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CENTS, SaaS, and a $10 million exit in 3 to 5 years

A detailed account of a Fastlane process...

Readerly

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I started a business with a co-founder last year. As a fellow Fastlaner, I'd like to share my progress on this forum. After reading both TMF and Unscripted , I'm more convinced than ever that the business has CENTS.

Control--we formed a C Corp. We each own 50% of the stock. My partner is the sales guy. He's got all the relationships in the industry. He's recognized nationally as an expert in this field. There are no outside investors. Our overhead is, at this point, a few hundred bucks a month.

Entry--To get into this business there are two main barriers--domain knowledge and development costs. We both have domain knowledge. Like MJ was a limo service owner before he started limos, we've both done--and still do--what our customers do every day. We can relate to our customers. We feel their pain. Second, to build the application from scratch, you'd probably have to invest several hundred thousand dollars. I built the MVP myself using a Mac Mini and open source development frameworks.

Need--There's a real need. Technologically, the industry is a couple decades behind the times. We've already landed two 5 figure contracts with one customer to pilot our MVP. We're on the verge of landing another. The industry is ripe for a sea change in how they do their core workflows. Our system solves the problem. We've already incorporated one wave of feedback from the first pilot. We're primed to get more valuable feedback over the next couple months.

Time--It's a SaaS solution. Once the platform matures, we'll build a small human resource system to support, improve, and maintain it.

Scale--It's a big industry. Hundred of millions of dollars a year big. We have competition, but it's small-time and doesn't really get the big picture. I'm confident we can out-execute them. At a 6x multiple, with a $1.2 million net annual profit, we could exit at $10 million.

My main challenge right now: we have another pilot coming up in January. While our burn is low, money is super-tight right now. The current lull in customer engagement and the relative poverty have my mind wandering to other quick-fix ventures. I'm struggling to stay the course and get the coding done that needs to get done.

That's where I'm at right now. Updates to follow.

Question: What do you do to stay focused during business-cycle lulls?
 
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Maxboost

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I started a business with a co-founder last year. As a fellow Fastlaner, I'd like to share my progress on this forum. After reading both TMF and Unscripted , I'm more convinced than ever that the business has CENTS.

Control--we formed a C Corp. We each own 50% of the stock. My partner is the sales guy. He's got all the relationships in the industry. He's recognized nationally as an expert in this field. There are no outside investors. Our overhead is, at this point, a few hundred bucks a month.

Entry--To get into this business there are two main barriers--domain knowledge and development costs. We both have domain knowledge. Like MJ was a limo service owner before he started limos.com, we've both--and still do--what our customers do every day. We can relate to our customers. We feel their pain. Second, to build the application from scratch, you'd probably have to invest several hundred thousand dollars. I built the MVP myself using a Mac Mini and open source development frameworks.

Need--There's a real need. Technologically, the industry is a couple decades behind the times. We've already landed two 5 figure contracts with one customer to pilot our MVP. We're on the verge of landing another. The industry is ripe for a sea change in how they do their core workflows. Our system solves the problem. We've already incorporated one wave of feedback from the first pilot. We're primed to get more valuable feedback over the next couple months.

Time--It's a SaaS solution. Once the platform matures, we'll build a small human resource system to support, improve, and maintain it.

Scale--It's big industry. Hundred of millions of dollars a year big. We have competition, but it's small time and doesn't really get the big picture. I'm confident we can out-execute them. At a 6x multiple, with a $1.2 million net annual profit, we could exit at $10 million.

My main challenge right now: we have another pilot coming up in January. While our burn is low, money is super-tight right now. The current lull in customer engagement and the relative poverty have my mind wandering to other quick-fix ventures. I'm struggling to stay the course and get the coding done that needs to get done.

That's where I'm at right now. Updates to follow.

Question: What do you do to stay focused during business-cycle lulls?

So far I have been using the kaizen principle. Become half of 1% better than what you were yesterday. Also as Scott Adams has said, keep a system/routine and avoid goals. People rarely meet their goals!!Create a routine everyday so you save that mental energy for programming.
 

Readerly

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So far I have been using the kaizen principle. Become half of 1% better than what you were yesterday. Also as Scott Adams has said, keep a system/routine and avoid goals. People rarely meet their goals!!Create a routine everyday so you save that mental energy for programming.

Great advice, @Maxboost. Process over destination.
 

BrooklynHustle

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I started a business with a co-founder last year. As a fellow Fastlaner, I'd like to share my progress on this forum. After reading both TMF and Unscripted , I'm more convinced than ever that the business has CENTS.

Control--we formed a C Corp. We each own 50% of the stock. My partner is the sales guy. He's got all the relationships in the industry. He's recognized nationally as an expert in this field. There are no outside investors. Our overhead is, at this point, a few hundred bucks a month.

Entry--To get into this business there are two main barriers--domain knowledge and development costs. We both have domain knowledge. Like MJ was a limo service owner before he started limos.com, we've both done--and still do--what our customers do every day. We can relate to our customers. We feel their pain. Second, to build the application from scratch, you'd probably have to invest several hundred thousand dollars. I built the MVP myself using a Mac Mini and open source development frameworks.

Need--There's a real need. Technologically, the industry is a couple decades behind the times. We've already landed two 5 figure contracts with one customer to pilot our MVP. We're on the verge of landing another. The industry is ripe for a sea change in how they do their core workflows. Our system solves the problem. We've already incorporated one wave of feedback from the first pilot. We're primed to get more valuable feedback over the next couple months.

Time--It's a SaaS solution. Once the platform matures, we'll build a small human resource system to support, improve, and maintain it.

Scale--It's big industry. Hundred of millions of dollars a year big. We have competition, but it's small time and doesn't really get the big picture. I'm confident we can out-execute them. At a 6x multiple, with a $1.2 million net annual profit, we could exit at $10 million.

My main challenge right now: we have another pilot coming up in January. While our burn is low, money is super-tight right now. The current lull in customer engagement and the relative poverty have my mind wandering to other quick-fix ventures. I'm struggling to stay the course and get the coding done that needs to get done.

That's where I'm at right now. Updates to follow.

Question: What do you do to stay focused during business-cycle lulls?
Sounds great...

During the "lull" continue devoting time to developing/preselling more customers, which can also help you adress the cash issue.

That and continue to learn the relevant things to help you reach the next step

Look fwd to hearing more & best of luck!
 
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Readerly

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Sounds great...

During the "lull" continue devoting time to developing/preselling more customers, which can also help you adress the cash issue.

That and continue to learn the relevant things to help you reach the next step

Look fwd to hearing more & best of luck!

Great tips. Yes, we're definitely priming our next round of customers. My one hesitation with this is that the product is still an MVP, not a full-featured 1.0 version. On the other hand, I wonder if we could presell. Some cashflow now would certainly take pressure off.

My focus right now is on making a high-quality product that addresses customer needs. I've been learning React. I want the application to be fully responsive. Plus we've got a ton of tweaks and features to add based on customer feedback.

I see your "location" is the DMV. If I may ask, do you work there? Or are you just passing through?
 

BrooklynHustle

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Great tips. Yes, we're definitely priming our next round of customers. My one hesitation with this is that the product is still an MVP, not a full-featured 1.0 version. On the other hand, I wonder if we could presell. Some cashflow now would certainly take pressure off.

My focus right now is on making a high-quality product that addresses customer needs. I've been learning React. I want the application to be fully responsive. Plus we've got a ton of tweaks and features to add based on customer feedback.

I see your "location" is the DMV. If I may ask, do you work there? Or are you just passing through?
DC/MD/VA. Been here for about 6 years now. I work for only me ;)
 

inputchip

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When your back is against a wall and cash is tight -- SELL.

Sounds like you are in the optimal position to presell. Preselling will further validate the need and also eliminate your risk. I would presell at a significant discount to your early adopters (first 6 months XX% off or XX% off for life). Give them no reason to not buy what you are selling, remove all obstacles. If you are having trouble preselling, it is usually because the problem is not painful enough.

I look forward to future updates, will be following.
 
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maverick

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I sent this in a private message but think more people could (and should!) benefit from this. There is a great resource for SaaS startup: www.startupsecrets.com

Michael Skok, a veteran venture capitalist, outlines the biggest obstacles that you will face on your journey.
 

Readerly

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DC/MD/VA. Been here for about 6 years now. I work for only me ;)

Haha! I wasn't familiar with that acronym. That's, in part, why I was confused. A DMV job is pretty much the antipodes of the Fastlane. So a hearty congrats for escaping the paycheck grind!
 

Readerly

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I sent this in a private message but think more people could (and should!) benefit from this. There is a great resource for SaaS startup: www.startupsecrets.com

Michael Skok, a veteran venture capitalist, outlines the biggest obstacles that you will face on your journey.

Thanks for this, maverick. I'll check it out
 
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Readerly

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When your back is against a wall and cash is tight -- SELL.

Sounds like you are in the optimal position to presell. Preselling will further validate the need and also eliminate your risk. I would presell at a significant discount to your early adopters (first 6 months XX% off or XX% off for life). Give them no reason to not buy what you are selling, remove all obstacles. If you are having trouble preselling, it is usually because the problem is not painful enough.

I look forward to future updates, will be following.

This is strong medicine, inputchip. I need to do this.
 

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How many hours are you working on the project per day?

Ps. Never a good idea to go 50/50, 51/49 is always preferred. I'd see if you can change that asap before moving forward. Also if you get into a bind and have to sell just 1 percent your automatically a minority shareholder which is never good.

Pss. Don't say "Yeah but that won't happen to us." You will just sound like every single person that had to do that before you.
 

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How many hours are you working on the project per day?

The answer is always "not enough."

Ps. Never a good idea to go 50/50, 51/49 is always preferred. I'd see if you can change that asap before moving forward. Also if you get into a bind and have to sell just 1 percent your automatically a minority shareholder which is never good.

My pops, a successful business owner himself, gives the opposite advice. It's a concern, though. Call it a leap of trust. When we formed the partnership, its main selling-point was that our skillsets are complementary. MJ warns about this, that commitment is more important. I think my partner and I both have to prove the depth of our commitment.

Pss. Don't say "Yeah but that won't happen to us." You will just sound like every single person that had to do that before you.

I won't. It very well could. I'll cross that bridge if and when I find myself in front of it.
 
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MJ DeMarco

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Control--we formed a C Corp. We each own 50% of the stock. My partner is the sales guy. He's got all the relationships in the industry. He's recognized nationally as an expert in this field. There are no outside investors. Our overhead is, at this point, a few hundred bucks a month.

This sounds more like control from an internal perspective. How about externally? Are there any dependencies? Amazon? A piggyback on app-call into FB or Twitter?

Screen Shot 2017-10-12 at 9.51.46 AM.png

We've already landed two 5 figure contracts with one customer to pilot our MVP.

Very exciting and more importantly, promising. I suppose that customer is willing to beta-test and give you some feedback? This little arrangement, a paying contract and a beta-tester, will probably increase your odds of success tenfold.

Congrats, will follow for updates!
 

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This sounds more like control from an internal perspective. How about externally? Are there any dependencies? Amazon? A piggyback on app-call into FB or Twitter?

Great question. No significant dependencies. This is custom software I built using open source tools and a couple purchased third-party plugins. The system's hosted on the cloud (Heroku at this point. Will probably migrate to AWS as we grow.) But those aren't the kinds of dependencies you're talking about.

Very exciting and more importantly, promising. I suppose that customer is willing to beta-test and give you some feedback? This little arrangement, a paying contract and a beta-tester, will probably increase your odds of success tenfold.

Absolutely. We did a beta test this past spring and got a tremendous amount of quality feedback from the users. Over 200 action items. It was a great position to be in: getting paid to have a key customer improve our product. We're having a second beta test with this same customer in a couple months. They've already expressed the intent to sign up for a long-term contract.

Thanks, MJ, for your insights!
 

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On the other hand, I wonder if we could presell. Some cashflow now would certainly take pressure off.

If you can find a way to pre-sell, do it.

Not only does it ease the cash flow, but you get real customer validation that will help keep you motivated in what mj describes as the "desert of desertion".
 
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The answer is always "not enough."



My pops, a successful business owner himself, gives the opposite advice. It's a concern, though. Call it a leap of trust. When we formed the partnership, its main selling-point was that our skillsets are complementary. MJ warns about this, that commitment is more important. I think my partner and I both have to prove the depth of our commitment.



I won't. It very well could. I'll cross that bridge if and when I find myself in front of it.

Didn't answer the first question though. Are you working Saturday? Sunday? 100 hours a week? If money is tight, you need to double down on more hours, its that simple..
 
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How do you measure that?

Example. If your goal is to read TMF or unscripted in 3 days, you'll more than likely fail. Most self help gurus talk about writing down goals with end dates which simply does not work for the majority of people out there. It can lead to demotivation, burn out, and procrastination. Instead, try reading for 10 mins a day. Tomorrow read for 11 minutes a day. Next day read 11 1/2 minutes a day..and so on. Eventually, slowly but surely you would have read the book. I agree with Scott Adams and the compound effect, a routine or process that you do without thinking is more powerful than goal setting. The goal SHOULD be the process. This mindset has worked out for me in the past when it came to working out and school but no one has been able to articulate it. Hope that helps...
 

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Interesting thread, good luck with it!

I assume this is not your first business? Care to share what you were doing prior? Are they related businesses?
 

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Have you considered raising cash (whether it be investors or friends/family etc) so you can go to market faster, execute faster, and possibly break the valuation number you're aiming for?

I've never been a big proponent of raising money, but several really successful professors I've had always told me "would you rather have 50% of a $1M company, or 3% of a $100,000,000 company?" --> just an example but you get the idea.
 
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"would you rather have 50% of a $1M company, or 3% of a $100,000,000 company?" --> just an example but you get the idea.

I get what you went for, but this statement actually has a ton of "depends" scenarios in reality.

Most commonly, how much and how fast can I liquidate.. if I even can.
 

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Is 6x common in SAAS? common only to SAAS? Or is it more economy based? I own a product based ecom/distribution company. Just curious if I have been underestimating my potential exit value at 3-4X
 
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Have you considered raising cash (whether it be investors or friends/family etc) so you can go to market faster, execute faster, and possibly break the valuation number you're aiming for?

I've never been a big proponent of raising money, but several really successful professors I've had always told me "would you rather have 50% of a $1M company, or 3% of a $100,000,000 company?" --> just an example but you get the idea.

The other thing to consider is control. Taking cash from investors means giving up some measure of control. It's also, at this point, hard to value the company. Could be worth $1 million or more. Or could be worth 6x net revenue, which, at this point, is zilch.

We've decided to bootstrap this venture for the time being. Of course, we reserve the right to change our minds, if conditions seem promising.
 

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UPDATE on the SaaS front

I've been thinking about marketing a lot lately. The company needs a sales funnel. We have a contract to do a second pilot of our SaaS early next year. We're planning a pilot with a second customer in the spring. These contracts were won through long-standing industry relationships my business partner has. But there's no formal process in place right now for getting new customers. I'm thinking the sales funnel will look something like this:

cold emails --> landing page --> follow-up phone calls/webinar product demo --> subscription contract

Our two current customers are state departments. We'll be working with these states to deliver the SaaS solution to companies within the state that receive support from the state to do business--a certification and a subsidy. We've decided to do a "listening tour" within each state. We're going to call up all the companies under the state umbrella and ask them about their business and any problems or issues they're dealing with. Our goal is to learn about them and find ways to provide them with real value.

Also, we started an industry forum (inspired, in part, by this here forum). There was none that had a national scope. The industry needs one. We want it to be an online gathering place for all the industry providers, plus a place where end-users can go for valuable information and advise. My goal is for this forum to establish our company as an authority in the industry, to build trust and credibility, and, ultimately, to generate leads. As traffics grows, it may even be a second source of revenue. Currently, I'm inviting people to join through email outreach within my professional network. I'm also beginning to publish content there. I'll experiment with copy, tone, subject, and format (text and video) to find out what gets traction.

One lingering concern I have is that my business partner, while having a ton of industry contacts and the credibility, is supposed to be the salesperson, while I handle the tech. But his background is in teaching and consulting. He's not a salesperson by trade. I wonder if he has the necessary desire to hone his sales chops, not to mention the motivation to hustle. As MJ has warned, even a partner who has a complementary skillset and personality may not have what's needed most--that fire in the belly to succeed. In a real sense, this could be a potential CONTROL problem down the road. Right now, though, I have the drive to pick up the slack and lead the way forward.
 
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