S Curve in SaaS: Growth, Inflection Points
Napster, Yahoo, Netscape, Myspace – all of these companies have once been giants in their respective industries. But now, they’re either dead or shadows of their former selves.
What happened? How could these dominant players fall when they dominated for years?
They were so ahead of the pack that their competitors today weren’t even in existence when they held their market decades ago.
The short answer is lack of innovation.
The founders of these companies have no real vision for the future. And as a result, there was no roadmap for their growth.
Today, they simply stand as a cautionary tale for any company trying to scale the treacherous path of success. To navigate this path, you first need to understand what’s known as the s curve of business.
And since this site focuses on the SaaS industry, we’ll try to confine our discussion to this specific market. Let’s begin with the definition of the S Curve.
What is the S Curve of Business?
In its simplest form, the S Curve is a mathematical graph outlining the growth of a business over time. By monitoring this graph, it allows you to evaluate a business’s performance and pinpoint crucial areas where growth is expected to fall, stall, or climb.
Thus, due to businesses experiencing different challenges, the S curve isn’t always followed. But once a sound strategy has been identified and implemented, the curve will start to form.
And once it does, you need to properly monitor your marketing and sales strategy, among other things. Again, we’ll be focusing our attention on the SaaS market and how you can use the S-Curve to achieve success in the space.
S Curve in SaaS: Generating Momentum
As with most SaaS startups, you begin by developing a product-market fit. We’ve expanded on that topic here.
Put simply, product-market fit in SaaS is creating a solution that’s needed by a particular audience. This makes a lot of sense in hindsight but you’ll be surprised how many startups fail to follow this procedure.
After developing the product, you’ll want to create a sales pipeline for your solution. Here are the steps followed in SaaS:
Similar to most businesses, one of the concepts that govern this sales funnel is behavioral marketing. Each stage of the buyer’s journey will heavily depend on the data you’re collecting from your audience.
Then you act upon the information yielded by your research. Here, your sales and marketing team needs to move in unison to transfer a potential client from the awareness stage all the way to the advocacy stage.
Always evaluate the effectiveness of your sales funnel to identify stall points and bottlenecks. Doing so will smoothen the entire procedure and you’ll create a loyal customer base consistently.
And as your client numbers grow, you’ll see on your chart the first sign of the upward swing.
You’ve now gathered enough momentum to drive growth. It’s time for the next phase.
After generating momentum, your next challenge is maintaining it. And for a SaaS business, that involves several factors.
These factors include:
- Refining your business model
- Determining existing and projected customer pain points
- Planning for the changes you’ll need
- Adjusting strategies based on collected data
Refining your product
Here, SaaS startups that are experiencing the first trend of an upswing need to continuously refine its product. At this stage, you’ll mostly have early adopters using your solution.
Gather information on how they’re using your features. Better yet, identify which features aren’t being used at all and why this is so.
Is it too complicated? Then you’ll need to improve your tutorial videos for it.
Is it irrelevant to your early adopters? Maybe you’ll need to come up with creative strategies where the feature can help.
The idea here is to identify areas where you’ll need to improve. Remember, your main goal is for your product to be a staple for your customer’s daily operations or regular campaigns.
You want them to rely on your product to a point that their company can’t thrive without its features.
That’s not a problem for early adopters since they most likely have gotten your solution through lifetime deals. They can afford to not integrate your solution into their usual operations.
But once you start getting clients who are paying monthly fees, your refinement strategy will come into play.
Simply put, you’re preemptively protecting yourself from the future monthly churn and annual churn.
Determining existing and projected customer pain points
Pain points are one of the major reasons why customers churn. As a result, it could derail the momentum you’ve worked so hard to achieve.
In SaaS, one of the most common pain points is poor user experience. That could be due to a complicated user interface, lackluster customer support, or irrelevant features.
To find these pain points, you can either ask your early adopters or monitor your community. You should also keep an eye out for recurring pain points then rank them accordingly.
This allows you to focus on the most prevalent pain point, which could contribute to your churn rate.
Moreover, as you continue to expand, you’ll need to brainstorm possible pain points in the future. Ask questions like:
Can my existing customer support handle X amount of clients?
If this feature gets added, will it affect other aspects of the tool?
If it does, how long can we fix it?
Is our user interface smooth enough for our customers?
Are our subscription plans attractive to potential customers?
Planning and executing the changes you’ll need
When making changes to your tool, be it minor or major, always assume for any disruptions. And try to implement the changes on hours when your customers aren’t using your product.
What’s more, you’ll want to give your customers a heads-up through your community platform. This might even generate excitement among your users, which could help with customer engagement and marketing efforts.
Adjusting strategies based on collected data
Once the changes have been implemented, monitor how they affected your product.
Do your customers like the changes? Are you seeing increased usage of the new feature? Or is the overall user experience declining?
Gather as much data as you can to determine the impact of these changes. Only then can you make informed decisions when making a response.
As you can see, these four steps cycles repeatedly as a SaaS business grow.
You’ll continue to improve your product, plan improvement, execute these upgrades, collect data, and go back to square one.
But there will be challenges along the way…
While upswings are great, they’ll inevitably taper off. This momentum loss is an event called inflection point, which could be caused by external or internal factors.
For the former, it could be due to:
- A recession (global health crisis)
- Regulations (GDPR)
- Or a new superior SaaS product with a competitive price has emerged
For the latter, it could be due to:
- Poor customer support due to sudden customer influx
- Bad scaling strategies
- Or failing to react to major industry trends
Since an inflection point is a consequence of growth, there’s no way of preventing it. As such, most successful businesses plan for these events before it takes place.
By doing so, a SaaS company could mitigate the damage and adjust its needs based on the cause.
If properly handled, it could contribute to another upswing for your SaaS company. If not, it could cause stagnation. Or worse, company collapse.
So how do you plan against an inflection point?
Strategizing for Inflection Points
As mentioned earlier, inflection points are a normal part of a SaaS business’ growth cycle. Do not panic once you see your growth slowing down.
Instead, go back to the drawing board and evaluate areas where you can increase your growth rate. There are several ways to do this.
Introducing a New Feature
Introducing a new feature could either be “new” in the context of your service. Or new in the sense that it’s a feature that only exists in your product.
The first one is pretty straightforward. After all, if the feature already exists in other services and can improve the process of your solution, chances are your customers will be heavily requesting it.
The second option is far more difficult as you’ll be creating something novel, something original. Of course, the feature doesn’t have to be groundbreaking.
It only needs to be useful for your target audience.
It could be as simple as a feature that saves your client a couple of clicks when collecting keywords. Or maybe it’s a writing tool that helps with sub-headline creation based on the topic being covered by the writer.
The last feature would be great for the content marketing strategy of a B2B SaaS. And since content is a staple for any online business, it has the potential to skyrocket your revenue growth.
That is, of course, the proper development for the feature is followed.
Upselling to Your Current Customers
One of the best ways of dealing with an inflection point is upselling to your current customers. It’s a well-established fact in the SaaS industry that acquiring new customers is far more expensive than retaining a current one. Five to one, to be exact.
So it’s unsurprising that successful SaaS companies focus on upselling rather than getting new customers.
Sure, new customers are great for growth. But you’ll want to prioritize retention rates to increase your annual recurring revenue (ARR).
Besides, it’s easier to upsell rather than closing leads.
Your existing customers already know who you are and the value of your service. There’s no need to brag about your features or how engaging your customer support is.
There’s also the fact that once you upsell to your customer, they’re less likely they are to churn. Why wouldn’t they renew their subscription after they’ve agreed to pay more for the service you provide, right?
And once your increase your retention rate, you’ll also increase your revenue growth. All of these benefits come from upselling alone.
That’s not to say that upselling is easy. But it will be if you’ve taken the time to take care of your client as early as day one.
Expanding Your Sales and Marketing Team
When you’re experiencing rapid growth, you’re likely going to need to expand your sales and marketing team. But always take the time to evaluate your applicants.
Remember, a SaaS company needs to focus on customer success. So develop a company culture around this idea.
When you’re hiring, try to find applicants that will embody this culture. To achieve this, let’s take a look at why Zappos is considered a game-changer in its industry.
Zappos – The Offer
Now, there is plenty to talk about when it comes to Zappos’ exponential growth. But we’ll be focusing our discussion on one thing in particular: The Offer.
You see, Zappos’ business model is selling shoes and delivering them right to the doorsteps of its customers. And their service is so phenomenal that they’re inundated with phone calls every single day.
That means employees have to answer a flood of phone calls consistently. It’s a difficult job that would burn most people out.
So what did Zappos do?
Zappos provides a four-week training period for its new employees to join its rank. During that time, that trainee is paid their full salary as if they’ve already been hired.
Once the training is completed, it’s time for “The Offer.”
On top of the four-week salary that trainees will receive, Zappos will give them a 1,000-bonus if they quit. You’ve read that right.
Zappos is bribing its new hires to quit. Why?
Well, this is Zappos’ way of weeding out new hires who don’t embody the company’s customer-centric culture. They’ll pay now to filter out its trainees and find that motivated soul that would eventually contribute to its future success.
This is how Zappos achieved exponential growth. Of course, this isn’t the only avenue that Zappos uses.
It also doesn’t provide scripts, has no call-time limit, and drone-like behavior is prohibited. By doing so, the customer feels they’re talking to a person rather than someone reading a pre-written conversation.
As a B2B SaaS, you could mimic this strategy, especially considering you’re heavily reliant on customer retention. Customer support should be one of the pillars of your company.
Pair that with awesome product features, a smooth user interface, and a clear software roadmap and you’ll be golden.
S Curve in SaaS: Continuous Loop
Once you’ve surpassed an inflection point, you’ll experience yet another growth rate surge. And then another inflection point will present itself, which you’d be dealing with again.
It’s basically a loop that keeps on repeating until your SaaS company reaches unicorn status. This is why the S curve in SaaS is closely monitored to determine where a company is on its journey.
They can make informed decisions and make educated predictions when an inflection point will hit. As such, preparation and expansion are planned out in advance.
Sure, there are still factors that could blindside you. But by identifying elements that you can foresee, you’re taking out predictable outcomes off the table.
You’re now left with scenarios that you have no control over. And if you can’t foresee it, chances are your competitors can’t too. The playing field is now leveled.
That’s the beauty of the S curve in SaaS.
If you’re interested in more SaaS strategies, visit our blog here.