5 things I wish I’d known before I quit my £70k job to start a business
Mark Sheldon started his B2B Saas start-up in 2012. Four years on, he reflects on what would have helped him prepare for the realities of start-up life
1. Ignore the Silicon Valley start-up hype
When I started on this journey I didn’t ignore the hype. The stories of Silicon Valley ‘unicorns’ and allure of huge venture capital (VC) cheques being cashed distorts the reality of what founders have to go through to make these PR stories a reality.
You’ll quickly learn not to go to a UK investor with a Silicon Valley valuation. Realise that you’re very unlikely to have money thrown at you in the UK if you are pre-revenue, unless perhaps you already have a significant customer base and a solid plan to monetise it.
From my experience in the enterprise Software-as-a-Service (SaaS) space, you’ll probably need a great team (founders with prior exits), customers using your product, growing addressable market and respectable revenues just to raise a small seed round. Founders like Nick Halstead (ex-Datasift) have even gone over to the US to raise a big enough seed round and it is his reputation that has allowed him to do so; it is notoriously difficult to get investment from across the pond. So you need to be prepared for what it takes to make it – it’s not as easy as it may sound.
2. Do you have what it takes?
Unless you’ve stumbled on the next Salesforce, you’re probably not going to get to a £500,000 annual recurring revenue (ARR) for three to four years. You’ll need to have several years of your life ready to devote to your venture.
- Year one you’ll be reaching out to the market and probably evolving your solution concept and market fit, getting it wrong a few times and starting over.
- Year two you’ll be building an MVP or something that you can sell.
- Year three you’ll hopefully get some early traction and revenue, starting to really understand your market dynamics, GTM-strategy, pricing, have to make your product more robust and gain customer references before you can sell more in year four.
It doesn’t matter how long it takes to get to £500,000 ARR, what’s more important is that you do make it and then see how quickly you can get to £1m ARR, and then on to £5m ARR.
That’s probably seven years of your life to the point of possible liquidity… if you can make it; don’t get trampled on and don’t burn out.
And on that note, it’s not only time you need. Mentally you have to be able to ride the rollercoaster and, trust me, this is not easy.
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3. Be obsessed with success
You don’t need to be the best coder, salesman or creative thinker in the world to be successful. In my opinion, success and obsession are intrinsically linked. Not only do you need time but you need to have a drive for success that not many possess. This is the obsession that makes you sit in your office until 3:30am while your partner is in bed. This is the obsession that gives you the belief and drive to make you carry on. This is the obsession that makes you ignore people who say it will be too hard to sell or it won’t work.
Don’t get me wrong, a common start-up killer is product obsession where founders build a product with no viable market. However, this obsession is different; this is a deep down obsession and desire to make it, to make a difference in the world, and to be “successful”, rather than taking a stable job and salary.
4. Survive to grow
Now you know you’re probably going to need four years to get to £500,000 ARR, where is finance to cover the founding team costs going to come from?
The good news is that you have some options as a founder. Self-fund, raise a seed round, reach out to friends and family, borrow from the bank or use consultancy revenue. Lots of options and the good news is that the SEIS/EIS scheme make it pretty attractive for early stage investors in the UK. However, raising money isn’t always the right thing to do.
You might need additional expertise (smart money) and there are some seriously experienced early-stage investors around. But beware, as well as adding to the bank balance, you could be adding some big egos to the board room and differing opinions on how to take the company forward.
There’s more to consider. For example, if your sales model is to get 1,000 customers at £40 per month you’re probably not going to make it on your own. But, if you are looking at just 10 customers at £4,000 per calendar month you might be able to fund salaries with customer revenue. (However, selling at this price point brings its own challenges; high-risk deals, long sales cycles and an MVP won’t cut it under enterprise security scrutiny etc.).
It is also important not to get lost at the outset in thinking that profitability doesn’t matter and that SaaS is all about recurring revenue and growth. The SaaS market is changing (with recent plummet in share value of some of the world’s biggest SaaS companies and lack of IPO’s in Q1 2016), now more than ever you will need a plan to be self-sufficient as quickly as possible. Either way, you need a clear strategy for survival and then growth.
5. Find a co-founder and mentor
“If you want to be successful, hang around with rich people.” I’ve read a few blogs with such sentiment and although I don’t completely agree, in my experience your circle of friends, sporting teammates and ex-colleagues do provide the ecosystem for potential future success. You will find people of a similar mindset, with different skills, who are often willing to help you, provide advice, listen and possibly even put some of their cash on the line and invest in you, rather than a product or idea.
So you need to use your personal network, especially as you can’t be great at everything and probably don’t have what it takes to make it on your own. If you can write programming in your sleep then you might not be as well versed in the subtle art of deal closing and negotiation – Steve Jobs and Steve Wozniak come to mind.
You need to find the right candidate for a co-founder, who is ideally in your network (so you know them and their strengths and weaknesses) and they should be the most intelligent person you know with opposite and/or complementary skill sets. You have to go out and find this person, pitch to them and get them onboard with your vision. Often the most successful serial entrepreneurs just put people like this together. If the team is good enough, the product and revenue will follow. Richard Branson has made a name for himself by investing in the best people to co-found new ventures with – his Virgin America sale would be another notch on the bedpost.
Unless you are a seasoned business veteran you’ll probably also need a mentor. This isn’t just someone you can turn to for advice but also a person who you admire and who ignites the drive and obsession I’ve already talked about. Mentors make you want to replicate their own prior success.
If you’re super lucky this mentor could be your co-founder, but even then it’s good to get advice from someone who isn’t involved in the everyday details. Often the answers are obvious and the best mentors will just listen and come out with the occasional gem.
So, that’s my top five for anyone starting out on the same journey, those already on it, or anyone generally interested.
By the way, even if I’d have known all of this at the start I still would have done it!
Mark Sheldon is CTO and co-founder of BrightTarget – a predictive SaaS platform for sales and marketing professionals. Follow him on Twitter @markrsheldon