September 2023

The Treadmill of Life

The first CEO I worked for (Andy Monfried) survived a suicide bombing in Tel Aviv. When he got home he quit his company doing door-to-door paper sales to join two brothers on their startup. That company was acquired and years later Andy launched his own.

The second CEO I worked for (Michael Lazerow) was 19 years old when his heart valve stopped working. His blood pressure dropped to zero and had 3 hours to live. He did indeed survive and later that year started his first company. It would be the first of many. Most of those companies were acquired.

The Uber driver I had this morning told me a story… “I used to work as a sales rep hitting quota. I was always working for the next president’s club, over and over again, stuck on the hamster wheel.” He then told me about how he survived 9/11 and how all he wanted to do was get home to see his one-year-old son who was beginning to walk. He made it home that day. And the day after that? He quit his job and became a pasture.

Many of us coast through life stuck on a treadmill we never realized we got on in the first place. The conveyor belt of life loops around again and again, year after year, and we don’t jump off in search of better use and meaning with our time.

We hear about people who completely change their lives after being faced with a life-or-death situation. We hear and read about how they’ve found new meaning and a new calling. Or as Andy put it, how they are “playing on house money.” Yet most of us still carry on like zombies…

Most of us should be so thankful that we haven’t had to live through such a dire moment, but most of also us need a wake-up call to make the most out of this game called life.

If we look around we can find moments and stories like these that can act as a mirror and help us ask the hard question…

“What am I doing with my life?”

My Uber ride this morning was a good reminder of that. We’re all playing on house money and once you internalize this idea it’s a little bit easier to jump off the treadmill.

B2B SaaS vs CPG: A Comparative Analysis

After recently building companies in both the B2B SaaS and CPG sectors, a common question I encounter is, “Which one do you prefer?” Both have their merits, but here are the key distinctions that have stood out to me over the past year or so:

1. Acquisition Path: Build or Buy?

When it comes to Mergers and Acquisitions (M&A), a recurrent question to potential acquires is whether to construct a new product or feature in-house or to acquire a company that already offers it. Here’s how this unfolds:

  • Technology & B2B SaaS: Major tech companies often possess the means and innovation drive to build new products and services in-house. An M&A prospect prompts teams internally to perform a ‘build vs. buy’ analysis, weighing the benefits and drawbacks of internal development against those of acquisition. This creates more internal debate and friction, which can impede the ability to get a deal done.
  • Consumer & CPG: Conversely, in the consumer space, most strategic acquirers rarely construct new brands from scratch. The challenge of distinguishing a new brand in a crowded market and the associated capital expenditure makes it a daunting endeavor, compared to allocating more capital to winning brands with existing distribution. Consequently, consumer companies have a more predictable acquisition trajectory than their tech counterparts.

2. Business Model Dynamics

  • CPG Companies: The business model for consumer goods is remarkably linear: design a product, package it, and sell it. Although challenges arise in marketing and pricing, the general model and contours for the business remain consistent across the board.
  • B2B SaaS: The business model here is multifaceted, and can often feel like a game of four-dimensional chess. I know it has for me. Founders must consider product-market fit, define target customer profiles, understand pricing dynamics, deal with platform risk, and stay on top of an ever-shifting competitive environment. This landscape is populated by well-established players, emerging and well-funded startups, and copycats, all vying for market dominance. Yes, all of these things are true in the CPG world, but I think they are much messier and elevated in the software world especially since you can, and have to, iterate on the products every day.

3. Profitability Profile: Understanding the Costs

  • Consumer World: The financial framework for physical products has established rules that are easily comprehensible.
  • Technology World: At Salesforce years ago, I would hear people talk about the beauty of SaaS because it is an annuity business. You build the software, sell it, and your gross margins are high because your marginal cost to build the product again is zero. You’re just provisioning a new account. However, what sometimes gets lost here is that software companies have to keep innovating and investing in R&D to stay ahead, which can mean more people and more expense. Not to mention adding customer success people to ensure the customers are happy and using the software correctly and successfully. Add to the fact that the most talented engineers are expensive, in terms of cash and stock-based compensation, and you quickly realize that your COGs for software development may get out of hand very quickly in order just to compete and stay ahead. We saw this happen this past few years which resulted in mass layoffs from larger tech companies. 

4. Brand Awareness: Social Media’s Role

  • CPG Companies: The world of social media has no shortage of discussions about beloved brands and products. This kind of visibility can boost brand awareness, making it exhilarating for those involved when their products become household names.
  • B2B SaaS: In contrast, enterprise software seldom garners the same kind of public enthusiasm. People rarely give the same amount of love to a workplace tool or solution in the same way they’d rave about their new favorite snack, shoe, beauty product, or piece of clothing. This translates to a subtler brand awareness for B2B companies.

In summary, we’re really comparing apples and oranges here and one is not better than the other, however, these are just some of the categories that have been most top of mind for me the past year or so when asked about the differences of running a CPG companies vs a B2B Software company. 

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