“The way I generally describe the seed round is that raising the money at that stage is pretty much 100 percent smoke and mirrors,” says Michael Litt. “Selling the vision, selling the dream.”
An entrepreneur at that stage has to communicate very clearly what he or she wants to do.
“You have very little traction – it’s just about the vision that you have. And it’s not necessarily the size of the vision, it’s your capability to communicate the reality of that vision which ultimately relates to your success in raising the seed round,” adds Litt.
The 30-year-old Canadian did all that six years ago when his startup, Vidyard, a sort of Youtube for businesses, got some seed money.
“The series A is, like, 20 percent how your business is performing and 80 percent smoke and mirrors. ‘Cause you might have that initial traction, some unit economics that make sense. It would indicate the size of your opportunity and your ability to scale.”
That all changes with the next injection of cash.
“Series B, I think, is when that flips. It becomes 80 percent how your business is performing and 20 percent smoke and mirrors. And then finally the series C, for us, was like 100 percent what are the economics of the business,” Litt explained onstage last week at Tech in Asia Tokyo 2017.
Now his company employs 230 people across two offices in Canada and one in the US. It’s grown from 100 staffers in just the last 18 months.
In the past six years, the Vidyard founder has gone through many versions of himself.
“Reinvention of yourself happens frequently – for me it’s been kinda on a four or six-month cadence,” he explains.
Litt transformed into a sales rep for some time as his business, like all software-as-a-service (SaaS) companies, chased after crucial enterprise customers.
“I was the one who was cold-calling initially,” the CEO chuckles. “I was doing about 100 calls a day.”
All startups similarly change form over time, which Litt visualizes in an imaginary chart as he talks onstage with host James Riney, the boss of 500 Startups Japan.
“I think there’s this bell curve that you go through where you start a company, you have this vision for the problem you want to solve and how you want to take this thing to market, but then as you go through the rounds you get mired into operating the business,” Litt elaborates. “At series A, you’re one of the sales reps in the company, specifically as the CEO or the business lead. Series B is the same. And what happened to us at series C is that you come out of the operational mire and you have to think about the vision again. And it’s just like it was when you started the company.”
“You wear all those hats in the early stages, but now you’ve got people who wear those hats – so your job as CEO is to lead, dictate the vision, and obviously to work with the team and think about culture, scale, HR challenges, all sorts of things that you started the company for and thought about, but you hadn’t thought for the past few years,” he says.
Hiring and re-wiring
Aside from juggling investors and hats, Litt sees early technical hires as especially crucial to the success of a SaaS business.
“Our primary goal was in engineering specifically,” says Litt, referring to when his startup graduated out of Y Combinator. “Because in what we do, an online video platform, we have to build scalable and complex technology which hosts and streams videos in a reliable fashion […] before we can add incremental value to what we do.”
That’s why he decided to make Waterloo the main HQ, as there was a YouTube office with lots of talent to swipe.
Vidyard’s first 10 hires were in engineering and sales.
“Heavy, heavy, heavy on the product engineering” – that was the early mantra in order to grow.
By the time of the 12th staffer, Litt felt he needed a CFO. “I think it’s early for a lot of companies to have a CFO when they’re only 12 people,” he concedes. But there was a cunning plan.
“In Canada there’s a ton of programs designed to fund research and development, new hire programs, etcetera. And so we made a deal with Matt, our CFO, that we would hire him if he could pay for himself in grants and bursaries and loans and stuff from the government. And he more than 2x paid for himself in that first year,” Litt says. The startup has made use of Canadian grants in other ways to help with growth.
In new hires he looks for candidates with “grit” – “this concept that you have a vision and a goal and you’ll do whatever it takes to achieve that goal.”
But it’s not always easy to find that trait.
“In North America specifically, this current generation of millennials a lot of people think lack that grit,” he says, passing the buck onto the vox populi. “A big part of my job now is inspiring that in people. But I think it’s absolutely there.”
Litt recalls more of the legwork behind the rapid growth that investors demanded to see.
“When you think about series A through C stage, if you’re trying to triple your business year-on-year, it’s actually really difficult. So once you get to US$1 million revenue you wanna go to US$3 million, then you have to go from three to nine – and three to nine is really tough. The way we did that was by forcing ourselves in the market through scaling this initial calling program I started.”
That meant more people on the phones – and also a lot of lead-generation came from going to events.
“We’d sometimes drive to the event, we’d park the car covered in Vidyard stickers on the lawn to drive awareness. We’d extrapolate every single lead we could from that show,” he says.
But when the events started taking up too much time for insufficient returns, Litt began to regret not investing more in digital marketing and outreach at an earlier stage.
Still, he cautions that SaaS startups can spend too much time in digital storytelling when they need to focus more on converting to actual sales.
‘Leaking at the seams’
Litt says that building a good culture in a startup is always “a work in progress,” but in his experience it was at the 50-employee mark that his startup came into crisis.
“I started to feel things were leaking at the seams a little bit. Up until then, we did daily stand-ups at the company” – literally every staffer standing up to explain briefly their objectives for the day – “but then it became a bit of a grind,” he says.
So, with more than 50 people on the payroll, it changed to a weekly stand-up. He also drew up a “cultural agreement” that new hires must sign and added a ceremonial handprint ritual to make the agreement feel concrete.
“It’s kinda weird as I describe it to an external group,” he admits to the audience, but he finds it effective in stamping the firm’s culture on employees.
“One of the things told to me by a mentor is that when the 100th person joins your company, they do not give a crap with respect to what the previous 99 went through. They don’t care about the lore of the company and some heroic move the CEO made, or when they closed some wicked deal. They care about their experience from that point forwards.”
“That really resonated with me,” he says of that bit of advice.
Now, a big part of his job is ensuring that the culture evolves whilst also preventing it from unravelling.
“I try to put every fire out myself,” he says of his current incarnation as CEO of a startup that has raised series C. When he’s not doing that, he’s focusing on his team achieving three things: “I think about revenue growth, I think about the net retention of our customers – we’re a SaaS business so are we keeping our customers and are we growing them on a cohort basis, quarter over quarter? And I think about burn rate. That’s really how I isolate my thinking.”
This is part of the coverage of Tech in Asia Tokyo 2017, our conference which took place September 27 and 28.
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