14th December 2018
This is the fourth blog in my series revisiting old material that I wrote from the SaaS startup investment/advisory side of the table prior to getting a ‘real job’ as a CEO. My goal to try and compare and contrast perspectives.
In http://prepcap.com/a-cockroach-and-proud/ (a full extract of which is appended below) I analysed the two ways of building businesses – contrasting ‘carefully’ with ‘go big or go home’.
Overall I regarded both the desire to ‘rapidly build a Unicorn’ and the contrasting ‘build from the foundations up’ approaches as being valid. My principal point in my blog was that the latter approach (building the ‘cockroach’ company) was at the time less well regarded in investment circles. Wrongly so, in my view.
In case you don’t read the old blog, a brief synopsis of a ‘cockroach’ approach is to build the business small but strong, able to withstand pressure and challenge and then… at the right time…. to spread that business everywhere.
If anything my view has hardened further on this, and pleasingly I believe that there is a growing investor acceptance of this, steady, steady, steady…… SCALE approach.
There is never, rationally, going to be anything wrong with making sure that you understand product:market fit and that you have a viable commercial model – prior to going large. It may be down to economic cycles and a growing tendency towards conservative views and fundamentals, or it may just be that there are more good businesses managing the path. Whatever the reason it is encouraging.
There is, of course, still room and massive appetite for the Unicorns. I now have secret admiration for the teams that can pull off the financing and rapid growth. Although on the face of it, it looks like it would be great to have deep funding – I can see that the stress of managing the operational pressures as you scale, and the constant need to feed the fundraising beast, must be enormous.
So what’s the new view…
The two areas that I have learned in my last 12 months at the helm of Cyclr that would affect the way in which I would have written the blog today is:
- Timing the moment to ‘SCALE’ in steady, steady, steady….. SCALE is no mean feat. Getting that balance exactly right when you are just ready for the capital and the capital is just ready for you is an art and definitely not a science. It is also almost impossible to get the timing perfectly right. You will inevitably face a period when you feel you are ready to scale but the capital isn’t in place to enable it.
- Every investor has their own definition of when you are ready for growth – there is undoubtedly not a rule book in this regard. I have met lots of investors who all fall somewhere in the following range:
- revenue IS a metric : revenue ISN’T a metric
- you have enough customers : you don’t have enough customers
- you need to be in the US : you don’t need to be in the US
- your funding requirement isn’t large enough : your funding requirement is too large
In the end you just have to do the best you can and plough through often conflicting perspectives on what ‘stage’ you are at. With work, and continued finesses, the right outcome will transpire.
I am still therefore very much an adherent to the cockroach perspective, tempered by the inevitable envy, jealousy and impatience when I see other businesses raising more capital and having deeper pockets than we have. I want Cyclr to be able to weather any storm and to have a solid, dependable product that makes money. Values that any cockroach should be proud of.
Original blog in full:
a cockroach and proud….
This is definitively neither my definition, nor my idea. Rather it is a principal I have read about in a few blogs and articles with which I am broadly in agreement. I thought it worth penning a quick blog on it myself.
The SaaS Unicorn
A ‘Unicorn’ is a well used descriptive within the narrow field of tech start-ups. Essentially a young business that accelerates reasonably quickly to a $1bn+ valuation, normally emphasising ‘scale’ over gross profit (and at times revenue). Businesses that endeavour to ‘own a market’ and then back-solve how to become a viable long-term commercial business.
Some succeed, a lot are likely to (and are starting to) fail. It is typically a cash hungry growth model (spending to scale quickly) which in part explains the requirement for the valuations to rise so quickly (each investment round needs to happen at a subsequently higher valuation).
I am not going to be dismissive of the premise of Unicorns as a) I don’t know how to do it and b) I don’t want to do it. But some people will do very well from it and they will inevitably be the people you read and hear about.
The SaaS Cockroach
The idea of ‘cockroach’ companies I do adhere to though. It is much less glamorous. Here the general principles are to focus first on the business model and understand how you will make sustainable profit before you start (doesn’t mean you will reach it of course!).
In other words, develop a business that from day one has the prospect of a viable commercial model that can ‘survive any storm’. Something that is much likely to collapse in a less favourable funding and economic environment (which is inevitably going to come round again – and soon). A slower but surer way to build.
Once you have proven the viability of the business model then, and only then, breed like crazy and disseminate your cockroach business into every crevice and takeover the world. We have never called our companies cockroaches (albeit at times I may have harboured such feelings towards individuals I have met on the journey – lol), but it is the basis on which the majority of the businesses we have been involved in have defined their models and undertaken their fundraisings.
The downside is that it is slower, as the World around you seems to be running fast to breed Unicorns, but in theory it has a potentially higher likelihood of building a long-term sustainable business. Watch this space.
Unicorn vs Cockroach or US vs European??
Another way to cut the Unicorn vs Cockroach concept would be to parallel it to US vs European venture styles. US is ‘big funds with big pockets’, ‘big market’, ‘get quick big or go home’. European is ‘smaller funds with smaller pockets’, ‘smaller and more colloquial markets’ and ‘inherently more conservative’. The US vs European investment and growth approach has, of course, stemmed from many many years of cultural and geographic differences between the two continents. Europe has also, of course, been around longer and grown to where it is over that time period.
The fact of the matter is that there are rational reasons to take both approaches. The thing that I am liking, however, is that there is a small but growing recognition that building a Unicorn isn’t the only great way to go. Now that is not of course a new thing, merely the cyclical return of an ideology that has been in fashion and out of fashion many times since commerce first started. But today it is becoming okay to be a cockroach, and I like it when common-sense begins to get some coverage alongside ‘glamour’.