To quote Nathan Latka, who has over 3,000 podcast interviews with SaaS founders under his belt (me included):
Agency owners in their 20s make the best SaaS CEOs in their 30s
I don’t think age is super-relevant here, but his point is that when he meets successful SaaS Founders, there is often a background in running an agency in there. For me, this isn’t wholly surprising because I think agency owners have some specific advantages over their non-agency peers. I like to think of them as the Agency Owner’s SaaS Superpowers. But as agency founders, we aren’t great at recognising them and understanding that these skills aren’t ‘normal’. They’ve been honed over years of hard knocks and we have the scars to prove it. Nevertheless, when it comes to products and SaaS in particular, they can give you an unfair advantage.
They also have an Achille’s Heel, which I’ll come onto at the end.
Superpower #1 - Capital Efficient by default
Most agency owners have grown their agency out of margins. When you started to see that an increase in the level of business was a trend rather than a blip and you felt that you could afford to hire another person or move to a bigger office, or buy better equipment, you did.
But the key here is that as an agency owner, you’ve been all over the money from the start. You’ve known how every penny has been earned and justified every penny that’s been spent.
Compare that to someone who’s just left their job at a bank and raised $5m for their new venture. What are they going to know about managing cashflow? How good will they be at knowing, let alone negotiating, the cost of things that businesses need?
As an agency founder/owner, this will come as second nature to you. Even if you raise investment, you’ll instinctively be looking for ways to keep costs to a minimum. And if you’re boot-strapping it, keeping on top of everything will be something you do without breaking a sweat.
Superpower #2 - The ability to do lots of things to a high standard
When you run an agency you often have multiple clients and they all want to be treated as if they are a priority. This ability to constantly context-shift and be able to bring your ‘A’ Game to each challenge is another one of those muscles that agency owners have built to olympic levels of endurance over the years.
And guess what? An early-stage product business needs exactly the sort of founders that can do that, too. A start-up tech business is fast-moving, gnarly and relentless. In a typical day you may be writing website copy, demoing to a potential new customer, appeasing an existing customer, fighting with lawyers, pitching to a VC, hiring new people, negotiating with a supplier, analysing data - all before lunchtime. If you can’t hack it, things will start to unravel quickly.
Many people, especially those who’ve come out of a corporate environment where things are done for you and where doors are opened just because your company is already well established, will struggle with this. The idea that there’s nobody there to pick up your mess: it’s all on you, can be a difficult adjustment for some.
But if you’ve run your own agency for years, you’ll probably totally love that chaos. You weirdo.
Superpower #3 - Boss-level sector expertise
If you’re looking to create a product for a vertical, you likely already know the sector better than people who actually work in it. Because they only know their own company and maybe a few others if they’ve switched around a bit. But if this is one of your agency’s niches, you speak to different companies in the sector all the time.
Ok, you don’t necessarily know the minutiae of every level of their business, but you’re not trying to get a job there, you’re trying to sell something that solves a problem for those types of businesses as a whole. And this will be something you possibly understand more than almost anyone else in the world.
Let’s say you’ve been delivering marketing services to manufacturing companies for a decade. You probably don’t know how to build a factory and import raw materials, but you might spot a trend about particular challenges that marketing teams in manufacturing run up against. Maybe it’s a challenge that they think is unique to them, but turns out is something you see with predictable regularity. What’s more you’ll know how to reach them and how to speak to them without coming across as an idiot.
Your ‘Fresh-out-of-Business-School MBA’ may have identified a similar gap, too, but good luck applying everything they learnt in their Global Strategy Module for uncovering the nuanced challenges that will appeal to a mid-level manager responsible for allocating her company’s marketing budget.
You, on the other hand, know these people. You’ve worked alongside them for years. You’ve been in meetings, you’ve been in the pub, you’ve had arguments with them. You know what you’re talking about because you’ve lived it for real.
Superpower #4 - Team In A Box
If you’re like I was (and I know a lot of people are), then you’ll use any downtime you have to work on your nascent product ideas. Once you’ve validated your idea and it’s time to start building out your MVP, chances are you won’t have to hire anyone new to do it for you.
If things do take off, or if you decide to pivot, then you won’t be able to rely on borrowing time here and there from designers and developers mid-job, but to start with it’s not a bad way to get things kicked off.
Having a team in a box ready to go is something that mere mortal entrepreneurs would dream of. Unless they have the skills themselves, they will have to either recruit people or hire an agency. It’s an expensive pain, especially if you don’t really know what you’re doing. You could easily sink a load of money into something that you only discovered wasn’t fit for purpose after the event.
Once things start to take off, you probably still have your team in a box, or at least the beginnings of one, that you can just move into the new product company.
Superpower #5 - Easy access to early-stage funding: your own
Allied to Superpower #4, is the fact that you have an income stream that you can use to fund your R&D, product validation and MVP creation. You might not have millions in the bank, but you don’t need it. To begin with you have your skills, you have your insights, you have your people and you have income that, assuming you make some sort of margin, can be used to fund what you need. Plus, if you’re paying yourself from your agency, you don’t have to worry that you’ll need to couch-surf and live off Ramen Noodles for the next 12 months, if you want to get something off the ground.
Compare this to your regular entrepreneur. If they need an income they will probably have to get a job, which means that they will only have evenings and weekends to work on their new idea. If this is their sole focus then they either have to have the funds saved themselves or they have to go and find it from an investor. Not that these things are impossible, but it’s just one less thing to encumber you, as an agency founder, if you want to do the same thing.
So, all in all, if you’re an agency founder, you’re basically awesome. But, there are a couple of things to watch out for, too:
Kryptonite #1 - Margins Mindset
The flip-side of being capital efficient is that you continue to operate with what I call a ‘Margins Mindset’ rather than a Growth Mindset. You’ve become programmed to only spend when you have the money. You look back over the last quarter and carefully identify evidence that your company can afford to spend more. It means that you do things like hire people who show potential but aren’t that expensive yet: people with the right attitude who you can mould as they become more experienced.
But if you are in a fast-growth scale-up, especially one that is venture-backed, you need to think about growth as a central part of your strategy. This means that you don’t have time to hire people who can learn on the job. And assuming you’ve never run a multi-million dollar SaaS business before, as founders, you don’t have the experience either. So you need to recruit people who know what it’s like to go from where you are now to where you might be in two years’ time. These people aren’t cheap. They aren’t ‘rough diamonds’. They’re already proven and that comes with a price tag. For me, spending money like this was something I had to retrain myself to do.
I remember one time talking to our investor who said, “You guys aren’t burning hard enough. Why did you give away a load of your equity if all you were going to do was leave the money in the bank?”
He was absolutely right… I equated having money in the bank to running a business well, but in this case, it was stupid. It was vanity or a misplaced sense of security. Money you can get more of, but once you give away your equity, you don’t tend to get it back again. Why fritter it away for cash that you don’t want to spend?
That’s not to say that capital efficiency isn’t important. And to a great extent, sentiment around startups burning cash has changed since I had that conversation. But the fact remains, if you are doubling or even tripling in revenue every year, then you are always hiring for the company you’re going to be in 6 months’ time, not the company it feels like you’ve become over the last couple of months.
That, for agency owners, takes some getting used to.
Kryptonite #2 - Shiny things
Another ‘flip-side’ to a super power - the one about ‘being able to do multiple things at once to a high standard’, is that you are attracted to shiny new things. It’s in your DNA. But just because you can do lots of things at the same time, doesn’t mean you should.
The Eureka moment for me came when I realised that we would serve ourselves better by being more focused. We ended up starting about 15 side projects over the 14 or so years we had an agency. Six of which did OK and four of which we exited. So we were stretched thin. Whilst we were operating like this, our best product only ever managed about $30k in Monthly Recurring Revenue.
Initially I thought that having a portfolio approach would give us more options, more revenue potential. But in fact it held us back. It wasn’t until we focused on one thing that we saw things really start to take off. Once we sold our agency and the products that had any commercial value, we were able to focus solely on ScreenCloud which is now doing north of $20m in Annal Recurring Revenue. We would never have achieved this if we were still trying to juggle 15 other projects and two agencies.
For entrepreneurs and agency owners especially, this is a really hard lesson to learn. And even when faced with incontrovertible evidence, agency owners just can’t let go. They convince themselves they can step away whilst still having ownership and various levels of engagement. But in my view, the sooner you accept that focus is where you ultimately need to get to, the sooner you’ll be on the journey to something truly transitional.
For so many reasons, agency owners are perfectly qualified to be product company founders. For me, it was the best financial decision me and my cofounders ever took.