SaaS Software · Business Strategy

MVP + market fit, but insufficient time and capital - where do I go from here?

Michael Clain Partner at Windels Marx Lane & Mittendorf

May 18th, 2016

I've read with interest the posts on whether one should commit to work with no salary or benefits for 2 years. I have a problem that is almost the opposite of the one presented. My co-founder and I have built an enterprise SaaS product (a contract lifecycle management platform) and have validated market fit to our satisfaction. But the app requires polishing and the selling process requires a dedicated sales team. I have been financing the effort out of my own pocket, but the next phase requires bringing in outside investors. 

Neither I nor my technical co-founder have the operational experience (or, in his case, the temperament) to turn this product into an operating company. We also don't have the financial ability to live without an income for the next 6 months. I think I need to look for someone with operational experience, who doesn't need current income (recent retiree? someone who just sold a startup?), believes in the product and is willing to work for 6 months for a significant equity stake. Does that sound reasonable? Any thoughts on where I could find someone like that?
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Joe Emison Chief Information Officer at Xceligent

May 19th, 2016

If you had product-market fit, you would be able to finance from your customers. The fact that you say that you need additional development means that you do not have product-market fit. Realistically, you only know that you have product-market fit when you have active users; if your validation point is some interviews, but no usage, then you don't have it yet.

It's important to understand where you are, because being at actual product-market fit means that getting funding for a couple people for 12 months is pretty trivial, provided you can defend a TAM of $10M or more (based upon your actual usage).

If you're actually pre-usage, then you're asking for seed funding for an idea, either financially or through sweat equity. The chance that you get someone technical to commit to no income for 6 months is incredibly low. Most software developers (and UX designers and PMs) need a monthly paycheck, and the ones that don't probably aren't going to work for you; the demand is so huge.

If I were in your situation, I would go pre-sell my product to one or more potential customers as custom software development that is heavily discounted to them. Almost every success story I know that started where you are was done this way. Hoping and begging for free labor from some of the most heavily-recruited and highly-paid professionals in the world today is not a great strategy.

Guy Whitcroft International CEO | COO | VP || NED | Interim || Strategy | Business Planning / Reorganisation / Growth | Technology

May 18th, 2016

The Institute of Directors in the UK and in South Africa, too, would be a good source in those countries, Michael. I see you're in the US, so try the National Association of Corporate Directors - www.nacdonline.org - as that is an organisation of the same ilk.

Wister Walcott SaaS Exec

May 19th, 2016

Revising to respond to Michael's additions. Sounds like you have made great progress so far. I have met many passionate domain experts with authentic problems and a vision for how to address. It's a rich source of innovation.

How much effort is required to grow that seed into a fruiting tree? Apologies to @Martin Omansky above, but the equity share *should* be expensive.
1. Execution is tougher than ideation. Much more code has been written than been successful. And as you said, sales and marketing is the gap. Building awareness, cracking open prospects, convincing them to pay you? Capital-intensive. And p-m fit beyond early adopters is harder. Your more important contribution will be further introductions.
2. Your BATNA is that this idea dies on the vine.
3. This is but one workflow inside legal-tech, so smallish TAM by sand hill standards. Not necessarily bad, just saying in the absence of a larger pie, larger slices may be required.People with a stronger track record are more expensive.
4. You need shares for a whole founding team, not just the leader. And what you do retain will (hopefully) be diluted anyway on a share basis as the company raises further money to grow. Basically if it's worth doing, it's worth doing right. Your hired-gun CEO will ask up front what you have the stomach for.

Martin Omansky Independent Venture Capital & Private Equity Professional

May 18th, 2016

There are lots of people who could do the job. The best business model for your circumstance, (undercapitalized and without revenues) however, is to either license the product to a marketing organization (preferably with a brand name) or secure a master distributorship agreement with one. Building a sales force and managing the same is a specialty and you guys appear to be in the knowledge business, not the sales and marketing business. I also am aware of many products in this space, so I hope you are realistic about your competitive position and/or your IP. There are many SaaS projects, chiefly because the development costs, while considerable, are far less than hardware-oriented projects. Think of this as the first of a number of innovative products. Make some money on this one, but don't try to squeeze every last nickel out of the venture. Take the money you make from venture #1 and finance ventures #2-n. Sent from my iPhone

Luis Arellano Program Director, Cloud Analytics at IBM

May 18th, 2016

Perhaps something like equitydirectory.com could help? Find salespeople on there who'd be willing to work for equity to get your first few sales going, and once you build up that momentum (and enough recurring revenue to live on), make the jump? -- *Luis Arellano* | M: 650.868.3485 | LinkedIn Profile

Dennis Charlebois VP Product Operations at Hexis Cyber Solutions, Inc.

May 18th, 2016

Do you have a GTM (Go To Market) plan? Is this a direct sell or via channel partners? Is is a platform that requires additional products and services to extract value or is it a solution?

Graeme Lewis [LION]

May 20th, 2016

You're not alone, may of us have exactly the same challenge. I approached this by trying to prove our product would sell. I closed the first sale (4150k) on the strength of a spreadsheet showing how the profits are made (we make payment platforms for mobile setltement). My second sale is about to close now and, again, based on only the business model, before the client has seen any demo or proof of concept apps. I have had to carve out some equity on a 10x ROI for 4 investors (two closed and two about to close) where the investor holds a %equity until he has been paid his full 10x -within 3years or else he can hang onto the equity. The amount I raised doing this is enough to run us for 6 months while I close the first big sale (big for me is under $100k). I've done this while this is my only source of income too, so I am on the other side of the bridge from where you are as you are currently employed. As many startup owners will know, income is erratic and sometimes non existent. \The question is, can you weather the bad times financially without making them worse. If you haven't experienced it yet, lack of money will create pressure for you like you have never known. I would not recommend doing this unless you can carry yourself through a period of no income and then be brave enough to know when to say stop! Believing our own hype is probably the worst failing of any startup. use good advisors to cut though your own "make believe" situations and know when to make the hard call to change or stop. Cut your costs and be ruthless about managing what and when you pay out money. You come first. Everyone else second. If you don't survive, the business won't either.

Greg Davydov Founder at Artium Gallery

May 19th, 2016

Interestingly, i have the exact the same problem. I have a finished product, which required some polishing,  and I am looking for business partner who might help to bring this product to the market. However it is kind of specialized market - Museums, Galleries and Digital libraries. (www.artium-gallery.com). 

I already know target market, market requirements, software road-map, etc. So I am looking for string sales and marketing guys. 

Martin Omansky Independent Venture Capital & Private Equity Professional

May 19th, 2016

Wisteria: I accept the basis of your observation. As a former entrepreneur and current angel investor, I am cognizant of preserving a founder's incentive. Too much equity exchanged for early cash may kill management's motivation. That is not in anyone's interest. Sent from my iPhone

Martin Omansky Independent Venture Capital & Private Equity Professional

May 19th, 2016

Excellent testimony, Joe. One more thing - even if you are able to horns eagle some talented guy to provide services/invest dollars - the price in equity would be confiscatory. Sent from my iPhone