Losing Sleep? Hiring Has Officially Replaced Cash as a Key Reason Startup Founders Are Up at Night

As part of our last three annual finance and operating benchmarks surveys, we’ve asked nearly 2,000 startup founders and leaders of B2B SaaS businesses this simple question:

“What’s keeping you up at night?”

It’s one of my favorite questions, even though it’s really not a financial or operating metric at all. 

This data point isn’t like our typical benchmarks. There’s no way to take it and see where you stack up with your peers to improve next year. However, there are a few great things about it:

  1. It’s disarming. There’s no need to look up answers by checking your budget or running a lookup in your BI tool. It’s simply about which areas startup founders feel like they may be coming up short, not doing enough, or missing the mark.
  2. It’s human. Founding or running a company can be extremely isolating a la the often covered trope “it’s lonely at the top.” But after a few years of asking this question, it’s clear that founders’ concerns have a lot of commonalities and are largely consistent. Data shows that founders are often kept up by the same key topics and are far from alone.
  3. Selfishly, it’s revealing. The question could be interpreted as what are you anxious about? What do you feel like you don’t have control over? As a VC that works to partner closely with founders on their key challenges, it can provide a wealth of knowledge on where we should be prepared to assist and, ultimately, help them get some sleep.

And so, what’s keeping founders up, and how is it changing, if at all?

Startup founders are seeing hiring become their day jobs 

In 2021, 42% of founders were kept up at night by concerns about hiring the best talent. Despite the shift to remote work, the great resignation, and the insane amount of hiring that is occurring, it still surprised us to see hiring becoming such a focus. Over the last three years, only product and GTM execution crossed the 40% mark. What was even more surprising was how hiring fast enough more than doubled as a reason for losing sleep.

What cannot be understated is how challenging hiring can be these days. This is largely driven by an imbalance in supply and demand.

  • Software companies are hiring significantly more than ever before. The market need for SaaS products has exploded and investment in SaaS companies has accelerated, requiring more talent to grow and scale.
  • That talent pool has not kept pace. The number of qualified individuals with the experience required to fill key positions cannot meet the demand. 

If you’re finding talent keeping you up at night, there are a few things to keep in mind:

  • You’re worried about the right thing. By focusing on hiring, all of the other potential concerns on the chart can be quelled. Fundraising and burning too much cash can be alleviated by an experienced CFO. Competitive pressures and changing customer needs can be captured by a great marketing or product marketing lead. And the primary burden of your product and GTM execution can fall on an effective technical leader and proven sales executive. Hire for these key positions and your other anxieties may be reduced.
  • Sell candidates the same way you sold your first customers and investors. Simply having a good business and vision isn’t enough to win over candidates. While the motion is slightly different, the genuine excitement that helped you make your first sale or close your first round should be leveraged in selling candidates as well.
  • Accelerate hiring of internal recruiters. We’ve been seeing that external recruiters have 30 to 60+ day waits to get started on a search. You may want to consider investing in an internal recruiting function earlier than you originally anticipated. 

Cash is no longer a top concern

When I was on the operating side, strategic initiatives in 2019 and 2020 were all about “cash flow break-even”. Every department was tasked with identifying areas they could cut spending. Stipends were made available to any employees that could identify cost-saving opportunities, and any requests for incremental spend–even if they might help drive long-term growth–were heavily scrutinized. 

The justification for this made sense. Trading multiples were showing a clear tie to the rule of 40 and companies that could show positive cash flows (re: Zoom), or at least a pathway to break even, were rewarded by Wall Street. However, in 2021 the rule of 40 died and we’re beginning to see growth drive valuations more than anything else:

“For publicly traded companies that are growing 50% or faster, median valuation multiples have increased by an incredible 649% between 2015 and August 2021. Those growing by 10 to 30%, by comparison, have only seen multiples increase by 102% over that time period.” – Kyle Poyar, Operating Partner at OpenView

This shift has at least temporarily quelled founders’ anxieties about burning too much cash–evidenced by a 50% decrease in founders citing this as a key driver of lost sleep.

While we’re glad this isn’t keeping as many folks up at night and growth is undoubtedly the metric driving valuations, it’s important to not lose sight of cash in both the short and long term:

  • As you scale, cash flows will drive your valuation. Of course, when you’re running a private company in a large market the aim is for you to grow fast and burn money to create value for customers. However, the present value of future cash flows (calculated in a discounted cash flow analysis) is ultimately what any business is intrinsically worth. Understanding unit economics early is critical to setting yourself up for success long term.
  • Eventually, investors will fall in love with cash again. Growth is king in 2021 and likely will be again in 2022. However, the pendulum will swing back at some point. This doesn’t mean it should keep you up at night this week, but it’s important to have a clear line of sight to cash flow break-even and a solid understanding of what costs could be cut relatively quickly. Which areas could we cut spending tomorrow if we needed to? What value would we get on a sublease of our office space?

Product and go-to-market continue to steal the most sleep

Go-to-market (GTM) execution remains the top concern for startup founders in 2021, cementing its position over product execution (2019’s top concern). This aligns closely with how important growth has become. According to the 2021 benchmarks, achieving top quartile growth for businesses under $2.5M requires growing at 300% (up approximately 150 percentage points from the prior year). 

start up founders product and gtm

GTM continues to be less and less straightforward. Hiring a traditional outbound sales team to target CIOs used to be the norm for B2B sales. Today, going to market is often multifaceted and requires developing technical and commercial partnerships, selling through cloud marketplaces, and leveraging your product for growth. Additionally, revenue itself is increasingly complicated as companies continue to have success with alternative modes of monetization (e.g. implementing fintech services, developing marketplaces, and leveraging usage-based pricing).

To get some sleep, startup founders need to make sure they’re thinking of the big picture. Landing that next whale account might have the biggest impact on your metrics this quarter. However, getting too involved in selling is aligned with catching your company a fish, not teaching them how to fish. Instead, put that energy towards finding a great CRO, focusing on the entire GTM strategy, or contemplating the next big product bet. That work scales, but a founder that closes every deal doesn’t. 

Will these concerns go away as I grow?

The simple answer here is, unfortunately, no. 

Fundraising is the only concern that wanes after revenue grows and startups complete their series A. Go-to-market execution and product execution are consistently cited by founders as their top concerns regardless of their stage. 

The best answer to lessening these concerns is to focus on building a great team early.  This team in turn can be trusted to execute on growth, product, hiring, etc. and therefore minimize the number of focus areas founders need to worry about as the company scales. 

Finally, make sure that where you’re spending your time is not just aligned with where the business’s weaknesses might be. It also needs to be aligned with where your strengths are. Trying to solve problems that you might not be equipped to solve often drives the answers to what’s keeping founders up at night. When the next big challenge arises, avoid the temptation of immediately running into that fire without the right team and experts behind you.

If you want to know more about the talent, the top reason startup founders are up at night, stay tuned for our first State of SaaS Talent report coming out this spring. 

Curt Townshend
Curt Townshend
Senior Director, Growth

Curt is a Senior Director at OpenView focused on helping companies accelerate their top-line growth through segmentation, value proposition, packaging & pricing, customer insights, new market entry and go-to-market strategy.
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