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.
> Why is VC funding so down the rank compared to self funding, friends and family, angels and even debt?
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.
1. MicroConf, who put together the report, is a conference for bootstrapped founders so naturally the audience that participated was already skewed towards non-VC
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.
> 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.
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.
It wouldn't be a financial loss but it can hurt your growth. Free users are a huge distraction since what they ask for can be very different from what paying users ask for.
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.
That's awesome! There's no one way to do this so if it's working for you, then keep doing what you're doing. Are you running a B2C startup by any chance?
> 6. Most founders don't know their website visitor to trial conversion rates
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!
>Why is VC funding so down the rank compared to self funding, friends and family, angels and even debt?
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.
> The VC way seems to be more suited for more marketing oriented entrepreneurs who may not even code
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.
>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.
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.
how would you go about validating an idea if you don't have at least a prototype to show potential customers ? This has been suggested to me on many occasions but I fail to understand how it works in practice. I'm not being sarcastic I'm genuinely interested because if this is possible it would save me a whole lot of time and headaches.
Depends on the idea, but there's a lot you can do before you write a single line code.
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).
If you're part of a community where people do things in a similar way, like a shared culture, you will discover pain points that aren't adressed by anyone, that you can solve for yourself, and if it works for you and you're not too exotic in the way you work (that's the side effect of a shared culture), chances are that it works for others as well.
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.
You cannot get full validation until you have a product and have real people giving you real money for that product. But you can get some data points which have some correlation with future product market fit.
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?
Note that almost 90% didn't raise funding at all. And of those who did raise, 70% raised less than $500K. About 70% also had 4 or fewer employees including themselves. In other words, these are mostly pretty small operations.
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.
to answer 1. most of these SAAS are micro-companies or leisure based as some would say. they operate in non-VC territory. You're basically looking at markets that are 10K - maybe 100M at the high end. VC's are playing the high stakes game. ie gunning for markets in the 100B+ range. with regards, to diversity, it being mentioned, doesn't make sense. I say this as a minority individual, because I'm fairly certain the organizers, wouldn't be say in some circles where they can meet those individuals operating the companies e.g there's probably tons of individuals in africa | south america etc operating these small micro-saas. but they don't even know the term or are bothered to do so.
I am actually not surprised. I shoot down a lot of ideas regularly (I am in a few startup groups).
> 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. 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."