From “feature” to “product”
What is it?
When they start, most founders initially focus on building a “limited scope” product (in terms of features and what it can do) because they have limited resources. And it sometimes happens that with this “laser focus” product they find a first strong product/market fit and grow fast. The product does one thing, but very well and users love it. In a way, it’s more a “feature” than a “product” (please don’t take it as an insult, I’m not inferring that products with limited scope are inferior).
The “growth ceiling” can appear later, once they have reached the market limit of the particular use case they tackle. Depending on the pain point addressed, it can happen at a few tens of thousands of dollars of revenue or several millions of dollars of revenue.
How to prevent it?
In general, founders try to solve this problem by either adding more features/building a bigger product or by finding new use cases where they can apply their existing technology.
Adding more feature/building a bigger product. This strategy sounds obvious, but It’s a very tricky and difficult transition to achieve. Evolving from “feature” to “product” is something that can kill a company. Why? Because it’s very hard to integrate new features without breaking an existing product (the “swiss army knife” syndrome), it’s hard to market a different product, it’s hard to keep your existing customer base, and it very often makes you suddenly compete with bigger players (you were the king of your niche, and now you have to face 800 pounds gorillas). If you want to analyze a company that conducted this transition very well, you should look at Intercom’s playbook and how they evolved into a suite of stand-alone products.
Existing technology applied to new use cases. An excellent example of this strategy is Mention (a former #p9family company). The product started as a “Google alert on steroid” monitoring keywords on the web. They used their existing technology to monitor more and more channels such as Twitter, Facebook or Instagram. Again, it sounds easy, but it’s not. Even though they didn’t need to build a new “engine” from scratch, it took a lot of work to adjust properly the product and the marketing to address the needs of different types of users.
Adding a sales model
What is it?
This is a very common theme amongst SaaS startups hunting mice and rabbits: they have a great product, grow fast, but finally reach a scale where it becomes too hard to increase user acquisition. When a new customer brings you 20$/month and that you are at several millions of dollars of ARR it’s tough to maintain your growth.
How to prevent it?
It’s the reason why many SaaS companies initially chasing mice and rabbits, start to hunt deer and elephants, a.k.a go up market. I cover this topic in more details in this post, but adding a new sales model can also kill a company as it impacts not only product, marketing, and sales, but also the company’s internal culture.
And there’s no secret, the companies which successfully achieve this transition are the ones who have founders who manage to set up the right sales organization themselves (you cannot outsource it) and are able to hire an exceptional sales team to make it grow.
Distribution channel dependency
What is it?
The last situation I want to cover concerns distribution channel dependency. I already saw early stage-SaaS companies grow nicely to their first couple hundreds of thousands of dollars of ARR mainly because one of the founders was very skilled with a specific acquisition channel (SEO, SEM, content marketing or else). The ceiling appears once they reached the limit of this channel (in terms of acquisition) and have no organic growth in parallel.
How to prevent it
I cover this topic in this post, but a common denominator of many fast-growing SaaS is a robust organic growth complemented by one or two paid distribution channels. What is organic growth? It’s all the new users who are coming, but you don’t know from where :-). It can be because people write about you on the web and it creates a lot of inbound links (“organic” SEO), because your product is shared in many newsletters and you see a lot of users coming from the “email source”, because people recommend your product to their friends and arrive directly on your website (direct source), because when people see you product used by other people they are curious and want to try it (“powered by”) etc…
Unfortunately, there’s no silver bullet to create organic growth. It comes back to your product and to having a strong product/market fit (your product answers a real pain point in an efficient way). If it’s not the case, it can be challenging to maintain your growth once you’ve reached your main “paid” distribution channel limit.
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