Key insights from scaling SMB SaaS companies
We will be coming next month with a white paper on the seven strategies for scaling SMB SaaS companies. In the meantime, here are four key insights I have observed in the trenches for scaling in SMB.
1.Business owners have no time
Small business owners wear many hats. From the biggest decisions to the most menial tasks, they are responsible for all it. Despite all the advances in technology, business owners are as pressed for time as ever. This has important implications for how you build software for them.
If your software is complex and requires high engagement from the business owner in order to see the value, it will fail. There are only two paradigms that work for the time-strapped business owner: automation or do it for me.
Automation — with machine learning getting better every day, one clear path for software design is to build simple black boxes. Software that does one thing very well. No engagement required. I just trust it and it works.
Do it for me — Not all software can be reduced down to fully automated solutions (yet). More complex software needs to be matched with service providers that can do the work for the small business owner. In many cases such as accounting and website design, the market for services around the software is many times larger than the market for the software itself.
This is where the bulk of the market is. Recognize that the small business owner has no time and make sure you offer the complete solution that the owner can pay for without incurring additional demands on her time.
2. Growing fast is expensive
According to the Kaufmann foundation, there are 3 million new businesses started every year. This creates a large, evergreen market. Presumably some number of those businesses will need your software.
However, to grow at 2x or more of the natural growth rate of the overall market requires paid customer acquisition. SMB SaaS math relies on a heavy dose of organic (free) user acquisition. If the ratio of free vs. paid acquisition skews too much towards paid then your overall blended CAC starts to climb. Given the lower revenue that comes from SMB customers, your overall customer math can start to go off.
This is why many early stage VCs struggle with the SMB market. It is hard to grow at the rates they are looking for (2x, 3x per year).
3. NPS is key
Net Promoter Score (NPS) is a key measure in any business, but particularly in ones that serve SMB. This is because, as already mentioned, SMB SaaS companies rely on free organic customer acquisition to make their overall unit economics work.
The key to driving high NPS in SMB is to offer customers the complete solution — a great, simple product, matched with great customer support.
Many companies think they can’t offer support to SMB customers. The reverse is true. If you don’t offer support, you will be out of business. These customers have no IT deparment. You are their IT department. Offer the complete solution and drive your NPS.
Make sure to continually measure NPS. Many companies do it in app every month.
4 Help your customers grow
Over the years I have seen two broad buckets of SaaS applications — ones that save the user time and ones that make the user money.
Time savers/ productivity applications are everywhere. Ultimately, with these products you are competing with the status quo (or more specifically with MS Excel). The bulk of the market just doesn’t feel the pain accutely enough to bother subscribing for your product. It’s hard to build a big, meaningful company when all you do is save your users time.
Conversely, every business wants to grow. If you actually make users money then they will never turn you off. Find ways to help your customers grow their businesses!
About SurePath Capital
Based in Toronto and San Francisco, SurePath Capital Partners is the only investment bank focused exclusively on the global SMB software market. We work with sellers in this market to ensure they are funded for growth and positioned for meaningful exits. In addition, we work with buyers in this market to help shape their strategy and execute acquisitions.