SaaS 2.0 Companies Often Resegment an Existing Market

Continuing with yesterday’s post Examples of SaaS 2.0 Companies, there’s an important point that requires more explanation: SaaS 2.0 companies often resegment an existing market. Meaning, they go into a market that has plenty of credible incumbents (like Calendly with scheduling software) and offer a novel approach to a known opportunity (better user experience, better product modularity, better pricing flexibility, better integrations, better APIs, etc.).

Critically, this is best executed in existing markets. If it’s a new, unproven market, SaaS 2.0 often doesn’t work because new markets need armies of sales people to get the new type of product in front of a buyer that’s never used it before. One of the key benefits of sales people is that they help orchestrate the sale and initiate the change management in the customer’s organization. Change management is hard and sales people help create the urgency to make it happen.

SaaS 2.0 products, typically being self-service, are best resegmenting an existing market where the value is known and the incumbents deliver an outdated customer experience.

What else? What are some more thoughts on the idea that SaaS 2.0 companies often resegment an existing market?

Examples of SaaS 2.0 Companies

After talking about the The Next Generation Competitor to Every Public SaaS Company, it’s clear a better name for it is SaaS 2.0 companies. SaaS 2.0 companies are API-first, have rich, responsive UIs that are more conversational in tone, have approachable pricing models that are more flexible than the incumbents, and have a modularized platform so that customers can purchase only the features they need. With this definition in place, several people have asked for examples of SaaS 2.0 companies:

  • Intercom – Customer communications platform that’s one of the fastest SaaS companies to go from $0 to $50 million in revenue (see notes on Intercom’s growth)
  • Groove – Simple help desk software with a passionate following (read their blog)
  • Calendly – Schedule meetings without the back-and-forth emails (an amazing product!)
  • CallRail – Call tracking for data-driven marketers
  • MailChimp – Beautiful email marketing

Look for more SaaS 2.0 companies to emerge that reimagine the entire experience in a new, more personal approach.

What else? What are some more examples of SaaS 2.0 companies?

Characteristics of Successful SaaS Products

Recently I was having a conversation with an entrepreneur about the most common characteristics of successful SaaS products. Thinking about some of the largest SaaS companies, including, NetSuite, HubSpot, MailChimp, WorkDay, and Zendesk, there are a number of similar product attributes:

  • Workflow System – End-users use the app on a daily basis and “live” in the product to do their job. Daily active users are key.
  • Clear ROI – The product’s value is inextricably tied to a return on investment making it a must-have and not a nice-to-have.
  • Multiple Markets – The product is applicable to a wide range of companies in multiple markets. Typically, it starts out more niche, gains traction, and then expands into adjacent markets.
  • Account Expansion – Upsells and account expansion outweigh churn. Product value grows as usage grows (e.g. more seats/users, more transactions, etc.).

The most successful SaaS products have these four characteristics. When evaluating product ideas, consider these attributes and assess the potential.

What else? What are some more characteristics of successful SaaS products?

Benefits of Sales Territories in a Startup

After the post on Startups Should Avoid Sales Territories, several people reached out and offered reasons why they like sales territories for startups. Here are a few benefits of sales territories in a startup:

  • Face-to-Face Selling – With up-market, enterprise deals, prospects often expect some amount of face-to-face meetings, and that’s easier being in a specific territory.
  • Coordinating In-Person Meetings – Even with an inside sales team, some companies do quarterly trips to major population centers for relationship building (e.g. hey, I’m going to be in Atlanta next week for two days, do you have time to get together at your office for 30 minutes?). With reps working specific territories, it’s easier to meet with multiple prospects on the same trip.
  • Reputation in the Local Community – Another element of sales territories is to have field sales rep that lives in the territory. By living in a major population center, it’s easier to build a reputation in the community and work through a variety of civic and philanthropic channels to build rapport.

Overall, sales territories still should be avoided for most startups. Startups that have significant scale and/or large deal sizes that warrant face-to-face selling are good candidates for sales territories. Otherwise, it’s better to take advantage of the latest sales and marketing technologies to achieve greater levels of sales productivity without territories.

What else? What are some more benefits of sales territories in a startup?

Startups Should Avoid Sales Territories

Recently I was meeting with an entrepreneur who’s startup is growing nicely. They just raised a round of financing and will be expanding the sales team. After catching up for a few minutes, he asked about implementing sales territories and I recommended against it.

Here are a few reasons most startups should avoid sales territories:

  • Distribution of Best-fit Accounts – While sales territories are often divided based on certain states and their corresponding population centers, in actuality the ideal customer profile isn’t evenly distributed. Apps can automatically find the total addressable market and build smart lists of the best-fit accounts. Having each rep work a set of named accounts ensures all best-fit accounts get worked, not just the best in a certain territory (e.g. 250-500 accounts per rep is recommended).
  • Growth in Sales Reps – As the startup grows, and hires more sales people, territories for existing reps must shrink to make room. Shrinking territories results in disillusionment for the existing reps and creates ongoing realignment challenges.
  • Inbound Lead Distribution – Just as the ideal custom profiles aren’t evenly distributed across territories, quality inbound leads aren’t evenly distributed either. By not having territories, inbound leads can be qualified and parsed out in a more dynamic fashion.

Sales territories are a relic of the pre-internet era and no longer make sense for most startups. Entrepreneurs would do well to avoid sales territories and take advantage of the opportunity to target the best accounts anywhere, not the best accounts in a certain territory.

What else? What are some more reasons startups should avoid sales territories?

Taking a Customer Up the Value Curve

One of the popular startup strategies is getting in the door with a customer at a basic level and then upselling them with more functionality so they get more value. Best known as taking a customer up the value curve or the trojan horse strategy, the key is providing value quickly to start building the relationship before working towards the more complex solutions.

Here are a few thoughts on taking a customer up the value curve:

  • Start Quick and Easy – The consumerization of IT is real. Companies want the ease-of-use and feel of a consumer app to solve their business problems. Enable the customer to start quick and easy.
  • Provide Real Value – Quick and easy onboarding doesn’t matter if the product doesn’t provide real value. Ensure that it’s a must-have and not a nice-to-have.
  • Make Upselling Product-Native – Once the customer is in and getting value, incorporate nudges and upsells natively in the product. The most common example of this is an “invite people” feature to add more users in the product.

Entrepreneurs would do well to think through ways to take customers up the value curve and ensure a thoughtful approach.

What else? What are some more thoughts on taking a customer up the value curve?

Professional Services in a Startup

At Pardot we debated internally whether or not we should offer professional services to our customers. Our services team did an amazing job with implementations and onboarding while our customer success team regularly checked-in with customers to proactively help. Only, customers would ask for more services like custom work with email templates, inbox deliverability, landing pages, and nurture programs. Our recommendation: work with an agency partner.

In hindsight, we missed out on an opportunity. Startups should have a professional services strategy. Here’s why:

  • Stronger Relationships – Professional services are a great way to build stronger relationships with the customer as it requires more one-on-one time and a deeper understanding of their business.
  • Additional Revenue – Professional services result in a new revenue stream. While not as high margin as SaaS, professional services often has strong margins, especially when done as a true add-on (some services are a loss leader to make a product sale). One key point: services revenue shouldn’t be more than 20% of total revenue otherwise the company doesn’t look like a true SaaS business.
  • Product Ideas – Professional services becomes a day-to-day user of the product resulting in more product ideas and use cases. This internal team acts as a new customer voice.

Entrepreneurs would do well to develop a professional services strategy for their company, especially when there’s enough scale and existing customer demand to make it worthwhile.

What else? What are some more thoughts on professional services in a startup?