Monthly Archives: September 2009

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I have a picture in my head of what the average entrepreneur is
like.  I’d guess pretty young (think Facebook, Twitter, Google, etc.) living the
red beans and rice lifestyle and working 80+ hours a week and sleeping under
their desk.  On some parts, I’m probably right — but on many, I’m flat-out
wrong.  This is demonstrated by a recent report from the Kauffman foundation for
entrepreneurship.  The report is titled “The
Anatomy of an Entrepreneur”.  It’s based on a survey of 549 company founders
across a variety of industries (that’s my first mistake, as it turns out
entrepreneurs start companies other than Internet software companies —
who knew?)

In any case, here are some of the points from the report that I
found the most interesting. 

1. The average and median age of company
founders when they started their current companies was 40.

2. 95.1 percent of respondents themselves had
earned bachelor’s degrees, and 47 percent had more advanced degrees.

3. Less than 1 percent came from extremely rich or
extremely poor backgrounds

4. 15.2% of founders had a sibling that previously started a business.

5. 69.9 percent of respondents indicated they
were married when they launched their first business. An additional 5.2 percent
were divorced, separated, or widowed.

6. 59.7 percent of respondents indicated they had at least one
child when they launched their first business, and 43.5 percent had two or more
children.

7. The majority of the entrepreneurs in the
sample were serial entrepreneurs. The average number of businesses launched by
respondents was approximately 2.3.

8. 74.8 percent indicated desire to build wealth
as an important motivation in becoming an entrepreneur.

9. Only 4.5 percent said the inability to find
traditional employment was an important factor in starting a business.

10. Entrepreneurs are usually better educated
than their parents.

11. Entrepreneurship doesn’t always run in the
family. More than
half (51.9 percent) of respondents were the first in their families to launch a
business.

12. The majority of respondents (75.4 percent) had worked as
employees at other companies for more than six years before launching their own
companies.

 Which of the above surprises you the most and alters your mental model
of what entrepreneurs are like? 

Looking for other startup fanatics?  Request access to the OnStartups LinkedIn Group.  130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

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Looking for other startup fanatics?  Request access to the OnStartups LinkedIn Group.  130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

Continue reading →

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If you’re building a SaaS (Software as a Service) startup you’re in great company.  Most software entrepreneurs today are taking this approach — including me.  Below are some simple insights that I’ve learned in the process of being in the trenches with my own startup.

Insights On SaaS Startups

1.  You are financing your customers.  Most SaaS businesses
are subscription-based (there’s usually no big upfront payment).  As a result,
sales and marketing costs are front-loaded, but revenue comes in over time. 
This can create cash-flow issues.  The higher your sales growth, the larger the
gap in cash-flows.  This is why fast-growing SaaS companies often raise large
amounts of capital.  My marketing software
company is an example.

2.  You’ve got operating costs.  In the shrinkwrapped
software business, you shipped disks/CDs/DVDs (or made the software available to
download).  There were very few infrastructure costs.  To deliver software as a
service, you need to invest in infrastructure — including people to keep things
running.  Services like Amazon’s EC2 help a lot (in terms of having flexible
scalability), but it still doesn’t obviate the need to have people that will
manage the infrastructure.  For a startup, the people cost to manage the IT
stuff can be significant (since the team is very small).  So, even though
hardware and infrastrucutre are cheap, managing it can take a significant
percentage of the startup’s time.

3.  It Pays To Know Your Funnel:  One of the central drivers
in the business will be understanding the shape of your marketing/sales funnel. 
What channels are driving prospects into your funnel?  What’s the conversion
rate of random web visitors to trial?  Trial to purchase?  Purchase to delighted
customer?  As a SaaS startup grows, a lot of leverage can be found by
understanding the shape of the funnel and removing the “leaks” (i.e. where are
you losing business)?  For example, if a lot of people are signing up for the
trial, but very few convert to paying customers, you should dig into what the
early usage pattern is.  Are people logging on at all?  If so, where are they
getting stuck?  Remove the friction that is keeping customers from getting value
and you’ll unlock some revenue.  Do this at all stages of the funnel (focusing
on the easy stuff first).

4.  Install Knobs and Dials In The Business:  One of the
great things about the SaaS business is you have lots of aspects of the business
you can tweak (examples include pricing, packaging/features and trial
duration).  It’s often tempting to tweak and optimize the business too early. 
In the early days, the key is to install the knobs and dials and build
gauges to measure as much as you can (without driving yourself crazy). 
Get really good at efficient experimentation (i.e. I can turn this knob
and see it have this effect).  As with most experiments, don’t change
too much at the same time (even though you think several different things will
all have positive effects).  The reason is simple:  If you change more than one
thing, you won’t really know what really happened.  Unless you have
lots of data points, simple tests are usually better.

5.  Value the Visibility:  One of the big benefits of SaaS
businesses is that they often operate on a shorter feedback cycle.  You’re
dealing in days/weeks/months not in quarters/years/lifetimes.  What this means
is that when bad things start to happen (as many experienced during the start of
the current economic downturn), you’ll notice it sooner.  This is a very
good thing.  It’s like driving a fast car.  Good breaks allow you to go
faster (because you know you can slow down if conditions require).  But, great
visibility helps too — you can better see what’s happening around you, and
what’s coming.  The net result is that the risk of going faster is
mitigated.

 Running a SaaS startup is a lot of fun.  There are so many more things under
your control than the traditional shrink-wrapped business.  Use this to your
advantage.  Keep your feedback cycles short, maniacally track the data and
invest in continual (but cheap) experimentation.  In the long term, these things
will give you a huge advantage.

What have you learned while building your SaaS startup?

Looking for other startup fanatics?  Request access to the OnStartups LinkedIn Group.  130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

Continue reading →