Large markets have had such a dominant hold on the SaaS founder’s imagination. The once abundant fear of competition has rightly morphed into the compounding certainty of unfailing demand. Then there’s the reassuring, mushrooming prospect of niches.
Taken together, there’s an infinite room to grow, as they say.
Or is it?
In the following exchange, Pulley’s co-founder and CEO, Yin Wu, having founded 4 startups (three of which went through YC) in the past decade, supplies a requisite dose of reality. Sharing how growth in these “obviously large” markets can be inherently curbed and how contending with differentiation can often spell a Sisyphean pursuit.
— Why (and how) to build for a “non-obviously large” market
— Avoiding the two extremes of starting up
— Why Yin chose YC for a third time and the "default possible” GTM strategy
— Learning to hire “high-slope” people
— Why funding isn’t success
“We didn’t invent cap table management”
Consider a market that seems huge. Let’s take Search. That’s as big as they get. Google is a trillion dollar plus company. How do you compete against such an all-encompassing incumbent?
Then there’s another kind of massive market. If you look at the CRM space, where Salesforce remains a clear leader, there are tons of other products. An ever-expanding long tail of niches. Which is great, but what’s your differentiation then and how much of the market can that really allow you to carve out?
The way I think startups win is by betting on and building for markets that seem small today but would be non-obviously large in the future. The bet being: Why do you feel this vision of the world will materialize? And can you ride the wave as it does?
Non-obviously large. That’s the key.
The obvious ones already have everyone going after them, especially behemoths with big resources. Thus it becomes really hard to find an edge.
Pre-Stripe, it wasn’t clear how big payment processing could be. The (assumed) ceiling, almost a decade ago, was the price tag of the Braintree acquisition. But Stripe proved that if you can build a 10x better product you can expand the size of a market.
With Pulley, for instance, we didn’t invent cap table management. That category has been around and we have a lot of respect for products in this space. But the thing that most people don’t realize is that this is going to be a much bigger category than it is today.
To begin with, we’ve been pursuing verticalized differentiation. We want to focus on early-stage founders. The GTM for Pulley has been concentrated primarily on serving early-stage founders and then growing with them as they grow.
Other tools in the market are focussed on late-stage companies and are very complicated to use. This isn’t a lot different from when Stripe first came out. They were essentially saying: “let’s focus on startups, a lot of these processors or large companies are not selling to developers and making it hard for them to integrate.”
So, instead of making a product that only cap table administrators/lawyers/paralegals can use, we’re selling directly to founders and making them understand how to manage equity well. Also weaving in the complexity over time, so that their future finance teams can have a robust tool.
What we’re also finding out is that across verticals, whether that’s healthcare or biotech, there are companies that you probably wouldn’t even think will need cap table management.
Large coffee producers that do profit sharing with their employees, for example. All of those are within the scope of Pulley. So although we’ve started with a targeted segment, we understand that we slowly need to build for the edge cases as well.
How do we prioritize building out the edge cases? We start by asking: What is the size of the market? What does the competitive landscape look like? And do we have a plan to win?
Then, most importantly, we drill deep into what our new users are saying.
Beyond the product you want to build and the problem you want to solve
There’s a spectrum for how fast (and slow) founders can act. You can either overthink things. Committing way too generously to business-school spreadsheet math. Or you can simply jump in without giving anything a thought.
You don’t want to land on either extreme.
On the one hand, no matter how meticulous your preceding calculations are, even if a single one of your assumptions is off, the market could be 10x bigger or smaller than you think.
Plus, in most cases, you’re so early in a field that you don’t have a pulse for making calls solely based on numbers.
But if you’re merely diving in without grasping how difficult/uncertain the early phases of the business can be then it’ll be much harder to get over the first humps and hurdles that will surface.
A learning I often share with fellow founders is to solve a problem they’re really excited about. Because the journey can last 5-10+ years. Building a business that compounds in value over time takes far longer than most people imagine.
I’d qualify that further.
The phrasing of “what product you want to build” or “what problem you want to solve” is incomplete as well. The core of your startup should be built on who you actually want to help.
Being able to help founders address their challenges is central to why we started Pulley. Stemming largely from my personal experience. Understanding how equity worked was clearly difficult for me and for fellow founders I spoke with.
The value significance here, something that I keep going back to, is that equity is the only asset your company has that can be 1000x in value. If you don’t understand how equity works, it becomes markedly hard for you to hire a team of good people as the company scales.
Once you have that clarity, figure out what’s the V1. Distill it into something simple. Our V1 was very, very different from where Pulley is at today. If you have the right team behind the product, it’ll come out okay.
By that I mean, as someone has shared, you need two types of people within a startup:
— Someone who can sell the product before it’s ready.
— Then, also someone who is annoyed at that other someone selling the product before it’s ready.
I can attest. You really need the two to continue innovating at any stage.
Then, of course, you need to learn how to iterate on feedback. We built the V1 in two months and got users onboard. It was a really trimmed down version of what we had. Literally the only thing you could do was record SAFES and founder shares. That’s it.
Now we handle every type of company, LLCs with profit interests, crypto companies with tokens, and others. But we really needed to hone in on what was our minimum usable product. Something to get that early feedback loop going.
No sacred cows
You’d have to keep reinventing the GTM wheel. Because what takes you from 0-1 is not going to take you from 1-10, and that is definitely not going to help you grow from 10-100.
0-1 is mostly just grinding the pavement.
For us, one of the reasons behind going through YC for the third time was early distribution. We were literally sitting next to a lot of YC founders, saying, “hey, we know you’re going to fundraise, Pulley has a really good fundraising model, let us show you how it works.”
There’s no secret sauce there.
We became experts in equity and were always around when people needed help. Persistent on communicating the right way of doing equity to the point where we were somewhat annoying sometimes. We had to. Our product wasn’t really ready, so people were betting on what we knew.
They were betting on us.
Our goal was to get all of our batchmates using Pulley. To do that, we needed to dive into the specifics:
a) create a weekly growth rate & track progress,
b) create a script for outbound and,
c) hustle.
Most startups miss that a GTM strategy needs to be a plan and not just a list of ideas. A plan includes a goal and a schedule. Our target was X number of YC companies by week 12 in YC. To get there we needed to grow 20% w/w, and we tracked our progress to see if we were hitting our goals.
Getting from 1-10 is all about finding repeatable channels. Trying out a bunch of things. We tried SEO. Content. Outbound. Paid ads. We wouldn’t have known how to model performance from either of those channels without trying them out. That’s a given.
A framework that’s helped us as we’ve gone about this process is: How do we experiment in a low-cost way, so that we can see what’s working fast enough?
Same goes with the team.
What I want folks to come back to me is not, “here are three options, what should I pick?”
Instead, they should be suggesting: “Here are three options, my proposal is to go with option A and this is how I want to test it. If that doesn’t pan out, I want to try out option B, and only then proceed with option C.”
And when I consider 10-100, it’s about scaling some of the things that worked from 1-10 and finding new ones that work at scale. Not the low-hanging fruit. Because it’s no longer there. You need higher ACVs. You need to go after ever-bigger enterprise customers.
That’s what makes a startup hard. You’re basically solving an entirely new puzzle every few months and that requires you to keep leveling up, just to keep up the pace.
To clarify, when I say, keep reinventing the wheel, I don’t mean you shouldn’t copy what already exists and works for others. So many have already been through similar settings.
Go and learn from them.
What I’m advocating for is to not have any sacred cows. Just because something worked during one stage of the company does not mean it’s going to work at the next stage. That’s exactly why so many startups get stuck at certain levels.
I recently read this story in Fortune about a company that catered to mid-market customers and that needed to tap into the enterprise segment to unstuck their growth. They figured that acquiring a competitor that served enterprise customers might be a way to do just that.
The problem was that this competitor was valued more than them. So how did they get that acquisition done? They devised some way to make that financing possible. A merger of the two companies took place and their combined value resulted in a much bigger business.
This story came to mind because one of the core driving principles for our team has been: Default Possible. How does a $500m company acquire a $1b one? That doesn’t make any linear sense.
Believing in “default possible” is how you make something like that work.
Put differently, if you want to do something exceptional, you have to literally find the exception. Whatever your goals, 2x/3x them. You have to push yourself to do far more than what you believe is possible to make the most of your time.
The three, broad people traits to hire for
First of all reach out to people that you think are the best in a discipline and talk to them.
This is something Tony Xu from DoorDash had emphasized. You can’t be an expert in every dimension. So go and find those experts. Ask your advisors. Ask your investors. Who is the best finance person they know? Who is the best enterprise designer?
Grab 30 minutes with these experts. And take note of what they would look for when interviewing someone. Start there.
I must assert, this doesn’t necessarily mean hiring those experts. We often hire for a high slope. It doesn’t matter where you are on the Y-axis, we care more about your rate of growth.
Plus, realistically, as a startup you are far more cash-constrained. You’re anyway not going to be able to hire someone who, on paper, looks amazing. You just don’t have that kind of capital.
So you have to bet on high-slope people. Maybe folks with a couple of years of experience. Or those who’re just graduating. How do you test for that potential?
Here are the three broad traits I look for:
Are they passionate about something? Usually if there’s something that they’re really obsessed about, that’s a positive sign. Because it might imply that they can really sink their teeth into a problem.
The second thing is identifying if they can keep answering a series of whys. Give them an open ended question. Ex: How would you launch a particular product internationally? “Okay cool, I would do the following first.” “Why would you do that? Keep going.”
You want to know if they have several layers of critical thought and whether they have a growth mindset. You don’t want someone to stop after the first few enthusiastic takes. Because with a startup you’re always chasing after forever-unfolding problems.
The third bit, something I had noted before, is that they should have the “default possible” mindset. Finding a way should be second nature to them.
The more “junior” folks have a huge advantage here. As they don’t know how things are supposed to work, they’re willing to approach everything from first principles. Bet on that.
“…a ticket to a harder race”
Funding is not success.
Never was. It’s just capital. Debt you’ve taken on for future growth. As Excite’s (one of the original search engines that predated Google) founder once said, “it’s a ticket to a harder race.”
A favorite analogy of mine comes from competitive sports. When you qualify for the regional level of, say, swimming. You win and then you advance to the state levels. Then the internationals where you’re really competing against the very best people in the world.
Every time you raise a round, you have to level up. Because now the expectations are higher. With each raise you’re buckling down on: what takes you to the next stage?
We raised our Series B recently, during a difficult, uncertain environment. We know it’s been harder for folks to raise over the past few months. This rupture of cheap capital is an opportunity to work on the fundamentals of the company you’re actually building.
When money is abundant, one is always thinking of growing at all costs.
And you cannot grow if your baseline isn’t sorted first.
Related reading from the Relay archives:
— Butter’s co-founder, Jakob Knutzen, on taking on Zoom by targeting a beachhead market
— Klaus’ co-founder, Kair Käsper, on the simple, always-top-of-mind, 4-channels approach to growth