Updated: Oct 12
Problem Solving Falls Short
Some SaaS entrepreneurs first focus on solving a business problem, then executing it with a software tool, which they are eventually to put on the cloud. Industrious entrepreneurs will have already built a PoC - Proof of Concept - and push it to a few early adaptors, to see if indeed the product works as advertised, if customers' needs are satisfied.
This, essentially, is the engineer's approach: Solve their problem, and thou shalt be saved... But is it enough? Does it also solve for customer acquisition? Will you succeed in exposing prospective users to your product, so you can run them through your sales funnel until they are enlisted as paying customers?
Hardly. Some SaaS entrepreneurs are stuck right there: They have a great machine on their hands, yet not enough customers coming through the gates, this resulting in slow growth.
To a certain extent, the SaaS machine they built solves other business' problem, though not their own, which is closing new customers.
Moreover, oftentimes you will hear from entrepreneurs that the sales process - from lead generation through validation, nurturing and closing - will be delegated to a future hypothetical marketing operation, which would be mounted sometime, "when we get the funds".
Will they get those funds?... And can you do better?
SaaS - Automated Value Delivery
Depicted above, a schematic diagram of a SaaS operation: A collection of functions run on a cluster of servers, to be accessed by a variety of clients over the internet.
Users log in, view and manipulate remotely stored and cached data, with computations held somewhere - either on the client device, on the provider's server farm, or maybe by a 3rd party.
This has become the standard way in which SaaS products deliver value to their users - be those service provides, end users, advertisers.
What we don't see in this diagram, is the funnel feeding new prospective customers to this machine.
Customer Acquisition Funnel
The above acquisition funnel applies to digital products. It describes the customer journey, from first exposure to your product, through learning about its benefits and usage, planning for purchase, and eventually making it.
Accounting for the expenses you have to invest to draw target audience to your product reveals your customer acquisition cost (CAC). Add in your expected net revenue and life time expectancy, and your Customer Life Time Value would emerge.
The growth model, fed back from generated revenue, while showing scalability, will allow you to plan total revenue and eventually your contribution margins.
The digital world enables on-line marketing, where targeting, reach-out are done via internet. In recent years, we have seen the rise of several strategies, from cold calls, email marketing, through content, social network marketing - manual and automated, all in order to nurture leads so that they become users.
Some of these strategies require investments in tools, infrastructure, personnel, and managerial attention. Such investment require cash and time.
Can early stage SaaS entrepreneurs lay the ground for such efforts early on? Are there corners to be cut? And what would be your benefits, as an early stage entrepreneur?
Shortcomings of Guerrilla Tactics
Now let's discuss an investor reviewing two early stage SaaS companies. The first is brimming with promise, with a great target market, well defined user personae, clear use cases. The second may or may not have all those. However, it does have something else: A steady flow of incoming users.
This may prove to be a decisive difference, for the second company established its ability to draw customers, quantify what is the initial customer acquisition cost, and even establish the Customer Live Cycle Value - a key parameter for SaaS future growth and success.
Oftentimes, early customer acquisition is based on guerrilla tactics, where entrepreneurs physically, personally, talk to businesses and consumers they would like to enlist as customers.
This is great for initial user feedback, for validation of the technology.
However, until significant numbers of users are accumulated, one cannot really test for traction, usage patterns, engagement, or network and viral effects.
Further, it does not show how the venture would scale, both on organic or acquired leads. This is the case for B2C ventures, where their strength lies in large numbers, as it is with B2B products, where their challenge begins with long sales cycles.
Investors, aware of this problem, require significant traction even from early stage startups - exactly for these reasons: They need market, as well as technology, validation.
Can you build an automated funnel, right off the start? Can you establish the market and growth validations your investors expect?
God And The Lottery Ticket
An old adage tells about a believer who came to pray at the weeping wall: "O God, please, PLEASE let me win the lottery - I really need the money, and I've been waiting for this to happen for AGES".
A still, small voice then uttered "You might as well buy a ticket".
This message of self-dependence echos frequently in investor feedback to early stage SaaS companies: Show them traction first, talk about money later.
The need is then clear, to develop early strategies for user acquisition, to provide initial proof there is an addressable market, and that your SaaS can actually reach them.
1. Sign-On button: The easiest, obvious, tip would be to integrate a Sign-On button on your landing page. The leap from manual, door to door marketing, to a self service user acquisition process starts with a tiny addition to your homepage:
Salesforce's homepage offers "TRY FOR FREE" button, as well as a free phone
Amazon's AWS homepage: "CREATE AN AWS ACCOUNT" button
Pagewiz' homepage offers "SIGN UP FREE" button
2. Trial periods and freemium accounts: Choose carefully which one to offer, but make sure prospective users get to taste the product. A value delivering experience is your best ambassador to customers' hearts (and wallets).
There are many issues to consider, though.
Complex integrations typically bear costs even when a free trial is offered. Is there a point in offering a "Free" trial in this case?
Can you sustain the operating costs before they start paying?
Steep pricing curb is another phenomenon: What's the point in a free tier when your next plan is worth hundreds of US dollars per month?
Pricing opacity is to be considered as well: Prospective customers might be more willing to invest efforts in learning your product when they understand your pricing structure up front.
3. Initial acquisition funnel: Customer acquisition is a costly business. Find ways to generate initial traction, that would hint about your future pace. You could register your product in one of the large vendors' marketplaces: Amazon AWS marketplace, Shopify's marketplace, are good examples that generate traction without additional effort. PPC campaigns, Content marketing are your next options. Can you start them small, to test the water?
4. Billing: All important, this is one of the major topics in any SaaS oriented entrepreneur discussion. It requires significant effort: Technical, business wise, legal, and regulatory issues could require weeks on end to solve. However, offering a billing option closes the loop, and allows you to show for financial viability of your SaaS, at least at small scale. As you accumulate metrics, you'll have your prospective investors' confidence built up.