These are four areas I think are really exciting, both for entrepreneurs looking for new spaces and for startups to utilise to grow their business.
1. The SMB growth opportunity
An increasing number of product-led businesses are focusing on the Small/Medium Business (SMB) market, and doing very well.
Why is SMB so interesting?
I’m borrowing from SurePath Capital Partners post on their SMB Software Market Thesis here, because it’s so on-point.
Globally, there are between 460 and 600 million small and medium businesses. 60 million in English-speaking countries alone. Their setups are close to ideal for low-effort, high-reward go-to-market strategies.
- Easy to target the decision maker: it’s usually the CEO or owner
- They’re short on time: they need a solution to solve their problems, and they need it now
- They don’t want to pay for expensive owned software: subscriptions are fine
- They value built-in flexibility to start small, and expand as they grow
- Their needs are less mature: it’s quicker to build product for them
- They proactively search for solutions
- Today’s SMB is tomorrow’s breakthrough growth story
- Tech-savvy millennials owning businesses means greater, faster, and easier uptake in tech solutions
2. Low technical and commercial barriers to entry
Almost anybody, anywhere, can start a SaaS company.
Technical barriers are almost non-existent, if you’ve got the skills.
- Anyone so inclined can learn to code, improve their skills, or learn new languages thanks to online courses, and just the internet
- AWS, Azure, Google Cloud, and other cloud-computing companies make it simple for anyone to host a product without managing hardware
- Products like Stripe or Paddle make it easy to take credit cards and get paid
- Even platforms like Sharetribe make it possible for anyone to start a marketplace (the business model du jour)
But the wonderful thing about the internet is that the commercial barriers to entry are also broken down.
- Anyone can incorporate a business, get bank accounts set up, and pay taxes accordingly with Stripe Atlas
- It’s relatively easy to attract customers with low-cost methods like social media, paid advertising, search engine optimization, and content marketing
- Remote working, and the mechanisms available to support it, means you can hire talented people from anywhere in the world, across every specialization
- Advice and mentorship, from anywhere in the world, makes it easier than ever to share knowledge and learn from other’s mistakes
Even more important is the ecosystem of businesses that offer products and services which, in turn, reduce barriers to success.
Above, I mentioned products like Stripe for payments and AWS for hosting, from the engineering and development side. On the other side, traditionally large sales and marketing teams can be smaller and more nimble, and make better use of code, products, or agencies to work smarter and accomplish the same goals. For example:
- In-product onboarding and education (powered by code or products like Appcues) reduces the need for in-efficient sales, pre-sales, and success teams
- Traditional high-barrier advertising can be replaced by platforms like Facebook and Google Adwords
- Graphic design teams can be replaced (to a certain extent) by Canva, and then agencies
- Better integration of tools like Hubspot, content management systems and hosted website tools reducing barriers for technical marketing and website development
3. Commoditization and consumerization
No matter what industry, first impressions matter. Buyers don’t have a lot of time to evaluate, contact sales, wait for the back-and-forth, and so on. SaaS is evolving to meet the needs of the time-poor with low-effort high-reward products and sales processes.
Because of this, B2B SaaS companies must act more like consumer brands, be more targeted, and more direct. This works against commoditization, where increased competition results in a lower perceived value.
Let’s begin with the consumerization of software. Imagine you’re bored, and you want to watch some films on your TV at home. But instead of just one film, you want access to many, so you can pick and choose. You might Google ‘watch films at home’, and find ads from Netflix, Hulu, and Amazon Prime Video. You take a look at their websites, compare the films and programs they have, and maybe read some reviews from other customers. Finally, you decide to go with a free trial for Netflix. Insert your credit card details, and start a free trial. If you’re happy with it, your credit card is charged next month. If the quality of films drop in a few months, you just stop paying.
The process is almost exactly the same for a growing number of B2B SaaS companies.
Anyone in a business is empowered to buy software that makes their job easier. They might Google some keywords, see some ads, and read some content about it. They’ll look at reviews, to see what other people in their position thought. They might compare specs across different vendors, and check out a free trial. They pay with a credit card. If they don’t like it, they stop paying. Simple.
There are some key tenants of consumerization. It has to be simple for buyers to find you; you have to resonate with them. Buyers do most of their evaluation upfront before buying. Products have to be easy to use, quick to set up, and provide direct value instantly and without delay. Billing has to be flexible, simple, and usually a ‘no-brainer’ for a quick sale.
Then, commoditization. This post on the OpenView blog explains a common pattern:
- The industry consolidates around a few large platforms, which move upmarket
- Lower priced alternatives flood into the low end of the market (standard functionality is well established)
- Open source alternatives begin to gain traction
- Prices go down
Commoditization is often recognized too late, and companies think they have two choices: lower costs to become a commodity vendor, or raise prices and continue to add value to move upmarket. Or, as the blog post explains, there is a third way: add value and specialize for a specific set of customers, allowing your prices to remain high whilst delivering value that others won’t.
An indicator of commoditization in B2B SaaS is when prospects start checking off your features against a competitors. Even in like-for-like competitive product situations, individual features shouldn’t play a huge role in a purchase decision.
4. Retention supercharges revenue
We all know the adage that it costs five/seven/ten times (depending which source you use) as much to acquire a customer as it does to retain one. That might be true, but I’m pretty sure nobody knows for sure.
But we do know some of the basic economics around the SaaS business model. The first rule? SaaS revenue compounds.
That means you need to keep revenue from existing customers every month/year, whilst also acquiring new revenue.
So, obviously, retaining that revenue is important. If too many customers cancel their accounts every month, your churn will eventually plateau or reduce your revenue.
But retention — paying attention to customers and making them happier- has a whole host of other benefits.
Happy customers will review your product on sites like G2Crowd and GetApp (which are becoming more and more popular), and even help broaden your reach over social networks too.
Word-of-mouth is often the cheapest and most efficient marketing. Happier customers talk to their friends, blog about your product, speak about your products at events, and sign up to your product at their next job. More people find out about your product, try your solution, and sign up.
Product feedback from those happy customers can also be really valuable, not just to fix minor bugs and annoyances but to set direction and course-correct the vision. An easy path to growth is to find more of your best customers. If you can find them and offer a solution that meets the needs they have (validated from feedback by similar customers), you’re in a much stronger position.