probably not skilled enough at execution to pull off a unicorn. I never have, and I’m 12 years in. 4. You will learn VERY VALUABLE lessons as you fight to $3-$5m ARR. Just because you aren’t shooting for the moon doesn’t mean you won’t learn many of the exact same lessons you’d learn if you were playing much bigger. I learned SOOO many things about teams, product, sales, and marketing being stuck for 4 years at $3m ARR. 5. You will be able to start a bigger, better startup with the free cash. GetEmails (now Retention.com) was the result of 3 years of experiments inside of Robly and currently has 7x the revenue and 4x the free cash. RB2B is being funded by Retention’s free cash, and looks like it could be much larger. 6. You will eventually enter the Bootstrapper’s “Promised Land”. While you and your co-founders may not be excited about $4m ARR with $1.5m of free cash, if your second startup is 3x bigger and your next is 3x bigger than that, you will be in a position where you are being paid the equivalent of a small exit EVERY YEAR with resources to do whatever you want. TAKEAWAY Starting a SaaS startup is hard. Especially as a first-time founder. Lowering your ambition will increase your chances of your success. And smaller successes in the short-term can compound into much larger successes down the road. VCs will try to interfere with this restrained ambition. They want you to aim higher, grow faster, build more complicated products, and hire more people. All while incinerating capital as quickly as you are willing to tolerate. That won’t maximize your probability-weighted average of long-term success. The most important rule of the game is simple: Stay alive so that you can keep playing.
Agree. There's just the small thing of funding the first 6-12 months if you're lucky/smart enough to be profitable after that period. Most people don't have the cash for that nor the confidence (if it's their first startup). Even if you are a soloprenuer and can code to perfection, you still need to financially survive for 6-12 months. The reality you'll need at least 1-3 more people around you for various business needs (developing, designing, selling) and now you need 1-3 people salaries for 6-12 months. Let's say the rest is free of charge. That's part of the reason bootstrapping (and startups) are made of a majority of middle-class white (men).
Stats are a funny thing. Can you cross reference point #3 with NON FUNDED startups reaching 3-5M? My bet is that the success rate / failure rate of non funded reaching profitable ARR in the 3-5M range is much much lower than 60%.
Great advice all the way around. I got my ass kicked for over a decade prior to finding PMF and spent so much energy trying to push through and exploring alternative paths to pivot towards. It wasn't until I sat back and stopped trying to force it and leaned down and treaded water until the real opportunity presented itself. That took over three years. Once the right path appeared I threw everything at it and it went from pedaling up hill into the went to flying downhill with the wind at my back. We're 100% bootstrapped and are our performance is in the top quartile of VC backed SaaS companies. The key for us was patience and letting the opportunity present itself without forcing it. You can't force PMF ever. Anyone who tells you that you can is full of shit. It doesn't work.
Great message Adam Robinson. I remember being in a startup incubator years ago and one of the mentors had this mindset he cultivated after building and exiting 4 successful tech companies: Whenever anyone asked him how he was doing through all those journeys, his standard answer became “I’m just trying not to die today.” It sounds kind of negative and a bit funny when you read it, but as anyone trying to build something knows, it’s actually a very sane perspective.
100% accurate. I love thinking of SaaS as any other "classic" business when it comes to the probability of global success. Just think of how hard it is to open a global fast-food chain like McDonalds compared to opening a hot dog stand. And also all options in the middle. I think that the biggest problem for the first-time founders is to understand that although each SaaS is "software" they are all completely different and the higher you climb - the harder it gets.
🎯 Adam Robinson As a founder in a profitable saas company (virtually bootstrapped) I agree with this approach. It took us several brutally hard years to reach it so you also need a high tolerance for pain. Just important to note that while this may be true for the martech/saas space, where barriers to entry are lower, it doesn't necessarily apply to other industries. In sectors where a race to secure a top-three position dominates, reaching early-stage profitability can be much more challenging.
Love this. "Smaller successes in the short-term can compound into much larger successes down the road." Exactly. It might make sense for you to take a $3-$5m business to $20m+. It might make sense to take a $20m ARR business to the moon. Maybe. But getting to the next level (and maybe choosing to stay there, rather than always chasing bigger and "better") is a much better approach than exponential growth at all costs.
As somoene who has bootstrapped a couple successful SaaS companies, i would agree. Just be prepared to never have all the resources you need to do what you want. Everything takes longer than you expect or plan for. You will also most likely not go through the typical hockey stick growth. Bootstrapped SaaS companies go through more of a step-up style of growth as recurring revenue builds slower.
What a BS… never compromise your goals . That’s the very core of the entrepreneurial spirit . If your goal is a unicorn at 5B go for it , learn from starting small $5-$10 m ARR, fail start again and fail again. But never forget your goal
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1moAdam Robinson there was a time that I was ready to quit bootstrapping. It can get hard, especially when the talented people you’re working with have little kids and the mouths to feed weigh on you. Thankfully though, and I wanted to contribute this as a side note for the future people taking this advice, I started a consultancy. I knew a niche problem could become a SaaS, we are still very early with it—but we have escape velocity. Our MVP is totally scalable. We have a firm foundation and we took our time with it. It was the consultancies fault. All along we used the chance to get paid by really smart people to solve problems for them that touched the thing we were building. The pay checks are the surface for why it’s beneficial, but the insights and customer focused energy that those SOW engagements breathe into the focus within the software is unparalleled. After doing $350,000 in revenue on a spreadsheet version of something you want to build, it’s kinda like, “Yea, guess we better do this.” when it came to thinking about the SaaS. But the pressure, the cost, and the uncertainty that accompany a VC backed venture weren’t for me (only cuz consulting gave that luxury). Love everything you said and aspiring to those goals.