eFounders Letter #1: DNA of a Startup Studio

[You’re reading an old post that was originally published on eFounders blog on Sept. 5, 2013 — it is no longer online. As a I will keep on posting one letter each year, I want to give you the opportunity to go back in time and see the evolution of our model, as I am convinced that sharing our experience can truly be useful to the ecosystem. Happy reading]

We started to build eFounders a little more than two and a half years ago and we thought it was a good time now to revamp our website, launch a new blog, and write our first official “eFounders Letter.” In other words, to give eFounders a real voice. During these two years we’ve been obsessed with building great SaaS companies (Mailjet, Textmaster, mention, Pressking), taking them from ideas to fast growing businesses. And now we’d like to share with you, the amazing SaaS community, what we’ve learned along the way.

What you’re reading now is the first of our “eFounders Letters” which we plan to write every 6 months or so and whose aim is to share, in detail, what we’ve learned building SaaS companies, what we think is the state of the art in the SaaS market, and what our vision is for the months to come.

This first letter is a bit special since we wanted to begin by shedding some light on our story as a SaaS Startup Studio and to share the lessons we’ve learned while trying to build an innovative model in the SaaS ecosystem. Please if you have any questions, comments, or just want to get in touch with us, don’t hesitate to drop us a message on Twitter or directly by email (contact @ efounders.co).

Creating a Startup Studio like eFounders is exactly like creating a startup: we have to learn everything along the way and to go through the mvp / validation / growth / scaling cycle. Here is our story and what we’ve learned during the last two and a half years.

The birth of eFounders: a Startup Studio by builders for builders

Looking back at the last two and a half years, creating a new breed of company like eFounders was not an easy task and in such a short amount of time we had to overcome many problems. But we also had a lot of success and learned a lot along the way. The ride was crazy but definitely worth it.

The idea of eFounders emerged in 2010, when I first met Quentin Nickmans, my now partner in crime. I was looking for a new way to keep investing in early stage ventures, while at the same time trying to stay involved in their daily operations. I was too much an entrepreneur and not enough of a pure investor not to feel frustrated by only financing projects. Having sold his company, Quentin also had the same feeling, and both of us were very attached to a hands-on approach which traditional investing simply does not allow.

Having this common desire, it was clear from the start that we didn’t want to launch another accelerator or incubator and that these models, which are great, just didn’t fit our philosophy and our vision. We knew that we had to iterate over these concepts and create a structure that would look like us, would reflect our views, and would allow us to: 1) take our business ideas, 2) find great people to start building companies out of them, and 3) help them by providing initial funding and our expertise and networks. The very definition of a Startup Studio.

We, of course, didn’t invent the concept of a Startup Studio. The idea of launching companies from internal ideas by building teams around them and giving these teams access to various pooled resources has existed for awhile, and in many different varieties. Our approach, however, was fundamentally different from firms like Rocket Internet in the way that we wanted to focus on both innovation and on human aspects. Every time we have a new business idea we love to explore all new product, pricing, and distribution approaches, and we also know that the individual and group teams are then crucial to their success.

IdeaLab, and more recently Betaworks, had also explored this model of “Company Builders” and we were really impressed by what they had achieved, as well as by their vision. Once again, however, we didn’t completely relate to their overall models because they not only start projects but also invest in a lot of external ideas. Investing is a big component of their DNA. We didn’t want to invest in external projects at all. We really wanted to focus our efforts on building and not investing. We wanted eFounders to be an innovative Startup Studio created by builders for builders.

The second thing we were sure of was that we wanted to narrow our focus on the SaaS industry, at least for the first couple of years. For three main reasons. First, because we really believe in the Fortune 5 Million SaaS market which is in a very good position between the volume of B2C and the clear business models (subscription, prepaid…) of B2B. Second, because we had experience in B2B (Fotolia has more than 3M pro customers), a big network, and we already knew what businesses needed in terms of great software because we ourselves were our first customers! Third, in our opinion the SaaS industry is just a fantastic industry to pool resources in, and we could greatly benefit from sharing design, marketing, distribution, sales, HR, PR… resources across all of our projects.

We had a clear vision, even if we didn’t have all the details, and we were thrilled to start. But nobody gave us the step by step manual to build such a company. All we could do was to start building it and try to validate our assumptions:

1. Our experience as entrepreneurs would help the teams avoid the common pitfalls of early stage ventures.
2. Our product and design oriented culture would make a huge difference in the software industry.
3. By sharing resources (design, marketing, HR) across projects we could help new ventures to take off.
4. Pooling resources in the SaaS industry makes a lot of sense.
5. Raising money, if needed for each project, would be easier (same process, trust with investors…).
6. Gaining visibility for our projects would also be easier with time (eFounders would become a brand, building trust with journalists, a proven track record…)
7. Providing all these advantages would enable us to attract “A” players more easily.

Now it was time to start cracking the code…

Step 2, eFounders’ MVP: from the first ideas to the first successes and failures

At the very beginning, as we spoke to our network about eFounders, people were really fans of the concept but most of them were doubtful of two aspects: first, our capacity to find good ideas, and second, the ability of our hired co-founders to assume ownership of their projects.

The ideas weren’t really a problem for us. We actually had ideas stored up for years to come. Like most entrepreneurs we understand that an idea is nothing without an outstanding execution, the hard part for us was to know which ones to start with.

After talking to and meeting with a lot of people, we finally started with two very different projects. One addressing the needs of public relations for SMEs, Pressking, and the other, a very ambitious and innovative cloud emailing platform called Mailjet. The two projects were really different and we learned a lot during the first first months from building both the teams, creating the first MVPs, and finally going to the real world by acquiring our first customers and looking for traction. The early days at eFounders were both incredibly exciting and challenging as we were literally learning our Startup Studio job by doing it!

What made this “MVP” stage so special was that we were building everything from scratch: not only the projects themselves but also our Startup Studio structure! We didn’t start with a full team dedicated to our projects, but instead chose to focus first on growing them ourselves, analyzing the way that resources made the most sense to be shared, finding where the main bottlenecks in our processes were along the way. And boy we learned a lot:

First, we were real cofounders of our projects and as we’re very “hands-on guys” we were spending a lot of time working on them. We realized early on that we’d never be able to manage many projects at the same time without a dedicated team at the eFounders’ level. We decided to start mutualizing design, accounting, and Google customer acquisition as we spotted quickly that these three needs were not only critical at an early stage (to speed up product building and let the projects’ teams focus on what they were good at), but also because they were perfect for being shared across projects (designers, SEM people, and accountants will never complain on having several exciting projects to work on).

There was great news in the first few months as the results we got by mutualizing these three resources came in. The results were amazing. For example: for design, it made it possible to craft high quality products for much less money and time than if we’d worked with a freelance designer. Pooling these resources at our Startup Studio level was key, and we decided that we could make the best of everything across the board by sharing as many things as possible to help emerging projects take off faster.

The second main lesson we learned was about hiring teams for our projects. Hiring a good team was obviously not as easy as we thought. The problem is not so much about finding people, but about finding the right people. Our assumption was that we first needed to hire a CTO and a CEO for each project, both of them would be part of the co-founding team with Quentin and I. It took us some time and some failures to really understand that the Startup Studio model was not made for everybody. If on paper it sounds great for somebody to start a project by not being alone, having experienced entrepreneurs with them, and various available resources by default, it actually doesn’t fit every profile.

For example, the CEO must be more of a “builder” than a “starter.” i.e., they must have a business profile with very good management skills and at the same time be very “product driven” during the first months to a year because it’s critical at this stage. In a Startup Studio model like eFounders with very hands-on co-founders like us it can be very difficult for a “starter” profile to fit in the project and not to feel frustrated.

The CTO must be a doer. They need to be high profile enough to handle the growth of an ambitious project in the future and at the same time have that “get shit done” kind of attitude, seeing as they’re in charge of putting together the first versions of the product. This kind of profile is not easy to find either.

We learned a lot about building complementary founding teams for eFounders’ projects, even if that meant making some clear mistakes at first. In the end, the important thing was that we were all aligned with the goal of building seriously ambitious companies. So, for all the initial doubts of our friends concerning our ability to hire co-founders that would assume ownership of their projects, it ended up not really being much of a concern. After two weeks, they all felt like more of founders than even us :-)

The last main lesson we wanted to share with you concerning this “MVP” stage has to do with learning the importance of pooled resources. Even if we saw the benefits and advantages of sharing resources across all our projects during the development of the eFounders model, those first few months we also noticed that it’s really important for each project to stay independent. We realized that each project and team must have their own DNA. A company’s culture is an important asset and is very often the key to attracting new talents.

The aim of eFounders is not to develop every project internally for its entire life. The aim of eFounders is to kickstart projects and to provide them with everything they’ll need at the beginning so that they can take off fast and don’t fall into the common pitfalls of other early stage ventures. It’s equally important for us to make sure that our companies don’t stay too dependent on mutualized resources, but build their own internal teams.

These first few months were intense and we grew to understand a lot about the model we wanted to build and the limitations that we faced. Meanwhile, though, our projects continued to grow a lot. This growth happened alongside eFounders as a whole, as well, and so during this crazy time as we were building everything from scratch, after a little bit more than a year it was time to structure more of our efforts: eFounders was entering its teenage phase.

Step 3, the validation stage: structuring eFounders

After the “MVP” stage came the validation stage. During the first year a lot of things happened both at eFounders and for our first projects which really began to take off after a couple of months. Pressking was developing its product which would eventually be split into two companies a year later (2012, with the birth of mention.net), Mailjet was starting to emerge as a champion in its category and we had just launched Textmaster which soon would be revealed as a very promising business.

After having gone through the MVP and product/market fit steps, the challenge for our first projects was now to structure themselves in order to handle growth and become real independent companies. For example, Mailjet started to grow their team internationally, hiring talent in the US and Europe (Germany, England, Spain…), raised $3.3M with European investors in 2012, and grew its revenue every single month. As they had more internal resources the support they needed from us also shifted. We acted less on the product itself but continued to help them structure and scale a young company into a real strong business.

Now that our first projects started to find their way and become more independent, eFounders needed to evolve, as well, and with Quentin we were well aware that we had to start changing gears. Now that we had our proof of concept, our next focus was to organize efficiently the pooled resources we’d accumulated, again detecting the main bottlenecks in our current model, and to automate and ease some processes so that we could continue to launch new projects.

Clearly, the first logical step was to hire top talent alongside us and to beef up the eFounders partners team, which we did with Matthieu Vaxelaire (Business) and Didier Forest (Design), who joined us in 2012. The plan was to have Matthieu working closely with us on every business aspect: sourcing new projects, looking for innovative approaches to product, business model, and distribution matters, and Didier bringing his artistic touch to our future product vision. Later we decided to go a step further by recruiting more specialized profiles who could focus on particular areas (inbound marketing, admin…) and help new and existing eFounders’ projects. As I said earlier, eFounders is like a startup itself, and we’re building the team as we speak.

The second challenge we wanted to tackle right away was the CEO in residence one. In order to be better at finding good CEOs for our projects we tried to rationalize the hiring process by defining more precisely the profile we were looking for: someone very analytical because more than anywhere else, SaaS businesses are KPIs driven (LTV, MRR, CAC are keys to drive a company), someone very product driven, because we are not selling insurance or financial services, someone who loves the web ecosystem and the software industry, and last but not least an evangelist who can share their enthusiasm with everyone connected to the project (team, clients, media, investors).

Later we realized that it was pretty hard to assess the quality of a good CEO during a job interview and, going further, that even a CEO might not be required at all during the MVP stage of our internal projects as we could assume this role ourselves. We decided then to hire the CEO later in the process (after an internal project has shown its first sign of traction) and we created the concept of FIR: Founder In Residence, a new job position in our Startup Studio structure.

The aim of an FIR is to become the CEO and co-founder of one of our projects a few month after his arrival. Meanwhile he has to work for all the current eFounders’ projects on various challenges that validate the fact that he fits the role, and that he has what it takes to become an outstanding CEO. Like a lot of things we do at eFounders, we’re currently putting this FIR system to the test, treating it like an ongoing experiment to try to find new solutions to our challenges. The point is really not to say that we have an answer to every problem, but rather than we’re a big lab and that we’re trying to find the best formula to launch successful companies out of our ideas. The FIR is one of these experiments.

Not surprisingly, we also decided to hit the accelerator on the types of pooled resources we wanted to offer. We saw them as one of the best decisions we made from the very beginning. For example, we decided to look for shared offices. We had been looking like crazy for offices for all of our companies, so we decided to stop spreading our efforts and to start looking for a single exceptional place we could all share. The challenge this time was to find a place where everybody could work in order to benefit from a “network effect,” while at the same time maintaining the independence of each startup (we banned open spaces for example). We finally found 500 square meters in le Sentier in Paris and all but Textmaster’s team (we respect the choices of each startup) have joined the space since.

Once again, I’ve only scratched the surface of all the challenges that we had to overcome and this validation stage was definitely an exciting one as it confirmed a lot of our assumptions but also raised a lot of new questions (and we don’t take anything for granted). In two years and a half we had 4 projects which became real companies, 3 of them which raised money, and all of them that now have dedicated teams 100% focused on growing their business. Now our aim is to find the keys that will allow us to scale and to launch more and more successful projects. We have a lot of challenges to overcome now that we are entering our growth and scaling age.

Step 4: growing and scaling eFounders, our next challenges

The beauty of eFounders’ adventure is that we’re learning everything by doing. As I said earlier, nobody gave us the manual on how to create the perfect Startup Studio, we’re figuring it out on the go and proceeding by trial and error. Since we have no model to follow it forces us to be creative and to explore new solutions every time we encounter a bottleneck. One of the things we ask from a potential new team member is the ability to question himself and to look at a problem from fresh perspectives every time.

This is what we are trying to do right now. We see eFounders as a platform where we can plug an idea, a project, and it will self serve the resources and services that it needs, itself, no matter at what stage it’s at (a completely new idea or a more mature project like Mailjet now). This vision is still far ahead and at the moment we’re thinking hard about several exciting challenges we still have to solve:

Being better at sales: we’re realizing that while we’re good at building products and acquiring customers, we could be much better at selling (inside sales / requalifications). Our SaaS companies really need sales expertise at this stage and we need to figure out ways to offer them the knowledge and expertise they need. We’re thinking about how to tackle this issue (sales expert/partner, in-house sales team, more sales processes, outsourcing?) so it could be efficient for all our companies and scalable in the future.

Being more efficient with admin tasks: we need to create a perfect package to handle administrative tasks out of the box (HR, lawyer, accounting). The dream is to have everyone 100% focused on operations and not losing any time on non value added tasks.

Going further on pooling resources: we’ve only scratched the surface when it comes to resource pooling and we’re willing to dig deeper by seeing what’s possible on the marketing side (we rarely made cross-selling campaigns for example) and on the technical side (hosting, technology, providers are all chosen independently by each startup at the moment, we’re just starting to experiment with pooling on some services like big data, sales/analytics…). It’s possible that not everything will work, as we don’t believe in a single 100% “one size fit all” kind of strategy, but we want to explore some potentially disruptive ideas that we have here.

Being more global: at eFounders, we aim at being global from day-one. Our websites all come in at least 3 languages (English, French, German) at their launch, but we want to go further and to increase our online presence and visibility internationally. We already have people in many countries that manage our businesses operations but we need to go a step further by having real shared offices in the major capital cities like we do now in Paris.

Keep adapting our Startup Studio model to people (and not the other way around): in our mind nothing is set in stone and our vision of the ideal Startup Studio is always evolving. For example, we went from having a CEO/CTO duo for each new project to trying a different approach with only a CTO at the beginning backed by me, Quentin, and the eFounders team of experts. The full time CEO comes only when traction is found. Will this approach work? Does it fit every project and CTO? We don’t know yet — but what we do know is that at the moment it offers lots of advantages, while also creating a new set of problems every time (the CTO not having his CEO next to him every day for example). We always want to find solutions that everyone can feel comfortable with.

Launching 2 or 3 new companies every year without jeopardizing existing ones. Launching so many new projects every year can be a challenge not only from a resource point of view, but also from an involvement one. Our structure has to be designed to back each young project and not to create tension between them or to let one think it’s being left out. Perception of involvement might be as important as involvement itself. A project is first and foremost a team of people, and a highly motivated team is certainly the most important success factor in our Startup Studio model. It’s in our DNA.

Leaving our operational roles in the first companies (Mailjet, Textmaster) in order to only act as board members. The time must come when companies have to leave eFounders’ boat and sail on their own. We thought this would happen in the first two years, but our experience shows that it takes a little more time than expected. eFounders’ companies usually raise money between the first and the second year (A series) and at that moment they really need us to scale and structure their business.

Recruiting the best people for eFounders and for our companies. We do our best to recruit “A-people,” meaning people better than us. It’s our #1 rule because we know that if we start to recruit B-people the company will be full of C very soon.

You’ve managed to stay with us until now, congratulations and thank you! As I said in my introduction, this first letter is a bit special because we consider it our official kick off post. For the next editions we plan on sharing in detail our analysis of the SaaS industry, what we’ve learned launching SaaS startups for almost 3 years now, and finally, what we think are the main trends that are going to be impacting SaaS makers in the months to come. It’s been a pleasure to write this letter and a pleasure to share it with you, and as usual, don’t hesitate to drop us an email or a tweet if you want to get in touch.