Software as a service has been thriving as a sector for years, but it has gone into overdrive in the past year as businesses responded to the pandemic by speeding up the migration of important functions to the cloud. We’ve all seen the news of SaaS startups raising large funding rounds, with deal sizes and valuations steadily climbing. But as tech industry watchers know only too well, large funding rounds and valuations are not foolproof indicators of sustainable growth and longevity.
Failing to come across as a unique, differentiated company will likely mean settling for an exit that feels mediocre instead of incredible.
To scale sustainably, grow its customer base and mature to the point of an exit, a SaaS startup needs to stand apart from the herd at every phase of development. Failure to do so means a poor outcome for founders and investors.
As a founder who pivoted from on-premise to SaaS back in 2016, I have focused on scaling my company (most recently crossing 145,000 customers) and in the process, learned quite a bit about making a mark. Here is some advice on differentiation at the various stages in the life of a SaaS startup.
Launch and early years
Differentiation is crucial early on, because it’s one of the only ways to attract customers. Customers can help lay the groundwork for everything from your product roadmap to pricing.
The more you know about your target customers’ pain points with current solutions, the easier it will be to stand out. Take every opportunity to learn about the people you are aiming to serve, and which problems they want to solve the most. Analyst reports about specific sectors may be useful, but there is no better source of information than the people who, hopefully, will pay to use your solution.
The key to success in the SaaS space is solving real problems. Take DocuSign, for example — the company found a way to simply and elegantly solve a niche problem for users with its software. This is something that sounds easy, but in reality, it means spending hours listening to the customer and tailoring your product accordingly.
I put in long hours with customers every day when ActiveCampaign was a young company. It was these customers who showed me how to build a differentiated company instead of worrying about my competitors, as too many founders do. Never assume that others have it all figured out, or that other companies don’t struggle to get their offering right.
We all face challenges, so founders should focus less on what others are doing and more on making their value proposition unique and compelling. And remember: There is no such thing as a “less important” customer.
The middle years
If investors and colleagues are not openly questioning certain decisions you make, it’s possible you’re playing it too safe. As a CEO, I’ve been told I’m “leaving money on the table” or missing out on opportunities.
What this really means is that your company has pushed the envelope — something that’s important in differentiating a SaaS business once it is no longer in the early stages. Continual differentiation is the name of the game. It’s not enough to differentiate, find product market fit, and then settle. The time frame for disruption has shortened dramatically and you have to keep up.
We decided during this phase of ActiveCampaign’s life that no single customer would account for more than 0.5% of our total revenue. This way, the product would not evolve strictly to suit the needs of a single customer or small group of customers. We also decided not to charge customers to migrate their technology onto our marketing-automation system, even though every rival company in our space charged for such services.
This move, for which I got some pushback, allowed us to differentiate with a quality versus quantity approach. In the end, it allowed us to turn customers into our advocates.
Sacrificing certain short-term gains in favor of sustainable, longer-term growth is what worked for my company. Any CEO can benefit from pushing the envelope and not getting comfortable with the status quo.
Late stage
Reaching the late stage means learning to appeal to a far larger pool of investors, including many who invest from outside your immediate sector. Differentiation largely comes down to marketing and evangelizing on behalf of the product and the company. If there’s ever a time when getting your unique message across is a make-it-or-break-it tactic, this is it.
If your company has done a good job of standing apart from rivals in its early and middle stages, it’s time to double down.
Failing to come across as a unique, differentiated company will likely mean settling for an exit that feels mediocre instead of incredible.
Salesforce’s acquisition of Slack is a clear example of how a SaaS company can effectively turn up the volume and stand out. Slack became more than a messaging platform connecting colleagues — it fostered community, collaboration, and the phrase “to Slack” someone entered common workplace vernacular. Because of their successful differentiation from similar SaaS companies and strong branding, Slack was acquired for more than $27 billion.
Slack makes it clear that late-stage SaaS companies must find ways to differentiate outside of product alone. They weren’t the only messaging software on the market, but they were the one in the spotlight. A company’s buying process, brand, pricing model and customer service must stand apart. At this stage, think big.
There is no foolproof plan to differentiate your business as you launch new products in a crowded, competitive market. That’s why every CEO should write their own playbook, and the first step in doing so is understanding the importance of differentiation. Your own, distinct identity is not just a good idea. It’s a must-have.