Sunday, April 02, 2017

Why startups should hire an HR person sooner rather than later

At the excellent SaaStr Annual 2016 conference about a year ago, a very experienced SaaS CEO said on stage that an internal recruiter can be a startup CEO’s secret superpower. I couldn’t agree more, and I think startups should make that hire sooner rather than later.

If you can hire only one or two handful of people with your seed round, hiring anybody who doesn’t either code or sell is hard to justify. Being willing to invest in an internal recruiter or talent manager (or more broadly, an HR person) early on requires pretty big balls a lot of confidence. The right time for making that hire obviously depends on a variety of factors, but I would argue that most startups should hire an HR person sooner than they think.

Here’s why.

1) A great HR person can free up a lot of your time

Anybody who ever hired people knows that it’s extremely time-consuming. Let’s say you want to hire 10 people in the next 12 months. That means that you’ll have to:

  • screen around 500-1000 CVs
  • interview around 100 people
  • do 2nd and 3rd interviews with around 20-50 people
  • do a few dozen reference calls
  • negotiate compensation and an employment contract with 10 people

The numbers can obviously vary greatly, but you get the idea. It’s a lot of work, and if you have only developers and sales/marketing people in your company you’ll have to do the bulk of it yourself. An HR person can take over a significant chunk of that work for you.

2) A great HR person can help you make better hires

An experienced HR person will help you get more candidates, better candidates, and will help you get better at picking the right ones. As a result, he or she will increase the quality of your hires – which is obviously hugely valuable – and reduce the number of costly mis-hires. A great HR person will also help you to build a network of high-quality candidates early on – people who might not be a fit at the current stage but could become a great fit at a later stage.

3) A great HR person will run the process and help you build an employer brand

A great HR person will not only make sure that you have a great shot at hiring your favorite candidates, he or she will also run the entire hiring process for you and will ensure that you leave a great impression with the many candidates that you will not hire – which is important for your reputation. He or she will also help you to start building an employer brand and to become known as a great place to work.

4) A great HR person will save you money

Having an inhouse recruiter lets you save on fees for external recruiters. Since external recruiters usually charge 25-33% of the candidate’s annual salary for a successful placement, it’s well possible that your internal HR person will pay for him or herself by reducing the need to work with external search firms.

5) A great HR person will make your employees more effective

Guess what, adding 10 new people to your team not only means 100s of interviews, it also means setting up payroll for 10 people, onboarding 10 people, providing continuous training and support to 10 more people, and much more. All of this costs a lot of time which you probably don’t have. An internal HR person can greatly help you to take much better care of your team, thereby making your employees both happier and more productive.

Because of all of these factors, an HR person is one of the highest-leverage hires that you can make. Nevertheless, unless you’ve raised a lot of capital, bringing on an HR person instead of, say, another engineer, is still a difficult trade-off. So when is the right time? I don’t have a scientific answer, but I’d say that by the time you plan to hire 10 people in the next 12 months you should hire an HR person. This point in time will usually coincide with having found a decent level of Product/Market Fit and having raised a larger seed round.

As another rule of thumb, your HR person should probably come in somewhere between employee #10 and #20 at the latest. As an example, Front hired an internal recruiter as employee #19 – and it sounds like it was not a minute too soon!

Thanks to Jenny – our very own HR lady! - for reviewing an earlier version of this post and providing valuable feedback.

Wednesday, February 15, 2017

5 ways, 100 million dollars, 100 free posters

I'm a big fan of ;)
If you're a reader of this blog, chances are that you've already come across my post about "five ways to build a $100 million business". Given that the post (and the infographic that we created recently) has for some reason resonated so well with lots of people, we thought it would be cool to turn the concept into a beautiful poster that you can put on the wall. The idea is that (besides being decorative), the poster can serve as a little cheatsheet to remind people of some important aspects of building a large business.

Below is the result that we created together with an excellent illustrator from Barcelona, Denise Turu. I hope you like it!

If you're interested in getting a physical copy of the poster please complete this short Typeform. The first 100 people will get a FREE poster. Afterwards we'll probably give it away for a nominal amount (to cover printing and shipping costs).

[Update: The 100 free posters sold out quickly. If you'd like to order the poster for a nominal fee please leave your email address here.]

Click for larger version

Monday, January 16, 2017

Impressions from the 5th annual PNC SaaS Founder Meetup (AKA PNC SaaS Camp)

We have a tradition here at Point Nine that once a year, we organize a meetup for the founders of our SaaS portfolio companies. The first meetup took place in SF back in 2012 and gave the founders in our (at that time still rather small) portfolio a unique opportunity to learn about what works and what doesn't work in SaaS, compare notes and share war stories.

About two months ago, the 5th annual PNC SaaS Founder Meetup took place in a small lake town a little bit outside of Berlin. To celebrate the 5th anniversary, we turned the meetup into a 48-hour long "camp" and invited about 150 founders and key people from our SaaS portfolio companies, along with a handful of external SaaS experts, to a nice resort close to Potsdam.

Here's a short video that we recorded at the meetup:

Spending two full days and two full nights together not only allowed us to put together an amazing agenda with more than 60 presentations and workshops; it also led to countless great conversations, connections, and friendships. We're truly thankful to all the amazing speakers and attendees who made this possible.

Tuesday, January 10, 2017

SaaS Funding Napkin, the 2017 edition

Today is January 10, 2017. That means that in ten days, this jerk will become the leader of the free world. Ugh. It still feels surreal to me. In less earth shattering news, the fact that it's 2017 also means that my "SaaS Funding in 2016" napkin needs an update.

As a reminder, in the original post I tried to give a "back of a napkin" answer to this question: What does it take to raise capital, in SaaS, in 2016? Today I'd like to take a stab at the (early) 2017 answer to that question.

Like in the 2016 version, the assumption is that the founding team is relatively "unproven". Founders with significant previous exits can raise large seed rounds at high valuations early on, so the "rules" are different for them. On another note, when I say "what does it take to raise capital" I mean "what does it take to have an easy time raising capital from great investors". If your company doesn't meet the (very high) bar pictured on the napkin it doesn't mean that you won't be able to raise money at all. It just means that it probably won't be easy, that you will likely have to talk to a large number of investors and that you may not be able to raise from a well-known firm.

So, what does it take to raise capital, in SaaS, in early 2017? I don't think a huge amount has changed since I created the first version of the napkin about nine months ago, but here are a few observations:

1) The bar keeps getting higher and higher

I already wrote about the rising table stakes in SaaS two years ago, and since then the bar has kept increasing. The SaaS companies included in Tomasz Tunguz' benchmarking analysis of exceptional Series A companies grew on average from $10k to more than $90k in MRR in their first year of commercialization and then to over $400k of ending MRR in their second:

Twilio, Workday, and Zendesk have shown that the best SaaS companies can get to $100M in ARR in 6-7 years and continue to grow at around 50-70% year-over-year after hitting that milestone. Slack, unbelievably, reached $100M in ARR just 2.5 years after launch. Slack is an outlier even among the outliers, but getting to $100M in about seven years and hitting $300M 2-3 years later is the type growth which the best investors in the Valley are looking for in 2017.

I didn't have to make a lot of changes to the napkin to reflect this since the growth rates that I had put into the 2016 version were already in line with the "T2D3 path". I've increased the Series B amount, valuation and MRR range, though, and because the expectations of later-stage investors trickle down to the earlier stages I've changed the ARR potential number in the "Seed" column from "$100M+ ARR" to "$100-300M+ ARR".

2) Being a workflow tool is no longer enough

Investors are increasingly questioning if you can build a large and long-term sustainable SaaS business by being primarily a workflow tool. The thinking is that every successful software product will eventually be commoditized because it attracts lots of people who will copy the product and offer it for a lower price. That concern isn't new, of course, but given how crowded most SaaS categories have become by now, investors are increasingly looking for additional ways to build moat around a business.

So if you want to raise capital for your SaaS startup in 2017, investors will wonder if you can become a true system of record, build a real platform/ecosystem/marketplace or build a unique data asset over time. The latter option will get particular attention this year, so I highlighted that in the "Defensibility" row of the napkin. The ability to gather large amounts of data from the entire user base, and use that data along with AI/ML to make your software smarter, is one of the big themes at the moment. For what it's worth, I know AI and Machine Learning are a hyped topic but I think the hype is justified.

You might think that some of the things that I've written here – getting to $100M ARR within a few years, thinking about $300M ARR at the seed stage – are just crazy. I won't argue with that. The vast majority of SaaS companies will never get to this level of growth or scale, and yet they can be successful and profitable companies that generate life-changing wealth for the founders and great returns for early investors. VCs need outliers to make their business model work, but that's not your problem. If you think you don't have strong potential to become one of these crazy outliers, maybe VC isn't right for you.

OK. Enough words. Here's the 2017 SaaS Funding Napkin!

(click here for a larger version)