David Sacks - How to Operate a SaaS Startup

**Patrick O'Shaughnessy** (0:00)
This episode of Invest Like the Best is sponsored by Canalyst. Canalyst is the leading destination for public company data and analysis. I'd heard of Canalyst over the past few years and became more interested after meeting the founder and CEO last year to pick his brain about SaaS businesses. Founded by a former buy side analyst who encountered friction in sourcing, building and updating models, Canalyst is now used by over 300 institutions, including the largest money managers in North America and by a number of guests on the show.
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories and strategies that will help you better invest both your time and your money. Invest Like the Best is part of the Colossus family of podcasts and you can access all our podcasts including edited transcripts, show notes and other resources to keep learning at joincolossus.com.

**SPEAKER_2** (2:21)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (2:47)
My guest today is David Sacks, General Partner at Craft Ventures and Founding COO of PayPal. During our conversation, we explore what differentiates Enterprise SaaS from DTC subscriptions, what makes for a magical product launch event, and what key growth metrics David uses to measure success.
David has written extensively on his idea of operating cadence and we explore how that applies to various functions within an organization. As time goes on, I am more and more impressed at the talent that existed within the original PayPal Mafia, and I couldn't help but ask David to highlight the superpowers for a few of his early partners. This was an incredibly informative conversation with fun threads throughout. Please enjoy my conversation with David Sacks.
So David, I figured we'd start with a very fun short list of investment criteria that you've shared publicly before and dive into the detail behind some of these. My favorite of these is, can it explode? I just like this idea of looking at a company and going through this exercise of deciding whether or not it can explode. Let me explain for us what that means to you, what it looks like when the answer to that question is yes.

**David Sacks** (3:50)
So it's a little different depending on whether it's consumer or enterprise. I mean, I've had some experience with both. PayPal was a consumer play that was very explosive. And then I did Yammer, which was enterprise and by enterprise standards was fairly explosive, but that means tours of magnitude less.
For a consumer, you almost have to be explosive because you basically have to go viral as a consumer product.
Because the typical consumer, at least for any kind of social product, they don't pay or they don't pay very much. Consumer products tend to have high churn.
As a result, you can't spend a lot to acquire that customer. So the only way to build like a very large customer base is to somehow go viral. I mean, that by and large has been true with consumer products, is that the big consumer companies didn't really spend any real amount of money on customer acquisition. They figured out a way to do it just like organically. Enterprise is a little different or B2B SaaS because for a functional SaaS company, you will have more expansion than churn. The customers, those sort of revenue, the customers are willing to pay. Sometimes they're willing to pay a lot.