I’ve been in a handful of conversations lately which start in much the same way; What’s your story? I find myself the protagonist in a marvelous novel. The first version of this post was nearly five-thousand words long. You don’t want to read a book. You need information which will be useful to your journey as a SaaS founder. So here is my revised, much shorter, founder story – and the two most valuable lessons I can share.
Hi, my name is Joe
I’m currently 48, married for 28 years, have 6 kids, a homestead, and I’m a cancer survivor. I started one of the first SaaS companies in 2003 and ran it for 20 years before my recent exit. For this post, I guess you could say my story opens in 1996 at 21 years old. I was working in a factory for minimum wage with a new wife and new baby on the way. I’m dyslexic and never went to college. This was supposed to be my life, just like my family before me.
I was promoted to warehouse manager after I revised a manufacturing process that made the company millions. When you make the company money you get noticed. I took a warehouse management position at a biomedical company shortly after. I’ll spare you the details but in less than 18 months I had several promotions, earning myself a position in the lab as an R&D Biomedical Polymer Chemist.
You might best describe my learning style as, iterative cycles of improvement. In the lab, my iterations were three days long. One day I got impatient for the results and took the time to learn the QA process which was the main bottle neck. I learned to program to address the issue and reduced the QA time from three days to six hours. Everyone could run their lab experiments much quicker, but the damage was already done. I had fallen in love with coding.
The iterative cycles for programming are nearly as fast as the programmer can go. For a polymath, that’s addictive. By 1999, I was slinging code for a Fortune 500 company. Eventually, they gave me a team and put me in charge of a new product that generated an additional $6M in annual revenue.
In 2000, after the birth of our second child, I got cancer. Hodgkin’s Lymphoma, stage 3B. I went through 8 months of chemo and radiation therapy and when I went into remission, I suddenly wondered why I was making so much money for other people. Gone was the fear of starting my own business. After all, what was the worst that could have happened?
BUT DID YOU DIE
I knew I wasn’t ready, so I joined a consulting start-up and over the next 18 months I learned exactly WHAT NOT TO DO in a start-up. When that company started to fold, I knew it was time to finally start my own. So, in the summer of 2003, in a room at the Summerfield Suites in Denver, I created a business model that we now know as SaaS. To be clear, I’m claiming that I alone invented the model. Sales Force had started a few years before, but I didn’t know anything about them or any of the other pioneers at the time.
I didn’t have any real cash saved so I recruited a few partners and we bootstrapped, making sacrifices to our salaries and time. We spent $500K over the first four years before we hit profitability. When I sold it, we had 25 employees, over 20% market share, and a monthly churn rate of less than 1.2%.
I ran that company for exactly twenty years and two months and had no intention of selling. I thought that the delta between what I needed to sell, and what a purchasing company would offer was just too far apart and I was wrong. In the end, I got exactly what I wanted. A fantastic exit and ultimate freedom.
I could write multiple books from the lessons I’ve learned over these last twenty years but two mistakes I made in the first month cost me a quantifiable $900 million. You would do well to avoid them.
Wrong vertical market
With family in the carpet cleaning industry, it was a natural choice for someone who didn’t know anything about business. With no capital, I knew I needed to focus on one sector until I had the resources to move into adjacent markets. Little did I know (because of my 2nd mistake) that I would get stuck in carpet cleaning for over a decade. Having started in 2003, we were first to market in field services by five years. Our largest competitor, ServiceTitan, wasn’t founded until 2012 and targeted the HVAC space.
The average invoice for a carpet cleaner is $250. The average ticket for an HVAC shop is $7,500. ServiceTitan was selling a similar product, at more than ten times the price. According to Reuters, as of 2021 ServiceTitan was worth $9.5 Billion.
Choose a vertical market that can afford to pay what you’re worth.
Failed to recognize first mover advantage
I’m an engineer before I’m a marketer. My idea was to create a compelling offer and price our service at cost+. FAIL. I should have priced our product based on the value. I wouldn’t have commanded the prices that ServiceTitan did, even the best carpet cleaners are extremely price sensitive, but every dollar I left on the table could have been used to grow. Google pay-per-click was $0.25 in 2008. I cut myself off from growth because I didn’t charge enough.
We raised prices on every subscriber for the first time in 2021 and lost less than 2% of our base. We gained 22% in ARR overnight.
Price your product based on the value it brings, not on what it costs to deliver.
My mistakes are your lessons
Building a new SaaS company is seldom a solitary adventure, nor is it a path devoid of hurdles. My journey is a blend of fortitude, luck, and intellectual curiosity. There were many times we should have shut it down, but I simply refused to fail. So many others helped along the way, but my one desire was to have an advisor or board member who could guide me. That individual never came for me. I would love to be that person for you.
