6 Lessons Learned as the Co-Founder of a €10M SaaS Startup

October 25, 2017 by Marc von Brockdorff Click Here to Read/Write Comments

I’m Marc von Brockdorff , co-founder and Director of Engineering at Hotjar. I have been building online products for the past 15 years and now spend most of my days planning the Hotjar product roadmap, interviewing candidates, and helping our product teams.
We recently reached a big milestone :  €10,000,000 in Annual Recurring Revenue (ARR), just 30 months after launching publicly in April 2015. Here are some things I learned throughout the process.


I’ve been obsessed with the idea of having an online business for a long time.
When I was just 13 and still very naive, I paid $29 to join an MLM program (a pyramid scheme) that promised I would be a millionaire in no time.

When that didn’t work, I moved on to affiliate marketing: I tried to build a script that would automatically generate tons of profit through affiliate websites. Unluckily for me, Google quickly updated their algorithm to ban exactly what I was trying to do to fool it. Making money from Google Adsense was my next try. I knew I needed lots of content, so I created a blog network covered in Google Adsense and hoped to get thousands of bloggers to write on it.

I could go on, but I should probably stop embarrassing myself.
The point is: I was obsessed. I absolutely had to find a way to earn money online.

 

Marc Seekopia.png Seekopia.com - a blog network I created in 2008 with the goal of earning money from Google Adsense.

 

When I discovered the world of SaaS, it was love at first sight. The idea of selling software as a service, charging monthly for a tool built once, seemed incredibly simple and lucrative. No scams, no dependencies on anyone else, it just made sense.

I decided from that point on that I would put all my energy into building the best online software ever, build a massive user base, become financially independent, and live happier ever after.

I wish I could tell you that the first SaaS tool I built was a big success—but it wasn’t. Over the past 15 years, I’ve founded and co-founded several Internet ventures, most of which have failed miserably, and most of which I’m too embarrassed to mention here by name. There’s nothing more demotivating than putting an insane amount of hours into building and promoting a product and then slowly coming to the realization that it’s going nowhere.

Luckily, after the initial disappointment had fizzled out, I realized that each time I failed, I was learning something nothing or nobody else could ever teach you:  real, actionable proof of what works and what doesn’t.

After so many failed attempts, we finally got it right with Hotjar. We recently reached a big milestone—€10,000,000 in Annual Recurring Revenue—which we’re all incredibly proud of. 

I decided to write this article to summarise and share the main lessons I learned throughout my long, and often disappointing, journey to success. If you’re looking for the secrets to success, you won’t find any here. What you will find, however, are a few very basic principles and ideas that can help you transform a great idea into a real business, and avoid the pitfalls I’ve fallen into so many times before.

 

Hotjar MRR.png Our ARR growth since launching Hotjar commercially in April 2015.

 

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In a few of the startups I founded, I tried to build a product not because I truly needed it, but because I thought it was a neat idea and mistakenly assumed there would be a market for it.

Unfortunately, what you will realize early on is that it’s extremely hard to build a product you don’t actually need yourself—it’s possible, but you will only be making it so much harder for yourself to succeed. 

A few years before co-founding Hotjar, I worked on an iPad-based loyalty program for restaurants. While it seemed a great idea on paper, in reality I had no idea what the industry was like and had absolutely no experience working in it

The end result was that we built something we thought worked fantastically without really knowing who the end user would be (we literally had no clue — would it be the waiter? the manager?) and how it would be used. I spent hours in meetings with restaurant managers, trying to convince them to give it a go, not realizing I was fighting a losing battle.

Even though I made the effort to meet many prospective customers face to face, I didn’t really understand who our target market was, and based important product decisions on wrong assumptions.

 

Marc Guestlab GuestLab.com - an iPad-based loyalty program I co-founded a few years before Hotjar.

 

Instead, create a product you will love: you need to be your own customer in your early days, and there’s nothing better than creating a tool that solves a real problem or need you have.

Whilst it's always a good idea to research your market early on and get a better understanding of who will ultimately be using your tool, if it's your own issue you're solving, you'll be much better positioned to build a first version which is closely aligned with what your target market really want. Solving your own problem also makes your vision much stronger - you're building something you truly believe in.

Just prior to Hotjar, our CEO, David Darmanin, worked as a conversion rate optimization consultant and often felt frustrated when he had to use multiple analytics and feedback tools to do his job properly. So with Hotjar, we addressed a real need in a market that was growing; more importantly, we built something we ourselves would have loved to have access to.

 

Hotjar all in one We needed a tool... so we built it.

 

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It can be very tempting to build something just because it’s a seemingly great idea; but in reality, if you intend on eventually having it as your full time job, the idea will need to turn into a viable business. 

I’ve learned that not looking into very basic financial projections and a growth plan early on can be one of the main reasons your idea will later fail as a business.

To help demonstrate this, let’s imagine a scenario.

Say there’s a developer named Jonathan who has had great idea: he loves to bake bread in his spare time and wants to build a SaaS tool for bakers to keep track of how many loaves of bread they are producing and selling. A stock-keeping app specifically made for bakers.

He wants to turn this into a business.

Jonathan’s first step should be to figure out how big his market is. How many bakers exist? Let’s assume he’s done some market research and discovered there are a total of 10,000 bakers around the world: that’s his Total Addressable Market (TAM).

Next, he should figure out how much each baker would realistically be willing to pay for it. Having spoken to a few local tech-savvy bakers, Jonathan finds out that €10 per month for that type of service sounds reasonable to them. Any more than that, and it would not be worth switching from their current manual process to track stock.

With that in mind, Jonathan already has some numbers he can play with. He knows the total addressable market is 10,000 and on average, he believes he can sell the tool for €10 per month. In his best-case scenario, assuming each and every baker in the world would pay for the tool, his startup could be making a Monthly Recurring Revenue (MRR) of €100,000

In reality, though, his target market (the portion of the TAM he will be targeting with marketing or sales) is going to be much lower. For this to work, he will need to target tech-savvy bakers who use Google and Facebook, as that’s where he’s planning to advertise. 

That probably puts his target market down to 1,000: his potential MRR has suddenly shot down to €10,000.

 

Total Addressable Market

 


That sounds good enough, right? In isolation, it should be: €10,000 is a great salary to be making as the owner of a startup. It would definitely be enough for Jonathan to work on it full-time.

However, in reality there are a few more factors he may have forgotten about—and it’s exactly the mistake I’ve made multiple times in the past.


First off:

Each of the 1,000 bakers he needs to turn into a customer will come at a cost. This is his Customer Acquisition Cost (CAC), which is fairly easy to assess if he uses pay per click ads (such as Facebook or Google ads) but much harder if he uses other, more traditional, sales techniques. 

Let’s say he has started to run some Google ads and is managing to acquire a customer for every €40 spent on ads. His CAC is €40. In other words, he’ll need a total of €40,000 to get 1,000 customers. This could be worth it in the long run (if the average lifetime value of his customers is high enough) but the lesson here is: don’t underestimate just how much money you will need to get your startup off the ground.

You may run out of money before your startup is making enough turnover to be financially viable. A great idea is just a start: you will most likely need money to turn that idea into a real business.

Secondly:

In order to support those 1,000 customers to reach €10,000 in MRR, Jonathan will most likely struggle to manage his product all alone. He may need somebody to help him with support. He may need somebody in marketing to help him optimise his Google ads to ensure his CAC doesn't increase.

Suddenly, the €10,000 in MRR doesn’t sound quite high enough, does it?

Later on, Jonathan will also need to start worrying about his Churn Rate—the rate at which his customers stop being customers. If he’s losing customers at a faster rate than he’s acquiring them, his startup cannot grow.

So what do we learn from Jonathan’s experience?

It’s easy to work on a cool idea. 
It’s much harder to turn that idea into a business that can earn you a living.

Early on, you should put a lot of effort into learning all you can about your target market to truly understand who you’re trying to sell to. 

You should also spend time learning about SaaS metrics and the effect they can have on your business (more on this below)

I have made this mistake often in the past, and it was horrible to work on something and then have the realisation that I invested time and energy into an idea that just couldn't have ever become a sustainable business.

 

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If there’s one main lesson I have learned from my experience with Hotjar, it’s this: you can only succeed in the long term if you give your users a product that is incredibly easy to use. You absolutely have to think of your product's user experience as you build it.
Don’t make me think, by Steve Krug, is a great book about this. 

If your users struggle to use your product, you will struggle to grow the business. It's as simple as that. Even if your product offers unique functionality unlike any other, if users find it hard to use, they will look forward to the day they either no longer need it, or to the day they can move to a better alternative. And if they stop using your product after a while, you may find you're not actually making any money: the amount you spent to acquire customers in the first place might just be equal to the amount they paid before leaving you for good.

Having a hard-to-use product can be one of the primary reasons your users churn. Using the previous example of Jonathan’s app for bakers: if his customers paid €10 a month and typically stopped using the product after 4 months, he would get a total of €40 from each customer (that’s their lifetime value).

But if he is spending €40 to acquire them in the first place, then Jonathan is making absolutely no money.

 

churn-diagram-1.png

A high churn rate will slow down or completely destroy growth.


If you really want to build a product with a great experience, there is one challenge you could give yourself: imagine you had absolutely no time or resources to promote your product or support your users. Would that change the way you built your product?

It would.

You would try to build the simplest interface you can and make it as easy as possible to use, to
minimize the amount of support requests you receive.

You would also try to make the experience as rewarding as possible, to encourage your users to promote your product to their network.

That’s the mindset you should have as you build your product: always avoid over-complicating it, and don’t be afraid to say no to a feature request if you feel it negatively impacts the user experience.

One of the best ways you can keep track of how well you’re doing at building a product that your users love is by using Net Promoter Score (NPS). At Hotjar, we use our own tool (Hotjar Polls) to track how our NPS changes over time, and ensure we are dedicating the right amount of resources to improving it: 

 

Hotjar NPS At Hotjar, we use our Polls to keep track of how NPS changes over time.

 


Think of ways to
build a fanbase instead of a user-base. Once you’ve built a tool that is a pleasure to use, you need to get users to understand the journey you’re on through transparency and a feedback-driven product cycle.

With Hotjar, we asked customers for feedback repeatedly from day one. We also
shared our roadmap so they understood we were taking their feedback into consideration and working hard to improve.

As you’re building the product, try to involve your users often and make them feel like you’re listening to their every concern.

Lastly, think about the experience your users will have as they start to use your product. How can you make it as easy as possible for them to start using it? What can you do to help them get started as quickly as possible? 

As you build your homepage and sign-up pages, build a conversion funnel that is optimised for inbound traffic. Somebody who lands on your website should be able to sign-up and start using your tool with absolutely no help from support.

Think about new users :  how will you onboard them? What will empty lists on your app look like? Use every opportunity possible to educate your users and guide them through your tool.

 

Hotjar onboarding Hotjar’s user onboarding helps users get up to speed as quickly as possible.

 

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If having a great product is the first ingredient to success, being customer-centric and caring about your users is definitely the second.

As your product gains traction, it’s very dangerous to think of your support team (or person) as a separate and isolated part of the company who deals with support requests while everyone else gets to do anything they want without ever interacting with users. 

Instead, you need to build a company that truly understands its users and what they’re getting out of the product, every step of the way.

For starters, giving your users an easy way to contact you and give you feedback should be at the very top of your list for your Minimum Viable Product (MVP). Although it sounds simple and obvious, I’ve seen hundreds of new startups launch with no easy way to send feedback or questions—it’s a big missed opportunity.

When you do collect that initial feedback, you should be grateful that your users are taking the time and energy to help, even if it may sound like there’s little they like about the product.

The key here is to track every request you receive, and not necessarily act on each one.

 

Hotjar feature requests We currently have a dedicated page where users can send me feature requests.

 

As a founder, you will need to carefully decide which requests gel well with your vision and which do not. If you’ve decided you won’t work on something, be honest with your users: explain what you’re trying to do and share your vision. We often suggested alternative tools when users requested features that were completely beyond the scope of what we were trying to do.

It’s also critical that everyone working on your product fully understands how your users are using and interacting with it. At Hotjar, everyone in the company (including myself and our CEO) has regular conversations with customers.

 

Hotjar support The number of conversations a few of us (including 4 co-founders)
has had with users over time.



While we do have a dedicated support team—we call them
the Hotjar Heroes!—we always emphasize that every team member should make the effort to get to know our users. Each member of our product team spends a full week every month or so speaking with customers on Intercom (our support tool) and investigating issues they have reported.

The idea is that by speaking directly to customers, our product-focused team members can start to empathise with users and feel more accountable for features and improvements they’re releasing. 

We also recently started doing webinars to give our users some insights into what we’re planning: if you reward your fanbase with ‘behind the scenes’ information about your startup, they will start to feel like they are part of your journey.

Every time you’re working on a new feature or improvement, think of your users: how will this change affect them? Could it make my product much harder to use? 

Ask for feedback multiple times throughout the product development cycle. We love to ask for feedback as we’re about to work on initial wireframes for a feature and again once we've built a fully working prototype. 


As you’re about to actually start working on any given change, you should almost feel like your idea has already been validated by your users. Lean Startup by Eric Ries is a great read about how to build your product with a lean and feedback-driven approach.

Being customer-centric also means that you fully understand the true value your users get out of your product. Ask your users why they love your product to establish what they would be willing to pay for. Knowing this can help you improve your plans and pricing structure and generate more income down the line.

I do have one important disclaimer: Don't try to create a product that pleases everyone.

Not every user who tries your product is the perfect match. Your goal should not be to create a product that pleases everyone. Your goal should be to create a best-in-class product for the users who are the right match. By understanding who is requesting which features, you’ll slowly start to understand who your target market really is and begin to shape the product’s future.

 

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As a founder of multiple projects
and a developer, I’ve always loved building products. Nothing excites me more than building a tool and seeing users happily use it. All of Hotjar’s founders are “makers” - we’ve all loved building products since our early teens. 

What I recently learned is that building the product is the easy part: the moment your startup begins to gain traction, that’s when the real work begins.

At a very minimum, you should do all you can to learn about the basic SaaS metrics: MRR (Monthly Recurring Revenue), ARR (Annual Recurring Revenue), Churn, CAC (Customer Acquisition Cost), LTV (Lifetime Value), ARPA (Average Revenue Per Account), NPS (Net Promoter Score), and CSAT (Customer Satisfaction Score). Start planning early on how to track them and ensure you have a weekly or monthly reminder to monitor and act on any worrying trends. At Hotjar, we use ChartMogul

Here are some resources I found useful to learn more about metrics: SaaS Metrics 2.0 – A Guide to Measuring and Improving what Matters, 16 Startup Metrics and The Ultimate SaaS Metrics Cheat Sheet.

Take the time to read up on other SaaS startups, read blogs, listen to podcasts, and start speaking to others who have already built startups and achieved success. I would highly recommend reading both Rework by 37Signals and Lean Startup by Eric Ries.

Those are two books that challenged my perception of working in startups.

Building a network will quickly become one of your most important roles as a founder. It might not be easy, especially if it’s something you don’t particularly enjoy doing. However, and trust me on this one, make the effort to meet other people who are doing similar things—you never know when somebody you networked with ages ago will introduce you to your next key hire, an interested investor or better yet, a potential buyer (if that is what you’re aiming for).

If you’re a founder of a successful startup, don’t be surprised if your own job description changes several times. As we started to gain traction at Hotjar, it became apparent that the only way we were going to succeed was if we started to build out a strong development team. We needed more dev resources to build out all the functionality we had planned and simultaneously solve all the issues we had: so I decided to stop coding completely and switched my focus entirely to recruitment.

It was one of the hardest but best decisions I’ve ever taken. Hard because it was the first time in around 14 years that I was in a job which did not involve coding. And best because it allowed me to learn so much more and truly start thinking like a startup owner.

 

Hotjar dev team The Hotjar dev team, taken in June 2017 at a company retreat in Marbella.

 

As your startup becomes more successful, you will inevitably have to change your mindset from a “maker” into an “entrepreneur”. You may need to step out of your comfort zone and learn skills you’ve never had or never been comfortable doing before—for example, start thinking about how to build a team and how to create the processes needed to get that team working well together.

Only once you make the transition can you really call yourself an entrepreneur: you’re no longer thinking about daily tactics, you’re thinking about long-term strategy now.

It shouldn’t stop there. 

Once you’ve hired the team, start working on making yourself redundant. As your startup grows, the natural path is for the founders to become bottlenecks. They may be the only ones who can perform certain tasks and hinder the rate of progress each time they’re unavailable or too busy (which will happen very often). 

You can no longer be a bottleneck—hire and train people to do your job. Stop thinking that you’re the best person for the job. I can guarantee that if you look hard enough, you will always find somebody you can delegate your work to who will do an even better job.

Your role, as your startup grows, is to lead your team according to your vision, but not necessarily do the work yourself.

 

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Almost from day one, the culture in your company is already set: as a founder, you will build your company culture on your own values, personality and ambitions.

You’ll be amazed to see that as your startup grows and you start to hire, the way you act as a founder will have a very direct impact on how others work and behave. It will also have a huge impact on who you recruit and who naturally feels attracted to the idea of working at your startup.

Company culture is incredibly important because it sets the tone for all future hires and can make your startup one of the best—or worst places—to work at.

When we talk about culture, we’re not just talking about how “fun” your startup is to work at. On the contrary, culture refers to a set of values the founders truly believe in.

For example, 

transparency: being completely open with each other;
- hunger for knowledge: having the desire to learn more and take on more challenges;
- feedback-driven: completely receptive to asking for and responding to feedback.

You should think about the way you want to run your startup early on. Remember: if you set the wrong values and habits early on, it might be hard to get rid of them later.
For example, if you like to micro-manage and have a hard time delegating ownership, you may find that your first few hires will inherit those traits and have the same issues once they themselves start to manage others.

 

Culture at Hotjar Here’s how we define culture at Hotjar on our careers website.

 

With Hotjar, we knew that creating the best product would only be possible if we had the right people who truly fit with our company culture.

I’ve spoken to many successful founders and there’s always something they have in common: they always make sure they assess culture fit when hiring. It’s a big mistake to simply look at somebody’s skills and work experience. Remember that culture sustains employee enthusiasm, so getting the wrong people onboard will most likely negatively affect morale and increase employee turnover.

We take culture fit extremely seriously at Hotjar. Our recruitment process is optimised to ensure we can quickly identify candidates who truly match our values and vision: 

 

Our five-stage recruitment process Our five-stage recruitment process.

 


When assessing culture fit for a candidate, we look at two different areas:

  1. Their personality.
    There’s a simple test we like to use. We ask ourselves this question: if we were going for a coffee break with somebody, would we want it to be with this person? Or would it feel awkward or unpleasant?
    It’s a simple question but one that reveals whether that person is somebody who will bring a positive, open and fun attitude to your startup.

  2. Their mindset.
    We look for people with a growth mindset: somebody who is ambitious, loves to learn, and believes their best is yet to come. We always avoid people who are unwilling to learn or change habits.

Ultimately, I’ve learned that it’s essential to go with your gut. If you have a small suspicion that somebody isn’t the right person for your startup, it’s not worth the risk. It’s much easier to say yes — but yes isn’t going to give you the dream team that can help your startup move forward.

As a founder, it’s your job to ensure that everyone hired truly understands and believes in your vision and long-term goals.

Having the right company culture is not just about what your team members do during working hours: it’s also about having the right work-life balance.

At Hotjar, we encourage every team member to use our cash bonuses on fun activities with their family and friends. We know the importance of a healthy work-life balance and believe it’s important that all our team members have enough time to enjoy their loved ones.

Always remember that the people you hire are your biggest asset — your objective should be to give them the best job they’ve ever had, and in turn, make your startup a truly appealing place everyone aspires to work for.

 



Final thoughts:

If you’re thinking of working on an idea you’ve had and turning it into a business, remember that the only way you’re guaranteed failure is if you don’t try at all.

There’s very little more rewarding than transforming a passion into a real business. Being a founder of a financially stable startup was at the top of my bucket list for years and I feel incredibly lucky to be able to finally tick it off.

Hotjar is a culmination of years of trying and failing to build a successful product.

I highly encourage you to do the same: if you have an idea and a passion, don’t stop trying to succeed. It might not happen the first or the second time, but eventually, you will tick all the right boxes and find success.

Enjoy the journey ahead: it’s long and treacherous, but incredibly rewarding.

Want to connect with me? Find me on LinkedIn: I’d love to chat!

Marc von Brockdorff

Co-Founder and Director of Engineering at Hotjar. My goal at Hotjar is to plan and execute our product roadmap by building and managing a team of highly skilled engineers and designers.

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