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As Long As You Are Growing 60% Or More — Your Competition Can’t Really Hurt You

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(Note; an update of a classic SaaStr post, with 2020+ learnings.)

A little while ago, I Zoomed with a good friend running a SaaS company doing about $4 million in ARR. A really good SaaS company. And he was beside himself.

First, he was just plain exhausted. He was in that zone from $1 to $10m in ARR when it all just gets so hard. Too much to do with too few people. We’ve talked about how The Cavalry Was Coming. That the operational part would get harder before it got easier … but it would get easier once he doubled or so, when he’d finally have some redundancy and fat on the team and the model. (More on that here).

Second, he was almost overwhelmed with The Competition. “They’re in every deal now,” he told me. “And they have five times the headcount and have raised $25 million. They’re all over us.”

I asked how much would he grow this year? He said at least 50%-60%, maybe more.

My advice: I Know It’s Tough. And, Yes, You Want to Be #1. And Yes, You Really Do Want to Be Growing 100% or more at this phase. It does seem like enough, and maybe it isn’t.

But

Don’t Overly Sweat the Competition — in the Short Term — in SaaS If You Are Growing at Least 50-60% YoY. And certainly — don’t let it take all the wind out of your sails. Or most especially, don’t let it act as an excuse.

Yes, competition can be brutal in SaaS. Super brutal in fact, because especially if you are in an oligopical space, there are very strong economic incentives to not just win in individual deals — but to Kill Your Competition. More on that here and here.

But a few things to think about vis-a-vis competition in SaaS, once you are post-Initial Traction (say $1m-$2m in ARR or so):

  • Second Order Revenue (Upgrades, Word-of-Mouth, Champion Change) Will Continue to Come In and Work, No Matter How Tough the Competition IsIf you keep your customers happy, they’ll upgrade. They’ll buy more. They’ll tell their friends. Even when your champions leave, and take jobs at other companies, they’ll bring you with them. You don’t even have to be Better. You just have to be Great, and make your customers heroes and a success. More on Second Order Revenue (the key to SaaS economics) here.
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  • If You Are Still Growing 50-60% Or More — You Do Have a Competitive Advantage. Even if It Doesn’t Always Feel Like It. It may not always seem that way. Even if the competition has complete feature parity. Better marketing. A better brand. If you are still getting new customers, you do have an advantage in some segment at least, or you wouldn’t be winning at all.  So at least in the short-term, don’t get too bent out of shape about competition. Get bent out of shape on execution. Double down on what is working.
  • Even 50%-60% Growth at $10m ARR Compounds to Something Awesome. Build a Google Sheet and see where even decent growth takes you in 5 years. You may be shocked to see just how large a business you’ll have then. Even if you aren’t growing like Zoom or Slack.
  • Net Negative Churn is an awesome force.  Even if the competition is everywhere, if your net revenue retention is 120%-130% or higher, that means your existing customer base is still happy to buy more from you.  Lean in there.  That lasts decades.
  • Long-term Commitment is a Huge Competitive Asset. SaaS Evolves — and is a 7-10+ Year Journey. You add new features every month, every quarter. And more importantly, new potential customers enter the market over time. You go from Early Adopters to Early Mainstream and beyond. Even if you have a bad year — the next year can be great. What matters is that you maintain the deepest commitment in your space. That may not make you #1. But it will, I think, help you grow even faster. This is one of the many reasons it’s so hard for the Big Guys to compete in SaaS. They often can’t make a 7-10 year commitment to a new market.
  • Your Competition Will Stumble At Some Point. In some way. They always do, even if you can’t see it as an outsider. If you can keep growing, and wait for them to make their Big Mistake — you can pounce then. And leverage that to grow even faster. Everyone has a bad year on the 7-10 year journey. If you have the long-term commitment, you can take advantage of the competition’s bad year or bad strategic decision.
  • Seeing the Competition in Every Deal Can Be a Good Sign. It may feel like they’re in all your deals when they weren’t before. But that also means you are in their deals. It’s a sign you are doing a good job, at opportunity creation if not revenue creation. At least you’re got an invite to the party. That’s one of the raw materials of success. Just focus on doing what it takes to close more of these deals, even if you are losing some / a lot / almost all of them. Drive the close rate up, even if it’s just bit-by-bit. Close feature gaps, improve the quality of the sales team and the marketing processes.
  • Market Pull and Segmentation Down the Road Can Totally Change Things. You may go more enterprise. The market may get 100x larger and change as it does. Room at the Bottom can open up where none exists today. No matter what, things will change, and since you are almost certainly in a growing market — you can take advantage of those changes over time. Things aren’t static in SaaS. Measured over months, nothing changes. Over years, everything does.

My uber-point is this: I think you have about 4-5 years to get “Somewhere” in SaaS. That’s the ultimate real check-in period on the 7-10 year journey to Something Big. If you don’t build something of real scale and size by then, the team will just get too tired, the journey too taxing.

But don’t let competition be an excuse, or a strategic distraction — as long as you are growing. Because 50%-60%+ growth means the competition really isn’t as big a deal as you think. Tactically, of course, sweat competition every day in every deal. And strategically, figure out where the market will be in 2-3-5 years, and make sure you are skating to the winning opportunity there. And if you aren’t growing fast enough, yes that’s a problem. It will hurt with funding, hiring, etc. You want to be #1, no doubt, and kill the competition. But most of all, you want to grow. Grow or Die.

What I can tell you we had a Year of Hell. You can read about it here. We only grew 50-60% that year, and it was really rough. The sales manager I had at the time blamed it on everything from competition to nascent markets to me. All true, in part.

But right after that, we improved the team. And then we quickly grew > 100%. And that had nothing to do with the competition.

Which didn’t change a bit.

Published on June 13, 2020

Source: https://www.saastr.com/as-long-as-you-are-growing-50-your-competition-cant-kill-you/

Start Ups

Orbion, manufacturer of in-space plasma propulsion systems, raises $20M Series B

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Electric propulsion developer Orbion Space Technology has raised $20 million in a Series B funding round, which it says it will use to scale production capacity of its Aurora propulsion system.

The Michigan-based startup manufactures Hall effect plasma thrusters for use in small and cube satellites. Thrusters are used throughout the lifespan of a satellite (or any object in space that needs to maintain its orbit, like the space station) to adjust orbital altitude, avoid collisions, and de-orbit the craft once it has reached the end of its useful life. Hall thrusters use a magnetic field to ionize a propellant and produce plasma.

While they have long been used in space, this type of thruster has mostly been too expensive for small satellite operators. Orbion says it has created a cost-effective production capacity to meet the growing demand of startups and developers launching to low Earth orbit. Orbion CEO Brad King said in a statement that the company considered contract manufacturers but ultimately chose a vertically integrated manufacturing model. Now, the company says it has outgrown its existing manufacturing space.

The company is facing “unprecedented market demand” for its Aurora system, King said. With the boom of the so-called new space economy, driven in part by the decreased costs of processors, components and even launch, it’s no surprise that there’s been a concurrent uptick in demand for efficient in-space propulsion systems.

The company had previously raised a $9.2 million Series A in August 2019. Since that time, the company secured a research partnership with the U.S. Department of Defense that’s testing the resiliency of American space systems. Orbion also landed a contract with satellite manufacturer Blue Canyon Technologies last September.

This most recent funding round was led by the US-India VC firm Inventus Capital Partners, with additional participation from Material Impact, Beringea and Wakestream Ventures.

“The space game is changing,” Inventus Capital Partners investor Kanwal Rekhi said in a statement. “Large satellites are being replaced by a multitude of nano-satellites; just like the PCs replaced mainframes. Orbion is providing these nano-satellites maneuverability to get into more precise orbits and stay there longer.”

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Source: https://techcrunch.com/2021/06/24/orbion-manufacturer-of-in-space-plasma-propulsion-systems-raises-20m-series-b/

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Fintech

Accept.inc secures $90M in debt and equity to scale its digital mortgage lending platform

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A lot of startups were built to help people make all-cash offers on homes with the purpose of gaining an edge against other buyers, especially in ultra-competitive markets. 

Accepti.inc is a Denver-based company that is attempting to create a new category in real estate technology. To help scale its digital mortgage lending platform, the company announced today that it has secured $90 million in debt and equity – with $78 million in debt and $12 million in equity. Signal Fire led the equity portion of its financing, which also included participation from existing seed investors Y Combinator and DN Capital.

Accept.inc describes itself as an iLender, or a “technology-enabled lender” that gives people a way to submit all-cash offers on a home upon qualifying for a mortgage.

Using its platform, a buyer gets qualified first and then can start looking for homes that fall at or under the amount he or she is approved for. They can purchase a more expensive home, but any amount above what they are approved for would have to come out of pocket. Historically, most buyers don’t know that they will have to pay out of pocket until they’ve made an offer on a specific home and an appraisal comes under the amount of the price they are paying for a home. In those cases, the buyer has to cough up the difference out of pocket. With Accept.inc., its execs tout, buyers know upfront how much they are approved for and can spend on a new home “so there are no surprises later.”

SignalFire Founding Partner and CTO Ilya Kirnos describes Accept.inc as “the first and only iLender.”

He points out that since it is a lender, Accept.inc doesn’t make its money by charging buyers fees like some others in the all-cash offer space.

“Unlike ‘iBuyers’ or ‘alternative iBuyers,’ Accept.inc fronts the cash to buy a house and then makes money off mortgage origination and title, meaning sellers, homebuyers and their agents pay no additional cost for the service,” he told TechCrunch.

IBuyers instead buy homes from sellers who signed up online, make a profit by often fixing up and selling those homes and then helping people purchase a different home with all cash. They also make money by charging transaction fees. A slew of companies operate in the space including established players such as Opendoor and Zillow and newer players such as Homelight.

Image credit: Accept.inc. Left to right: Co-founders Adam Pollack, Nick Friedman and Ian Perrex.

Since its 2016 inception, Accept.inc says it has helped thousands of buyers, agents and sellers close on “hundreds of millions of dollars” in homes. The company saw ”14x” growth in 2020 and from June 2020 to June 2021, it achieved “10x” growth in terms of the size of its team and number of transactions and revenue, according to CEO and co-founder Adam Pollack. Accept.inc wants to use its new capital to build on that momentum and meet demand.

Pollack and Nick Friedman met while in college and started building Accept.inc with the goal of “turning every offer into a cash offer.” The pair essentially “failed for two years,” half-jokes Pollack.

“We basically became an encyclopedia of 1,000 ways the idea of helping people make all-cash offers wouldn’t work,” he said.

The team went through Y Combinator in the winter of 2019 and that’s when they created the iLender concept. In the iLender model, the company uses its cash to buy a house for buyers. Once the loan with Accept.inc is ready to close, the company sells back the house to the buyer “at no additional cost or fees.”

“Basically what we learned through those two years is that you have to vertically integrate all of your core competencies, and you can’t rely on third parties to own or manage your special sauce for you,” Pollack told TechCrunch. “We also realized that if you’re going to build a cash offer for anyone who could afford a mortgage, you’ve got to make it a full bona fide cash offer that closes in three days as opposed to a better version of what existed. And you have to own that, and take the risk that comes with it and be comfortable with that.”

The benefits of their model, the pair say, is that buyers get to be cash buyers, sellers can close in as little as 32 hours, and agents “get a guaranteed commission check.” 

“Our mission is that everyone should have an equal chance at homeownership,” Friedman said. “We not only want to level the playing field, we want to create a new standard.”

Buyers using Accept.inc win 6-7 times more frequently, the company claims. With its new capital, It also plans to double its team of 90 and enter new markets outside of its home base of Denver.

SignalFire Partner Chris Scoggins believes that Accept.inc is different from other lenders in that its focus is on “winning the home, not just servicing the loan, with a business model that’s 10x more capital-efficient than other players in the market.

The team is driven…to level the playing field for homebuyers who today lose out against all-cash offers from home-flippers and wealthy individuals,” he added. “We see an enormous opportunity for Accept.inc to become the backbone of the future of mortgage lending.”

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Source: https://techcrunch.com/2021/06/24/accept-inc-secures-90m-in-debt-equity/

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Start Ups

Exclusive: Startup bttn. Takes On Medical Supply Ordering With $1.5M Seed

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Three months after launching, health care technology startup bttn. closed on a $1.5 million seed round, anchored by Amol Deshpande, to automate the purchase of medical supplies.

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JT Garwood and Jack Miller started the Seattle-based company in March after seeing health care companies struggle during the global pandemic to pay fair prices for supplies as they competed with other entities due to shortages.

“My background is in software sales at Microsoft, and we started and then sold PPE.Exchange, a marketplace to alleviate supply shortages during the pandemic,” Garwood told Crunchbase News. “As we talked to health care companies, we learned how hard it was to purchase supplies at a fair price. After conversations with vendors, hospitals and clinics, we saw an opportunity to change the medical supply industry.”

Targeting the U.S. wholesale medical supply market, which is predicted to be valued at $243.3 billion this year according to IBISWorld, bttn. developed a platform aimed at cutting out middlemen, offering direct-from-manufacturer pricing and providing a better ordering experience.

Its marketplace eliminates the need for exclusive and restrictive contracts and enables providers to save between 20 percent and 40 percent on their medical supply bills, while also taking advantage of improved shipping and delivery speeds, Garwood said.

“We are taking a process that traditionally involved fax machines or a sales rep, and putting it on a web application for order automation,” he added. “You can build a cart with gowns and syringes and then subscribe on a 30-, 60- or 90-day basis.”

In its first three months of operation, bttn. secured more than 300 customers and did more than $500,000 in sales, he added. In addition, the company formed partnerships with 11 health care associations and have 20 more being finalized.

The company will use the funds to expand its technical, sales and operations teams.

Deshpande, co-founder and CEO of Farmers Business Network, said in an interview that when he met Garwood, he admired his mission-driven approach to lowering costs for health care businesses.

“bttn. is bringing transparency to small businesses,” he added. “JT and Jack understand where small hospital systems are coming from when buying goods, and have easier options for how to do it. I liked the gritty way they launched and got initial traction. They have a big potential to make an impact and be a big company.”

Illustration: Dom Guzman

Stay up to date with recent funding rounds, acquisitions, and more with the Crunchbase Daily.

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Source: https://news.crunchbase.com/news/exclusive-bttn-takes-on-medical-supply-ordering-with-1-5m-seed/

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Start Ups

The Briefing: Visa Buys Tink For $2.15B, A16Z Closes $2.2B Crypto Fund, And More

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Here’s what you need to know today in startup and venture news, updated by the Crunchbase News staff throughout the day to keep you in the know.

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Visa acquires Swedish fintech Tink for $2.15B

Visa has announced that it is acquiring Tink, a Stockholm-based open banking platform, for $1.8 billion Euros (US$2.15 billion).

Founded in 2012, Tink previously raised over $300 million in known funding, per Crunchbase data. Through its API, the company allows  customers to access aggregated financial data and tap into services such as risk insights and account verification.

Under terms of the deal, Tink will retain its brand and current management team, and its headquarters will remain in Sweden.

— Joanna Glasner

New Funds

Andreessen Horowitz closes $2.2B crypto fund: Venture firm Andreessen Horowitz (A16Z) said it has raised $2.2 billion for its Crypto Fund II, which will invest in crypto networks and the founders and teams building in the space. Previously, A16Z has been a heavy and active investor in the crypto space, capping its best exit year ever with this year’s market debut by Coinbase.

— Joanna Glasner

Cybersecurity

Illumio lands $225M: Sunnyvale, California-based Illumio, a provider of a SaaS platform offering automated enforcement against cyberattacks, said it raised $225 million in a Series F funding round led by Thoma Bravo at a $2.75 billion valuation.

— Joanna Glasner

Stay up to date with recent funding rounds, acquisitions, and more with the Crunchbase Daily.

Crunchbase News’ top picks of the news to stay current in the VC and startup world.

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Source: https://news.crunchbase.com/news/briefing-6-24-21/

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