Open Sourcing the Decalab journey

Introducing the SaaS Factory

There are funded SaaS companies and bootstrapped SaaS companies. Decalab is an attempt to find a third way.  

Before I get into that, a little about me. 

I started my first business when I was 19 as a student on the campus of Babson college. The business was simple. It was a website that delivered food from restaurants that did not deliver to our suburban campus. Fellow students had no options after 8 pm outside of ordering Dominos or Chinese. We needed some late night variety! So I tied up with a couple restaurants and we kept 30% of the invoice. I clubbed delivery into one 10.30 pm run. Even with a limited model, the demand was high! Unfortunately, I didn’t start DoorDash.

After running it for a year and a half, I sold it to a fellow student before graduating. But I had fallen in love with the internet. It was 2001. 

After Babson, I had my first and last job at EMC Corp, where I worked as a financial analyst for three years. It was great exposure to the workings of a public company and I lasted there mostly because I was in a rotation program and had three roles for three years. However, I realized that if I didn’t leave and start my own company, I was never going to do it. The only way to learn was to do it. 

Over the next five years, I started two B2C companies in India. A classifieds portal and a direct to consumer jewelry brand. They both failed. I was excited by the internet but knew little about building teams, products or business models. The biggest lesson here was to have a balanced co-founding team who could bring a product to market - both engineering and growth. 

They were also the most painful five years with maximum inner learning. I did some brick and mortar stuff intermittently to pay the bills since things were always tight money wise. I imported truck tires from China and I also sold Indian furniture to the middle east. 

I know I needed a better plan. Towards late 2010, I visited Bangalore a couple times and on the second trip I met my future co-founders for my first foray into SaaS: Recruiterbox.com. We really got along amazingly well and there was instant comfort from Day 1. They were engineers (backend and frontend - balanced team) and I was the growth guy. 

Over nearly seven years, we bootstrapped the company to 3000 customers, a team of 55 (across Bangalore and the US) and were acquired by a PE Fund in San Francisco, which is where I was based for half of those years. Of course 90% of what I know today happened in these seven years, so it deserves its own very long post. Coming soon.  

I learned a lot about SaaS and myself during these years. While I was so hungry for a win, understandably so, now with my stomach a little full with this victory, I was thinking about how I wanted the next chapter to unfold. I realized that the game of large venture capital was only enticing if I deeply cared about the mission of what we were creating. But if it was a force fit mission just to “go big,” I rather not live that experience. 

The alternative it seemed was to repeat the scenic route and do efficient, profitable but still decently growing SaaS products. However, I realized that this journey takes most bootstrapped founders 3.5-4 years just to break the first $1mm in revenue. Assuming almost everything goes right! 

As an experiment, I started looking at all the funded companies that don’t make it. Just for fun, I looked at Crunchbase for all the healthy Seed and Series A rounds, which never raised a round again and had a team size of 25 or less in places like San Francisco. There were tons! It seemed to me that a company commits to doing the $100mm ARR sprint in 7 odd years by taking capital north of $10mm. Fair enough, many bets are worth it. But most of the companies were ones where that equation breaks (statistically speaking). So they raise $10mm, but after 4 years of that round they are at $2mm in ARR. 

This is where the idea for Decalab originated. I knew a lot of these products would make great $10-$25mm ARR businesses in due time with only the revenue invested back into the businesses (especially with a global remote/ India team). So why not do a SaaS factory that develops its muscles on cracking the 1-10, and acquires companies that have done most of that 3.5 year journey but don’t want to continue, or they are betting on a different product.

We could short-circuit product-market fit, sometimes even the growth flywheel (with evidence from past experiments) and try to solve the local maximas (fancy word for bottlenecks). We could do 5-10 companies that totalled $100mm in ARR, all from revenue spend. The only starting capital we would use was to acquire the companies themselves. After that, they had to be self-sufficient. 

Remember that Crunchbase filter? I wrote to 119 founders, a friendly founder to founder note, asking them if they were considering an exit and had 22 calls scheduled within two days. 

In that effort, I found FlyData.com, our first acquisition. It was doing $500K ARR, had previously raised nearly $10mm and had bet on a few different products. Now 6 years later, they had their one core product with a loyal customer base and very low churn! The low churn is what attracted me to it given my Recruiterbox experience of biting churn on the little guys. 

FlyData was neither the $100K ACV (avg contract value) sold through enterprise sales, nor a $100 per month high churn business. It was right in the middle - avg revenue per customer $10-$15K per year and completely self-serve product! 

The founder in San Francisco was looking to move on and there were only two support engineers on the team in Japan and Philippines. I made it very simple for him and closed the whole deal within 30 days. Valuation was roughly 1X (happy to share the breakdown of the deal - write to me, not posting here since other parties involved may not want it revealed). Disclaimer: We are not looking to buy all companies for 1X revenue, many deserve 2 and 3X, but the equation I use depends on these 6 factors: 

  1. Revenue growth rate

  2. Churn

  3. EBITDA (profit)

  4. Annual vs monthly plan mix

  5. Team that will be left behind

  6. Space (competitive? Commoditized? Declining?) 

So if you are considering an exit, don’t shy away from writing to me and let’s brainstorm the best path. Most of the time, I am pointing people to better options than me, if we don’t see Decalab adding value to the future of the business. 

Moving forward, across the next few posts, I am going to share in real-time everything that we are attempting - both to buy company #2, and product + growth stuff being executed on FlyData. Specifically: 

  1. How is our team organized? Who is on our team?

  2. What’s the specific bet we are making with FlyData (half-baked today, but some exciting efforts). Will open source this discussion and get feedback :)  

  3. What have I learned in this one acquisition and how I am applying this to buy company No #2. 

  4. How are we exactly funding the three acquisitions we wish to do in this “first cycle”? 

Please contact me if you are looking to join us in leading these companies on the engineering or growth side, or if you are looking to sell your company. 

There are funded companies and bootstrapped companies, and our third way is to build the Decalab SaaS factory. 

Follow along the journey with me and learn at my expense. 

From the factory floor,

Raj

In the meantime, tell your friends!