I gave this talk at Blue Water Startup School in September 2017. It is a high level overview of what it is like to start a software company in 2017 and where to focus your time, energy and money. Credit to my co-founder, David Corcoran, for the original talk from which I derived this content.

1. Launching A Startup In 2017
A Founder’s Pocket Guide
Brian Kelly + David Corcoran
Third Rail Group
September 30, 2017
#BWstartupschool www.thirdrail.co

2. Brian Kelly – B2B SaaS Product Guy
[new startup!]
www.thirdrail.co
2006 2010 2012 2015 2017
@resetbrian
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3. 20Years Ago
• Plan in months
• Launch in years
• Data centers, hardware
• Sales-drive, outside sales
• Lots of travel
• Large staff, co-located
Today
• Plan in weeks
• Launch in months
• AWS / GCP / Azure
• Buyer-driven, inside sales
• Web meetings
• Smaller, distributed teams
We have come a long way in twenty years
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4. Instagram had a productive couple of years
• Launched in 2010
• Grew to 13 employees
• $60M total investment
• 30M users
• $1B acquisition by Facebook in 2012
“A startup’s success
rate is a function by
the number of
experiments they run.”
—@paulsingh (I think)
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5. Cloud-managed Wi-Fi pays off for Meraki
• Launched in 2006 (out of MIT Roofnet)
• Grew to 330 employees
• $80M total investment
• $1.2B acquisition by Cisco in 2012
• 15K customers in 2012, 140K in 2017
https://venturebeat.com/2013/09/…
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6. Mass disruption happens through a few mega trends
Mega trends
• AI/ML: data insights/decisions
• Devices and screens everywhere
• We own nothing, can access everything
• Everything is tracked and personalized
• Mass scale collaboration
• More human, human interface devices
The Inevitable: Kevin Kelly (2016)
Hot industries
• Mobility/Transportation
• Cybersecurity
• Manufacturing-Tech
• Digital Health
• Wearables
• Consumer IoT / Smart Home
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7. Passion projects & side gigs kick start companies
• Rare:“Let’s start a company!” followed by brainstorming…
• Many great companies start as a passion project
• Side gig ends up paying better than full-time gig.
• Entrepreneurs don’t realize they’ve found their company until
they are well underway.
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[new startup!]www.thirdrail.co

8. SaaS software startups can take a few paths
Late Exit or IPO
Founders
Sweat Equity
Initial Funding
MarketValidation
$250k-$1M Angel $2M-$5M Series A Early Exit or
VC raise:
$10M+
Our focus for today:The first 18 months
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9. What is your exit strategy?
• Be prepared to answer the investor question.
• Lifestyle company
• Long-term income generating company
• Angel or bootstrapped Early exit
• VC funded larger exit
• IPO
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10. When is the right time to sell?
It’s a confluence of…
• Goals of founders, board, investors
• Maximizing business potential
• Multiple offers are available
• Competitive influences
• Market growth trajectory
i.e. Right place, right time
Early Exit
• Usually inYears 3-5
• 3-5x return on Angel Money
• <$30M valuation
VC-Backed Exit
• Looking for 10x-30x returns
• Can add many more years
Early Exits: Basil Peters
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11. How to select your market
• You’re beachhead market is the first market you will attempt to
dominate. Focus! You must find a narrow wedge to start.
• Three Conditions to look for:
1. The customers in the market all buy similar products
2. The customers in the market all have the same sales cycle
3. There is word of mouth between customers in the market
Disciplined Entrepreneurship: Bill Aulet (2013)
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12. The MinimallyViable Product (MVP)
Validate that your customers actually want this product
so much that they are willing to pay for it.
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Dan Olsen:The Lean Product Playbook

13. How to properly scope a MVP
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14. Think like your customers
Image: Samuel Hulick: useronboard.com
Quote: Pragmatic Marketing
Instead of thinking about features and
benefits – think about how you’re
customer is solving problems.
“Focus on one or two critical benefits your
product delivers and no other can match”
For {Target Customer},
{Brand} is the {Category}
that delivers {Key Benefit} with
{Key Points of Difference}
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15. Create a great go-to-market strategy
How do you penetrate a market?
• Dominate a niche market? farmersonly.com
• Cannibalize status quo business model? gusto.com
How will you acquire customers?
• Sales: Retail, wholesale, dealer, broker, sales reps, strategic partners,VAR’s,
distributors, agents.
• Demand Generation: pay-per-click, events, PR, retargeting, organic (content)
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16. Understand your competition
• Don’t be ignorant – investors and customers will expect you to position
yourself versus competitors
But don’t obsess over it
• Don’t let your competition drive your roadmap
• Don’t let competition create fear to enter a market
• Believe in your ability to out-innovate and faster
• Communicate (and partner!) with your competitors
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17. Plan a budget and monitor cash flows
• Investors want to see 3 years+ projections
• Projections are always wrong : )
• Nice Goal: $100K ARR within 6 months after launch
• Payroll, Marketing & Sales are highest expenses
• Don’t underestimate your legal costs
• Accumulated losses + buffer should reflect your raise
• Plan for success – be prepared for failure.
• Track your cash flows minimally weekly.
• Don’t miss payroll… And if you do, be transparent.
Year 1 Year 2 Year 3
Product Revenue $245,740 $1,184,412 $3,615,905
Total Revenue $245,740 $1,184,412 $3,615,905
Cost of Goods $20,285 $257,641 $1,093,342
Total Cost of Goods $20,285 $257,641 $1,093,342
Marketing & Sales
Commissions $8,040 $34,266 $85,979
Marketing $45,500 $66,000 $102,000
Total Marketing & Sales $53,540 $100,266 $187,979
General and Administrative
Payroll $242,083 $702,945 $1,282,216
Payroll Taxes/Benefits $36,647 $112,315 $211,957
Facilities/Equipment $8,640 $14,640 $72,480
Maintenance $- $1,200 $2,500
Utilities/Phone $- $1,200 $4,800
Insurance $6,000 $18,000 $32,400
Supplies $3,600 $3,600 $6,000
Travel/Entertainment $21,000 $48,000 $96,000
Legal/Accounting $22,000 $31,000 $45,000
Other Services $79,000 $81,000 $84,000
Total General and
Administrative $418,970 $1,013,900 $1,837,353
Profit before Income Tax $(247,055) $(187,395) $497,231
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18. How the team typically builds out
• Founders DreamTeam: Hipster, Hacker,
Hustler
• Hustler: Sales, Business Development
• Hipster: UI/UX, Creative Director
• Hacker: Software R&D
• More Developers
• Dedicated Quality Assurance
• Dedicated DevOps
• Product Management
This team will
perform all
duties until
measurable
success in
financing or
product sales
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• Marketing
• Sales (Preferably someone hands on
that can grow into the lead)
• Outside
• Inside
• Customer Success & Support
• C-suite management

19. What if I cannot write software myself ?
• Find someone who can and make them your technical co-
founder. Pay them with equity in the company.
• Pay a team. Depending on the scope of your MVP expect
this to cost $50k-$150k. More than that? It’s not an MVP.
• Pay someone. This could be an individual that “moonlights”
on the side as long as you have strong product management
experience. You’ll save money but it’s not turnkey.
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20. You won’t change what you don’t measure. #truecliche
• Having a North Star to indicate performance and health is extremely important
• OMTM – One MetricThat Matters, e.g. MAUs, five figure deals booked, new ARR
• Pick a few Key Performance Indicators (KPIs) to track.
They must be simple to track and objective.
Examples
• Monthly Recurring Revenue (MRR)
• Average Revenue per Customer
• Cost per Acquisition
• Customer LifetimeValue
• Churn (Gross and Net – they tell different stories!)
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21. What Angel investors are looking for 💸 💸 💸
• Most important: Founders are trustworthy and committed
• Product needs to be a must-have, not a nice-to-have. (AKA urgency to buy)
• Total addressable market must be sufficiently large.
• SaaS revenue model and a renewal rate of > 90%
• Realistic valuation and terms
* Bill Godfrey: Angel Investor / Founder of Aprimo
David Corcoran says… There’s a lot of liquidity out there. There’s lots of money chasing very few
good deals. Pick your investors wisely.
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22. Thanks. Onward!
Brian Kelly + David Corcoran
Third Rail Group
September 30, 2017
#BWstartupschool www.thirdrail.co
@resetbrian
bk@thirdrail.co

23. Appendix

24. There’s so much noise out there
Example: CRM Software
511 Products !
237 Ranked 4 stars and up
Yikes.
Messaging/Positioning is EverythingThese Days. Spend considerable time here and
think benefits not features and make it uniform across your product, collateral, pitches, and
online marketing.
Image: Capterra
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25. What about ownership ?
• Founders can start with 100% ownership or they can accrue over time especially if
multiple founders are in the mix. (The non-involved founder …)
• Reward your earliest employees and key management heavily
• Employee option pool: 10-20% is norm and required for the best talent.
• Depending on the stage:
• 10%+ co-founders
• 1-5% for strategic hires (Example: Marketing manager: $77k, 1-2.4% equity *)
• < 1% early non-strategic hires.
• Model out dilution and valuations
• Be aware of preferences in preferred stock
* angel.co: midwest salary/comps
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26. Modeling Ownership: Example CAP Table
Notable items
• Pre-Money + Raise = Post MoneyValuation of the Company
• Higher risk in the seed and pre-seed rounds means lower valuations
• Founder gives up majority interest after Series A which is not uncommon
• Once you have a valuation you can show how the “values” are part of a compensation package
• Late stage investors tend to make out well which is why private equity keeps moving up the value chain
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27. What’s my company worth?
Generally your company is worth what someone is willing to give you for it. However
there are some things that help provide ”bookends” to the valuation:
• Revenue: 3x-10x depending on industry
• Comparables
• Intellectual property
• Brand recognition
• Customer base
• Others …
• Minus debts/liens
AngelList: closed startup deals post-2010
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28. Pick Great Investors and Communicate
• Pick the right investors – not just money but strategic.
• Always tell the truth – chances are they’ve been there.
• Disclose everything pertinent to the investors.
• Have a plan for recourse when you don’t meet projections.
• Monthly report via email KPIs and high points – 60 second read.
• Have quarterly board meetings/presentations.
• Ask for guidance/support – they are there to help you.
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