Phish

The band Phish has been playing music together for 30 years. Over the last four, they've generated $120 million from ticket sales (~40 shows/year), easily making them one of the most successful bands in the world. Lookup customer loyalty in the dictionary and there should be a reference to Phish fans, whose average lifetime value is probably in the tens of thousands.

What I find compelling is that growth would have killed Phish. Had they become popular within five years, the band probably wouldn't be around today. They weren't good enough yet. But since they grew slowly and organically, "bootstrapping" along the way, they were forced to polish their craft for several years before success rewarded them. Delaying gratification is a beautiful thing.

Building a SaaS business is very much the same way. Early on, nothing comes easy. You have to scratch and claw for the first 5 customers. Then you bend over backwards to earn the next 10. The effort required to get those first 15 customers is enough to crush a person's spirit. But you keep carrying on. That's how SaaS goes, month after month. You close 10 deals, look back a year later and you are closing 50 deals, look back a year later and you are closing 150 deals. There is no such thing as overnight success.

Slow growth brings out something magical in SaaS companies. It bonds a team. It requires you to celebrate the smallest of victories. You get to know customers by name. Most importantly, it forces you to invest an irrational amount of time in polishing the product and making it great.

Phish's extraordinary career is a tribute to polish. Already great musicians in their own right, it took them more than a decade of constant practice to uncover the skill they are most known for today, which is their improvisational on-stage jam sessions.

A curious thing happens when a SaaS company raises early venture capital, artificially enhancing the growth curve. They forget about polish. Instead, it seems more important to focus on scaling as fast as possible rather than consider the shitty product they are scaling. The magic — learning things the hard way, polishing the product and bonding the team — seems unimportant when a SaaS company raises a lot of money early on.

I equate this artificial growth enhancement to steroids ... not a stretch really. Take a good look at SaaS companies being traded in public markets to see what it looks like. They all, quite obviously in my view, skipped the polish. They skipped over what would have made them a better company in every way, which is time. Interestingly, they are also finding it rather difficult to generate earnings for their shareholders.

SaaS companies that people love grow like Phish, not Justin Bieber.

Some of the ones I admire most are 37signals, MailChimp, Campaign Monitor, Squarespace, Github and Shopify. These companies would all tell you it took them 4+ years to figure things out. In that time, they raised no institutional capital. They grinded day after day after day to refine their craft, earn customers one at a time and push with every ounce of themselves to uncover what it was that would make them great. They learned how to grow organically before adding fuel to the fire.

For an early stage SaaS company, there is no shortcut for time. Uncovering what will make your company great takes time, and initially at least, organic growth. Venture capital in those formative years, when you should be focused on product and customers, stunts the company, forcing you to focus on the wrong things.

I agree with Paul Graham's assessment that growth is what makes a startup a startup. But how and when that growth takes place as a SaaS company says a lot about whether it will be loved or loathed by customers in the future.

I doubt Phish came together 30 years ago and uttered the words, "go big or go home." They merely set out to become great at their craft and make people happy in the process. That attitude translates very clearly to their fans. Today, as thousands of one-hit or one-album wonders have come and gone, Phish went bigger than all of them by growing slower than any of them.

Special thanks to Rohin Dhar and his wonderful article, The Business of Phish, which inspired me to write this article.

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