Friday, March 11, 2016

Building any business is hard

Judging from the number of Facebook likes and retweets, as well as comments on Twitter and elsewhere, my last post resonated with quite a lot of people. Some people thought it was provocative though, and some chimed in with good feedback:

Therefore I thought it would be worth following up on the topic to make sure that my message is clear.

The provocative sentence, I think, was this one:
"Building a SaaS business with $1-2 million in ARR is not that hard and not that valuable."
It's important to point out that I took it back in the next sentence ...
"Let me rephrase that. Starting a new company is always hard and most SaaS startups never get to $1-2 million in ARR. Every founder who accomplishes this deserves a huge amount of respect."
... and tried to explain the real point I was trying to make in the next one:
"The point is that getting to $1-2 million in ARR probably has less predictive value concerning a company’s ability to get to true scale than most people think – or at least thought some years ago."
As you can see, I don't disagree at all with Jonathan Abrams' s comment that building any business is hard. The reason why I wrote the sentence above, only to rephrase it in the following sentence, was that it was a reference to Josh Hannah's post about "nice little $40M eCommerce companies", which my post was inspired by.

To be as clear as possible about the subject, let me sum up my view again:

1) Building any business is hard. It requires a much broader skill set, more hard work and much more persistence than most normal jobs. (Let me refine that to "normal office jobs" - I don't want to get into an argument with heart surgeons or firefighters.) And since most businesses fail (at least when it comes to tech startups) it also requires a huge tolerance for risk.

2) Getting a SaaS company from 0 to $1-2M in ARR is hard. For the reasons mentioned in the original post, I think it has become significantly easier in the last 5-10 years but that doesn't mean that it isn't still very hard. Maybe a better way to put it would be "more likely" than "easier".

3) As hard as it is to get to $1-2M in ARR, getting to that level doesn't say much about a company's ability to get to $100M in ARR. For most companies which didn't raise venture capital this is completely irrelevant. If you're a bootstrapped company or raised only a small amount of outside funding and eventually get to a few million dollars in ARR that's an amazing outcome, and calling a company like this a "lifestyle business" is ignorant and stupid. If you're a VC-funded company, the prospects of getting to $100M matter, though – at least to some of your shareholders. :)

In case it's still not clear, maybe this funnel diagram helps to explain what I mean. :-)

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