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My First MillionThe 5-Step Process To Build & Sell A $100M Business | ft. Jason Lemkin
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Jason Lemkin's first million: Nanogram Devices and EchoSign
Sam Parr introduces Jason Lemkin and his background. Jason describes selling his implantable battery startup for $50 million after 12 and a half months, then building and selling EchoSign to Adobe.
- •Nanogram Devices raised $9 million and sold 70% of the company in its first round
- •It sold for $50 million after 12 and a half months, leaving about $8-10 million to share
- •EchoSign reached $12M ARR growing 100% with 110% revenue retention and was cash flow positive
- •It was sold in 2011 after raising only $4 million, a decision Jason felt was emotionally wrong
Reverse engineering a nine-figure exit and revenue per employee
Sam explains the idea of working backwards from an exit, inspired by Scott Galloway's approach. Jason says the new minimum for a real software model is $300-400K in revenue per employee, after a 2021 low of $100K.
- •Reverse engineer the rules of the game, then optimize for them
- •Old software giants made about $1M in revenue per employee with 90% margins
- •Unicorns bottomed at about $100K per employee in 2021
- •Public SaaS companies are now at $300-400K, with HubSpot around $310K and Cloudflare at $400K
- •Raised capital only bridges the gap; without economies of scale the model is not scalable
Going multi-product: the second product must be bigger
Jason says that by 10,000 customers you need a second product that can be bigger than the first. Founders default to easy extensions that never catch up, and Sam recalls his own experience with Trends at The Hustle.
- •Have a second product by about 10,000 customers
- •HubSpot's CRM is set to become bigger than its marketing product
- •Easy extensions like shampoo and conditioner never catch up to a growing first product
- •Sam underpriced Trends at $300 a year when it should have been far higher
Underpricing, VP of sales, and paying yourself
The conversation turns to why founders underprice and how a good VP of sales can capture a lift in revenue. Sam reflects on selling The Hustle early because he was tired of being poor.
- •Around 80% of founders underprice, and pricing can be fixed later for new customers
- •A good VP of sales can deliver a 30-100% revenue lift, while a mediocre one can cause a decline
- •Sam sold at four and a half years, partly because he was a tired CEO
- •Pay yourself market as soon as you can afford it
Getting 30% of revenue from international markets
Jason explains why a third of revenue should come from outside North America and how to get there without hunting customers abroad. Japan is discussed as an intimidating market, with Salesforce and Yext as examples of getting dragged in.
- •Public software leaders get about a third of revenue outside the US; HubSpot's majority is outside North America
- •Build a strong niche position and let international early adopters find you
- •Invest once a region crosses 5% of revenue
- •Localize the product into many languages, which engineers tend to avoid
- •Salesforce got 10% of revenue from Japan without planning it, so don't dismiss early foreign customers
Pricing around comps and removing friction
Sam asks about an ideal price point. Jason argues pricing is over-discussed, advises anchoring to comparable products, and says a founder's daily job is removing friction from customer acquisition.
- •Buyers have organic price points from the 200 or so SaaS apps they use
- •Anchor around comps, at the same price or 10-20% lower
- •Too cheap can confuse customers and signal lower value
- •Founders should relentlessly remove friction, such as easier sign-up, single sign-on and fast support
- •Avoid 'contact me' gates until you are at tens of millions in revenue
Net revenue retention, churn and HubSpot's path
Sam raises the hardest rule, reaching 100% net revenue retention. Jason discusses HubSpot's early churn and how it added value for the same price, and the pull of gravity from high monthly churn.
- •You need a product-level path to 100% retention, and it can be staged
- •HubSpot had low retention early on, around 75% at about $30M in revenue, and fixed it by going upmarket slightly and multi-product
- •HubSpot's average customer pays roughly the same while getting more value
- •Churn above 3% a month weighs a business down around $10-20M in revenue
- •The Hustle lost about 4.5% of its list per month and needed double-digit monthly growth
Why Jason runs a conference business
Sam asks why a software expert is in conferences. Jason explains the cost structure of SaaStr events and how the business came about by accident from community meetups.
- •SaaStr Annual draws 12,000 people and costs about $10M to turn the lights on
- •The Europe event costs $1.5-2M for 3,500 people
- •The business started with meetups, 800 people at the first in 2013
- •His partner quit after two years, forcing Jason to learn the business from scratch
- •It only generated real profit once revenue passed $15M
Trade show valuations and the Money20/20 and Shoptalk founders
The two discuss what trade shows sell for, including comps like Shoptalk and Money20/20. Sam highlights the founders behind them and their new event HLTH, and Jason notes the business is winner-take-most.
- •Trade shows sell for roughly 8-20x earnings, with only the best at the top
- •Shoptalk sold for about $150M and Money20/20 for about $100M at $10M revenue
- •Jason has had two approaches to buy SaaStr but never a term sheet
- •Paid meetings at around $800 for a short slot are a revenue driver
- •If you are not in the top two in an industry, the event is worthless
Don't raise double-digit millions unless you're aiming for a billion
Sam argues that those wanting to build wealth should raise little money, and Jason largely agrees. He says raising a couple million costs little optionality, while raising over $10 million commits you to a billion-dollar exit.
- •Raising a couple million costs only some dilution and keeps optionality
- •Use a small raise to hire a few good people, not to pay yourself
- •Staying under $10M means any exit works
- •Past $10M you are signing up for a billion-dollar outcome
- •Only raise double-digit millions if you feel a billion in your bones
Jason's worst investing loss and the broken founder-investor contract
Jason describes losing $5 million out of $200 million on his worst investment and a founder's dismissive reaction. Sam shares how he felt a duty to angel investors, and they sign off.
- •Jason says the social contract between investors and founders has broken down in the last three years
- •A founder told him 'it's not your money' after the loss
- •Jason had helped that founder raise money and promoted him for years
- •Sam felt deep stewardship over the $25,000 angel checks he took
- •Jason can be found on Twitter at jasonlk or on LinkedIn
Publisher timestamps
- 0:00Jason Lemkin’s first million
- 4:19Reverse engineering a 9-figure exit
- 5:32Rule 1: New minimum is $400K per employee
- 7:58Rule 2: Go multi-product
- 9:40Rule 3: Your second product must be bigger than your first product
- 11:05Cheat code: Double your prices
- 13:48Rule 4: 30% of your revenue is international
- 15:43Rule 5: Localize your product
- 19:05Cheat code: Remove friction
- 22:42Rule 6: 100% net revenue retention
- 29:01Business models that won’t get you there
- 33:38$100M conferences
- 39:35Rule 7: Don’t raise double digit millions
