Startups die of indigestion not starvation
More startups die due to indigestion than starvation. Large amounts of early funding lock startups into directions where product-market-fit and go-to-market may not be aligned. This causes premature scaling of marketing and sales with high churn and low conversion. When the funding runs out, the startup is unable to survive. When founders fail to reach high scale vanity metrics due to the large amounts raised, they are often forced out of their companies.
As a side-effect founders dilute too much too fast. Founders who take on large seed rounds face a bottleneck raising a Series-A as they struggle to show value metrics demanded by larger institutional investors.
Biggest outcome as risky to shoot for as a small outcome?
A TAM Chasm exists – while founders may be able to build sustainable highly profitable $10Mn ARR businesses in a $100Mn TAM space, they are forced to go for higher TAM markets, where there may be higher risk, more competition, and founders have less capability, primarily because of large fund economic models.
Many vertical SaaS markets may be early and small, and may need time to grow and mature. Impatience from investors leads founders to try to grow those markets too fast, or fail in the process.
Default for a founder, Robbed of financial outcomes
Financial outcomes for 80% of founders are near-zero due to dilution, deal provisioning, forced exit, forced M&A.
At 80% of startups, employees make no financial outcome from their common shares.
Investors are also struggling with the current power law model – 90% of VC firms fail to beat their benchmark returns.
In the search for quick growth and scale, founders are moving from SMB/mid-market to enterprise. From a GTM perspective, they’re moving from content marketing and organic growth to paid growth and sales-led models, too early in the journey.
Don’t Be a Vanity SaaS. Be a Value SaaS business.
Value SaaS1 businesses focus on surviving in their path to first million. They bootstrap or raise tiny external investments. During this period they iterate rapidly to create a growth engine for scaling to $10Mn and beyond. By accessing & deploying founder-ownership friendly capital, they grow rapidly and thrive.
Who are Value SaaS ?
Organization that are able to make $1 of revenue through less than $1 of spend is a Value SaaS Business. Veeva, Zoho, MailChimp, Atlassian, BrowserStack, even SalesForce, are all Value SaaS startups – they made more than $1 Mn ARR with less than $1Mn in spend.