SaaS Interviews with CEOs, Startups, Founders
1717 3 Genius Ways To Conserve SaaS Cash To Survive Virus From Eloqua Founder Who Survived 9/11
06 Apr 2020
Chapter 1: What is the main topic discussed in this episode?
Hey guys, I'm recording this here on April 5th. It's Sunday. Everyone's trying to survive the crisis.
Chapter 2: What urgent strategies can SaaS companies implement during a crisis?
Quick note to you guys, we are moving, you know, we used to delay these episodes by, you know, four to eight months after we recorded them in terms of releasing them on the podcast. We've changed that. A lot of these interviews you're gonna hear over the next many months are gonna be ones we recorded only
days prior we think that's a smarter way to run the show i've made the change so expect more urgent information coming out secondly i am getting destroyed on itunes reviews by these people that say nathan's rude he's hard-hitting blah blah blah which by the way i am it's part of my style it's what works the problem is people that love that style never take the time to go leave a five-star review
So I only get one or five star reviews on iTunes. And right now there's a streak of one star reviews that is driving me crazy. It would mean the world to me, guys. If you're loving the show, you love how direct I am. You like the style. If you go leave a review on iTunes now, if you do that and tweet it to me, text it to me, email it to me, whatever you want.
I'm going to reply with a very special surprise. I think a lot of you guys will really like it is heavy, heavy data oriented. All right. So I appreciate that. Thanks, guys. Enjoy the show. an influential founder, earlier founder at Eloqua, now coaching folks, CEOs. We talked about three things today. Number one, how much runway you need to plan for.
Number two, how to cut costs to get to that runway, especially if you're VC backed and you are bloated and burning a lot of capital.
Number three, we talked for a good five to eight minutes about specifically how to use your last round valuation or the company valuation to essentially give out stock in exchange for your employees using what you would have paid them in salary and cash and just ordering them stock.
Saves you money, gets people more invested in the company and can be good over the long run, just like Mark saw happen in Eloqua after the towers came down in 2001. Hello everyone, my guest today is Mark Organ. If you're looking at him going, wow, you know, he looks healthier and happier and more excited.
Now that's because he took the very drastic and maybe unconventional move of replacing himself as CEO at a company called Influitive, which he felt it wasn't the right time anymore. So he's built Influitive up to about 12 million bucks in AR, just recently replaced himself before that was early founder at Eloquip. So lots of experience now doing a lot of founder coaching.
Mark Organ, you ready to take us to the top? Let's do it. Come on. That was a good bio, right? Just for off the cuff?
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Chapter 3: How much runway should SaaS founders plan for?
Right. So if you pay someone two hundred grand, you only count one hundred grand. You take that number. Divide by 12 to get it monthly and multiply by 2.5.
Chapter 4: What cost-cutting measures can SaaS companies take to survive?
Right. So if you had a million in payroll divided by 12, it's 83 grand a month times 2.5. You're eligible for about, you know, what is that? $200,000 in government stimulus in the US. So, Mark, imagine a headline two weeks from now on CNN. a VC backed San Francisco company with 30 million in VC dollars gets $200,000 check from government bailout.
What does the restaurant worker and the laid off kind of person in Kentucky, when they read that headline on CNN, think about that big VC backed company, that rate just, you know, took advantage of the stimulus dollars.
Chapter 5: How can companies leverage stock options to motivate employees?
Look, I think we're in survival mode right now. Um, And so at this point, I'm thinking less about the restaurant worker in Kentucky, and I'm thinking more about how do I make sure that my company survives this. And my rationale here is, look, when I get to the other side of this, I'm going to be employing three or four times as many people.
I'm going to be generating hundreds of millions of dollars, if not billions of dollars in value for my customers who are going to be more successful because they're using my software. So actually, I feel quite justified in this case, especially because I'm going to be spending, you know, I don't know, in the tens of millions of dollars over my lifetime paying taxes.
I think that it's okay to get a little bit of help in a challenging time. So I think that's okay. Even if that was a headline, I think I could justify that and say, hey, look, this is a tough time for everybody, right? And the restaurant business is not actually one that is sustainable. That doesn't sustainably create lots of high-tech, innovative jobs, whereas I think what I'm doing does.
So I know that might sound selfish, but I don't think it is. I don't think it is because I think those of us that are in venture-backed software companies, if we're building valuable software, we are helping our customers, which are other companies, become more profitable and making them more successful. I think that's more important than serving food, personally.
Good answer. So let's dive into this a bit more, right? So you're working with SaaS founders now. The economy really started crumbling, at least in the States, really worldwide, obviously, about two, three weeks ago. For a SaaS founder that you're coaching, who had raised a couple million in VC, who was maybe burning 200 grand a month, and they only had maybe a million in the bank, right?
So five months of runway. What advice were you giving them a week ago?
That is absolutely the case for a number of my clients. The first thing is we need to build strong defense. It's very difficult to innovate and figure out new products and services for growth until we know that we have enough runway. And it really depends on the situation.
There's one of my clients where she really wasn't able to let go of people, but she was able to get them to work a four-day week instead of a five-day week. Um, and that was able to save a lot of jobs and is keeping the business running.
But so, so she pays them maybe only 10 or like 30 or like, or like 80% of their usual monthly salary.
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Chapter 6: What are the implications of government stimulus for VC-backed companies?
Did they use the last funding round price? Number one.
Um, so the answer is yes.
Um,
But I think that they could have come up with a much lower price, which is something that I did. So at Eloqua, when we were really in trouble after 9-11 and we had four months of cash left, I did something similar where we, together with the board... decided on a pretty low price for the stock because it was after 9-11, there was no budgets or whatnot.
And we came up with a pretty arbitrarily low price. I remember it was 10 cents a share, which was a nice round number at the time. And we probably valued the company at something like $2 million. And basically everybody in the company bought stock. That's where I got the idea from. It was my own experience. Everybody in the company bought stock.
A number of people's parents and relatives and whatnot all bought, not just because they believe in the company, but they want to keep it alive and keep their kids' jobs.
Yeah.
But that extended our life from... We had four months of cash remaining and it went extended from four months to nine months. It was actually a really big difference.
Because you cut burn so much because instead of paying out cash, they were using that would-be cash and you were just awarding stock, basically.
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Chapter 7: How should founders communicate during times of crisis?
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So back to this current example, If all the employees agree to buy stock, what percent of the company has this company dedicated to this program specifically for the virus? 10% of the company? 5%? 20%?
Actually, I can figure that out. It's still ongoing, so we don't know how much stock they're going to buy. I don't think the CEO has put a limit on how much on how much they could buy. I think in the model, he has something like two and a half million dollars worth.
I guess the reason I'm asking is because typically like in these funding rounds, the VC that put in the money will also require you to, to top up your employee option pool, usually 10% of the company.
And I'm just curious if he had went back, got approval from the VC to expand that option pool, or if he's just taking the unallocated stock that he hasn't given to like new hires and basically using that option pool to put out to current employees, if they buy that instead of taking cash.
Yeah, it's not part of the option pool. It's not options. They're buying shares. Okay. They're buying common shares.
Did he have to go back and get approval from the VCs? Because they're obviously getting diluted. Everyone's getting diluted.
Yeah, but the VCs are happy to do it.
Interesting.
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