Market vs. Team: Steps to Building a Valuable Company
“We are going to triple our sales this year,” Will told me.
Will, the founder of a SaaS-based solution, is raising another round of financing from his existing angel investors. Last year, he made great progress. He doubled his SaaS revenue and achieved the magic $1mm in annual recurring revenue. His company is now for real and growing rapidly.
But some investors are still skeptical.
“Tripling sales from a $1mm base is hard to do,” I said. “Two things have to happen. First, the market has to take off. Second, you must have the teams in place to satisfy this kind of demand. I’m not sure you are ready yet,” I continued.
First: The market.
The market is not under the entrepreneur’s control. The market buys at the rate it is buying. A new product category, as is the case with Will’s company, takes time to build momentum. At some point it will hit an inflection point and then, “Katie bar the door!”
But right now, Will is at the early market stage an experienced entrepreneur friend of mine calls the “work hard and clean living” stage. This means doing the right activities and improving the sales process every day. Gaining market share one customer at a time. Proving the solution to the marketplace and having the product slowly gain market credibility as a leader in the space. It feels like breaking rocks.
Every company goes through this stage. The hope is, at some point, the market blows up. And there you are, in the right place at the right time.
As an investor for twenty-five years, I learned markets make companies.
A great team in a great market is a great success.
A good team in a great market does well.
A bad team in a great market will survive.
The common denominator here is the market, not the team. Even a great team can’t bring a market to life. Markets are either there or they are not. Markets either emerge or remain dormant.
The market is the founder’s biggest bet in starting a company.
Second: The team.
Value is all about execution. And execution is all about people.
This is why some of Will’s investors are still a bit skeptical in spite of what Will has accomplished in the last three years. Look what he’s accomplished. (This is the big rocks short list.)
Will identified a market problem people were willing to pay money to solve. This step came hard. It took Will his whole career to see it and then three years to get it right.
Will raised $2mm in funding. It took time to land these three rounds of funding, but Will attracted quality angel investors and built a functioning board of directors.
Will built a leadership team. This took two full years of fits and starts getting the technical co-founder, the COO, and the sales executive all on board and executing well, together.
And the proof he accomplished all of these steps: the $1mm in annual recurring revenue.
So what are these investors waiting for?
It takes more than four talented executives to build something big.
The next challenge in Will’s business is building the functional teams: sales, marketing, operations, customer success, product development, and customer support. The next two years will be all about building these teams. It is the responsibility of the executive team members to get this accomplished.
This is the next high-value activity. Do this, and Will and his team will be ready for the market when it blows up.
I believe this team will build great teams. That’s the investor’s bet at this stage of Will’s company. And if he does it, then he can forecast tripling his sales year on year.