In the following exchange, Common Paper’s co-founder and CEO, Jake Stein (@jakestein), talks about recognizing a deviation in a long-settled, PMF-affirming qualifier — “your target customers should be able to pay for your product” — and how that made them strategically reorient everything.
He also goes into the thinking behind applying for Y Combinator, having already co-founded not 1 (RJMetrics) but 2 (Stitch) influential B2B SaaS ventures, losing 3 annoying months of customer conversations to a pitch that investors loved, and situating themselves in an established market.
— Aligning with ICPs without an immediate budget
— What this meant for Common Paper’s fundraising strategy
— Choosing YC as a serial founder
— (Not) confusing an investor pitch for a customer pitch
— Evolving messaging with emerging ICP clarity
— Resolutely saying no to the traditional market
Aligning with ICPs without an immediate budget
“Your target customer should be able to pay for your product.”
It’s conventional wisdom that is, most of the time, correct and helpful. What lies underneath this self-evident strand of advice is that you need a sustainable business model.
The wrinkle for us is that our ideal users, people who are feeling the biggest pain, are often startups in the very early stages of their existence and are potentially just onboarding their first paying customers. Or they’re only now beginning to commercialize their long-running free/open-source offerings.
Either way, they cannot get paid before having a contract in place.
We address exactly that challenge with our standard contracts and software. And it wouldn’t make sense for us to introduce a payment barrier at this step when they clearly don’t have the budgets.
So we made a strategic bet: that if we could orient ourselves around acquiring those customers, we’d be able to grow with them and generate revenue as they grow.
That requires a bunch of things to be true.
First, we cannot spend much time onboarding a user who may remain on the free tier for a year or more. The economics of that would be quite challenging.
Then, our pricing structure has to scale with them and ensure that we’re able to capture value in the future.
On the marketing side, our messaging shouldn’t speak to a 500-person company, even if they have similar problems.
There are also implications for the product, including how we build integrations, workflows, and our permission models. Different things matter to small teams.
We certainly have some larger teams onboard. But most of those started with us early in their journeys and have grown since.
Over time, we’ll focus on expanding to other motions of landing bigger customers but we’re a very small team (9 people, today) and we’d really rather have one, well-honed go-to-market model.
What this meant for Common Paper’s fundraising strategy
This bet, of course, is contingent upon our fundraising strategy.
If we know that we’re going to acquire customers now and get paid later, our survival depends on being funded and having both: enough cash in the bank and a low enough burn rate.
That was part of the reason we raised our seed round before launching the product. We had to estimate: How much runway do we need to prove out the business model?
Either to get to the milestones we want to hit to raise our series A or to generate more revenue and decrease our burn. We’re pursuing both those paths.
The other thing that influenced our fundraising process was the expertise of the investors we sought. I know that one doesn’t always have the option to choose who they raise from. If your company needs capital and you only have one option, usually you’d take that option.
If you’re fortunate enough to have multiple potential funding sources, you really want people with some expertise on the problem you’re trying to solve.
For us, that concerns early-stage software startups as well as the network within those companies. So the two co-leads of our seed funding, Boldstart Ventures, and Uncork Capital, are both seed-only firms.
There are situations where you might want to say, “okay, we’d rather raise our seed from a large, multi-stage firm where seed is one of the 10 things they do,” but we really wanted someone who deeply understood that stage.
It also explains why we did Y Combinator. It’s a huge critical mass of amazing early-stage founders, perhaps even the largest concentration of those folks anywhere in the world.
Our strategy, in this sense, dictated not just the amount of dollars we raised but also who the dollars were from.
Choosing YC as a serial founder
Another major factor that made us consider YC was product-driven.
So, whenever a contract or a set of contracts become(s) the widely-accepted standard within an industry, it’s usually the creation of an industry association.
For example, most companies buying ads on the internet use IAB (Internet Advertising Bureau) Standard Terms. Similarly, where I live (in Pennsylvania, US) there’s a standard contract for buying/selling your house.
It is extremely rare for such standards to be created by a single entity.
And YC happens to be one of the rare groups who created a widely used standard contract -the SAFE. They started using it for their own investments, and it has spread to virtually all early stage investors.
This also goes back to my point about the expertise we want in our investors.
Here’s a group of people who’ve done this incredibly rare, challenging thing and are unbelievably successful at it as well. Having them in our corner, getting their advice on SAFE and how they’ve thought about it over time, has been really valuable for us.
We’re following a similar model to them, and the easiest way to explain our Cloud Service Agreement is often that “It’s like the SAFE, for sales.”
Then, when it comes to the other advantages that I’ve discovered, I’d say they’re what most other people get out of YC. The advice is very helpful. Same goes with the cohort model.
Grouping together a bunch of really smart, really hardworking people who’re setting these really aggressive goals and sometimes hitting them, is absolutely motivating.
I’ve been pleasantly surprised by how much value we’ve gotten out of the program.
(Not) confusing an investor pitch for a customer pitch
This is something that I screwed up in the early days of Common Paper. I’ve since adjusted and (I think) solved the problem, but it was a tough hurdle when we began.
Because we raised capital before we launched the product, I made our investor pitch first. There are a bunch of differences between that and the pitch for customers.
The most salient difference in our case was that when we spoke with investors, I was talking about the long-term opportunity and why Common Paper could ultimately become a big business.
A substantial part of that, which we believed to be true and investors liked hearing about, was the potential of network effects. The more people that use us, the more valuable we become for each individual user.
After we raised, we continued believing in that as a core benefit of using Common Paper. So when we switched modes and started making the same future-focused, network effects pitch to customers and users, I began hearing variations of:
“This sounds like such a great idea, I can’t wait to try it out later, after tons of other people are already using the product.”
To which, I would say, “wait, no, no, no!” By that point I had, of course, already lost them.
I probably spent 3 months with that incorrect pitch and it was really frustrating and demoralizing to see it fall flat again and again. Honestly, people saying outright no’s, “nope, I don’t have that problem,” would have been better feedback.
I kept shooting myself in the foot in these early conversations.
Once I realized that this was the pitfall, I changed my pitch to be about the problems they’re currently facing and how we can solve those problems today.
If they’re interested in talking about the long term, I’m happy to do it but I don’t bring it up on my own. Instead, I lean heavily on, say, what’s blocking them from closing a deal, or what’s an unnecessary expense or frustration that I can help fix with our product right away.
That was a huge unlock.
This seems astonishingly obvious in hindsight but it took a couple of months of just banging my head against the wall to figure, “oh shoot, I’ve been doing this completely wrong.”
Evolving messaging with emerging ICP clarity
If you go back far enough, we didn’t even have a product page on our website. We only had a standard contract because that’s what we developed first. This is a fundamental part of our model: You can use the standard contracts without using our software, but you can’t use the software without the standard contracts.
Then, when our software was in private beta, people could sign up online, but we’d onboard them 1:1 over Zoom. We wanted to have detailed conversations with all new users at that point.
There was an evolution over time in who we were building for and understanding how to position for them.
Here’s a great example of how that translated into our messaging.
One of the first blog posts I wrote was about sales cycle acceleration. It illustrated that if you were to reduce a 4-months long sales cycle to 3 months, there would be a huge impact on your ARR growth given the same win rates and funding.
It was written with a specific audience in mind.
Thinking about shortening sales cycles is a useful input for any company’s sales model but only really resonates if you have a decent number of customers, at least one salesperson, and a clear sense of what your sales cycle length already is.
If you’re trying to bring on your first customer, you don’t have a sales cycle problem yet.
Now that we’re targeting very early-stage SaaS companies, the most recent blog post I wrote was an explainer. Essentially defining the alphabet soup of SLAs, DPAs, and other basic SaaS contracts. If you’re just getting started, it’s helpful to know how and in what circumstances people might ask you for a Mutual NDA.
This is reflected in our CTAs as well. You’ll see: “Contracts for startups.” “Get going in minutes.” All aimed at a person trying to go from 0 to 1.
Resolutely saying no to the traditional market
In terms of competition, we think of Common Paper as much narrower and much deeper compared to traditional CLM (Contract Lifecycle Management) products.
There are a lot of established companies that can help you with leases, HR agreements, or anything else; they allow you to upload your custom contract and build out your own custom workflow.
As a result, most of these tools have a much longer onboarding compared to us. Plus, their starting prices can be in the 10s/100s of thousands per year. The implementation takes many weeks and often months.
Whereas in our system, because we’ve chosen a specific target market (building the best product for commercial contracts at early-stage SaaS companies) and have aligned our model with it, some people send their first contract within 5 minutes of signing up.
Common Paper is disruptive in the OG, Clayton Christensen sense of the word.
We’re not interested in making the existing solutions better/faster for their existing customers. That is, if you’re a large enterprise using an incumbent product, we’d say, “we’re not trying to solve your problems.”
We’re focused on building for the early, underserved segment of the market.
Related reading from the Relay archives:
— Butter’s co-founder, Jakob Knutzen, on taking on Zoom by targeting a beachhead market
— Slite’s co-founder, Christophe Pasquier, on evolving the many-sided, intertwined levers of positioning and product