Do you need investment to spin a SaaS out of your Agency?

I spoke to a former agency owner this week who built a successful SaaS business without any external funding. Here's how he did it.

Rob Warner started his Google Ads agency in 2012 - a kind of white label Google Ads service for agencies who were selling that service to their clients. They had about 35 people in the agency. In 2020 he launched PPC Ad Lab, a SaaS service, sold his agency and today works full-time on the SaaS Business. In 2021 he launched a second SaaS product called PPC Predict.

Selling his agency
Once he knew that he had some traction with his SaaS product, he used a US broker to sell his agency. The reason he did this was because he was based in the UK, but most of their clients were in the US. The broker helped him sell his agency to a Texas-based agency.

Of the 35 people he had working in the agency, 29 stayed with it and the remaining 6 came over to work full-time on the SaaS business (engineers and customer success).

Scaling the SaaS business
Rob says the first iteration of his SaaS product was a ‘BVP’ (Barely Viable Product). And I think this is important… just get people using it, even if it barely does what you ultimately expect it to. Early adopters can be very forgiving if they understand they are on a journey with you.

After running the SaaS for a while on a lower subscription rate, Rob felt able to switch his approach. He created a ‘waiting list’ of potential clients who all paid $5,000 per annum. Each month he let an additional 10 people in from the waiting list. So that meant that his ARR was growing my $50k/month. But it also meant that he could comfortably cashflow the business. After a few months of running this approach he was able to let more people in and within 9 months he’d gotten to $1m in ARR. I guess, given Rob’s background, attracting people to the top of the funnel wasn’t probably a massive challenge.

Another advantage of limiting the number of users is that you can fail in private. If something goes badly wrong for those ten, the others on the waiting list will have no ideas so long as you fix it before they are invited in.

Funding the SaaS
When I asked him about getting outside investment he was pretty adamant that was something he’d never contemplate, because of being answerable to someone else and he saw the whole investment process as a massive time sink. I totally get that. But raising funding also depends on the type of offer you have as well as the velocity you want to grow. At ScreenCloud it took us 22 months to get to $1m and whereas Rob is charging $5k/annum, to begin with our Average Annual Contract Value was about 10% of that, so we had a lot longer ramp up period. There is no way that ScreenCloud on its own could have been profitable for the first 1-2 years. And so we had to think about either funding it ourselves or finding someone else to help us. But in Rob’s case it made sense to bootstrap things.

To begin with, although they had a ‘BVP’ and therefore were more likely to attract monthly subscribers, they also offered a heavy incentive to sign up for a year. Rob said about 10% of subscribers would go for the annual subscription (of around $2k). This meant that from a cashflow perspective, they could front-load it. He also said he didn’t pay himself for 4 or 5 months and he put a bit of money in to keep things topped up. Once he was able to get to the $5 annual subscription rate, he was in the clear.

Given where Rob is today, though - I know he wouldn’t because it seemed like it was totally counter to his beliefs, but raising VC now might really catapult his growth. And given he’s managed to hold onto all of his equity up to this point, he is in a really strong position.