Scaling a SaaS business: 8 keys to success
The Software-as-a-Service market is growing exponentially. The Forbes Cloud 100 List alone is valued at $175+ billion. Ambitious start-ups and scale-ups are flooding the market in the hopes of becoming the next SaaS unicorn. Do they have what it takes?
After the rollercoaster ride that was founding, building and selling my company TrendMiner, it was time to take in the latest industry insights during the SaaStr conference 2019 in San Jose / San Francisco Bay Area. The talks and meetings mostly validated my own experience with successfully scaling a SaaS business: Dream big, create value and do it better.
If you are dreaming of building the next start-up unicorn in SaaS (or in any business really), focus on these eight keys for success.
1. Commit to the summit… but don’t climb alone.
Surround yourself with people that bring energy. Energy takers are detrimental to your team’s efficiency. A team has to collaborate well together, look forward to meeting each other and deliver results and not explanations or excuses why things are not working. If this not going well, you as CEO have to act quickly because warring princes means a weak king.
Jason Lemkin (founder of SaaStr) expressed that, during the lifecycle of a start-up, you will need very distinct types of managers: Mr. Evangelist, Mr. Dashboards, Mr. Make It Repeatable… They each step in at different phases of a company. Adapt your management to the lifecycle of your business.
2. Ride a bigger wave… but stay in your own lane.
There are plenty of business opportunities left in the SaaS space. Find a big enough market that excites you, but that will grow with or without you. After all, if you can get 1% of a $10 billion market, you’ll have $100 million in revenue which is enough to have a shot at an IPO. The trick is not to ‘just do it’. The trick is to ‘just do it better’. You should only worry about competition when they have it out for you. In any other case, leaders must blaze their own trail.
Never lead from a position of fear. Your competition is not what drives your business. Instead, think about your business drivers as a holy trinity: Vision driven, Customer driven, Competitor driven. You need all three. But keep in mind that when you’re in an arms race you can not outsmart the competition having one third of their capital raised…
3. Dream big… but don’t scale prematurely.
Early stage scaling is the biggest reason for start-up failure. I’ve seen this over and over. But then again, the failure rate of a series A startup is the same for a series C scale-up: 75% (which might sound surprising). In a way raising capital, maximizing profits, growing revenue are all outcomes of a great product-market fit and consistent Customer Value Creation. Focus on this value creation first before scaling the business. Don’t be paralysed too early by unit economics or growth & moat before you’ve nailed product market fit. And if you raise money make sure you buy your company a 24 months runway. And you don’t need to spend all the money you raise. Trigger the spend on milestones, not timelines.
4. Keep your team in sync… but don’t underestimate company culture.
There are many ways to align your team on company goals. I am personally inspired by the V2MOM framework: Vision, Values, Methods, Obstacle, Measures. Create a V2MOM together with your team for maximum impact. And put your core values into action every day.
Keep in mind that culture eats strategy for breakfast. Nothing can deteriorate the shared vision of the team quicker than a bad company culture. Don’t allow power politics, backstabbing, bad habits… from taking over. Instead, reward hard work and celebrate the big wins.
5. Sell with passion… but monitor the right metrics.
As a start-up, great sales are about creating value for your customer instead of pure volume scaling. This only happens when your first sales profile has deep product knowledge and domain expertise. In many cases that means you: the founder or CEO of the company. Delegating sales to a senior exec too early on will lead to failure in nine out of ten times. So, strap on your boots and start selling.
Remember to focus first on customer and revenue retention instead of the traditional unit metrics like Customer Acquisition Cost or Life Time Value. Ask yourself ‘Why’? Why does the customer buy this product? Why does he stick with it? Sell the ‘why’ not the ‘what’ of your business.
6. Sales compensations plan should be fluid
Sales compensation plans should be a numerical expression of what the company wants to achieve during the next period. So sales compensation plans shouldn’t be fixed but remain fluid. Aim to keep them simple and avoid the Cobra Effect (unintended consequences of over simplistic solutions to complex problems).
7. The right value metric can help you differentiate against competition
Pricing is really important and quite often underestimated as lever. Pricing makes or breaks your business. Pricing shouldn’t be static and should be correlated with the value you’re bringing (quantitative or perceived). Don’t be too cheap and make sure your up-sell path isn’t broken. The right value metric can help you differentiate against competition and generate more revenue.
8. Share your success… but take time for yourself.
Celebrate the wins and share the success with your team. Literally, by rewarding them for their hard efforts. You probably need them as much as they need you. You owe it to each other to take care of yourself. Breathe, be authentic, take care of your health. Invest in your personal development. Eventually, you will bring this mindset to work — and inspire others around you to dream big and do it better.
