Why You’re Unfundable in 2023: The Cold, Hard Truths About SaaS (AMA Part 2) with SaaStr CEO and Founder Jason Lemkin

"As a bootstrapped founder, now is your time and window, and it won’t last."

Many people at this year’s SaaStr Europa wondered about the future of customer success, motivation during hard times, and how to grow in this new era of efficiency. 

SaaStr CEO and Founder Jason Lemkin sat down with the audience for an Ask Me Anything session to answer some of the most pressing questions from the audience. 

If you missed part 1, catch that here.

First up is a bootstrapped founder looking for advice in today’s market. 

Q: How Do You Think The Founder Playbook Has Changed For Bootstrapped Founders In 2023? 

“The good news is the bootstrapped playbook has never really changed — because you have no capital,” says Lemkin. The ones that raise $200M and can’t raise a dollar now, their playbook has changed. 

This is the year of the efficient. If you aren’t growing any longer, that’s not good.  But if your growth is still pretty good and you’re bootstrapped, you weren’t cool in 2021. You were lame. But you’re kind of cool today.

As a bootstrapped founder, now is your time and window, and it won’t last. 

“We’ll get drunk again,” says Lemkin. “VCs will come back and always have, but unicorns are stupid today. Now is the time to hire someone who went to work for a unicorn, got laid off, and is bitter.” 

In 2023, those people just want to work for a good CEO in a good company that pays well and get rid of the overfunded unicorn stress. 

Don’t De-Bootstrap Too Quickly

For most normal SaaS companies, when they hit $10M ARR and if their margins are 80 or 90 for real software, it means they’re getting $10M of funding each year, especially if they’re going from $10M to $15M to $22M to $30M. 

That’s enough to start hiring people. 

It usually takes 3-4 years longer for bootstrapped founders to reach this point compared to venture-backed companies. It’s unfortunate but true. 

It took Daniel Dines from UiPath 10 years to get to $1M in revenue, and then he went from $1 to $100M in 2-3 years. He had little money, but he was bootstrapped for ten years and didn’t quit or raise any money later. 

So the short answer is: 

Get to $8M-$10M and know it will take 3-4 years longer. Raising VC seemed free in 2021, and it isn’t now. It’s expensive and has a lot of conditions. Bootstrapped founders don’t have those conditions. 

Also — 

Don’t de-bootstrap too quickly. Many don’t have the DNA to know what happens when they have more money that isn’t theirs, and many almost have to re-bootstrap after. 

Q: What Should A Bootstrapped Company Do When Going From $1M to $3M 

Whether you’re a bootstrapped founder or not, the journey from $1M to $3M is quite different from 0 to $1M. 

What should you do in this phase? 

Lemkin says almost all CEOs fail to calculate the amount of human capital it will take to hit these numbers. 

The faster you’re growing, the more you get it wrong. You need the scaled human beings to hit the plan 3-6 months from now. Not now. 

A tactical strategy —

Hire one great person in the next six months and then another one. Obsess about not hiring a salesperson but one great AE. And then hire another. Hire them sequentially each year, and depending on the physics of the model, you always need two of everything because people leave. 

Q: When Should You Reduce Non-Recurring Professional Services From A Software Company? 

One audience member generates recurring software revenue and non-recurring professional services 50/50. They wanted to know how long you intentionally stay close to customers before building programs to reduce non-recurring professional services. 

The short answer is to stay close to customers as long as you can if your services really enable the product to work. 

Some businesses didn’t build the features, or the onboarding is bad, but others have domain knowledge that genuinely helps people use the software. 

Big customers want a solution. And software alone isn’t the solution.

So here’s the conundrum. 

You have to be a software company at some point, which means at least 70% of revenue (ideally 80%) has to come from software, not services. 

To raise a series B, no one on planet Earth wants to fund a services customer. 

But until then, be careful.

Keep that mix of software and services as long as your funding allows because sometimes removing services makes your solution worse. You lose some of your magic. 

Don’t change too quickly or dehumanize support until your software can replace it. Some say to wait until you’re at $10M.  

Q: How Do You Keep A Team Motivated In These Hard Times? 

As you work to motivate your team on your way to $1M, $3M, $10M, etc., you have to concentrate your effort and energy into your top closers. 

Lemkin shared a story about how a friend’s daughter went to Docusign right out of college in 2021, closed three deals on her first day, and thought she was brilliant at sales. 

Things were different during the boom. 

If you have a team with only 30% hitting quota, instead of doing something for the 70% who are failing, you have to give all the good leads to the good players. 

Read: When Times Are Tougher, Some Still Way Outperform

When times are booming, you can give good leads to the kids because they have to learn somehow, but during tougher times, you can make it all up sometimes when you concentrate your good leads with your top reps. 

A good rep can close twice or sometimes 5-10x more than a mediocre rep. So give them all the leads! 

Q: How Do You See Customer Success Changing In The Next 3-5 Years? 

The last couple of years has turned customer success from the advocate of the customer to a wing of sales. This means customer success is all about sales and not about the customer. 

Now, it’s 2023, and customers are threatened during renewals or upsell. When numbers get hard to hit, the knives come out. 

What does this mean for customer success? 

That the entire industry will need to be remade. Customer success has been corrupted, and it’s destroying the relationship between customer success and the customer. 

When things rebound a little, it’ll become account management, and we’ll come up with a new name related to customer support, like customer happiness or customer-won’t-rip-you-off. It’ll be a whole new layer between customer success and support. 

It’s too late for it not to be a sales function now. 

The Takeaway

If you think things are hard today, they’ll likely be easier next year. It might never be easy like 2021, but things always swing back. 

Lemkin’s guess for the future is that things will come back 20-30% next year. Everything will be a little easier than this year.