We started working on the product 4 months ago, and are still in the validation phase of the idea, which is showing a lot of potential, yet this hasn't materialized into revenue / paying customers just yet. Trying to look objectively at our progress, it seems we have accomplished a lot in 4 months: we have a working product, 5 signed pilot agreements (to start once we finish a couple of features), and we definitely get a 'wow' impression when we showcase our product. Business process consultants seem to particularly see the potential of our platform.
We have only 8 months of runway left, and will need to raise capital to stay afloat. My questions are:
- Most blogs seem to suggest that in order to raise a seed round you need around $100k in ARR. How are we supposed to get anywhere near that, considering we started working on the product only 4 months ago? Even if we go through the rest of our savings, I don't think it is likely we can hit such a number in the next 8 months.
- Is the advice from these blogs for startups in a later stage? How likely are we to raise money without the kind of traction these blogs talk about?
- What strategy would you recommend for companies in our stage? Is friends & family / business angels our only option at this point? How much would be a good amount to raise from them? We think that if we could hire 4 - 6 people we would be able to move significantly faster. Even if we have a good product, it still needs a lot of work.
EDIT:
Product link: www.seliom.com
You have no paying customers yet. But you are going with a "horizontal process automation platform" which means you are very generic. When you are starting out, it is better to find one specific niche and go hard at it. If you get great at it, you can then expand slowly.
If you are selling to everyone, you sell to no one (unless you are amazon but that takes 2 decades). You need to get more specific about the immediate value your product brings and to which audience ? Every business technically can automate their processes. But are you really selling to every business ? 99.9% chance you will fail if you are not established already.
Few more things:
"platform that has the potential to adapt to a lot of different industries and company sizes with the goal to automate pretty much any business process".. You are just starting out. This wouldn't work for now. Get more specific. Think of one industry to start with and then expand slowly.
"5 signed pilot agreements (to start once we finish a couple of features)"..Sorry but the moment the contract is contingent upon features, it is in trouble. The customer should have seen enough value already even though I am not undermining it completely. This is risky for you. What if you are not able to convince the customer that those features are now delivered. How specific were those features ? I would count this as no customer yet. brutally honest.
Ok, now the good news:
You have a working product. That is awesome. STOP DOING ANY MORE CODING. It is time for sales and marketing like yesterday. What marketing and sales strategies do you have in place if any between you and your cofounder ? When you say "my co founder does sales", what does that mean ? Right now, you both need to focus on Sales and Marketing.
Sorry for the long post but this hits close to my heart being a bootstrapped SAAS founder so I thought to share my own experiences.
$10/month for a B2B product is very very low and companies don't sell $10/month products with sales people. It won't cover the cost of a sales person's time, or ads for that matter. If it costs $100 to get a client, you need them to stick for 10 months before you make anything. With an 8 month runway, your math won't work. It only works if you have great "free" inbound marketing and the time to wait. That's Netflix level pricing, where they have millions of clients and had the funding to cover initial losses while growing the user base.
My first advice is to raise your price! Either that or you need millions in funding to build a marketing campaign and to have the runway to wait until the CAC is covered. I would 10x your price at least, and then offer early adopter discounts to clients who pay for a year now, not when the product is ready, with extra off if they prepay for two years. Then each sale pays you enough to do some development and get the next sale, as opposed to paying you enough to eat at McDonalds once a month.
Also, list yourself on Sploda.com (no association) and update your profile every time something happens, so they start seeing progress.
John
1) It provides quick cash so it removes the stress of having to look for money too soon.
2) Direct customer feedback while working with them on day to day problems. At this point you really want to understand your customers pains so later you can solve them with technology.
3) Initial validation/traction for your product. At the beginning, customers will value your consulting way more than your product, but for every new customer, try to provide less consulting and cover the rest with your product. Check if your customers are equally happy.
Without knowing what business you are in, $10/month/seat sounds _way_ to cheap. You are working with businesses here, not consumers.
At this price point you would have to sell about a 1000 seats just to pay for yourself and your co-founder. If you want to bootstrap and hire 4-6 people, you would need to sell a whole lot more.
If you can really 'automate pretty much any business process' as you claim, than your product is worth much, much more than you are currently charging.
See if you can sell it at $1000/month/seat. Yes, sales will be twice as hard, but you'll need 2 orders of magnitude less customers to stay afloat. If you can't sell for that price, rethink your product or ditch the bootstrap idea.
Just a word of caution here. It would be important for you and the client to already be aligned on financial terms / paid pilot when based on feature development. When dealing with larger organizations, it’s not unusual do see B2B postmortems caused by ‘death by a thousand features’ where the deal never happens. Until the organization has to pay anything you may not have a deal at all (didn’t go through procurement, legal, etc).
Push the people you have signed agreements with to start using the system. Maybe they don't need the features they asked for. Push them to pay you.
Do not pursue an investor until you have actual clients or money coming in. This is the first thing they will ask about and you will close doors if you approach them too early.
pre-seed and/or angel investors
freelance to stay a float.
funding portals:
https://www.crowdfundinsider.com/2018/03/131246-finra-approv...
https://www.crowdfundinsider.com/2018/06/134408-there-are-no...
- since you are just starting out, it is likely that your pricing is too low. Again, hard to say without understanding more about your product and market.
- at your stage it's probably best to try and close a few customers. Having >0 real, paying customers will help with fundraising (and maybe eliminate the need/desire to do any fundraising, who knows?)
- make a few extremely specific customers very very happy (instead of already aiming for "a lot of different industries and company sizes" as you put it.)
- pricing: once you have an idea on what type of customer to for first, figure out what your likely customer acquisition cost will be, and extrapolate your pricing from there. If it costs you 5k $ to get a customer, you probably want to get at least 3x from them over their lifetime.
Sales: Try to sell what you have and listen to customers who pay you. Pilot customers might request a lot of features that nobody wants to pay for later.
Consulting: I imagine that process automation is often implemented by management consulting firms with deep access to the company processes. You could try consulting clients while using your software. You will be able to understand better their needs and generate some revenue at the same time.
This isn't true at all, even in Europe! Companies regularly raise seed rounds on significantly less progress than an MVP + 5 pilot agreements 4 months in, so if you want to raise some money, don't let the advice from these blogs stop you.
I've just gone through the process of raising a seed/pre-seed from a mix of both US and EU investors — happy to chat about the experience if you're interested: taimurabdaal@gmail.com
Also, as everyone else has said — charge more!
But every where else that I have seen, your intuition is correct: friends/family.
This might be a good thing, because the sales is really what proves the product. Look at the dozens of low code platforms that compete in your space (if I understand your concept).
Good luck.
It is much, much easier when you don't have to justify what you are doing in your business to anyone other than yourselves. This is true even if you have the nicest and most understanding investors.
Taking funding might get you out of a short term hole, but it's a tradeoff with costs down the road that will be paid one way or another.
> We have only 8 months of runway left, and will need to raise capital to stay afloat.
Depending on your goals, there could be a number of paths open to you that don't involve outside funding.
I dont mean to burst your bubble but: if you're solving a problem that is serious enough businesses will give you money today. Usually (in my experience) these "once you add these features" are things that wont actually move the needle enough and you'll find yourself in continuous development of things that won't actually produce revenue.
If no money has exchanged hands, I'd suggest telling your sales cofounder to go get a pilot with actual money being handed over.
I'm going to take a different approach. Your audience so broad that you don't know who your real customers will be. From all those "industries", you need to pick one that will be the money maker and slowly expand to other ones.
patio11: charge more
Seriously, unless you’re going to be selling exclusively into businesses with over 100 employees using b your service you need to charge more. The meetings to consider whether to use your product are going to cost the buyers more in employee time expressed in dollars than your product will.
Clients who commit to pilots or trials without committing cash are not worth anything. You can offer fully refundable trials, but always take some sort of deposit.
Yes - friends and family rounds are a good source and I'd imagine common source of funds for early stage startups. It's as much a part of your network as the clients and employers you work with over the years. It almost goes without saying that you should only ask those who can afford to lose their investment. Awkward family functions can ensue if you lost Uncle Joe's much needed $10k savings pot.
Cold email can be useful (look at Steli Efti's e-books and tips on this subject). This was helpful to me when starting out and helped me find customers before committing to build my product: https://youtu.be/H0f0o5-liyM
Everyone you pitch - especially in enterprise - is time poor. Also when they commit to buying from a new startup they are putting their reputation at their firm on the line. Their natural inclination will be to defer the decision if they're interested. So if they gave any kind of indication that your product might be useful keep pinging them politely and semi-regularly - preferably with useful product updates which could meet their needs - until you get either a yes or a no. Introductions, warm referrals or partnering with a bigger vendor who can vouch for you can shorten the sales cycle significantly for enterprise.
Avoid falling prey to potential customers saying they'll bite if you give them 'feature X'. Do make a note of the conversations and feature requests though - sometimes if the use case crops up more than once it might be useful to consider adding to your backlog.
Consider blogging about what you guys do, how you do it, why you do it - this will help build social proof for not just the product but you. If the product itself doesn't work out all these articles are a nice thing to fall back on if you have to go back to full-time work.
See everything as a learning opportunity but know when to delegate. As a coder I wasn't very good at cold emailing or prospecting so I put everything into learning that skill. I now try and delegate it when possible. Similarly if you're not great at understanding Google Analytics etc. learn it - but know when to get a specialist in to help do a few days work for you.
Upwork is great for finding skilled freelancers to parachute in and do some work. Keep a list of all the top notch talent you work with, it's quite possible the best thing to come out of your venture is the network you build.
Finally take care of yourself. Mentally and physically. Know that even if this goes belly-up you are not your product - your product didn't work out - you however showed a lot of initiative, courage and smarts to get something new, that didn't exist before out the door and onto the market.
Good luck!
If they consult for another company, wouldn't that company own the rights?
From what I've seen, not many companies are willing to pay consulting fees and give up ownership of the work.
Is there anything you can do to stretch the runway to 24?
I don’t think you want to raise a new round with 0-$40 in MRR.
- 1 year is nothing. Do consulting up to two years.
- screw partnerships, pilots. They add nothing.
- Start blogging and evangelizing
- Do anything feasible to get 10 customers. Worry about pricing after that.
When I first started my saas, I incorrectly didn't start by gunning for paying customers. You could make a cool product, but your goal is to make a cool product people will actually pay for.
The second lesson I learned was not charging enough, but once you actually get people in your paywall, those are things to refine later.
When we started we were all fresh out of (or still finishing) university and had fairly small savings. Definitely not a year of runway. So we found jobs that were relatively easy, well paying, and minimally distracting. Our goal was to earn only enough to live off, so while we kept the jobs we had infinite runway.
In my case I reached out to one of my uni lecturers and convinced him to add me to the tutoring team for one of his first year programming subjects. It was super easy content, the pay was pretty good, and I didn't have to think about it at all when I wasn't working on it. The other guys took other odd jobs around the university, for similar reasons. I am less a fan of the consulting strategy - it feels too easy for that to take over your focus.
Our internal goal was 100K ARR within our first year. If we did that, we'd all quit our other jobs and go full time on this, and start paying ourselves. We got pretty close to that target but went all in anyway.
If you can hit 100K ARR and keep your costs of living low, you won't need to raise a seed round. I don't know anything about you - we had just finished uni so we were in a good position to live cheap. We would make 100 meals for $100 and eat a lot of chilli con carne + rice: https://i.imgur.com/9BtnOkP.png
It was 6 months from first code written, to first customer paying us. And then about 9 months from there to 100K ARR. Our typical customer at the time was worth about $200/month ($2.4k ARR). Don't lose hope, you might be just on the cusp of some cash. The advice about charging more in this thread is bad advice without knowing how many users each business you sell to will have. In our case it was at least 20 (we sell a whole of business product, so it was defined by company size), which was totally sufficient.
We didn't hire anyone until we'd been going for about 18 months. Because we couldn't afford it. But in hindsight it helped. If you hire 4-6 devs now you're going to spend all your time managing them instead of learning what product you are building. Learning to be a manager takes a long time and you'll probably be bad at it at first - particularly if you'd rather be coding. Anecdotally I think we had a year lag from when we first hired a few extra devs, to when we got a significant increase in product output.
Don't do pilots. If you are building a feature for someone, make them sign a contract to actually buy the product contingent on that feature. Pilots give people an easy option to not buy after you've done a lot of free work.
Don't raise money from people other than customers if you don't have to.
My email is in my profile, reach out if you want to chat.
I second the recommendations of taking on some consulting projects to extend your runway.
Start listening to startupsfortherestofus.com, start in the archives.
Check out applying for the next round of tinyseed.com if you aren't profitable when getting close to the end of your runway.
build your saas is another good podcast for inspiration.
Oh, speaking of inspiration. https://www.youtube.com/watch?v=0CDXJ6bMkMY @DHH startup school 2008
Good luck growing your SaaS.
