Your brand is going to be your biggest acquisition channel — Invest in it

Notes from trying to grow SaaS products from India

(Written with Abhishek Madhavan, who was working on this with me before he was distracted by another side-project of his — Loco.)

If you had a SaaS product in India five years ago, you had a fairly straightforward path to initial growth.

First, of course, you figured out product/market fit. Once that was achieved, you figured out the marketplaces and aggregators that were relevant to you and made sure you had a good presence there. You did some PR, you got the word out in your circles. You tested and produced a few landing pages, made sure they had good SEO, and slowly ramped up your paid marketing spend. You hired a couple of people to write great copy and content.

All of this was (and is) not easy to do. It would take time, effort, and leadership, but if you did these things fairly decently, very rarely would your product not go from zero to somewhere.

However, if you do the same things today and expect to grow the same way, you are in for a surprise, and it’s not a good one.

It won’t work anymore

In SaaS, one of the most important metrics is what we call the CAC, the cost of customer acquisition.
Simply put: Keeping CAC as low as possible is an important KPI for your marketing team. By doing the things pointed out before, you could hope to keep the CAC low, and move the revenue needle up.

However, over the last half-decade, it has become more and more difficult to keep CAC down.

As Andrew Chen says, it is easier than ever to start-up, but more difficult than ever to grow and sustain it.

Why?

SaaS has low entry barriers. A good, ambitious programmer with business and product sense, armed with a Macbook and a credit card can sit down and build something useful. And they increasingly are. Possible differentiators like next-generation machine-learning capabilities are also increasingly available by API, and improving all the time.

This was the Martech Technology Landscape in the middle of 2017, that is, last year. That’s 4891 companies, with 5381 products, and remember, this is just the MarTech space.

The MarTech Landscape, May 2017

The SaaS customer-acquisition playbook is an open secret, which means there is immense competition for the distribution channels that get the word out. Adwords, Social Media, even SEO (which is even more difficult to do well) — all of them are getting clogged up. Conversion rates have flattened, and decreasing returns over time from these channels means that newer players find it harder to acquire customers.

With no room in existing marketing channels and hardly any entry barriers, product differentiation is hard as marketing messages and sales pitches overlap.

It’s going to be immensely difficult to build a new global SaaS product company from India.

Because as your CACs constantly go up, you’ll be fighting a pitched battle with every single SaaS business across the world. And as is evident, it’ll be over a singular critical part of the customer journey — the plane of discovery.

Put simply — it’s going to be very, very tough to attract attention.

The next battlefield

For the foreseeable future, this is where the fight is going to be then — discovery, or in SaaS terms, acquisition. In a marketplace getting more and more crowded, and features becoming easier to replicate, there will be very little that differentiates Player A and Player B going after the same market.

And if you cannot figure out that differentiator, your CACs are going to suffer.

The winners

This situation suits perfectly well a particular segment of the SaaS industry: The already-established big player.

As Ben Thompson says, being big is an actual, real differentiation.

Why?

In a market like this, it’s far easier to extract additional revenue from your best customers than it is to find completely new customers. Which means it is easier for bigger players to cross-sell and up-sell newer products than create entirely new markets.

While the cloud has made independent applications much more viable, acquiring customers remains an expensive challenge, and up-selling current customers the most efficient tactic.

Now, of course this isn’t a zero-sum game: You can still build a business that is profitable and remarkable. But the argument here is that growth is going to get harder and harder.

Enter the platform

Meanwhile, there is another development from the big player that you have to take into account: The Platform Play.

This is a conscious, calculated bet on an insight: that the future of enterprise software will move to the single vendor model (as opposed to buying best-in-class solutions from multiple vendors, depending on the interoperability of robust APIs).

Businesses can unlock a lot of value in bundling the collection of commodity products. They sell an integrated suite to a customer offering them a single purchasing process, a single customer support experience, and a ‘seamless’ product. Without sufficient product differentiation in the market, this is a powerful way to change the buyer’s key purchasing criteria.

In short, the big might keep getting bigger, and it is going to get even more difficult to grow as a smaller player.

The smaller player is under pressure

The time for me-too products is over. If you are a small product company making a couple of million dollars annually, you are going to be under pressure not just to grow, but also to keep your customers.

Indian startups still have one advantage, and it may perhaps be the last one left — our labour costs are cheap. We have good engineers and sales folks, and they cost less than their European or American counterparts. Theoretically, we can build more stuff faster, and sell to more SMBs.

But this isn’t going to last either. The market for differentiated talent has opened up like never before, and as remote working becomes more and more ubiquitous, talented developers will code for Silicon Valley unicorns out of Bangalore and Pune (It’s already happening).

You can get ahead of this game, though. Like others have.

We referenced the SaaS customer acquisition playbook before and called it an open secret. It is, and the reason it’s still used is that it works.

But we don’t know for how long.

Which is why you should be paying attention to other ways to grow.

You could formulate, activate and reap the benefits of a referral program like Dropbox, or build in some inherent virality, which powers Drift.

But again, what if your product is not like Dropbox or Drift, whose very nature makes them great at attracting more users? Then it’s a grind, and you know it. It might seem there is no way than to figure out what works for you and employ a tailored combination of proven marketing channels.

But there’s another one that a few companies have adopted to huge success over the past couple of years, gaining consumer-product like virality and word-of-mouth.

As has become evident in the last few years, today’s buyers educate themselves with online material and thorough product trials (and perhaps some contact with support) before ever talking to the sales team. This means that inbound sales dominates acquisition numbers.

And when inbound sales dominate, the brand is vital.

A bigger, more recognised brand means cheaper, and a lot of, organic inbound acquisition. And it helps the sales team immensely too, when a prospect has a positive association with the brand. A recognised, respected brand is an automatic differentiator, and translates directly to sales.

However, has anyone been doing this in SaaS?

Intercom

Sure. Let’s start with the oft-quoted Intercom, even if just to get it out of the way. As has been widely documented, Intercom grew to $1M ARR within 2 months of its launch with zero paid marketing.

But how? The easy answer is by having a great blog. But that’s not necessarily the correct answer.

Intercom’s blog is a customer acquisition apparatus that, thanks to the powerful network effects/ sharing that happens because of outrageously good content, provides ever-cheaper customer acquisition capability to the the product. And of course, build and transfers a whole lot of credibility and popularity to the product itself.

In short, it helps build the Intercom brand.

There may be other competitors in this space, but Intercom’s super-strong brand is its moat, built mainly by content. It helps the product scale and giving compounding returns over time.

Hubspot

Another example is Hubspot.

Hubspot’s essays on growth and marketing tactics are read by marketers worldwide. And there is significant long-term planning and resource dedication to the entire effort. As a brand name in online marketing, Hubspot really has no peer, and this will give them consistent organic growth. Their sales teams are built around the knowledge such a elaborate education program gives, and with personalised demos and solution-based conversations, are able to close more and more deals.

But again, Intercom and Hubspot can be looked at as outliers, leaders in their respective fields, and deploying significant resources which can be out of bounds for other products.

Buffer

So let’s talk about Buffer.

Buffer is no outlier or unicorn. It’s a small, focused company that does one thing — help people and businesses manage their social media. Like several other products do. Like several other products sometimes do better.

How, then, is Buffer able to be Buffer, this smart, known brand that everybody just seems to know, love, and trust?

In a commoditised market where differentiation is so tough, Buffer invested in their brand by going long on the kind of content they’ve now become famous for. Their transparent knowledge sharing made them trustworthy, remarkable. This won them recognition and customers, and in a space where they could’ve easily become just another product, they became the gold standard.

All of this doesn’t mean the product is ignored. Buffer’s user experience is admired, and they’re constantly improving.

But it’s the investment in their brand which does most of their heavy-lifting.

These examples don’t mean that you invest in a content team and start writing Buffer or Intercom-like pieces. MailChimp does it with its on-boarding, Slack does it with its product, Salesforce by the way it showcases itself at trade-shows (an art in itself), and so on.

So why isn’t everyone investing time and resources on branding, and going long on it?

Because it’s difficult to do, and takes a lot more time, effort, and investment than running ads. Not everyone has the foresight or is willing to invest that far ahead, and even management that understands such a model isn’t always ready to commit resources and time, as well as make the tough organisational changes necessary to make such a model work.

But if you are a smaller player going up against a big SaaS brand, you really have no other choice. If you don’t invest in your brand right now, get ready for your marketing to deliver month after month of slow growth, and for your sales to keep complaining about how even good opportunities just aren’t converting.

This is just how it’s going to be.

So it’s imperative that Indian startups sit down and try to figure out what their story is, who it needs to be told to, and how it will engage their target audience. Figuring out how to get that story in front of them, and making sure it has an impact is the next part.

Make no mistake: Your brand is going to be your moat, and your biggest acquisition channel. 
Build it. Or else.