- The two things that matter most in the best-of-the-best companies post product-market fit are: (a) Cost efficient growth mechanisms (eg: virality, customer success driven growth) (b) Product-driven structural defensibility (eg: network effects).
- The common thread across the greatest of investors has been their focus on moat/defensibility. Warren Buffett used to make the analog of the ‘unregulated toll bridge’; Peter Thiel talks about monopolies; Fred Wilson/USV talks about ‘Large networks of engaged users, differentiated through user experience, and defensible through network effects’.
- The desire to be great vs. good is very important.
- As an investor, it’s easy to fall into the trap of pattern matching. Yes, pattern matching matters. But more important to retain the open mindedness to be able to identify a founder who’s going to rewrite the rules in an industry. That’s where alpha gets created.
- Founder’s domain expertise/experience can provide a first-mover advantage that dates prior to the founding of the startup.
One of the greenfield markets in SaaS that I believe is beginning to open up as a massive opportunity is GovTech.
The prevailing wisdom in the startup and venture ecosystem is to stay away from GovTech. And that wisdom is based on the right historical reasons. But history can be a poor guide for founders and venture investors alike. Things are changing in the GovTech ecosystem. We’ve talked about some of the reasons before (here and here). There are several GovTech startups that have come up in the last few years that are beginning to scale nicely.
Accordingly, as an extension of the SaaS CEO interview series that I have done previously, I will be publishing a series of interviews with GovTech startup CEOs over the next month. These are CEOs who are building the future of government, and will talk about what it takes to launch a startup in this space and some of the lessons learnt. If there are other CEOs folks would like me to interview, please reach out to me on Twitter or email.
For the first interview, I sat down with Zac Bookman, founder and CEO of OpenGov. Zac and team are building a solution that allows government organizations to have a streamlined budgeting process, track their execution against the budget through the year and then share that progress with citizens to drive more transparency. The company has raised $75m+ in venture capital funding from some of the leading VCs in the valley and are growing fast. Zac is a much sought after advisor to founders in the GovTech space and I’m excited to launch this interview series with him. So here goes:
How did you get started on working in GovTech, and what inspired the specific idea around OpenGov?
We started OpenGov in 2012, while I was living in a shipping container in Kabul, Afghanistan. I was serving as an adviser to U.S. Army General H.R. McMaster on the Anti-Corruption Task Force at the International Security Assistance Forces Headquarters. The idea for the company stemmed from nonprofit work we were doing to figure out what was going to happen to the governments in California as their revenues dried up during the recession and the California budget crisis. The “we” was a group of technologists from Stanford, including our chairman and co-founder, Joe, who is also co-founder of Palantir and other companies.
We asked budget directors in California to share their budget data with us so we could visualize their data and help them analyze and share it. One budget director said, “Wow, that sounds really useful. How do we get you our budget data?” And we said, “What do you mean, how do you get us your budget data? You’re the budget director!”
We quickly realized the State of California was using an accounting system that ran on COBOL and one city had even paid $10 million for a financial management system that was delivered on 20 disks. It became clear that the people running these governments were working hard, but kept banging their heads against 30 year-old technology that made it impossible for them to track where money was spent, share data with elected officials who needed it to govern, and communicate with citizens who were losing trust and becoming disengaged.
The vision for OpenGov was and is a new technology category called Government Performance Management. Our Smart Government Cloud unlocks all kinds of data trapped in legacy systems and departmental siloes and uses that data to fuel a suite of applications for budgeting and planning, operational intelligence, and open data. All of this powers a more effective and accountable government.
The traditional thinking is that GovTech is one of the toughest spaces for startups. Clearly your traction has proven otherwise. What do you think is changing in GovTech to open up opportunities for startups?
SaaS is the first thing. As in the rest of B2B, it’s cheaper to build companies and you can develop and move at a faster pace. This is key for iterating with customers.
Second, more entrepreneurs and tech titans, including even Steve Ballmer and Michael Bloomberg (both spearheading related nonprofit endeavors), are flocking to the GovTech space as excitement has grown over the last half decade about using technology to improve the performance of government. The money coming in from funds like yours and the attention from public leaders stirs up the market and creates dynamism and opportunity.
Third, change is also driven by demand at the citizen level. People live on the Internet and use their phones for everything, so they have come to expect a user experience that’s fast and easy to understand, even from their government. And governments around the country are realizing that they need to keep up.
The market is big enough to accommodate this renewed focus — at least $25B by some accounts. Just two years ago we were working with 150 governments. Now, more than 1,500 governments on both sides of the aisle and in 48 states are using our Smart Government Cloud to streamline their budgeting process, achieve operational intelligence, and share open data with the public.
In addition to recent partnerships with Boston, Phoenix, and Birmingham, we just announced a deal with the State of West Virginia. As is the case with many other cities and states throughout the country, West Virginia is facing a $500m budget deficit. This is another trend — using technology, particularly software, to achieve productivity gains, particularly in times or in preparation for times of economic distress.
Theoretically, your market opportunity seems very large. Every government organization needs financial planning solutions. How do you guys segment the market and prioritize for your sales and marketing efforts?
We initially thought our budgeting product would appeal to small governments, of which there are many. We’ve been surprised to see that even most large governments live in Excel, which is a tool that is more than twenty years old itself and wasn’t built for massive budgeting exercises. When a function breaks or an equation is off, the entire process can shut down for days at a time.
Overall, 82% of governments build their budgets in Excel. OpenGov works with governments of all sizes on both the state and local level. We also work with a growing number of public school districts and even colleges across the country. Although every government is different, they all share three core elements that we are building our solution around: planning, operating, and communicating. As a result, the three pillars of our easy-to-use Smart Government Cloud are an end-to-end budgeting solution to streamline and improve the budget process, a complete operational intelligence solution to enable data-driven decision-making, and an open data solution to share information with the public in a clear and usable way.
We segment our sales team according to large, medium, and small governments. Excitingly, we are seeing growth in each segment. And we are seeing growing pipelines in each product pillar. But it’s all about execution — engaging deeply with customers to understand their problems, and then tying the solution, both with respect to product development and marketing, to their strategic priorities.
What were the one or two things you did early that, looking back, really laid the foundation for success for OpenGov?
Focus. I had to say no to so many bad (and good) ideas that our investors, advisers, friends, and customers wanted us to pursue. That was hard. Along the way, and on a go-forward basis, we had and have to take the time to speak directly to customers and prospects. We want the whole company engaging with the market and bringing the learning back into the building. In this vein, we actually hired former CFOs as in-house experts. They are a cross-functional and invaluable team. Finally, we raised money. This forced us to go all in, come what may.
What’s been the toughest challenge of building OpenGov?
People. It’s all about people. The market is plenty hard; in fact, it is unusually hard. But nothing is harder or more important than aligning a group of individuals with disparate interests on a shared mission. When noise levels are high in the company, everything moves slowly and you waste cash and time and opportunity. When everyone walks in lock-step, the path is laid down much more smoothly.
What advice would you give to other entrepreneurs targeting GovTech as an area?
This is enterprise software. Instead of B2B, I call it B2G. But it shares most of the same dynamics, plus about 20% more pain. Government has been intentionally structured to move slowly, so you have to find the revenue pockets among prospects and laser focus on how to produce enough value to earn business. You may have to find deep pockets in the investor community as well. Building a company in general is a holdout problem. Investors don’t want to invest until you have customers. Customers don’t want to buy until you have a good product. The best people won’t join to build the product until you have investors and customers. You’re at the center, and in some respects it’s all about hustle and fortitude.
Earlier this week, Gainsight announced its most recent financing — a $52m round led by Lightspeed. We first invested in Gainsight in their Series C and couldn’t be more excited to reaffirm our commitment to Nick Mehta and his team by leading this round.
My involvement in Gainsight dates back to early 2013, when I was part of the deal team at Battery Ventures that led the Series A in the company. Since then, I’ve had the privilege of having a front row seat to the intertwined story of customer success and Gainsight.
In the last 5 years, Nick and his team at Gainsight have taken customer success from a buzzword to a business imperative for companies of all shapes and sizes. As we were making the decision about leading this round, here are the thoughts that led us down the path of investing in the company (again!):
- Why now. This is the most important question in any investment decision. In Gainsight’s case, the market opportunity is coming together because of two macro forces: (a) Companies increasingly have a ton of data in the form of online usage analytics, customer support tickets, NPS surveys etc. to be able to track and analyze whether a customer engagement is going well or not. For the first time in business history, companies across all industries can proactively understand whether their customers are happy or not; and (b) We live in the world of social media and short feedback loops. Every positive and negative customer experience has the potential to be amplified 100x within moments across the world. This is not just about Twitter or Facebook, but also discussion forums like LinkedIn/Quora/Medium, and vertical market communities across industries. Companies can no longer afford to think of customer success as a nice-to-have aspect of their businesses. It is THE thing that matters in business today.
- Role of the product in its user’s life. Gainsight’s customers run their entire CSM practice on the platform. It’s mission critical for them, and is used on a daily basis. Once a customer success rep has been onboarded and trained on Gainsight, it is impossible to ask them to move back to their old ways of running customer success.
- Market size. Sizing up a new category is a tricky exercise. It’s easy to be skeptical by saying that this new trend only applies to a certain type of customers. For a long time in Gainsight’s history, the big question was: is its solution applicable only to SaaS companies? When we first invested in Gainsight, we had the belief that customer success is a business imperative for every company that wants to have a repeatable relationship with their customers. We believe so now too. But in the last two years, Gainsight has answered this question in the affirmative in the best possible way — with customer wins that prove the point. Gainsight’s customers today include industry leaders such as Cisco, VMWare, ABC Financial, Resmed Brightree, Gigamon, MCG Health, and naviHealth. When I meet someone who’s still a skeptic on the market opportunity for customer success, I offer them a simple anecdote:
In 2013, Gainsight hosted their first annual customer success conference, Pulse. They had ~20 customers at the time. Customer Success wasn’t a big thing back then. They hosted the conference just two months after Nick Mehta and Anthony Kennada joined the company. 300 people showed up to the day-long event. We knew then that there was something here. This week, Gainsight hosted its 4th annual conference. The audience size has grown from 300 to 4,000 in these 4 years.
- Leadership potential in the category. When we invest at this stage of a company’s life, we already know that there is a sales and marketing engine that is working and scaling. The question at this stage is: does this company have the potential to be the leader in its category? Will it be able to impose a winner-take-most, if not a winner-take-all dynamic in its industry? In Gainsight’s case, the answer couldn’t be clearer to us. Gainsight is THE category defining company in customer success. They’ve built the largest community (online and offline) around customer success. Their online certification for customer success is the most sought after in the field; they host the largest annual conference in the space; have the most revenue traction and some of the world’s best companies are standardizing their customer success practice on Gainsight’s platform.
When we find a team as talented as Gainsight’s leading the charge on a movement that is touching every business in the world, we like to double down. And that’s exactly what we did with Gainsight.
1/ A common mistake I see in growth stage SaaS is under-estimating the importance of planning for & building sales capacity in advance.
2/ In the daily grind of meeting quarterly targets, fighting fires, while still innovating on product…
3/ …it’s easy to forget how important it is to think of sales capacity you’ll need a year from now.
4/ Hiring and training reps, SDRs & SEs takes a lot of time. They ramp to full productivity in months. Can’t turn on sales capacity overnight
5/ Goes back to planning 24 months ahead instead of 12 months:
1/ A common mistake I see in SaaS during the budget prep cycle is founders making a 12 month operating and hiring plan instead of 24 months
— Nakul Mandan (@nakul) January 26, 2017
1/ One of the leading indicators of product-market fit in SaaS is when your first couple of SDRs are getting uber productive super fast.
2/ Keep a close eye on: (1) Conversion rate from cold calls/emails to demos (2) # of demos each SDR can set up every week consistently.
3/ Of course, there are other metrics that matter: ARR growth rate, user engagement (v. important!), rep productivity etc.
4/ But the earliest indications of whether the product value prop is resonating with buyers can come from the SDR productivity metrics.
5/ What other qualitative/quantitative factors can be early indicators of product-market fit in SaaS?
1/ A common mistake I see in SaaS during the budget prep cycle is founders making a 12 month operating and hiring plan instead of 24 months
2/ The tendency is to put together a detailed plan for the next 12 months and high level projections for the following 2 years.
3/ This most often first happens at ~$1m ARR, when founders are beginning to make detailed plans for the first time.
4/ One reason this is tough at ~$1m ARR is bec this is the 1st time you’re going from finding-product-market-fit-while conserving-cash to…
5/ …growing-as-fast-as-you-can mode.
6/ You got to $1m by iterating, while conserving cash. You’ll go from $1m to $5m by doubling down and investing ahead!
7/ What you will achieve in 2018 is directly contingent on the hiring you do in H2-2017, especially for enterprise sales driven models.
8/ As you put together your budget for 2017, think about your 2018 plan too. Plan ahead for success!
A question I often get asked in conversations with early stage entrepreneurs is: What do VCs look for when evaluating Series A stage SaaS startups — metrics or otherwise?
It’s an important question for entrepreneurs, and I can see why it can also be a frustrating one. There’s no science to what gets a VC excited about one startup vs. another. Some startups are able to raise a big round early on, while others have to slog it out even when the metrics look great. Why is this not more predictable?
One of the primary reasons fundraising is not predictable at the Series A stage is because the early stage investment decision is contingent more on the thesis and qualitative factors around the company/market than the metrics. Metrics can certainly make the investment case stronger, but at the earliest stages, they’re not the deciding factor. It is the investment thesis, and how a startup maps to that, around which the decision revolves.
With that in mind, below I outline the qualitative factors I look for in a Series A stage SaaS startup, beyond that first step of feeling excited about backing the founders. Hopefully, these will serve as food for thought for founders looking to raise a Series A:
#1: Why now? To me, this is the most important question to answer in any investment thesis. Market timing is everything. Why should this idea succeed in a big way now? What macro trends are coming together to make it happen right now? For example:
- We’re fortunate to be involved with a SaaS startup called Gainsight that offers a comprehensive solution for customer success management. Prior to the advent of SaaS and the X-as-a-Service model, there was no need for a customer success solution. The market opportunity for Gainsight came to be because X-as-a-Service has become the preferred business model across the tech sector.
#2: Product category. Similar sized companies with similar margins can get a widely different valuation multiple. Often, the reason for the difference lies in the product category they play in. Some product categories offer more opportunity to build a stronger, faster growing and more valuable business over time. I think about the following questions here:
- Is the product you’re building mission critical to your users’ ability to meet their goals?
- Over time, will there be an opportunity to evolve the product into a platform connecting all other apps that are relevant to its users?
#3: Market size. Obviously, market size is important and a lot of people have blogged about it so I won’t repeat what’s already been said on this. I personally have a strong preference for a bottoms-up market sizing exercise. It doesn’t have to be super complex. But I would much rather hear the following: “we are targeting companies with 500–2000 employees; there are X such companies in the US and based on a price point of Y, we expect our addressable revenue opportunity to be X x Y” vs. “Gartner estimates that US companies spend $7.8b on [our product category] annually”.
#4: Distribution. Ultimately, startups are valued for growth. Accordingly, it really matters if you have an efficient go-to-market strategy. I think about the following questions here:
- Is the economic buyer already in the market looking for a solution like yours, or do you have to first convince them that they have a problem to begin with?
- Does the customer have a large enough budget for your solution, to justify the sales and marketing investment?
- Is there a way to establish a viral/word-of-mouth distribution strategy?
#5: Long term moat. Initial revenue traction is great, but investors are looking for companies that can build a sustainable advantage over their competitors over time. Companies that collect proprietary data on their platforms can build a data based moat over time. Enterprise marketplaces and vertical market communities/networks can build a network based moat. There are other ways to do this too. Salesforce’ AppExchange platform put it at the center of all cloud based enterprise software and built a network based moat around it. The network in this case was not a network of users; instead, it was a network of SaaS apps that can be deployed at a company with Salesforce being at the center of it. The key question I ask here is:
- Is there a winner-take-all dynamic that you can impose on the market once you have taken an early leadership position?
Those are the questions and considerations that go through my mind when evaluating a Series A stage investment opportunity. I don’t try to arrive at a perfect answer for each of these questions. There are obviously a lot of unknowns at this stage of a company’s life cycle, and it’s okay to not have all the answers. The framework above often ends up being a useful thought exercise for founders too in my discussions with them, and hopefully will be useful to the founders who come across this post.
If you’re building a SaaS startup and are thinking about some of the topics above, I’d love to hear from you. You can reach me at email@example.com.
In recent years, the number of chief of staff hires at early stage tech startups has gone up noticeably. While it may still not be a common hire, most CEOs I know who’ve worked with a chief of staff are big fans of having that role, and believe it can be transformational for the company. However, I haven’t come across many nuanced discussions around when is the right time for an early stage tech CEO to hire a Chief of Staff? Or, how to think about the role? I reached out to Nick Mehta, CEO of our portfolio company, Gainsight, about his thoughts on the role. Nick has a one-year rotational chief of staff position at Gainsight, with the idea that the chief of staff will get absorbed in a functional role at the end of the stint. It’s an interesting way to look at the role, and has worked great for Gainsight over the last 3 years. Here are his thoughts on the position:
Nakul: In recent years, we’ve seen a few tech CEOs hire a Chief of Staff for themselves. When did you first start thinking about it, and what was the motivation to hire one?
Nick: I kind of “fell into” having a Chief of Staff. A few years ago, I hired a very talented ex-BCG and Bain Capital professional (Allison Pickens) in a general “operations” role working for me. Allison contributed so much (in sales development, new markets and finance) that we quickly promoted her to VP Customer Success. I didn’t realize it at the time, but when I promoted Allison, I also lost my “chief of staff” in the process. While she didn’t have the formal title, Allison showed me the value of an “all-purpose athlete” working for the CEO.
As Allison was moving into the new role, she had hired an ex-Morgan Stanley investment banking analyst (Tyler Elkington) as our financial analyst and given her new role, she had Tyler report to me. I realized Tyler could do so much more than finance so I decided to take the plunge and make him my official “Chief of Staff.”
We are now on our third (fourth if you include Allison!)
Nakul: What does a Chief of Staff exactly do?
Nick: I look at the Chief of Staff role as being all about helping the CEO execute strategically. At any given point, a CEO has a few strategic priorities on her or his plate. The challenge is making progress on these amidst the inevitable flurry of emails and meetings. A Chief of Staff is a force multiplier for the CEO’s strategic value. At any given point, my Chief of Staff could be working on:
- Driving the company’s strategic planning and budgeting process.
- Coordinating a key exec meeting or offsite.
- Prepping me for critical client or prospect meetings.
- Project managing a strategic cross-functional initiative.
Nakul: Now that you’ve had a Chief of Staff for three years, what has been the biggest benefit you’ve derived from having that position filled?
Nick: I’m a believer now, having done it four times. In fact, I had a gap between my current Chief of Staff (Tim Hoag) and my previous (Nathan St. Martin) and felt the pain of not having one! At the most fundamental level, I can drive more parallel strategic initiatives with a Chief of Staff than without.
Nakul: At what stage of the company, should a SaaS CEO think about hiring a Chief of Staff?
Nick: It probably varies from company to company, and CEO to CEO. But in hindsight, here are some signs a CEO needs a Chief of Staff:
- Your schedule is jam packed every week.
- You have a growing list of strategic initiatives without an owner.
- You are in a state where strategic initiatives tend to be cross-functional (hence not every one neatly falls under one exec).
- You’re in a market that’s strategically growing and changing rapidly.
Nakul: What was the motivation to be a CEO’s Chief of Staff?
Tim: I wanted to be the Gainsight Chief of Staff specifically for two reasons — (1) the opportunity to lead/participate in cross-functional strategic initiatives and (2) to work directly for Nick.
As Chief of Staff, I’m able to work on (and many times lead) cross-organizational projects. So far, this includes the budget, employee success, growth/margin analysis, alignment with our partners, expense initiatives, TAM, product meetings and planning our annual “Pulse” conference.
More importantly, I talked with many of Nick and my mutual connections. The feedback on him was similar across the board — super sharp, hard worker, handles himself well around investors, empowering, motivating, full grasp on everything going on in his organization, etc. So far he has been great to work for, a fantastic role model and always has a great perspective.
Tyler: When the opportunity for the role came by my desk, I thought it was a unique opportunity to learn from a well-regarded CEO of a fast growing SaaS company. It would also allow me to quickly diversify the Finance-heavy skill set that I developed from doing Investment Banking, and start developing some operational experience.
Nakul: Where do you think you provided the maximum leverage to Nick on his time?
Tim: The initiatives I mentioned above are all things Nick would have to do otherwise. Nick still wants to know everything that is going on, so I will usually email him outlines, clarifications, etc. so I don’t spin my wheels. But he usually lets me run with executing the analysis (90% of the project time).
In addition, I perform various “program management” tasks, including prepping Nick for client meetings, coordinate certain executive/product meetings, and one-off items Nick wants accomplished.
Nathan: The major project I did as Chief of Staff was working on our Series D financing. During this time, I was able to manage the aspects of the fundraising process that were not critical for Nick to be involved in. Since the diligence for later-stage rounds involves more quantitative analysis and metrics, I was able to handle these requests while Nick focused on telling the Gainsight story and meeting with investors. I was able to work with junior members of the investment teams that were looking into Gainsight in addition to managing the data room. All of this freed Nick up to meet with multiple investors and still work with the sales team and customers to exceed our targets for the quarter.
In addition to the fundraise, I was able to positively impact such things as weekly GM meetings and Nick’s trips outside of the Bay Area. For the weekly GM meetings and quarterly offsites, I worked on the agenda was able to build presentations and reports that helped Nick make decisions without having to search for the data. When Nick had trips scheduled, I worked with the AEs and CSMs that had customers/prospects in the area, so that Nick was able to meet with as many companies as possible and have the biggest impact with his time. The first project I ever did with Nick, I was able to set 20 meetings up with other executives at a conference; many of the companies were not opportunities at the time but since then, a number have become customers.
Nakul: In what areas has the position helped you grow professionally?
Nathan: The position allowed me to see every aspect of the business and howa CEO runs his company. Not many people get to experience the full fundraising experience like I did so early in their careers. The position also allowed me to gain confidence in what I have to say and made it so that I now will share my opinion with anyone and even challenge more senior people on their ideas. Being Chief of Staff allowed me to see so much more of Gainsight than just Finance or Strategy; I have now worked closely with every team and spent multiple months with Sales, Customer Success, and Marketing. Following my term as Nick’s Chief of Staff, I helped Nick find my replacement and moved into a Marketing role where I report directly to our amazing VP of Marketing.
In general though, building a good relationship with your CEO is great, so being able to spend 6 months with him and work with him on a daily basis was enough of a benefit for me to say it was worth it. Just seeing Nick work helped me learn so many things about being a good leader.
Tyler: The role gave me incredible insights into the different functions — sales, marketing, customer success — of a fast-growing tech company and how they all work together. It also has grounded into me to always keep the bigger picture in mind, to always think cross-functionally … It’s easy to get too focused on only the department in which you work. I’d highly recommend the role to anyone who is looking to work for the best and learn a ton about growing a business.
We’d love to hear from other tech CEOs who’ve had chiefs of staff about their thoughts on the role, and their advice to other CEOs who may be thinking of hiring a chief of staff.
Happy New Year folks! For the next edition of the ‘Software, At Your Service’ CEO interview series, I reached out to Dan Teran, one of the most interesting founders I’ve gotten to know over the last year. Dan is the founder and CEO of Managed By Q, a rapidly growing NYC startup that is bringing to bear the power of software and a marketplace approach to rethink the office management services space. Dan and his co-founder Saman are hugely ambitious, have no shortage of hustle, and have been very thoughtful about every small detail around their business. I have touched upon the thesis of on-demand services for the enterprise earlier too, and I think Q exemplifies that thesis.
I hope you enjoy the chat below as much as I have enjoyed getting to know Dan and his vision for Q:
Managed by Q is a pretty unique business. How did you stumble upon this idea, and what about the idea compelled you enough to start this company?
We actually started working on the business looking at a similar problem for a different customer. My co-founder, Saman Rahmanian, was the person in his building responsible for choosing a maintenance company and was blown away with how bad the options were. I had recently moved into a co-op in South Williamsburg and was also having persistent issues with the building maintenance. Saman designed the original iPad concept and kicked things off by retaining a residential property manager to help us learn about the market, and we ultimately decided that condo and co-op boards were terrible customers, and turned our attention to office managers.
For me personally, I got obsessed with the idea of creating an operating system that could run physical space with the reliability of software. The more we talked about it and socialized the idea everyone agreed that this was something that had to exist. So we went to work building it. That core idea hasn’t changed.
Q is an operationally heavy service business. How do you ensure service quality remains consistent as the company grows? Are there specific strategic decisions or measures you’ve taken to ensure high customer satisfaction?
This is definitely the single greatest challenge in our business, and something that we put a lot of energy into solving. We’ve seen numerous businesses in the consumer space really struggle with this exact thing and put a lot of thought into building our business in a way that optimizes for the best quality of service.
Probably the most obvious strategic decision we’ve made is to put a big emphasis on being the best employer to all of our employees. The first decision was to employ people properly as W-2 employees, the second was to figure out what would make this a really great job and attract great people, and the third was building shared prosperity into our business model. As a result we’ve built an amazing, diverse workforce that is all aligned behind a the single vision of making it easy for our clients to run an office, and everyone shares in the company’s success.
You’ve managed to do a great job of layering on additional revenue streams on top of your core office cleaning services business. How do you think about what products/services you can add to your existing businesses?
The core value proposition to our customers is that we make it easy to run an office, all of the opportunities adjacent to cleaning have spiraled out from there. We don’t think about how we can make more money, we think about how we can make it easier for our clients to run their offices and the money tends to follow. We’ve been able to leverage our access to the physical space and our field operators to deliver a uniquely high level of service, this is part of why it is so important that our field operators are incentivized to go above and beyond the call of duty.
A couple of weekends ago, a Q Operator was cleaning a client’s office and noticed a leak from the upstairs neighbor, we were able to get a handyman on site within hours to coordinate all of the repairs without any involvement from the office. If they hadn’t been using Q it would have been a miserable weekend for the company. The building owner is actually now recommending us to all of their tenants because we were able to save the day. This wouldn’t have been possible without the technology we’ve built, the amazing Q operators, and a robust enough service offering to solve all of the client’s problems.
Beyond saving the day in these types of situations, the fact that we’re in the space every single day puts us in the optimal position to do things like replenish and re-order supplies, which is a huge hassle for office managers.
What does Q look like at scale, 5 years from now?
This is a big question. I’ll start by trying to make it simple. If we’re successful, I think 5 years from now Q will be in every interesting office in the US.
In the past 18 months we’ve been very successful in scaling our core services, which has allowed us to aggressively expand into a lot of offices, but our ambitions are much bigger. We’ve had great success expanding our service offering beyond core services by working with Q Partners in our marketplace, and anticipate massive growth on that side of the business. We’ve had the opportunity to really get to know our customers in the past year, and are building some amazing product to support the needs of office managers – right now all of our customers use the cleaning service but that will not be the case forever, we are building products that adapt to support the unique needs of every office manager rather than prescribing a one size fits all solution tied to our services.
I think I’ve revealed too much… the best is yet to come.
In a lot of ways, you are an atypical tech entrepreneur with an atypical business. Q is very operationally heavy for a B2B business, you and your co-founder weren’t coming out of Google or Facebook or an Uber. Did that impact your fund raising strategy? Was it tough to raise capital in the beginning?
We’ve always been able to find investors that are aligned with our vision for the company. We definitely started raising capital at the height of the on-demand economy frenzy and had a lot of investors that wanted us to pursue a 1099 model, but it never made any sense for our business. The right investors got that immediately. I don’t have any data to back this up, but I’m guessing more people have lost money betting on companies that had “Uber-for-X” in the pitch than have made money (unless they are in Uber).
With regards to our backgrounds, I definitely think there was some hesitation around our operating chops early on, but we were able to raise a small angel round from some really incredible investors which gave us enough fuel to prove ourselves and the business case. We’ve also put a big focus on hiring into our weaknesses and hired a phenomenal VP of Ops who had been at Quidsi and Amazon very early on, and a SVP of Finance + Admin who had run finance and admin at the Huffington Post and Exhale Spa.
Talk about the difference between your experiences raising your seed round vs. Series A? Any learnings in there that you could share with other founders?
I get asked about fundraising a lot, but having only raised three rounds of financing in my life I’m far from an expert.
I think one thing that I’ve learned is that it is a totally different job at each stage of the company, so you really need to lean on people who have seen a lot (usually investors) to coach you through what that means. Very few skills transfer between stages, you need to be able to tell a good story at every stage, but the later stages require a much deeper understanding of your understanding of the business, industry, and even the US and global economy. One oversimplified way to think about it is that with each subsequent financing you are one step closer to being a public company CEO, assuming you don’t get fired, and public company CEOs need to know this stuff.
My best advice is probably to read everything, ask for help, and don’t assume you know anything.
What were some of the mistakes you made early on as a first time founder, that in retrospect you could have avoided and would advise other first time entrepreneurs on?
This is also a question I get a lot that is kind of tricky, it is very hard to separate things in the past that were stupid mistakes, and things that were lessons that I needed to learn in order to get better and smarter. Probably the biggest mistake to avoid hiring poorly. Even if you spend all your time on hiring, spend more time on hiring. The longer I’m in this business the more I see how amazing great hires are and how devastating bad hires are. Businesses are complex organisms, and the wrong people can do a disproportionate amount of damage, even if they are well intentioned. Always, always, check references. If you think people don’t lie on their resume, it is because you are not a sociopath!
For the second part of the ‘Software, At Your Service’ CEO interview series, I reached out to Daniel Chait, the founder and CEO of Greenhouse.io. Greenhouse is leading the charge in bringing to life a modern recruiting platform that enables companies to not just source better talent, but also rethink their entire recruiting experience from a candidate point of view.
I’ve gotten to know Daniel well over the last couple of years, and have been very impressed with his vision for the recruiting market, and Greenhouse’ ability to consistently rise above the noise in a crowded space. But more than that, I’ve always enjoyed my conversations with Daniel – he’s a keen observer of product-market trends in his space, is thoughtful and articulate about his vision, and has remained unassuming despite the success Greenhouse has enjoyed over the last couple of years. Daniel’s story is also particularly interesting for other SaaS founders for a couple of reasons: (1) Daniel spent more than a decade in the professional services world (as a software consultant) prior to founding Greenhouse. There was a ton he had to learn and unlearn to adjust his mindset to run a software product business; (2) Recruiting software is a very crowded market with lots of point solutions, but he and his team have managed to carve out a leadership position for themselves. I believe they’ve been able to do that because of a very keen understanding of their customer’s pain points, and how to position Greenhouse as the central platform from where customers run all recruiting initiatives.
I hope you enjoy the chat below, as much as I’ve enjoyed my conversations with Daniel. Here goes:
Prior to founding Greenhouse, you spent a decade as a software consultant. How was the transition from building a services organization to a product organization? What did you have to learn and unlearn?
The entire business model being different required a big adjustment. I remember sitting down to do our first pro-forma P&L projections and thinking, ‘Okay, how many billable staff do we have, what’s our utilization, what’s our bill rate…. wait a second! This isn’t right at all’. Fortunately, I was able to dig up a ton of resources about the SaaS business model from blogs like those of Jason Lemkin, Tom Tunguz, David Skok and others.
My consulting business served big financial institutions, so the other big adjustment for me personally was moving from a Wall St. culture back to a tech company culture. I had to shed a lot of the armor you build up dealing with the dog-eat-dog world of big finance and reconnect with the openness and sense of purpose that comes with being more of a startup, and a people-oriented business. Luckily, that’s in my nature. So it was a pretty easy thing, once I recognized the need to do it.
Lastly, Greenhouse is just a way, way faster growth business than consulting can be. So even though I’ve participated in building a large organization before, this time feels like playing the movie in fast-forward. A lot of the lessons I learned over the years about culture, communication, recruiting, and management, I’ve had the chance to apply here at Greenhouse – just much faster!
Recruiting software is a crowded landscape with large incumbents as well many modern startups attacking the space. What gap did you see in the market that led you to found Greenhouse?
Before Greenhouse, recruiting software was largely set up to solve the “applicant tracking” problem. Legacy systems saw recruiting primarily as a paperwork and compliance problem, so the tools had the objective of making the process simple, reducing paperwork headaches, and keeping compliance. Meanwhile, the business landscape had undergone this radical transformation, where organizational success had become primarily driven by the value companies were able to get out of their people. Furthermore, with the transparency and mobility brought about by the information revolution, talented people were no longer tethered to a single employer for their entire career. Hence, you have this new world where companies need the best people more than ever, yet those same people have tons of power, and thus, need your company *less* than ever!
Greenhouse was built to address this new kind of problem, where a company needs to bring its A-game to bear in recruiting. Companies need to improve how they plan, execute, and optimize their recruiting approach in order to compete and win for top talent. We at Greenhouse saw that and imagined a new kind of software tool that would address that new and critical set of problems better than anything before.
What advice would you give to first time SaaS founders about thinking through product-market fit, and how to position their product in a competitive market?
For product/market fit, the way we approach that type of thing at Greenhouse is, first of all, understand what phase you’re in and optimize for that phase. That is, before we had product/market fit, we knew that we were going for that and so didn’t worry about stuff that didn’t matter (yet) for us like revenue, CAC, etc. We just wanted to understand whether we had a product anyone wanted, then how to sell it to them, and only then we started worrying about the next set of questions like scaling the sales process, optimizing pricing, and so on. So you’re just optimizing for learning, which means almost trying not to scale – do things yourself, be very hands on, and introspect a lot on each experience. Going too fast or hiring too soon at this stage can be a barrier to the sort of learning that’s critical to getting to the next stage.
As to positioning, and my experience is limited mostly to B2B, enterprise-y sort of stuff, basically always, always go for high value. Identify the biggest problem, the most value you can deliver, and position there. If you are playing in a small pond (say, we can make your paperwork process slightly more efficient) then you’ll never be able to support a differentiated and sustainable competitive position. It’s all commodity. By contrast, Greenhouse is going after a huge pool of value (helping people build more effective companies), so we have lots of ways to differentiate and really drive lots of value for each customer.
Does fundraising become any easier once you have some traction behind you? How did the fund raising experience differ for you from when you were raising your Series A vs. Series C round?
Yes and no. It gets easier in the sense that there’s no check scarier for an investor to write than the first check in. So the further along you are (in rounds, or even within a round), the more other investors feel safe “going along with the crowd.”
On the other hand, I feel like each time I go to raise money the whole process is different than the previous round, so you do start over from square one in some sense each time. Series A investors are interested in very different questions than B, C etc. You learn really quickly that going to raise a B round with an A story just doesn’t work. They have all sorts of new questions, you need to present the data differently, and so on. For the most part, the investors themselves are also a different set. Few investors write $3M checks and also $30M checks. So the people you pitched & the relationships you built in your A round aren’t very relevant in your C round. You have to start all over again at the next tier up.
How do you think of cash burn vs. growth for an enterprise software startup in the current environment?
Great question. Investors have been in this mode of rewarding growth rate above nearly everything else, so it’s tempting to just put both feet on the gas pedal, take your hands off the steering wheel, and just try to grow as fast as you possibly can, come hell or high water. At Greenhouse, we have tried to be a bit more balanced. We’re building a long-term sustainable company which means being thoughtful in how we balance growth vs cash burn, but also the other elements of sustainable business success. For example, we’ve probably invested way more in service reliability (security, stability and performance) than others. If all we care about is this year’s ARR, there’s no reason to do that.
Any avoidable mistakes you’ve made as a first time SaaS founder and CEO over the last 3 years, that you can share?
Be more thoughtful about communication. So, it turns out that, being CEO, people will try to do what they think I want. Weird, I know! I’ve learned that if I just say every idea that I have, unfiltered, it leads people down a ton of blind alleys. I’ve gotten much more thoughtful at communications, understanding that as a leader, the things you say are listened to very carefully so you need to be just as careful in what you say, and how you say it.
I intend to continue this interview series through November and December with SaaS founders and CEOs whom I’ve gotten to know well. Would love to hear of questions that are top of mind for current and prospective SaaS founders in the comments section, and I’ll incorporate them in future interviews.