Dear SaaStr: Is A Big Market Better Than A Small Market?
And should i trade salary for more options?
Dear SaaStr: Is a big market better than a small market? Why?
A big market is better than a small market. This is the reason 70%+ of SaaS companies that IPO are just new version of old, successful things:
About 70% of SaaS Unicorns Are New Versions of Existing Categories of Software | SaaStr
But … but …
Small markets can grow into large markets if you change the market or there is otherwise disruption in the market. If that’s the case, it can be wonderful. A good example below in e-signatures.
Small markets are often, though not always, less crowded. If that’s the case, sometimes starting there and then expanding into a larger market segment can work out well.
A small segment of a large market is often where most of us start. That can be the best of both worlds, so long as each year you keep expanding the segment of the market you serve.
SaaS eSignature Market: From $1 Million in 2006 to $1 Billion in 2018 to $5 Billion in 2023
Dear SaaStr: Is lowering your salary in exchange for stock options worth it
Probably not in 9.5 cases out of 10, but I’ve done it every start-up I’ve worked at or founded and I’ve come out ahead:
In the first start up job I took, I didn’t get as much equity as I wanted, so I asked the CEO if I could trade some of my already low salary. He took it as a deep sign of belief in the startup, and while I gave up 10% of my salary, I got far more stock than made sense for that amount of cash. The stock ended up being worth 50x the cash, but it might have been worth nothing as well.
In my first startup as a founder, the investors actually made me trade some shares for a higher salary!! They weren’t stupid, and they in essence bought off the founders a bit with high salaries in exchange for less founders’ stock. We sold the company 12.5 months later, and the investors came out way ahead. I was forced to trade $35k in salary for about $500k in stock. Bad deal ;)
At Adobe Sign / EchoSign, I went without salary for almost a year but traded that for equity at the last round price with my investors. I made about 8x on that bet. But it was a bet I could control …
Still, it’s not the right, logical play in most cases. But for me, I’d rather own more of what I was going to put so much of my life and heart into. Even if it wasn’t quite logical. And stock options can expire, companies can over-fundraise making the common shares worthless, and so many other things can make them worthless.
Start-up math really only works out if there’s a great outcome. So to me at least, you might as well bet on that happening — if you believe. But again, not really rational.
If you are there just for the job — take the cash.