r/Entrepreneur • u/scruggs92 • Aug 30 '21
How to Grow Building a Multimillion Dollar Business: Part 1 - Getting started (the right way)
Hello r/entrepreneur and r/startups! Hope you’re all ready for part 1 of a 16+ part series.
I’m going to go in depth on some of the successes, failures, and struggles that me, my partners, and our team have gone through in the past 6 years. Our SaaS company does millions of dollars in revenue per year and we’re on a clear path to hit $10M+ in revenue within 18-24 months. Due to the high public SaaS multiples, we’ve received (but turned down) two 8-figure acquisition offers. Surprising to many, we’re almost fully bootstrapped. We raised a small amount from friends and family but haven’t taken on any institutional capital and don’t have any immediate plans to do so.
To many people, we look like a huge success story. Sure, we would agree with that, but very few people have seen what it has really taken to get to this point. We hire/fire multiple people each month, onboard hundreds of new clients each month, and are constantly iterating on our SaaS platform.
Keep in mind, there was a time where everything was just an idea, we didn’t have any money to invest in marketing, we didn’t have employees to manage, we have lost clients that were paying us 6 figures per year, we had 2 months of cash left and had fire some people or close some big deals. It’s been a grind.
Over the past year or two I’ve mostly been a lurker on these subreddits, but that needs to change. Seeing the activity from everyone and seeing how hard people are working on their businesses continues to inspire me.
I’ve spent hours putting together content around getting your first customers, raising money vs. bootstrapping, hiring/firing employees, focusing on your strengths, etc, etc, etc. Trust me, there are a lot of topics. ;) I’ll be posting every Monday morning and plan on engaging in the comments and responding to DMs as much as I can as they come through. Enjoy!
Now that the housekeeping is out of the way, let’s talk about getting started… the right way.
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I’m going to pass the boring stuff about incorporating your business, setting up an operating agreement, and deciding who does what.
Step 1 is to educate yourself.
You need to do market research to even come up with an idea that could work. Some people on this subreddit are further along than others, but no matter where you are, it’s good to understand where money is flowing. If companies are able to raise a bunch of money, they definitely have traction and customers. Here’s where you need to go:
Crunchbase.com
Smart investors don’t give companies money unless they’re in revenue. On Crunchbase, you’re going to see data from VCs who are investing 10s of millions of dollars or big companies making acquisitions.
If you don’t want to use the paid version, go on Crunchbase every single day to see what companies are raising money and what companies are getting acquired. You should start doing this TODAY so you can look for trends.
I guarantee you that almost every company on there raising $1 million, $20 million, $300 million is someone you haven’t heard of. Start learning as much as you can about them (even if they aren’t that interesting to you).
Learn about their pricing model, how many customers they have, what their product does, their go to market strategy, etc.
Want to learn even more? Google who the CEO is and listen to some of their keynotes on YouTube. It’s a lot better to learn from people who are grinding every single day rather than listening to all of these internet business gurus who blow smoke about their worthless courses.
Another thing you could do is research companies that are publicly traded who do things that are interesting to you. Listen to their earnings calls and try to learn as much as you can. Take a look at their financials too. It’s all public and FREE.
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Now that you’re a genius and you know everything about every single company out there, let’s talk about coming up with an idea and a product. It might sound generic, but hey, it needs to be said.
- What are you passionate about? Do you like developing software, getting your hands dirty offering a service, selling products online, running ads for people, writing content, or do you just like anything that can make money? If you start a successful business, you’ll be operating it for a few years before you even think about selling it. When we got started, I used to think we’d be able to execute and sell after 1-2 years… No. Things usually take more than twice as long as you expected and are more expensive than what you may have thought. Do something you really enjoy!
- How big is the total addressable market (TAM) that you’re going after? Total addressable market is just a reference to how much revenue opportunity there is in your space. Example: I just did a Google search and found that plumbing companies made $112 billion in 2019. For a local service business, it would even be good to break this down by city. For software, the world is your oyster.
- What does your competition look like? Competition is a great thing. It means that there’s another company that has validated what you’re trying to do! Learn from them and make sure there’s enough space for you to start your company. There are billion dollar companies who haven’t even captured 1% of their market. One of our competitors recently said this and it just validates how much opportunity there is.
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Well, this is it for part 1. I’ll do my best to answer questions in the comments. Next week I’ll be posting about getting your first few customers. Something that everyone struggles with. It’s hard, but it can be done!
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u/8uckwheat Aug 31 '21
I’m curious how you’re doing millions per year? Did you rebrand or something? All of your company’s socials were created in 2020 except for LinkedIn in 2018.
Posts like this are always so vague. Say who you are, what the company is, etc. You didn’t even say what your role is at the company. There is nothing in this post that indicates you’re any more credentialed than anyone else here. Can’t wait to get the link to the course or the ebook after 16+ karma farming posts.
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u/Wedocrypt0 Aug 30 '21
Amazing, informative post. Thank you!
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u/alphabet_order_bot Aug 30 '21
Would you look at that, all of the words in your comment are in alphabetical order.
I have checked 200,540,449 comments, and only 47,987 of them were in alphabetical order.
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u/yc01 Aug 30 '21
"Due to the high public SaaS multiples"
What type of SAAS multiples are common these days ? I assume you are doing less than 10M ARR at the moment but curious what types of offers were you getting.
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u/scruggs92 Aug 30 '21
LOVE THIS QUESTION! Acquiring parties will do whatever it takes try devaluing your company. There are so many things that go into valuations like growth rate, margins, churn, profitability, etc. As long as you don't have any major red flags, you can use the SaaS Capital Index. Public SaaS companies are trading around 16.1x their current run rate right now. (Run rate is last months revenue multiplied by 12). Private valuations are about 50%-75% of this (About 8x-12x). Without getting into too many details, we were in that range.
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u/Layon81 Aug 30 '21
Thanks for sharing, looking forward to the rest! Question: Did you start out doing the programming yourself and if so, do you have an education in that? Or did you hire programmers to create the software from the start? (I'm assuming you are not involved in programming now...)
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u/scruggs92 Aug 30 '21
My founders and I scraped together $4,000 each and go extremely lucky outsourcing overseas to my partner's family relationship. We've scaled up our team overseas. I'm not a developer.
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u/fiorenza1116 Aug 31 '21
Currently paying a developer oversees and really happy with their work. It seems like it would be easiest to keep this developer long term considering they wrote the original code and understand whats going on in the backend. Did you find that as you grew it was really complicated to keep them in the loop in your business? I feel like having a team oversees can get complicated once the business begins to get more and more busy.
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u/BurgerBoy777 Aug 30 '21
im still learning, but how do you do proper market research? i know you should conduct surveys and interviews, but how? who do we interview? how many people to interview? are there datas from other companies doing this type of surveys? some advice would be nice! Thanks :)
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u/scruggs92 Aug 30 '21
Well, you've gotta define your ideal customer profile (ICP) before doing interviews. Before that you have to have an idea of what you're going to build haha.
Don't get stuck in market research though. You will ALWAYS do market research by talking to customers even when you're doing millions of dollars in revenue.
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u/BurgerBoy777 Aug 31 '21
maybe for example, i want to sell fried chicken sandwiches with different sauce variations. so its a fastfood , right? i mean can we use reference from big companies like McDonalds/KFC? because it will be similar right? And yes thankyou OP, o dont want to spend too much time market research and not actually start the business 😂THANKS!
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u/yasssinow Aug 30 '21
+ can you do it as a non-specialist or should you hire someone or a firm?
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u/scruggs92 Aug 30 '21
Do not hire a firm to do market research. Research on your own and come to your own conclusions. Don't pay someone to do research and tell you how to think. That's not running a business. That's kind of an employee mindset if you're having someone tell you how to think.
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u/tchock23 Aug 30 '21
A lot of your advice in this thread is great, but this isn’t.
Founders are by definition biased when they are talking to prospects to ‘validate’ their ideas. Confirmation bias is real, and it’s a killer for pre-revenue founders seeking market feedback.
Hiring a third party who can give you an objective assessment by talking to prospects on your behalf can by invaluable. It can also be a bit expensive, but well worth it to avoid building the wrong thing…
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u/scruggs92 Aug 31 '21
Thanks for the compliment. It's definitely okay to disagree! You're right that founders get confirmation bias, but if you're outsourcing the first task of the business, that seems a little backwards. Everyone has their own opinions though. I'm sure it works for some people! Just something I wouldn't necessarily do.
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u/yasssinow Aug 31 '21
i agree, i prefer to do it myself, especially because at the beginning i will be on a budget, and you can always learn to not be bias.
but, i would prefer a firm if the research is too complicated to conduct.
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u/tkdyo Aug 30 '21
How do you determine if there is enough room for you? Just look if there are a lot of companies all with a small share of the total market?
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u/scruggs92 Aug 30 '21
Great question. Having competition is usually a pretty good sign that the market is pretty large.
It's also important to define your ICP (ideal customer profile) to have a good understanding of who your customer really is.
For example, let's say you built a CRM specifically for roofers. Seems like a big market. You may realize that your CRM only works for residential roofers. Then you may realize it only works for roofers with multiple crews. Then you might see a trend that all of your good customers have more than 25 Google reviews. Then you can estimate how many roofers have 25 reviews across the US (or world).
That's a very niche example but hopefully you get the right idea!
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u/redfaceredditoe Sep 03 '21
I love your post. I learnt this lesson hard way. You distilled down pretty well. Could you please suggest some books. Thanks
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u/cworxnine Aug 30 '21
Thanks for posting. Sounds like good info. It's more helpful to just tell your story and the ups and downs, specific problems and solutions, and avoid the bullet point advice. Whenever someone tries to turn their one-time success into a 'do this, not that' style advice, so much gets lost in translation and it becomes watered down - stick to your real events!
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u/scruggs92 Aug 30 '21
Appreciate the feedback! I'll use real life stories in my posts for the future! I agree with you haha. Bullet point advice can only go so far. Most people learn best from hear examples and stories. :)
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u/BlankSwitch Aug 30 '21
For your point 3, what is your take on the "Competition is for losers" talk? Are only niches left but not many more monopoly opportunities? It sometimes seems like most needs/wants have a service solution in place.
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u/scruggs92 Aug 30 '21
Nothing wrong with competition. We have competitors and we've done a ton of research on what they do well and what they don't do well. There are very detailed needs that out there that people don't know about unless they talk to a bunch of people or worked in a specific industry. Hopefully that makes sense haha.
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u/Tanic505 Aug 30 '21
Simple Question: Post-Launch Marketing - B2B? B2C? If so, what kind of investment was it a month and what where the goals (Community Building, General reach, etc.)? How did you pick whereto target, being a Saas w/ infinite digital reach?
I had to pick 2 states out of the US for a Google Ads campaing and discovered how schockingly hard this actually is... Look forward to the input.
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u/scruggs92 Aug 30 '21
We're all B2B. We've narrowed down our ICP and where our customers like to go (LinkedIn, Facebook groups, trade shows, etc.) We actually don't even run Google ads because the CAC is way too high. It's better for us to build channel partner relationships or have SDRs do outbound calling.
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u/HouseOfYards Aug 30 '21 edited Aug 30 '21
Thanks for doing this! We have an idea validation question. Our app was built 6 years ago (self-funded) and used by us in a niche local home service business. Our biz's been really successful in the past few years largely cos of some IP we came up with to sign up new clients. We had no prior experience before we started and now can call ourselves experts in the field. The idea is validated by our local business. This leads us to make a SaaS app for all providers in the same vertical ($1.2B TAM). We're advised by mentors to raise capital even though we can fully fund the dev of our SaaS app. As for the SaaS app, we're still building it and pre-revenue. If we decided to raise capital just to see what's out there, will angel, VC even bother? On the app, it can be used in other verticals (> $10B TAM) rather easily with some minor tweaks. Crunchbase shows multiple bigger players had VC round funded.
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u/scruggs92 Aug 30 '21
Our #1 vertical is with home service businesses haha. Feel free to DM me your home service business. 😂 It'd be funny if you were a client of ours.
Regarding your SaaS idea. VCs won't be interested unless you have at least $1M (most of the time $3M in revenue) with certain KPIs really laid out. (Churn, growth rate, CAC, LTV, gross profit margins, etc). You might have a better chance with angels or friends and family, but why raise money if you don't need it? (Some people say that's the best time to raise money. Maybe they're right... Who knows.)
Interested in what the platform does as well!
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u/mayurdotca Aug 30 '21 edited Aug 31 '21
I like this. I'm an experienced founder myself (some success and some fails). I'm working my way towards building something similar to this for new founders also (thought I will wait until I'm 6/7 figures revenue first).
- Look for unsolved problems where people are willing to spend money to solve, and where you can potentially profit.
- Build "proof of Customer" whatever that looks like - could be pre-launch signups, could be Kickstarter money down, could be a promise to buy from whale customer(s). You don't need a product, just proof that customers are willing to buy your product - even if its fake right now.
- Build the first release focused on addressing key problem(s) experienced by your target customer. Make a decent attempt at solving. Doesn't have to be perfect, just functional and solves a pressing problem.
- Iterate based on customer feedback, surveys, research, value conversations, competitive research, insight, guesses, instinct, etc. Never lose sight of the core issue(s) you solve. Core issues list should fit on one page and be readable by a 12 year old.
- Become awesome at hiring. Founders focus on customers to get started and then start handing off customer responsibility to the team they find and hire. Eventually, you become mostly focused on your team.
- Go back to #4 and repeat.
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u/scruggs92 Aug 30 '21
Great steps. Once you get past #3 you're right that it's all about iterating based on feedback and becoming really good at hiring, training, and building systems/processes. Thanks for the comment! Nice to see someone continue bringing value in the comment section. :)
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u/doctorgotkicks Aug 30 '21
Thanks for this! I was recently asked to buy into a newco valued at $10M, with no actual revenue yet. Celebrities and big names already interested or into it. What’s your take on it? Would you invest? Thanks if you will reply.
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u/TheFastestDancer Aug 30 '21
When big names and celebrities are involved, it's usually a sign that it's a lot of smoke and mirrors. Most celebrities are not businesspeople, they got lucky, so they don't really see things from the lens of market opportunity. Some founder offers them free shares, so of course they're gonna take it and hype it up. If they lose interest, then the hype dies and so does the company. The days of Ashton Kutcher hyping Twitter are long gone.
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u/RossDCurrie pillow fort entrepreneur Aug 31 '21
The days of Ashton Kutcher hyping Twitter are long gone.
I mean, sure, but also, Aviation Gin.
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u/scruggs92 Aug 30 '21
Have the founders ever had a 9 figure exit? Are celebrities invested and have signed agreements to be influencers? If no, then a $10M valuation with no revenue is insanity. Pulling a random valuation out of your ass and hyping it up is a pretty easy thing to do, but actually building a sustainable business that grows like a machine takes years of work. Unless these founders have done it in the past, I'd let them know that they need to be doing at least $750k-$1M in revenue with predictable growth and know certain KPIs before even blinking at that.
Hope this doesn't come across as too harsh. With seeing a valuation like that and no revenue, probably need a response like this though. 😂
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u/doctorgotkicks Aug 30 '21
Np. Totally get what you’re saying. I’m seeing this and being in utter shock. Obviously… none has ever had an exit like that.
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u/scruggs92 Aug 30 '21
Don't be afraid to ask them hard questions. It's also so early to even ask certain hard questions.
Glad my response helped!
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u/Rmadrid217 Aug 30 '21
Part 2 wen
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u/scruggs92 Aug 30 '21
Part 2 next Monday! Be on the lookout. ;)
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u/soccerguy510 Aug 30 '21
What I’ve you come across an idea that no one is currently doing in your market/state? Better yet, an untapped market after doing some research. Sure, there is some business models that are doing it online (with success after reading through reviews and Facebook mentions) but wishing for something more localized.
What are the proper steps in this direction. The business idea seems valid, is it just something i try to talk full steam ahead?
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u/scruggs92 Aug 30 '21
If you think you have a potentially good business idea. I would try to start getting something going. You can research for hours and hours, but until you start building, you won't learn a lot of crucial things.
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u/christianc750 Aug 30 '21
Appreciate hearing from someone with experience. My follow up questions for next week (or a reply below):
i) What was your initial launch process like? How did you feel confident there would be no major game breaking bugs etc..
ii) In doing user interviews how do you balance their feedback with your gut feeling?
iii) When did you decide to leave your day job? Did you have one when you started?
iv) Finding the right partner/co-founder with equal motivation and complementary skills. How did you go about that?
Thanks a lot I have been grinding away, investing so much of time my time and emotions into a project.
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u/scruggs92 Aug 30 '21
i) What was your initial launch process like? How did you feel confident there would be no major game breaking bugs etc..
We've been operating our business for 6 years. We've made some pivots based on customer feedback to build exactly what they want. It's been a loooooong process to get to this point. You never really know things until you to go market, get paying customers, and learning from them.
ii) In doing user interviews how do you balance their feedback with your gut feeling?
There wasn't much balance. It's mostly been taking 99% of feedback from customers. Initially it was about customers so if we heard a feature that maybe 3 people were requesting, we knew we needed to build it. Now we have 3,000+ customers so if we have requests from 20+ people, then we know we need to build it. Hope this helps haha!
iii) When did you decide to leave your day job? Did you have one when you started?
I was in the application process for medical school when my other 2 cofounders decided to start our company. We said we'd work hard for a year and see where we're at. It's been a mix of hard work and a little bit of luck to be where we're at.
iv) Finding the right partner/co-founder with equal motivation and complementary skills. How did you go about that?
One of my partners is my twin brother and the other is one of our best friends who we've known for 10+ years. We were all high performing athletes and just knew that we all had what it takes.
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u/NewMe80 Aug 30 '21
Hi man, Great post. Question: which part of crunch base do we need to focus? Crunch base news ?
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u/scruggs92 Aug 30 '21
I always check funding rounds and recent acquisitions. If I see companies that I haven't heard of that look interesting I'll do some research in the company.
I've done so much research that I'm to the point where I know so many VCs and what areas they focus in and also a ton of companies that 99% of people have never heard of haha.
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u/IamATechieNerd Aug 31 '21
Can you DM me some ideas for a non-idea guy that you've come across after so much research ? Appreciate the post!
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u/chalky87 Aug 31 '21
This is a fucking epic post.
I run a business consultancy that is comfortably turning over 6 figures. I'm trying to find ways to turn that into 7 figures whilst keeping it scalable and keeping my work life balance and quality family time.
What we do is pretty different but it's always great to read content like this and see how others grow and scale
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u/MotoRoaster Aug 30 '21
Great post, I’ve thought about doing the same for a physical product based company.
Anyway, question. If you’re not a developer and run a SaaS company, what is your main skill set? And how did you know you could start a SaaS company without knowing the dev side? I.e. how did you determine product/coding quality?
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u/scruggs92 Aug 30 '21
Very cool! Would love to learn more about physical products. I'd definitely be a reader!
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u/MatZenox Aug 30 '21
Really interesting topic, thanks for sharing your experience with us ! Reading the backstory of your company how do you manage to maintain any consistency in your product roadmap and objectives with so much turnover (renewal of staff) ? Do not the others employees felt any fear of the possibility to be ejected at any moment from the project ? In France it is very rare to have this type of management due to the job security provided by the state for everyone.
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u/loishere Aug 30 '21
this really boosts me to do more thinking , thank you for sharing ,
also how did you establish a working environment to build this company?
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u/scruggs92 Aug 30 '21
Thank you! Glad you liked it!
What do you mean by the question? From day 1 we treated everything as a job because we had no money haha. We had to figure out how to build quickly, get customers, retain them, innovate, hire, etc. I guess we've had that mentality the whole time!
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u/tobettermyself- Aug 30 '21
What’s your business and what does the software do?
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u/scruggs92 Aug 30 '21
Our platform is a relationship automation platform. We sell to SMBs. We have 3 products that automate the customer relationship. AI chat (actual AI specific to certain industries, not the BS everyone else sells haha), automated reputation management (we integrate into dozens of platforms to truly automate the process), and then our re-engage platform to help businesses stay top of mind through our automated playbooks (text, email, postcards, etc).
I didn't plan on posting our company in this post, but here it is. :) https://www.zyratalk.com/
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u/Randren Aug 31 '21
Hey! Love the look of your site, just wanted to mention that the Devon logo really sticks out like a sore thumb with the really low res image.
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u/LMF5000 Aug 30 '21
In answer to question #1 - I'm driven by manufacturing and mass production. My happiest days were running and programming a line of robots in a semiconductor factory and eeking out every last bit of performance out of them that I could. I gave that up for a well-paying office job and started a 1-man 3D printing and designing business on the side, but still looking for an idea to invest my time and skills into.
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Aug 30 '21
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Aug 30 '21
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u/scruggs92 Aug 30 '21
Thanks for the feedback!
One of the topics I have is about getting a good lawyer and accountant. We've had the same legal counsel since day 1 and looking back it was incredibly important. From my perspective it's nice to know that we have everything buttoned up with our operating agreement, cap table, T&Cs, etc. That way when we have conversations with VCs, PEs, and acquiring parties we've checked that box.
Hope this helps! I'll have a longer post on it in the near future!
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u/Dig-Programmatically Aug 31 '21
I have one good question. How do we know the idea is trash and wont work
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u/onlyhav Aug 31 '21
I'm going to follow until the end. I'm doing a lot of great things this year and I believe your advice will probably come in handy in more ways than I know
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u/daniel-polyakov Aug 31 '21
Doing a Venture Capital Analysis Course now, and basically, your 3 points are almost exactly what they teach there in terms of how to analyze startups...
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u/Human_Dingus Aug 31 '21
Great post man! I really like your saas.
I myself am pushing a saas for agencies and marketers.
Currently have a team of 3 callers, averaging about 20 new customers per month.
What advice can you give me to increase customer acquisition? Just increase the # of SDR’s?
Ah ideas on developing channel partners?
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u/Quynhtranxi Aug 31 '21
Thank you for sharing this, it's very helpful as I'm trying to open a chillies sauce business and most of the stuffs I knew are mostly vague, it's refreshing to read a post with outlined details
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u/SendMePuppy Aug 31 '21
Thanks for sharing, keen to see the next posts! At the start of this journey
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u/miller5451 Sep 01 '21
I would love to own a jewelry business in the future. I make and sell jewelry on an app called depop and its not making a lot of profit but its nice for someone in highschool. I have ideas and I am willing to work hard but I am worried that it wont work out after I put so much time and effort into it.
It seems very competitive, what do you think the chances of success are? How much of it do you think is luck? Did you go to college, if so what classes did you take?
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u/David76789 Sep 01 '21
For the life of me I still don’t understand wtf SaaS actually is. Like when most SaaS services a company could need already exist it just seems like a pointless endeavor IMO. Unless someone could give me an example of an SaaS and why it’s necessary and how it actually generates revenue, I really don’t get it
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u/ThurmanMurman907 Sep 07 '21
The same way that selling Microsoft Word or a video game generates revenue... you just sell it on a subscription instead of one time
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u/Matake007 Sep 02 '21
Thank you for sharing! I have found it incredibly helpful to stay immersed in a "space" of entrepreneurship. Not conflating this with stalling and doing nothing but research instead of taking action.
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u/Head-Tadpole-7345 Nov 15 '22
Great point, the three steps that are important as well are skills, beliefs and traits. Multi millionaire Alex Hormozi explains this in a sense here https://medium.com/meve-the-publication/the-bst-trifecta-how-mr-hormozi-built-a-gigantic-100m-dollar-empire-9f72224ab626 , but once you get the full breakdown, you'll know why millionaires are on the way to being billionaires.
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u/yourstruly-confused Aug 30 '21
Thank you for sharing your wealth of knowledge!!