In the following exchange, Basis’ founder and CEO, Bebe Kim (@babinator), deconstructs — “easily one of the biggest lessons we learned” — the increasingly predetermined focus on selling to fellow early-stage B2B founders and explains how that often leads to false PMF signals.
She also shares notes from a decade and more of building businesses both bootstrapped and funded, a core takeaway from the storied failure of her last venture (Atrium), and her love for constant learning and the SaaS Magic Number.
— Why $75m, vision, expertise, and serial founders, couldn’t guarantee success
— How founders are almost never the end-goal ICP
— The related origins of Basis and Atrium
— Making the personal transition from legal to finance
— Finding the line between efficiency and growth at all costs
I’m from Chicago.
And I started on the path of entrepreneurship quite organically. At the time, there was no fame (or any of its usual equivalents) to chase except for my pure interest in solving a problem I had seen closely.
Being from an immigrant family and seeing that my parents had difficulty accessing legal services when there are more lawyers in the US than any other country, was something I had thought a lot about. To navigate this country well, quoting Jerry Seinfeld, “you need to read the inside of the top of the Monopoly game box”.
That inspired me to start AttorneyFee, a platform to bring more transparency to the pricing and delivery of legal services. After bootstrapping and exiting that company, I moved to California because of the acquisition and was exposed to the heart of the entrepreneurial ecosystem: the VCs, the celebrity founders, the Twitterati, all of it.
The experience of co-founding (and shutting down) my next business, Atrium, came with a lot of lessons, and reframed a lot of the perceptions that usually dictate Silicon Valley bets.
Like a) a celebrity founder with a great track record (my then co-founder, Justin Kan, is one in many ways) means success for sure.
Or b) as Justin once said, “let’s just recruit a bunch of smart people, put them in a room and something great is going to happen.” A thesis that informs many startups. I suppose I was one of those smart people with ~10 years of experience in the domain.
Which leads to c) “oh, expertise definitely trumps everything.” And then d) funding (we had raised $75m), of course. The notion that if you have enough funding, you can buy your way into success.
Atrium had the appetite, the network, the expertise, and the capital to scale this tech enabled business into an ambitious multi-practice law firm.
But the truth of the matter is that these are all solid de-risking factors but none of them, we realized within a couple of years of building Atrium, can ever overcome business fundamentals.
So yeah. No. 1. Raise just enough to figure out who wants what for how much. If the economics don’t work out, you’d have the answer without being all out there.
In terms of initial execution, too, there is major learning.
A trap that I see a lot of startups fall into.
With B2B SaaS companies, there’s this standard playbook:
Join YC and sell to the other founders. Which is fine for the very, very early stages. But I don’t feel comfortable investing in a business until it’s gotten past the founder persona.
Because that persona, in most cases, is not the eventual ICP.
I’ve had companies tell me in excitement, “oh my god, we solve the founder’s back office, they love us and are paying a lot of money.”
To which I respond with, “well, they’re just paying for somebody to do it for them.”
That’s easily one of the biggest lessons we learned at Atrium as well.
When we joined YC, our KPI was, “get the third of the YC batch to use Atrium.” And we did. But the problem was that they were really using and paying for a service, not technology. We believed that technology will somehow come out of offering services.
It made sense.
But founders, we learned, weren’t our end-goal ICP as far as the software goes.
So is the case with a lot of B2B SaaS companies.
What should one do then?
- Can still start with founders, yes.
- Leverage their early adopter traits.
- Get them to generate some buzz and testimonials.
- And then quickly move on to the head of marketing/HR/Finance or whoever you’re actually developing software for.
Having that awareness from the beginning helps. I’m not saying founders are nobody’s ICP. They are. Pulley (love Yin Wu) tries to get in front of founders before Carta does for cap table needs.
Again, what most people should be asking instead is:
Will the software survive the next ICP?
If you are starting with founders, will your tool survive the transition to the actual personas?
In Pulley’s case, it does survive. You get in. There’s always this external legal person that manages things with founders for a long time. When legal finally moves in-house, the captable has established its footing for a long time.
If instead the tool quickly moves off to a different team.
With Basis, for instance, that’s finance.
We could sell to founders.
But they’re not necessarily interested in our tool.
What they’re looking for is finance strategy and reporting know-how. And they don’t even know yet that the end deliverables they are looking for are the output of a team of finance people with different competencies. The end software ICP is the finance team, which is in the midst of moving to outsourced.
Atrium wasn’t purely tech enabled.
In that we had 2 entities. A professional services entity, which was a law firm. Then we also had a Delaware C company in which the VCs invested, that was supposed to capture the enterprise value generated from tech-enabling work of the law firm.
The proprietary software part just didn’t succeed.
As there weren’t enough product-making opportunities in that space.
With Basis, too, I had similar goals in terms of leveling the playing field by translating the knowledge of professional services (finance, in this case) into software.
That’s just a problem set I love and this time, we hope to find more enterprise value opportunities given the nature of the “job to be done” - the recurring cadence of the workflow, the percentage of tasks that are rule-based, etc.
People ask me about my personal transition all the time.
And I always point them to a bunch of lawyers who’ve done the same thing and have migrated to finance. There’s Klarity. Then there’s Omni, which is a cap table product for CFOs. I was one of their first advisors and they recently sold to JP Morgan.
I think lawyers bring really unique insights into finance and vice versa because the transaction that finance measures is recorded by legal. Every employment contract is a legal instrument. The relationship starts with sales, closes via legal and is accounted for by finance.
Every SaaS contract as well, which is one of the hardest parts about SaaS metrics, is actually a contracts dataset. Usage-based billing is like micro-contracts. So knowing how the legal relationship starts and why the business terms were negotiated a certain way, helps.
Switching to finance actually gave me continuity in connecting the dots between why a lawyer was involved and then the ultimate effect that this contract had on a business.
Then there’s also the fact that I had been doing law for 10+ years and one of the ex-CFOs at WeWork had reached out asking if I’d be interested in starting this insurance litigation company.
And I was like, “no, I need a break from legal.”
I really wanted to learn something new. For me, learning is a big part of the satisfaction of being a founder. I had definitely logged my 10,000 hours - a PhD in legal tech, whatever that means.
I am in an adjacent field that leverages my past learnings, but there’s so much to learn and it’s just super interesting because of that.
Having said that, the learning curve has been steep.
Things do take time.
Maxio’s (another financial operations company) CEO, Randy, a 3rd-time CEO and someone who has switched from martech to finance told me it takes 1.5-2 years to ramp up in a new category.
As it isn’t just the knowledge, it’s also the ecosystem, knowing who the existing players are, what the current dynamics look like, all of that needs to be figured out.
Having been on both bootstrapped and VC-led tracks, I don’t think, in the past, I had a proper framework for telling me where the line between growth at all costs and cost effectiveness fell.
Well, that line can be measured.
And it’s the SaaS Magic Number. I love it.
If I were to measure it retrospectively for AttorneyFee, I think our acquisition was too efficient. The CAC was around $150. The LTV was over $20,000.
So I could have spent way more on acquisition. At the time, again, being in Chicago, I just didn’t have the networks or know-how to understand this let alone pursue fundraising. We had so much more room to capture demand.
Atrium, on the other hand, was just growth at all costs.
Our CAC/LTV ratio was out of whack. If you have that and you still continue to invest in marketing, then something is definitely off. You’re merely chasing valuation. Going against the demand/supply fundamentals of a good business.
Is there a real strategy behind such an approach? Were we just trying to get to scale and capture market share? Now, I have a framework to think through this, especially for SaaS businesses.
Are we underinvesting or overinvesting?
The Magic Number is such a good tool to level set with yourself and with your investors.
— Pulley’s founder, Yin Wu, on choosing YC for a third time and their “default possible” GTM strategy
— Merge’s co-founder, Shensi Ding, on solving for two different personas at once
— Common Paper’s co-founder, Jake Stein, on why it’s OK if your ICP can’t pay yet