Every big name in SaaS and tech has a start-up story. From AirBnB’s mattresses on the floor to Microsoft, Google, and Amazon's garage beginnings, SaaS founders know that greatness often has humble origins.
Becoming the CEO of a large, successful SaaS business is the dream of many SaaS and tech founders. However, the jobs of a founder and a SaaS CEO are very different. A founder often wears many hats, developing product and finding customers, while also supervising a team and finding the funds to grow.
A CEO on the other hand entrusts most of this work to their team. A CEO delegates, stepping back from direct interaction with many customer facing tasks.
The roles require different skills, but that doesn’t mean the same person can’t be both. The transition from one to the other, of course, is typically the toughest part of a founder/CEO’s journey. This is especially true as a business scales and weathers various SaaS evolutions in the industry.
When does a SaaS business need a CEO and not just a founder? And how will founders know when the time has come?
To answer these questions, we can turn to people who’ve done it before and are helping others do it today.
An “adventure capitalist” weighs in
Five years ago, SaaS investor Neeraj Agrawal introduced the industry to T2D3—a revenue growth metric investors like him use to make venture capital decisions. He explained how SaaS start-up founders could use T2D3 as a model to earning a $1-billion valuation.
And use it they did; businesses like Qualtrics and PluralSight went public despite growth struggles. Qualtrics even sold for $8 billion in 2018.
However, as we all know, things change. Agrawal knows this too. Half a decade after introducing us to T2D3, he recently published an article about a new kind of journey he calls F2C, or Founder to CEO. In it, he describes the demands of the quickly evolving SaaS landscape.
The rise of product-led growth and an increase in the revenue required to go public mean T2D3 no longer applies to many successful, scaling start-ups. Instead of focusing only on a scalable product and go-to-market strategy, founders must also consider they’ll likely be overseeing a team of 1,000 people before going public. This requires a scalable organization chart and no small amount of soft skills.
Soft skills: a challenge in the SaaS CEO transition
More people requires more leadership, which requires more talent. As SaaS businesses scale and founders become distanced from customers and even team members, connecting with team leaders becomes more important than ever.
Not all founders are capable of making this change, though.
Data on how many founders become CEOs is mixed. Alex Clayton at Meritech Capital sampled 61 businesses and found 59% of SaaS founders were CEOs when their business went public, while SaaStr reports that almost 90% of top SaaS businesses have CEOs that were founders.
Joseph C. Picken—founder of the Institute for Innovation and Entrepreneurship—found evidence that ‘‘most founders surrendered management control long before their companies went public,’’ and ‘‘fewer than 25% led their companies’ initial public offerings.’’
While the evidence seems contradictory, it does suggest not all SaaS start-up founders have what it takes to become the connected CEO they need to be to succeed. To combat this, Agrawal shared a few helpful lessons for the F2C journey.
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Agrawal’s SaaS F2C lessons in a nutshell
1. Find a SaaS CEO mentor fast.
If managing 1,000 people is in your sights, you’ll have an organizational chart with five or more levels. This requires fellow leaders, and a CEO mentor can share insights on leadership, hiring talent, and other issues as they come up.
2. Hire an internal HR leader sooner.
Again, with such a large team on the horizon, a strong human resources team is necessary. Today, smart recruiting is just as important as product improvements when it comes to scaling. You need talent, and you need to get it before the competition.
3. Get your direct reports ready to scale.
Scaling SaaS businesses tend to have teams that are 50 to 75% hired within the last year; Agrawal sees this often in his work with start-ups. Your direct reports—or directors—must be engaging team members for hiring referrals and mentoring existing team members to become great managers and leaders.
4. Embrace a multi-office mindset.
With remote-work technology ubiquitous today, expanding into multiple locations and supporting more off-site team members should be expected. Otherwise, you limit the talent willing to work with you as well as your ability to scale.
5. Emphasize diversity in your hiring immediately.
Too many founders opt to “deal with diversity later,” and it just doesn’t work. The early hires of a business make up its core DNA, both in terms of strong idea-generation during foundation and team expansion later on when referrals become important. Prioritize diversity now.
With fast-growing teams being an inevitability, it’s no surprise valuing human connections is a common theme.
When SaaS founders churn
Glenn Shoosmith—chief architect and co-founder of scheduling platform JRNI—has watched many founders fail the F2C journey.
I've seen some amazing CEOs," Shoosmith said. "Very, very few of them founded businesses. The number of people who can carry that all the way through from beginning to end…you can count them on one hand."
For Shoosmith, the transition was marked by two things:
- the need to be a team communicator, and
- the need to see things more clearly from a customer perspective.
He had to “get into the mindset of the customer beyond the technologist.” Talking to his team helped him do that, highlighting the need for a diverse, talented team and strong HR.
In addition to lower rates of successful F2C journeys, Picken identified some reasons for the trend. His report states:
“Founders are frequently replaced when investors perceive them to be deficient in key leadership skills and roles including staffing, motivating, dealing with crisis, allocating resources, managing growth, and working with the board.
When major changes are required, only new leaders are seen as able to undertake the requisite changes. Founders tend to be replaced more frequently in venture-backed firms where investors have greater influence.”
All is not lost, of course. Many founders do, indeed, become successful CEOs who stick around after their business goes public. Take Dan Latendre, founder of Igloo Software and named one of the SaaS industry’s top 50 CEOs by The Software Report.
When asked what it took to reach success, he says founders need great vision, leading-edge technology, strong operations, and of course, fantastic people.
A journey is better with company
No SaaS business founder succeeds alone.
From customers and team members, to the developers creating the tools, other people play a part every step of the way.
For SaaS founders with big CEO dreams, this is an important thing to keep in mind. As the business scales and team members are entrusted with customer interaction, operations, SaaS billing, and more, truly connecting with people is the best way to keep up with rapid growth and transformation.