State of Independent SaaS [pdf]
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1. Why is VC funding so down the rank compared to self funding, friends and family, angels and even debt? Is it probably because VC funding expects a >100x exit and most SaaS probably can't deliver that? Or are SaaS founders turning away from VC for ideological reasons (like want to enjoy the process instead of rushing to justify a valuation?)
2. 50%+ people pursued ideas which were not their own itch to scratch.
3. 30%+ didn't validate before building. 20%+ just asked their audience. Effectively, 50%+ just jumped into it without doing any significant and rigorous testing. Probably because the cost of entry and failure is too low?
4. 74% don't require a CC to start a trial. (Either infra costs are very low or competition is intense?)
5. 80% don't offer a forever free plan.
6. Most founders don't know their website visitor to trial conversion rates.
7. "Asking for a credit card before a free trial has almost no correlation with revenue growth."
1 - If you're a developer and / or willing to learn, you can get something up and running that people are paying for with little to no capital. There are a lot of deals on things like AWS and GCP if you look around (e.g. 5 to 100k in credits).
2 - It's easy to imagine "other people" buying things. When you start asking yourself "would I buy this thing?", you can quickly shoot down a lot of ideas and that's not as fun as dreaming up people that would buy it.
4 - Our reason for no CC is we want as little friction as possible to get started. The infra cost is negligible as people that aren't going to convert don't use the product much during the trial anyway.
This is not a representative sample of all SaaS businesses out there. It was run by the founders of Microconf, and their audience is mostly self-funded startups and solopreneurs. Naturally you will see little VC funding there. As ghaff mentioned in another comment, this is not a sample of typical SV startups.
2. I believe this trend will continue since there are much more interesting and lucrative problems to solve outside your sphere. My SaaS has nothing to do with what I was doing at the time and came from talking to people outside my industry
3. I'd like to see a comparison of how successful these companies are vs. didn't validate
4. Margins are pretty high in SaaS due to leverage in software. You can likely serve 10 customers with the same cloud costs as serving 100. The only exception here would be if your service was prone to scammers or abuse which would make requiring a CC much more prudent
5. When you're boostrapped (which is where this report is skewed toward), you don't have the time or resources to provide support to non-paying customers. Growth at all costs is not the strategy here
6. I still don't know my visitor -> trial conversion rate because it's not that important to optimize at my current stage. As long as you have a reasonable amount of users trying out your product, it should be enough to grow with. And I'm not dealing with thousands of visitors per month. If you have some traction, you should already have the intuition of what moves the needle like improving the product, making customers happy so you can get word of mouth referrals, reducing churn, building features that visitors keep asking for, etc.
Disclaimer: I run a bootstrapped SaaS @ https://trunkinventory.com
I'm highly skeptical about this one. Very, very few freemium services actually struggle due to the cost of supporting free users. Unless you're doing something unusually resource intensive or nobody is paying, the infrastructure costs of having free users is usually a rounding error.
I'd estimate that around 99% of people who use the tutorials on my site do so for free, but the only cost I even really notice is for my email provider. Even at 100x the current usage, I'd still be on the same $10/month server.
I.e. if you had 10,000 more free users and 10 more paid users, would that be a financial loss? It would be a gain for every product I've worked on.
As a bootstrapped startup, your goal is probably to get to ramen-profitability as soon as possible so you can quit your job and focus on it full-time. You're not gonna get there fast enough by making free users happy. Paying users are what move the needle.
> "your goal is probably to get to ramen-profitability as soon as possible... You're not gonna get there fast enough by making free users happy"
But I already have! Making my free users happy has lead to a portion converting to premium and many more sharing my offerings :D
This is surprisingly difficult to solve in 2020. The biggest issue is (in Google Analytics) how to separate traffic that could potentially sign up for a trial vs. traffic from people who’ve already signed up.
Here’s one way to do it:
1. When someone logs in set a cookie
2. If they visit your homepage later check for cookie
3. If cookie exists put them in a segment called eg “existing users”
4. Create visit to trial report in GA for traffic where users aren’t in “existing users” segment
But it seems like this should be simpler.
If there are other approaches that work I’d love to hear them!
Mental health and emotional attachment I guess, working at a scale you're comfortable working at. The tools, frameworks etc. you prefer, and the community around those can all contribute to developer happiness.
So if you optimize mainly for growth you might throw many things out of the window. I think the more developer you are as an entrepreneur the more you may want to stay within a scale that's comfortable for you.
The VC way seems to be more suited for more marketing oriented entrepreneurs who may not even code and develop an emotional attachment towards their tools, their joy may come more from growth aspect, so basically the opposite of what a dev might want.
Actually this is completely wrong.
Investors at all stages from angel to VCs look for strong technical and product leadership from the founding team. Unless you have had a previous successful startup you will not get funding if you are some random executive with an MBA who doesn't know the technical details of the product.
And the reason a lot of entrepreneurs go the VC route is because you get money e.g. $2-5 million which allows you to set up a proper team and build a proper product without worrying about paying the bills. And because they want their product to be used by as many people as possible.
I don't disagree with that, the discussion is about devs avoiding VC funding and why, not about what VCs want and a perfect world.
My impression is that preferences of marketers are a better fit for VCs than the preferences of devs, and it's obvious that they're looking for a mix of both, but this seems to become hard with devs putting their mental health first. They can still make a good living by staying small, and at some point your happiness just doesn't scale with more money.
>And the reason a lot of entrepreneurs go the VC route is because you get money e.g. $2-5 million which allows you to set up a proper team and build a proper product without worrying about paying the bills.
The thing is that a proper team can require different processes than those of a single developer/entrepreneur, and that's exactly what I meant. And while you don't have to worry about bills, you still have to worry about your reputation in your niche. If you've just discovered a market and create an app around that, good, but that's not what most devs do, they create something around their area of expertise.
If your product isn't special, like most ones out there your reputation in your niche is what counts, especially true if you make the typical SaaS app and create tools for other developers.
1. Of your friends/network, pick 5-10 people who could be potential customers. Ask them.
2. Think of a way to scrape emails addr of people who could be potential customers. Ask them.
3. Same on Linkedin.
4. Build a landing page, buy traffic from G and FB, look at time spent on your landing and CTRs to a signup page which then collects emails of interested parties ("We'll let you know once the Alpha is out").
5. Find a blog with potential customers, pay money to run some article on it that relates to your idea, with links to your landing page. Look at open rates of the article itself, and CTR to the landing, CTR on the landing, etc.
6. Create a public group on FB for people that could be potential customers. (Try to) create content for it, try to get people to join (maybe with ads).
All of these are highly noisy, but it's something. Also you could learn something unexpected, like: "oh, I get your idea, but we use already use X for that", and you didn't know about X, or you didn't know it could be used for that. This happened to me several times. Don't be overconfident in your Google-fu, it's a long tail world, and you may not be able to guess all the relevant keywords/marketing/angle that a competitor could be under.
The thing is that most people think that idea validation is "Hey, this is my idea, what do you think?"
"Mom Test Book" describes a way to discover valid ideas by asking question, not asking question to validate ideas you had by yourself.
Still not easy by this point of view changed the way I think about it forever.
And now I can't help and see how everyone is doing it wrong i.e. instead of discovering ideas people would be willing to pay for, they have ideas and then look for validation (if that).
https://www.reemer.com/articles/why-only-fools-write-code-fi...
So you validate it based on adressing your own pain points. The worst case scenario is that you were wrong about the exoticness of your workflow, or the actual size of your community and culture, and keep being the only user. But it's still not a failure if it helps you with your main work.
A "validated" idea is product that someone will pay their hard-earned money for.
Moreover, the true cost of buying a product, is the actual integration into the current workflows, internal processes changes, etc.
Since most people only change when they must, they will not buy a product even if they approve it and like it.
Hence, before the product is ready, what you getting is only opinions.
And, there is also a scale issue, since to get a statistically significant answer, you would need a large sample.
1. VC funding is down, since there is not a lot of VC. VC get pitched by 2000 startups a year, and choose 2. I.e. getting a VC founding is actually an anomaly.
2. Right, this should be much higher. I.e. to be successful you should dig where the gold is, not where you want.
3. See my prev answer, there is no point in wasting time validating since the answer does not reflect reality. If you can get pre-orders than sure. but just hearing someone's opinion on something?
5. Why would you offer a free plan, do you get free housing?
Look at the hours worked as well. 80% work less than 50 hours a week. And the businesses are very geographically dispersed. Net Net. These are not anything like typical SV startups.
> 50%+ people pursued ideas which were not their own itch to scratch.
I can think of few reasons -
1. They are jumping into unknown places because they already know about companies and software in the topics they are familiar with and think they can't compete on technical bases alone. The catch is they are woefully unaware of solutions in those unknown places. It's easy to get something rolling anyways.
2. They fight in terms of pricing model or other metrics than on product as a whole on easy to push services. As a solo founder and owner, you can afford to price it lower than a team of many working full time or adjust it to 2% unhappy users. You don't need millions in revenue.
> 30%+ didn't validate before building. 20%+ just asked their audience. Effectively, 50%+ just jumped into it without doing any significant and rigorous testing. Probably because the cost of entry and failure is too low?
This is not specific to SaaS , the effects are greater partially explained by your mentioned reason a lot. But software is more magic to people in terms of earning money than other hardened ventures so no surprise it's hard to validate and find market for. Interestingly, lot of techies ignore simple ideas or immediate problems because they think they could have written a small script to solve it instead of being dependent on an external company if they were an employee yet that didn't happen, so why not?. More people need sales training and peeking outside their echo chamber (only companies who need software are tech companies or devs and normal internet users.)
> 80% don't offer a forever free plan
Economic viability and people want to generally ditch products and switch around a lot.
> Most founders don't know their website visitor to trial conversion rates.
> Asking for a credit card before a free trial has almost no correlation with revenue growth.
Mentioned by others already. It's pretty hard to account for. If you post your thing in technical places only (many people who open SaaS are pretty biased in their social network), lot of people are eager to test the thing but they don't convert into long term paying customers. I have noticed many people being burnt this way.
#1 VC is very expensive. If you need it, you need it, but debt and customers are non-diluting.
#4 #7 #5 Are all a pain and extra work.
https://www.math.upenn.edu/~deturck/m170/wk4/lecture/case2.h...
By the way the key takeaway from this post is that you can make more money driving for Uber than starting an independent SaaS business. You have to be irrational to start an independent SaaS business (applicable to all startups as well).
In fact the only folk who benefit from independent SaaS are the supplier food chain. Levi’s was the main beneficiary of the gold rush. The SaaS conference organizers seem to be among the beneficiaries of the SaaS “gold rush”.
The only way for this not to sound pretty promising (without getting into sample bias) is if you live in Bay Area.
Maybe the best approach to start it as a side hustle and then quit your job once you have enough traction.
For all practical purposes San Francisco didn’t exist before the Gold Rush and it was one of the biggest cities in the US after. That’s quite a bit bigger than Levi’s. If you’re going to try and make a point by referencing history learn the history or leave it out.
> In fact the only folk who benefit
Yes, there are many products that aim to serve other SaaS companies but that just demonstrates the maturity of the industry.
There are so many small SaaS companies serving thousands of business niches.
Any chance you'd be willing to have a short email conversation about what you're looking for? If so, my email's in my bio here.
Alternatively, on the admin side, Laravel Nova is an extremely useful admin framework. Some of the out-of-the-box API options for Laravel are also superior to the Spark offerings. YMMV!
Could this be survivor-ship bias. If you failed your SaaS venture in less than a year, you are less likely to be part of this survey.
MicroConf: "MicroConf is a collection of two-day events laser-focused on self-funded and indie-funded software startups"
Rob (Walling): started Tiny Seed Fund: https://tinyseed.com/
Tiny Seed Fund: Accelerator for BootStrappers, "... we do this all without the headache of traditional fundraising, loss of control, or the pressure to build a unicorn."
So, it provides some clarity as to why BaseCamp (formerly 37 Signals) aided in the production of the report, certainly when you take their own genesis and growth into account. As far as I know they only had one small outside investment, from Jeff Bezos:
"In 2006, Jeff Bezos bought a minority, no-control stake of Basecamp from Jason and me." https://m.signalvnoise.com/the-deal-jeff-bezos-got-on-baseca...
Cheers, Ace.
That kind of investment opportunity that says "if you trust us buy shares in our future, but you just get to come along for the ride and get X% of profits" seems different enough from VC investing to have its own name, don't know if it already has one.
There are some alternative forms of investment vehicles, revenue sharing ones, ever-green funds, equity investment for a piece of the pie, etc.
I never understood why people like to spread this "fact" around. Of course a company will fail in it's first years, if not, it's a company that is at least not failing.
Also, it means nothing, not all companies are started equal and these statistics mix everything and everyone in the same basket, there is too much noise involved for this metric to mean anything.
Why ? Because your Seed Round is only going to get you 18 months runway before you will need to raise a Series A. But VCs don't tell founders enough that the chances of that are in the single digits.
And so you get these founders with a company that is unprofitable and growing well but not growing well enough to get more funding. Which then means the company dies.
Not disputing that VC's (and others) should do more to highlight the difficulty, the slim chances, the demanding road both professionally and personally, that maximised exit valuation need not mean profit-making, nor revenue-generating, need not even mean sustainable if not propped up, nor some other things which would make my response off-topic.
I find this line absolutely infuriating. And I'm disappointed it's right at the start. Must there always be an issue when the data doesn't suit a worldview? Why compromise a survey 's integrity with your own bias?
It costs virtually $0 these days to start a SaaS company, regardless of gender, ethnicity or religious creed. Look at the emerging African & Indian markets to see absolutely remarkable people hustling & making things happen with having very very little.
Instead, wait until the first infuriated rush subsides, and then reflect on what a thoughtful post might say, and how it might contribute to curious conversation. If you can't think of anything like that, it's the better part of valor not to post. This is the reflexive/reflective distinction: https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que....
It almost always comes down to your socio-economic status and I am in the "big risk taker" group. When I started my business, I could totally risk not working for a year or two without it causing significant damage to my family's socio-economic status/needs. Yes, my income went down significantly and it was still a risk but a heavily calculated one. Even if the business failed, I would be able to get back to the corporate life easily since I had put in 10+ years of experience by that time and had financial stability to do this.
Now sure there are socio-economics realities correlated but in that case instead of using skin color as a proxy (which again only works in the US) the correct thing to do is to use directly the variables of that socio-economics background, like education, income level, parent's wealth, ...
Edit: to clarify, I am not debating wether or not the gender and racial "issue" should be highlighted in the survey, just that the racial stats as they are are not statistically relevant to draw conclusions (at least in non US countries).
The average cost of raising a kid in a middle class family is around 250K. What percentage of micro SaaS founders do you think had less than double or triple that (inflation adjusted) spent on them between when they were born and when they founded their companies?
If founding a SaaS company is free, it's only in the same sense that gas for a Tesla doesn't cost anything. Being one person who has the liberal arts / social science background to understand people, and can also code, and can also design, and can also do marketing, requires many hundreds of thousands of dollars worth of education -- even if it's just sitting around in the library for a few years instead of working.
There are definitely people who are wildly successful without that kind of background, but I don't think they're representative of the typical people building micro SaaS companies. Keep in mind you're really only able to learn to code if you're able to read English at a proficient level, which only ~13% of Americans are able to do.
Proficiency is measured on a scale — it is not binary.
What specific level of proficiency are you referring to, and what is your source for saying that this is the minimum level needed to learn to code. I will go out on a limb and say that your 13% is folks who can read at a 12th grade level (or thereabouts). Note that in the literature, this does not refer to the reading level of an average 12th grader, rather the level that curriculum developers aim to have 12 graders read at.
Also, what level of coding are your referring to?
I will just say straight up that I can teach and have taught kids who have little or no knowledge of English how to code (e.g., with Scratch), so I think you may need to make your assumptions a bit more transparent.
> Also, what level of coding are your referring to?
Just being a working developer. For which the main skill is just being able to read and understand the documentation for new languages, frameworks, libraries, etc.
That said, I don’t think proficiency as defined in that source is an ideal proxy for “can be a developer”, especially given the that “developer” can refer to a wide range of tasks.
Some comments:
1. To pass a FAANG algo interview, yes, the proficient level is needed.
2. To do the bulk of coding and bug fixing that many (most?) developers do, I think that there are a lot of high intermediates (my sub-categorization of intermediate) can do the work and actually are employed as developers. I’ve seen enough janky code in code bases and submitted as “updates” or “fixes” for me to believe that this is widely true.
3. To be a productive creator, I also think the proficient level is necessary. That said, I have seen a bunch of janky creations with questionable efficiency/productivity that lead me to believe again that proficiency is an ideal rather than a necessity.
Literacy is a tricky subject, so I encourage you to exercise caution before throwing around ideas like only the proficient 13% of the population can be developers. There are so many qualifications that need to be made before that statement is plausibly true that it is not worth making, imo.
Let me add that I agree with your overall statement that most successful founders come from relatively privileged backgrounds. There are many reasons for this, literacy being one.
Look at emerging markets & look at tech being applied to them by folks that have far far less than 250k.
> If founding a SaaS company is free
VIRTUALLY free is what I said. And yes it is - you have resource like CodeAcademy & a VPS cost less than $5 these days.
False. Hence me mentioning those other markets where the economic climate is must worse than the US - yet you have people making it work. Kenya/Nigeria fantastic examples.
Hello. Might I remind you of the Global North's historic and continued plundering of the Global South (developing countries)?
Or should we forget about all of that?
> It costs virtually $0 these days to start a SaaS company
Yes, if you have a big cultural inheritance (which was itself plundered and stolen and appropriated from other countries). Oh yes, and you need a big trust fund and upper class parents, or at the least a pedagogical mentor who stimulates you, nourishes your curiosity.
By saying this you are showing me the holy ground you are standing on. There are many hands who touch your life every day: feeding you, making your clothes, your electronics, etc. Check out the True Cost (2015): https://youtu.be/OaGp5_Sfbss?t=32, or 'Steve Jobs: The Man In The Machine': https://www.youtube.com/watch?v=jhWKxtsYrJE
Two key areas one can focus on: 1) imperial intellectual property machine - the work of Ruth Okediji is revealing with this: http://www.commonlii.org/sg/journals/SGJlIntCompLaw/2003/14....
and 2) Corporatist/institutionalized plundering since the colonial era: https://www.aljazeera.com/indepth/opinion/britain-stole-45-t...
Please would you consider these and try to understand their implications on today's reality?
I am up for a debate, and I am happy to be shown other perspectives. Yet flagging my comment seems to be the easiest way to scrub something you don't like, while avoiding constructive debate. It seems to me that you are labeling my writing as starting an 'ideological flamewar', when I would argue I back up my arguments with leading research/references.
I just replied to another comment below, with more links: https://news.ycombinator.com/item?id=22153575
When I googled ‘flamewar’, wikipedia defines it as:
"a flame war is a series of flame posts or messages in a thread that are considered derogatory in nature or are completely off-topic"
I am making connections that I think are worthwhile. They might seem overly critical and negative to those who are not familiar with the arguments. Do you want to limit connections you don’t make yourself, and discard them as ‘off-topic’ because you aren’t familiar with the research?
That sounds a bit like cherry-picking to me.
I don’t understand how constructive critique like this can be flagged, and my comment muted/hidden. Are we not all humans typing away at our keyboards here? Is your perspective really the ‘right’ or only useful perspective?
The only reason I can think of for you and others to flag my comment is if my comments are getting in the way of you or others in Silicon Valley from charging your rents? Is it that you see some truth in what I share that you might not be comfortable with?
If you're sincerely worried about the moderation favoring one ideology over another, you're welcome to look through the many past occasions where I've posted moderation comments about this: https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que.... We don't keep any counts, but you'll find plenty of examples of every side getting the same sort of moderation reply when commenters take a thread in this sort of direction.
https://en.wikipedia.org/wiki/List_of_ethnic_groups_in_the_U...
By your logic of white "holy ground" whites should obviously be at the top of the list, no? Instead Indians and East Asians are.
My argument is that we tell countries in the Global South to use strategy B (free competition) to try to become ‘successful’ like us, when actually we ourselves used strategy A (infant industry protection and export subsidies) [1].
In other words, we give them advice we ourselves didn’t follow, and then blame them for not having ‘caught up’ and become ‘developed’.
The delivery mechanisms for rich cultural inheritances, and use of the best time-saving strategies, are increasingly made artificially scarce through a combination of (1) the money system, and (2) through the IP system (the Aaron Swartz Doc. is great on this). Silicon Valley is Silicon Valley because of the US Intellectual Property regime.
To understand this deeper, I'd implore you to check out the work of Guy Standing [2]:
"…today, a tiny minority of people and corporate interests across the world are accumulating vast wealth and power from rental income, not only from housing and land but from a range of other assets, natural and created. ‘Rentiers’ of all kinds are in unparalleled ascendancy and the neo-liberal state is only too keen to oblige their greed.
Rentiers derive income from ownership, possession or control of assets that are scarce or artificially made scarce. Most familiar is rental income from land, property, mineral exploitation or financial investments, but other sources have grown too. They include the income lenders gain from debt interest; income from ownership of ‘intellectual property’ (such as patents, copyright, brands and trademarks); capital gains on investments; ‘above normal’ company profits (when a firm has a dominant market position that allows it to charge high prices or dictate terms); income from government subsidies; and income of financial and other intermediaries derived from third-party transactions."
The reviewer of Chang’s book then goes on to write:
"Rather than a “free market,” the neoliberal global economy praised as “free trade” by policy wonks is actually “a global framework of institutions and regulations that enable elites to maximise their rental income.”
Standing says 31% of Western corporate profits today, as opposed to 17% in 1999, are in industries where profits are rents on artificial scarcities like patents, copyrights and trademarks enforced under the neoliberal treaty regime established in the ’90s. To take one example, Apple — thanks to patents, copyrights and trademarks — runs a 40% gross profit on the iPhone. Two-thirds of drug research is funded by taxpayers, while patents add $140 billion to the annual price of drugs in the United States. And Standing makes short work of the propaganda myth in favor of so-called “intellectual property”; rather than being a reward for innovation, the main actual purpose of patents is to prevent others from innovating. This is especially egregious, considering that most of the new technologies and products under patent were developed with heavy taxpayer R&D subsidies, and then enclosed for private profit.
Alongside rents on the artificial scarcity of ideas, the state provides enormous rents to the propertied classes through the enclosure of land and natural resource commons, dating back to the enclosure of peasant land in early modern Europe, the engrossment of land (both vacant and native-occupied) in settler societies like America and Australia, the hacienda system in Latin America, the nullification of peasant land rights by colonial powers in Asia and Africa, and the looting of oil and mineral resources. Property claims to all these forms of looted land and resources have persisted in the hands of Western capital under neocolonialism, and one of the main functions of the state is to enforce such titles — in the name of “defending private property rights” — against attempts at reclamation by their rightful owners.”
[1] Kicking Away the Ladder: Development Strategy in Historical Perspective by Ha-Joon Chang (2002)
[2] https://www.resilience.org/stories/2017-08-03/book-day-corru...
Diversity continues to be an issue in SaaS.
Only 11% of founding teams include a non-male
and 21% include a non-white founder.
Have you raised funding for this company?
11.73% Yes
88.27% NoAlmost as if systemic problems affect more than one aspect of the system?