Long after the sun has gone to sleep, you’re still there, all alone. You’ve been working all week and have little to show for it. With every day that goes by, you feel like the light at the end of the tunnel moves farther and farther away.
Even as you tick off a few tasks on your to-do list, you feel like the list is growing instead of shrinking. And forget about having any time to play.
Deep down, you know you can’t carry on like this. One way or another, something has to change.
Building SaaS products is hard work; everyone knows that. But building one all by yourself and hoping to see any results is like asking for a miracle.
If you want to see substantial growth and results, you need to move faster. You need a more efficient way to create value for your customers and get your product in front of more people.
That may mean working with a team of people who have more skills than you, even if it means giving away some equity in return for their help.
Let’s say you’ve decided that this day has arrived, and it’s time to build out a team for your SaaS product. What are the actual skills you need to recruit for? Let’s take a look at exactly what you need to get your product up and running and out to the public.
Necessary Skills for SaaS Product Development
To pull off developing a SaaS product, you’ll need a unique mix of different skills. Let’s take a quick look at the skills a SaaS startup requires these days.
Visionary / Manager / Customer Support
The visionary is usually the founder, but not necessarily. This is someone who knows quite a bit about the problem domain and can come up with ideas that have a high chance of being successful.
Some of the most common activities for this role would be:
- Coming up with ideas on how to grow the product
- Talking to customers to weed out bad ideas before they reach the development team
- Helping customers discover the product
- Hiring new people
- Firing bad performers
But for those ideas to be tested, they need to be built first. Oh, and they probably need to look decent.
Development (Back End, Front End)
Most of the technical implementation is done by the developer, or a development team, depending on the complexity of the product or idea.
The two areas of development that need to be covered here are called back-end development and front-end development.
Back-end development means everything that needs to happen before the user can see some kind of result on the screen. So for example, if you’re fetching data from a database and you perform some calculations with it before showing a result (like a beautiful graph). That’s done on the back end.
Front-end development is concerned with how data is shown to the end user and how the user interacts with it. So for example, instead of showing the user a list of latitude and longitude coordinates, you show those locations as markers on a map. It’s the same data but displayed in a totally different way.
Design / User Experience
Making things work is important, and there’s no doubt about that. If your product doesn’t work, you don’t have a product.
But it’s not always enough to have a working SaaS product to convince customers to choose yours over the competition’s. You often need to have an edge or uniqueness, and that might come from the user’s experience.
Not only that, but iterating your design before you reach the development team is very likely to save some money. It’s often faster to change your assumptions about the user’s experience in a design tool than it is to do it with code.
A designer will also help you with marketing by creating various ads, social media posts, etc.
Deployment / System Administration
Another critical role for your SaaS product is the system administrator who will be in charge of taking the application from the developer’s hands and putting it somewhere where your customers can see it. And that place where the application lives will have to handle many users at the same time, accessing the website at any time of the day or night.
If you’re lucky, you might find someone who can do both development and deployment. That someone is called a full-stack developer. What that means for your early stages is that you sacrifice a little bit of time but you get to keep some of your money, as one person is not going to cost you as much as three (front-end, back-end, deployment).
You will need at least one salesperson from day one, someone who does some pre-sales before your first version of the product is ready. In a lot of cases this early-stage role is handled by the founder, and that’s preferable because it allows the founder to talk to customers directly and get feedback.
Later on, when you already know a lot about your customers, you can delegate the task to a salesperson or a sales team.
Marketing has to do with understanding the market you’re in and its needs. You’ll want to align your product offering with what the market segment needs. Marketing will help you position your product in a way that will increase your chances of success.
Should You Build SaaS Products Yourself Or Give Away Equity?
Even though I am in favor of hiring other people instead of developing and marketing a product alone, as with everything, there are exceptions to the rule. If the SaaS product is not too complex, you might get away with doing the initial work yourself. And if done right, it could get you to validation and a few paying customers, at which point you could try to get funding and hire people. It sounds easy, but it’s not.
If you chose to do it alone, it doesn’t matter which of the above skills you’re good at, you’re going to have to do a little bit of each.
It’s very common among SaaS startup founders to underestimate the amount of work that goes into the roles they’re not familiar with.
I fell into this trap myself. Back in 2009, I was ready to show the world how it’s done. It was just me and a friend, and we decided we were going to create a grocery delivery startup. And that was all the business plan we had—no plan, basically.
So with sheer determination, a lot of time on our hands and lacking most of the skills I’ve mentioned, we managed to create a working product. But because all we knew was how to build it, that was also the only thing working.
We didn’t know much about business, marketing, or sales, and we didn’t know we needed those skills at the time. That failed startup, the two years of work, and a few thousand dollars we invested, served as a painful lesson.
The excitement you get as a first-time founder makes you feel like you can move mountains. But, the harsh truth is that it’s never easy. Trying to go it all by yourself is a huge effort.
If you’ve never done it before, there is no way you can imagine the complexity of it all. Just ask yourself these questions: Why would there be separate roles if it would be that easy? Why would any company in their right mind hire a sales team? Or a marketing team? Why would so many people talk and write about the complexities of starting a business?
Then ask yourself, why would a person be working eight hours a day doing just marketing, or sales. Why would they need that much work if it were easy?
If you look at the big picture, it’s all about managing resources. On one hand, if you can afford to risk your money by paying someone qualified to do the job, then there’s no point in trying to do it yourself (unless you find pleasure in doing it). If you have the initial capital, you can hire the resources you need and keep all the equity for yourself.
On the other hand, though, if you’re not comfortable with taking that kind of a financial risk, you might need to find more people with the right skills, the right motivation, and the willingness to take some of the equity and share the risk with you.
Finding SaaS Experts Who Will Share The Risk In Return For Equity
I know finding people with the right skills, motivation, and willingness to share the risk is hard, but I’m here to tell you, even that’s not enough. You don’t just need skilled people. You need experts.
Working with startups for the past 10 years has made one thing very clear to me. The people who create value for a startup are the experts who work there. Not the managers, not the juniors, not the cleaning lady, but the experts.
They are the ones who go beyond the status quo. They feel comfortable playing with higher-level concepts and trends, they are the ones capable of discovering new paths and trying new things.
So if you’re going to bring in help, you’re going to need experts.
Experts Are in High Demand
The problem with hiring experts is that everybody wants them. They are in high demand, because there are a lot of startups out there and not that many experts. So you’ll have to go out of your way to convince them to work with you, simply because they get pitched a lot and they always have the fat paycheck option.
To convince an expert to come work with your SaaS startup, you’ll have to give them something a lot more valuable than what they would otherwise get from a fat paycheck. And that something is a piece of the pie.
The piece of the pie, even if it has high risk, also has high value potential. And for someone who has already reached the ceiling of a steady paycheck, that potential value sounds very attractive.
But even if you manage to find the experts, and prove the value potential, there’s still one more piece of the puzzle you need to solve…
Trust Is Not a Given (and Shouldn’t Be)
I get a lot of pitches from founders looking for a technical cofounder for their SaaS products. And while most of these founders have solved the value proposition question, they all base their pitch on trust.
They assume that whoever hears the pitch is going to trust them with their time (and expertise), in exchange for an undefined, high risk, handwavy return on investment.
Requiring a stranger to trust you is silly though, right? They don’t know you. So why would you make that a requirement for a co-founder?
If you can create a system or a contract that removes the need for co-founders to trust you, it’s a lot easier for them to join your startup. This system needs to promote fairness and remove the need for trust.
Trust is not a given. It needs to be earned and that takes time and effort on both parts. You can’t assume trust as part of the relationship from day one, so you need to do everything you can to eliminate the need for it during the onset of the relationship.
Having a system in place that removes the need for trust early on will lower the risk of joining your startup, and offer the safety needed for everyone to do their best work and create value.
Let’s discuss this system in more detail. It’s called the Slicing Pie model.
The Slicing Pie Model: How Much Equity Should You Give Away?
Right about now you’re probably thinking you’re going to give your startup away to someone who will eventually become your boss, and you will end up in the same position you were at your old job. But that’s not what sharing the equity entails.
You are one of the experts. Just like everybody else on the team, your role is to create value with the skills that you have mastered. And the value you create by investing your time in the startup will dictate how much of the pie you will own.
It’s not just about you. Everyone else in the team wants to know what it means to invest their time (or money) in the business.
Everyone expects to get their fair share based on their contributions. The more time (or money) they put in, the bigger the slice of the pie they should get.
I got this formula from the Slicing Pie book and it’s the best equity split model I’ve seen so far. Its goal is to promote fairness among founders and help them focus on what’s important—creating value—without requiring trust right from the onset.
Here’s what the magic formula looks like:
Your % share of the reward = Your % share of what’s at risk
A person’s contribution to the pie gets converted from time or money into pie slices which are a unit of measurement that reflect the adjusted at-risk contributions.
The adjustment refers to the fact that most people (not all), have more time than money, so there is a higher multiplier for cash to incentivize people to contribute money. The suggested cash multiplier is four and the non-cash multiplier is two. A non-cash multiplier would be something like time. So if you contribute time (non-cash), you multiply it by two to get the number of slices.
Here’s what the formula above looks like using slices.
Individual’s Share (%) = Individual’s Slices / Total Slices of all Participants
The number of slices for an hour of work is calculated according to the fair market value, the value they would get if they were to get the same job anywhere else.
So, for example, for a web developer who can get a salary of say $10,000/month ($62.50/hour), the number of slices for one hour of work would be $62.50/hour x 2 (non-cash multiplier) = 125 slices/hour.
And if someone contributes $62.50 in cash, the number of slices he would get would be 250: $62.50 x 4 (cash multiplier) = 250 slices.
And to put that in context, if you contributed 100 slices and your cofounder contributed 900 slices, you would own 10% of the company.
100 / (100 + 900) = 10%
The Slicing Pie model also provides a recovery framework for getting back the slices if someone decides to leave the company, and methods that protect founders from the company.
You Don’t Have To Build Your SaaS Product Alone
Building any kind of business from the ground up is hard work. But you don’t have to do it all by yourself.
In fact, spending your days building your dream should be fun and exciting. So, why not make it easier on yourself by getting help from others who share your dream?
Imagine waking up in the morning excited to get to work, knowing your expert team awaits. Imagine having time for yourself and your family. Imagine living the life you always wanted to live.
Now go find your SaaS product startup team, go find happiness and build your dream business! As for any questions on building a team using equity, please ask away in the comments below.