Five hundred and eighty million dollars, I mouthed out loud. Holy fuck.
I’m pretty jaded when it comes to the financial numbers that get thrown around in start-up land—I don’t care what TechCrunch says, I don’t care what your market cap is—I think it’s clear that the world of technology start-ups is pretty screwed up when it comes to financial valuations. Only in this world is whether or not your company is profitable so often seen as being of secondary importance. I digress.
But I have to admit that $580M number hit much closer to home this time given how intimately involved with Buildium I had been. What started as Dimitris (now my Co-founder at Outseta) writing a few lines of code to collect rent payments from tenants he had living in a duplex in Providence, Rhode Island, turned into something worth hundreds of millions of dollars 15 years later. How the hell does that happen?
In this post I’m going to share the most important lessons about growing a SaaS business that I learned at Buildium—collectively, these things had an awful lot to do with the company being valued so highly.
In late 2009 the economy had tanked and I had a newly minted MBA but no real job experience. I was offered a job as Buildium’s first full-time marketing hire, pulling in a cool $38,400 annually.
To be honest, I wasn’t enormously enthusiastic about this—I’m not techy, so working for a software company wasn’t particularly appealing to me. And working in the property management industry? Let’s just say that didn’t have a whole lot of allure.
But Buildium had found product market fit, and although I didn’t know it yet, I was stumbling into a great situation. I was one of the first 10 or so employees at the company, and over the next five years I was given a remarkable amount of freedom to try new growth strategies, to succeed, and to fail.
We mostly succeeded. When I left Buildium five years later we’d grown from a start-up to a business with more than 12,000 customers and $16M in revenue. I was managing a team of 15 and the company had grown to about 140 employees. I’m proud of all that.
More than anything, I’d fallen in love with the challenge of building a business and helping it grow into its potential. The start-up bug caught me, and it has yet to let go. Along the way I got a PhD in SaaS—I’ve told many people over the years that I benefited tremendously by starting my career in a place where I saw a SaaS start-up “done right.”
I learned a million lessons about SaaS, about start-ups, and about life along the way. In light of the sale of Buildium last month I figured now is as good of a time as any to reflect on the most important ones. What I love about this list is so many of these ideas fly in the face of what we often read about “successful” SaaS start-ups in the media. Without further adieu, let’s dig in.
When I arrived at Buildium, we were selling our product only to residential property managers located in the United States. Having just finished business school, my brain was wired in MBA mode—what were our core competencies as a company?
They were clearly property management and software development, and as someone that was hired to accelerate Buildium’s growth I immediately saw countless opportunities to grow the company by moving into new markets. We could branch out into commercial property management. We could move into new geographies. We could translate the software into Spanish. I raised these ideas several times, and they were consistently shot down.
To this day I’m convinced that an unrelenting focus on the residential property management market in the US was one of the primary drivers of Buildium’s success. I was given free reign to try just about any marketing strategy I wanted, so long as we kept our eye on this market. Since then I’ve seen countless entrepreneurs look overseas or to new markets to accelerate growth almost as soon as they achieve any level of success in their initial target market. 90% of the time this has ended up being a distraction that’s hurt them in the market where they’d just started to win some market share.
The lesson here is simple—don’t be distracted by new or adjacent markets until you’re truly winning and dominating in your own.
Following on the heels of the importance of market focus, I’d like to throw shade on the notion that you can only build a big business if you have a huge total addressable market (TAM). Sure, there’s the obvious reality that the bigger your TAM is the more potential buyers there are. But your product will likely be more generalized and in many cases you won’t be able to serve your target customers with the same level of depth.
Buildium is a great example—when we researched our TAM of small residential property management companies in the US we found that there were about 120,000 potential buyers. That’s a fairly small market, and Buildium currently has about 17,000 customers—some back of the envelope math puts Buildium’s market share at about 14%.
So a company with a 14% share of a relatively small market is sold for $580M—evidence enough for me that TAM is overrated. During my time at Buildium we focused primarily on growing our customer base, but in later years Buildium was able to create a hugely valuable business by selling additional products and services to their existing customers. This included selling additional services like credit card payment processing, tenant background checks, 1099 e-filing services, and renter’s insurance. This required no additional addressable market and also helped to drive down Buildium’s churn rate.