How to Compete in SaaS Today and for the Future
Starting a SaaS company in 2016 is much different from starting in 2005 or 2008 which were the last two times we started SaaS companies.
Today, with our new company Quick Sprout we’ve been thinking a lot about what’s changed in SaaS and how to compete.
We believe that to compete in SaaS today and for the future, you have to create an organization that can make a product customers are always in love with that also gets high retention from them.
In the last 10 years, a few notable things have changed that have been instructive in helping us shape our thinking for Quick Sprout.
SaaS is getting increasingly competitive. It’s easier than ever to build a product and get early traction. Your first hundred customers and beyond can come at a very low-cost from blogging, outbound sales or one of the many other popular customer acquisition tactics. Amazon Web Services is fast becoming ubiquitous and has helped greatly reduce the cost of starting up. It now takes much less time to self-fund a SaaS business to profitability.
Plenty of early-stage funding is fueling more new startups. People are starting SaaS products themselves by leaving the company they work for with the idea of turning the problems they solved at their startup job into a business. This is most common with engineers who work at SaaS startups. SaaS is creating more SaaS.
Information about SaaS businesses is widely available for free. Many people who have started, funded, worked at or work at SaaS companies are sharing what they know about how to start, run and grow SaaS startups. It usually comes in the form of a blog post, just like this one!
If you’re starting or running a SaaS business today, what should you be thinking about to successfully compete?
Each and every area of business operations gets affected by increasing competition.
The ability to build things that your customer’s love is now a must-have in competitive SaaS markets. You’ve got to constantly build the best possible solution that ever existed for your customers because SaaS product/market fit can be an illusion and so the road to product/market fit never ends.
You can get a head start by finding opportunities where there is less competition which can make the bar much lower for getting to initial product/market fit. If you’re in a competitive market it’s critical to measure, understand and constantly improve retention.
Open source software and infrastructure such as Twilio, Mandrill and Clearbit make it faster to ship product and easier to add new features. Of course, this makes it easier for other companies too.
Products that start as single features tend to get commoditized while the trend in crowded markets is to create software that combines multiple products (tools) into one. HubSpot, Intercom and Hotjar are good reference SaaS examples of the suite of tools strategy.
Investing aggressively in solving harder problems that other teams would shy away from is an effective strategy in addressing competition. It requires deeper technical expertise and a very clear understanding of your customer’s problems.
The number of SaaS tools for sales, marketing and growth has leveled the playing field. Engineering teams aren’t required for as many operational tasks because SaaS tools exist which need only minimal developer involvement. The lines are blurring between the three disciplines.
Efficiencies in sales and marketing make it so small teams of people can reach and support thousands of customers. From outbound prospecting to social media, there is a tool for pretty much every major (and minor) sales and marketing need. Now that the “picks and shovels” for distribution are available to any one, constant experimentation (growth hacking) and growth teams within SaaS companies has become the norm. Growth isn’t an after thought any more.
If you aren’t thinking about growth holistically to amplify your sales and marketing efforts, you’re probably doing enterprise sales or in a niche market which hasn’t become crowded yet.
In the past, if you had great marketing or great sales, you’d be able to grow for longer before you had to have a product people love. The cost of adopting and even purchasing SaaS tools has gone down. Most SaaS products have a free trial or free plan and don’t need a demo or sales call before you can start using them. Switching costs are much lower for your customers.
You need to take the “service” part of Software as a Service and extend it to your whole company so that you are always able to build the best solutions for your customers’ ever-evolving needs. You must remember that your biggest challenge in SaaS isn’t your competition, it’s about getting and keeping your customers’ attention.
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