Building a SaaS business is hard. But scaling-up a SaaS business is one of the most difficult things imaginable.
With the influence of VC funding, many SaaS founders are forced to think about scaling-up long before they are ready for it. It’s like asking a baby to become a world-class sprinter before he/she can even walk.
Success in SaaS is all about making the right decisions at the right time. When the scaling-up strategy starts to enter the conversation prematurely, many companies will fail.
In my experience in both advising dozens of startups and also building a multimillion-dollar SaaS company, I can confidently say that there are two key elements that must be in place before the word ‘scale-up’ even enters a founder’s mind.
Getting the Product-Market Fit
Nothing is more important in SaaS than getting the Product-Market fit. It may seem elementary, but if you don’t have it, you are sunk before you start.
Finding the Product-Market fit is a process of asking three questions.
- Have you identified the right problem?
Do you know exactly what the issue is that you are solving? Can you state it clearly and succinctly?
Many SaaS products attempt to solve too many problems. One of our earlier products Visual PaaS, was much more technologically capable than KiSSFLOW. However, it solved too many problems and was hard to sell. KiSSFLOW only tackled workflow management and immediately appealed to people.
Once you find the right problem, it becomes the headline on your website. For us, the problem was summed up in “Automate Work, Reduce Chaos”. That message continues to connect with our audience.
- Do you have a divergent solution and most importantly a solution that works 10x better?
The most important difference between your company and a competitor is the unique way you solve the problem when compared to others. Often, this is called a USP or differentiator. These two words have been abused so much that it no longer invokes any feeling in our minds. So think of this new word – “Divergence”.
Is your solution divergent enough from other players who are solving the same problem? Over time all categories loose divergence and become homogenous until a new player comes with a divergent idea and that is called disruption. Are you that disruptor?
- Do you have the right pricing?
You know you’ve hit the right Product-Market fit when you have strangers buying your product and not just friends of friends. Real validation is unknown people buying your software and agreeing to the price you’ve quoted with little negotiation.
Of course, if people are buying from you without blinking, you may need to increase your prices. We doubled our price per user per month from $3 to $6, and then again raised it to $9 and customers still identify us as a very cost-effective solution.
This five-step product tear down that I created for SaaSX3 would be a good starting place for your product-market fit assessment journey.
Getting the Flywheel Moving
The second thing that must happen before you scale-up is to get your flywheel moving. Getting your flywheel moving is a meta-process that cuts across marketing, sales, customer success and support functions of your company. This encompasses your marketing process and sales process. The flywheel meta process for Freshdesk is different from that of KiSSFLOW and very different from that of ChargeBee all though all these three products are B2B SaaS and might appear very similar.
To get your flywheel moving you need to find those one or two marketing channels that deliver good, consistent results. Given that most B2B SaaS products are either free trial or freemium model, once the visitor comes to your site they should be able to easily get to feel the product and the product needs to deliver the marketing promise. Engagement is a by-product of this.
Highly engaged customers buy on their own aka self-service, but that will be only 10%. The bulk of the people are fence-sitters and they need to be push to purchase. This is where your sales process comes in. Once you are able to make the sale then you need your customer success team to help your disloyal customer to taste success as soon as possible to get on the loyalty treadmill. If that doesn’t happen, churn happens.
It takes anywhere between 9 to 18 months for most SaaS companies to really get the flywheel moving and once it starts moving, it is hard to stop it…
The Real Scaling-up
Unfortunately, in recent times real scaling-up has become synonymous with VC funding. Achieving product-market fit and getting the flywheel moving alone is NOT the necessary condition to start pouring rocket fuel aka VC Money for brute force scaling. That will be a futile effort, and a waste of money, time and emotional energy. You need close to a billion dollar market to take the VC route to build out your business.
The real scaling-up activity unfortunately is less sexy and involves more grunt work. Doing more of the same in a faster, cheaper, better way ensures your flywheel gains enormous amount of speed.
The scaling-up activities will often result in disproportionate amounts of time spent on hiring the right talent, putting the right people in the right seats, building open communication channels, developing a work culture, creative destruction of processes that seem perfectly fine, re-organizing teams, spending huge amounts of time resolving conflicts, figuring out a way to kill politics/gossip and many more things like this.