Written by our Master Pieter Jan Doets
Over 80% of all software start-ups fail. And those are just the new ventures that don’t make it. I am not yet considering the number of failed product launches by already established entrepreneurs. As you can see, successful SaaS businesses are a true rarity.
Usually, the issue is not the development of a SaaS product itself. Putting it on the market however, brings out the obstacles. The vast majority are not successful. The Traction Gap illustration below shows the stages a SaaS product goes through to achieve its intended success:
During this Traction Gap, High Tech companies (such as SaaS and Software companies) also have to deal with 7 additional obstacles (core challenges). Each of them has to be overcome to further grow the business. In this newsletter I will explain each of these 7 obstacles, complementing them with a corresponding key to ensure getting the obstacle out of the way.
The end result? More business value, revenue, predictability, growth, market share and in the ultimate scenario; market leadership!
”In recent years I have helped many Dutch SaaS and software companies to grow in value and revenue. As a process facilitator, I challenge leaders and management teams to reflect on strategic decisions on a regular basis. This allows them to make the right decisions and to achieve predictable growth. It has led to market leadership, international success and increasing competitiveness for my clients! I am happy to share my knowledge and experience in this newsletter, hoping to inspire you and help you to grow rapidly and achieve market leadership.” Pieter Jan Doets
Obstacle 1: SaaS product does not sell
New SaaS products are introduced by the bucketload. Why do some products sell and others don’t? The largest obstacle is often the match with the target group. The question is; does the product solve an existing problem of this target group? Or does it solve a new problem that is immediately recognized by them? And above all, does the target group see the problem as something important and urgent? In short: is the product/market fit the right one and does it match the proposition?
A poor product/market fit reveals itself by difficulty in finding and activating new (paying) customers and active (channel) partners. It may well be that during the development phase of the product too little thought was given to the problem of the target group. As a result, the product is not adapted enough to solve that specific and urgent problem. Another possibility is that the solution offered is not rightly communicated to the market so they don’t recognize the product as the holy grail for their problems.
? With a poor product/market fit and/or weak proposition, the product lacks ‘breakthrough’ competitive strength. By examining the value proposition and tailoring it to the target group, it can be made more powerful, more convincing, more urgent and more strategic. The main competitor of this obstacle is often the current “status quo” solution that the customer is using. With a breakthrough proposition you simply ‘blow away’ this used solution and invite the prospect to try your product.
Obstacle 2: Losing prospects
Customers make grateful use of the free entry-level product, but as soon as they have to pay, they drop out. What’s going wrong? When, and most importantly, why do they drop out?
Every customer follows a so-called “customer journey”, the journey to gradually develop from a prospect into a lucrative and longterm client. If this customer journey is not properly aligned with the wishes and needs of the target group, customers will not complete the journey and will leave halfway. Keep in mind that, before a customer will actually make a purchase, he needs to have an average of 8 to 12 contact moments with an organization.
? With this obstacle it is important to critically examine the customer journey. To fully match the wishes and expectations of the ideal customer. By measuring the conversion in the so-called funnel*, it is possible to discover at which points most prospects drop out. By tackling those points step by step, the funnel is optimized and conversion increases. In each step, think of a way how you can make it extremely attractive for the potential customer to move on to the next step.
*A funnel is a series of steps (moments of contact) that a visitor must go through before a conversion will likely be achieved.
Obstacle 3: Customers leave quickly
With this obstacle, the product is sold successfully and the customer journey works well. And yet; customers do not stay longer than a few months. They won’t purchase an annual subscription and are not a lifetime customer. What to do?
? When this happens, it is important to put yourself in the shoes of your ideal client. Determine the most important results that they want to achieve with the product. Prioritize these results and successively ensure they are within reach for your client. This can be done through adjustments to the product or through additional services/partner solutions. It will increase the motivation for continuous use.
There is a good chance that a ‘repair’ for this obstacle will also provide reinforcing insights for the two previous ones. Remember that the customer buys ‘a result’!
Obstacle 4: Sales stagnate after successful launch
The Innovators and Early Adopters in the target group have embraced the new solution and are enthusiastic. But somehow it seems impossible to capture the (Early) Majority and thereby conquer the largest part of the market.
? The Majority are much more conservative than the Innovators and Early Adopters. They have a different purchase motivation and are less prone to take risks. Connect to their specific motivations; provide evidence and additional guarantees, remove or mitigate risks and support services and training. Make it easy for them to start and make the product accessible to middle management (both in use and budgetary).
Obstacle 5: Transition to other market segments failed
The SaaS company is very successful in current market segments, but as soon as you want to step sideways and conquer other segments, all kinds of obstacles are in the way. It seems impossible to enter other market segments.
? Each market segment has its own characteristics, wishes, needs and purchase arguments. It is important to use a different strategy for each segment. Take small steps:
1. Investigate the buying reasons in the new market segments.
2. Identify the similarities between the segments in terms of buyer needs.
3. Choose at first the segment that most closely matches the current segments that are successful.
4. Adjust the proposition and market message accordingly.
5. Carefully test the adapted strategy in face-to-face conversations with potential customers.
Obstacle 6: Upsell fails
It seems to be going quite well, current customers are staying for a long time and are purchasing annual subscriptions. But it is always the smallest subscriptions, the paid low-end products.It seems impossible however, to tempt existing customers to higher and/or additional spending. What is the key to success with this obstacle?
? This key also consists of a number of steps:
1. Create a profile for the ‘ideal large customer’.
2. Determine the number of current customers with sufficient growth potential to become this ideal customer.
3. Sort the product versions. Look at the logical decision moments; when does a customer need the extra value of the larger plan? What pain does it take away? What result does it offer the client?
4. Align communication between the current and next phase.
Obstacle 7: Upscaling is a major challenge
The growth is solid, but the company is not able to really break through internationally. This often has to do with the choices made in terms of products, sales channels and organization.
? For a successful internationalization it is important to first prepare a ‘soft landing’. Existing customers in the current region who are also active in the new areas can be actively used there as a local reference.
? Some products are highly subject to local differences (eg financial software). It is then advisable to choose local value partners who know the market and have the contacts. They can realize the adaptation and introduction. Prioritize the regions and follow through with recruiting partners and making them successful.
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