This is a guest post by Draper Esprit, the first tech-focused VC not tied to five-year cycles, backing brilliant teams in Europe.
The cloud/SaaS “revolution” started with large enterprises. To tackle these kinds of businesses, SaaS companies needed large, expensive, field sales teams who would take months to close large enterprise deals, selling to CIOs. Those kinds of companies just couldn’t justify spending those precious and expensive sales resources to chase smaller contracts with less sophisticated buyers.
But this is no longer the case. Millennials and digital natives now make the bulk of the workforce and control an ever-larger share of software spend. Those workers come with high user experience expectations built upon the consumer side: they think of their interactions with products such as the iPhone, Uber, Facebook, and Airbnb and transfer those expectations to the technology they use in the enterprise. When the people who use these products at home, turn up at work, they don’t leave this behind them. If anything, today’s users are more demanding, less loyal, and looking for a higher quality of experience than before.
Furthermore, in the last 12 months, we have also seen an increasing number of companies injecting a marketplace element to their SaaS offerings (or a SaaS element to their marketplace). This allows the companies to improve margins, stickiness, and create positive network effects. The phrase coined by Chris Dixon “come for the tool, stay for the network” comes to mind. Companies such as Meero, Shedul or Doctolib are examples of that model.
So what does this mean for SaaS startups today?
The first is that there is a new, massive opportunity. Teams, divisions or SMBs are within reach of SaaS companies that have cracked how to combine B2C marketing approaches with low touch inside sales to make the LTV/CAC equation work for $3k to $30k (initial) annual contract values (ACVs).
This is important as it:
- opens large new customer segments, e.g. the SaaS SMB market is expected to become larger than the enterprise SaaS market.
- creates potentially more profitable and less risky entry points into large $1m+ enterprise contracts, with CIOs taking notice when software is being used across various departments and groups, (which is a strong case for group-wide contracts).
Some of the fastest growing cloud businesses have spawned on the back of this approach and we believe there are many more to come. Slack is a great example. Instead of selling into management, Slack, instead, offered a free tier which enabled individual teams to use their platform. The first adopters within the company became Slack’s influencers to then upsell for the wider opportunity. The ease of use, and the fast set up time meant teams could adopt their product in a friction-free way, without requiring further support. The usability of their platform was a key driver of their success, and their UX can’t be understated for its role in Slack’s success.
The second is that SaaS businesses need to re-think how they market to their customers. Brand building and consumer experience are no longer the sole preoccupations of consumer marketers. Customers are humans, whether you are selling them shampoo or a new CRM. Take one of our own portfolio companies, Perkbox, as an example. Perkbox is an HR software company which sells into large enterprises. Their CMO and co-founder, Chieu Cao, explained how they used B2C marketing techniques to sell a B2B product. Instead of solely focusing on the buyer, they built an army of advocates through effective Facebook campaigns. Soon, employees were asking their HR for the perks they could get through the Perkbox platform. Channels such as social media, and broader brand building, might not seem obvious techniques, but they can often be much more effective than you would assume.
Ultimately, the start-ups that will win are those building products that are a joy to use. A product that makes life easier, improves results and even elicits an emotional response that will become deeply embedded in a person’s workflow and grow organically within an organization implying low churn and massive upsell opportunities. The winning SaaS companies of tomorrow will be those that can harness this, give their customers a friction-free experience and message to their buyers as humans, rather than anonymous grey suits.