Why successful SaaS startups fumble and fail to scale
When I left my VP Marketing role after 5 years in-house, I quickly became overwhelmed with demand from SaaS founders and executives desperate to add senior talent to their team. To tap into the strategic experience of someone who’d weathered the “startup to scale-up” phase before. “We need a strategy!” they’d say. “Our team is great, but they’ve never done this before.” “Marketing isn’t my background; I don’t know what I don’t know.”
It was right around that time that I met Claire, who was experiencing much the same thing as I was, having also just left her in-house Director of Marketing role. So in early 2017, Claire and I launched the Forget The Funnel workshop series, with the goal of chipping away at the big marketing problems we repeatedly saw SaaS companies face: namely, tech’s anti-marketing bias, which often results in an under-estimation of marketing’s value, combined with a severe lack of senior tech marketing talent. Since then, our workshops, training and pro membership have helped 5,000+ marketers and founders get out of the weeds, think more strategically, and directly impact revenue for their companies.
While we’re proud of the impact Forget The Funnel has made, we’re seeing an even more pervasive and detrimental issue needing solving at company after company: namely, a reliance on piecemeal tactics (that worked in gaining early traction) — and a failure (or painful fumbling) to pull the levers required next, to transition out of startup mode and into scalable growth.
What got you here won’t get you there
You’d think that most startups fail in their first year, but 70% of startups fail between year 2 and 5. Of the ~5,000 startups founded every year, 15–20% raise their Series A investment round. And of those who raise their Series A, less than 10% reach the next stage of investment.
Now, taking investment is far from the only measure of success, but 90% is a massive drop-off, considering Series A investment is all about revenue growth. Why are funded companies stalling out, even after securing traction during the “startup” phase?
We’ve all heard the 20 reasons founders say their startups fail: no market need, ran out of cash, not the right team, competition, etc. But so many of those reasons are preventable, if the root causes that we see so often could be caught and fixed in time:
There’s a laundry list of things to fix after “moving fast & breaking things”
The scrappiness so crucial to success in a company’s early days, is often a double-edged sword that results in compounding confusion. When the team grows beyond the 30 to 50 mark, everything gets a lot harder, and team members’ responsibilities changes every few months. The product matures, but engagement KPIs are never updated from “daily active users” or “monthly active users,” despite the likely irrelevance of daily or monthly usage to a customer receiving value. The ideal customer shifts (or maybe you never really knew who it was to begin with), but still there’s no reliable customer research for the team to learn from and leverage.
Growth ≠ Acquisition
Many of the biggest startup failures in recent history have come from an over-reliance on “top-of-funnel” tactics, while increasing efficiency during activation, retention and expansion go ignored. Expansion revenue should make up 20–30% (or more) of monthly revenue, but for most subscription companies, it’s 10% or less. Acquisition is disproportionately relied on for growth by SaaS C-level execs and founders, who spend nearly 75% of their time on acquisition.
Team members are quietly drowning (in the Kool-Aid)
The team may be giving it their all, but results are rarely what you hope they’ll be. There’s a hum of stress in the background as vague targets loom. There’s still plenty of Kool-Aid to go around, but (sometimes unbeknownst to the founders), morale is, well…unclear. Since launching Forget The Funnel, we’ve heard from hundreds of SaaS marketers about what they struggle with: lack of trust from their stakeholders, lack of mentorship, and lack of strategy. Team members who were brought on during the company’s “startup” phase were often hired early in their career, and are now taking on responsibilities they may not have enough experience in or bandwidth for. Tech doesn’t exactly have the best employee retention track record — and there’s a notable exodus among marketers, women and underrepresented groups.
Ignore these problems long enough, and growth starts flat-lining. Revenue goals go unmet. Frustrated hires leave. New features launch to crickets. Pressure mounts to acquire more customers, yesterday.
How startups actually *can* scale up
The SaaS business model lives and dies by customer relationships and loyalty. The fate of your SaaS company depends on your ability to provide a valuable, consistent experience to customers — across their entire journey with your brand — over time. You need to do this more and more cost-effectively as the company grows. Failure to do this = failure to grow.
Moving beyond initial traction to true growth requires:
- Looking to your best customers for insights, then based on those insights, shining a light on the gaps in your strategies; your messaging; and potentially even how you’ve positioned your product in the market.
- Operationalizing those insights to democratize understanding, so your team can consistently create valuable experiences at critical customer success milestones (even as headcount increases rapidly).
- Graduating from handicapped marketing practices as the primary vehicle for increasing annual recurring revenue. Unlocking revenue needs to happen across the entire customer experience.
- Putting the right people in the right roles, or giving them the resources they need to grow in their current ones.
For fun, let’s do some math. (We’re going to keep it simple by looking at just one traffic source.) Pretend your SaaS company currently acquires new customers via paid marketing at the following rates:
- $500 / month on paid marketing
- 5,000 monthly website visitors from paid marketing campaigns
- 5% monthly conversion rate from website visits to trial signups
- 5% monthly conversion rate from trial signups to new paying customers
- An ACV (annual contract value) of $1200 per customer ($100 / month x 12 months)
This generates $15,000 in new ARR every month (shown below). Now let’s pretend your goal is to double that amount to $30,000 in new ARR monthly. From a quick comparison, it’s clear that doubling paid acquisition is the least effective way to reach this goal. Not only do improving KPIs further along the customer journey cut acquisition costs in half; they also continue driving improved results indefinitely, whereas paid spend stops working…well, as soon as you stop paying.
But again: moving the needle on metrics like trial signups, new customers, lifetime value, churn, etc. isn’t a game of random guess-and-check. It requires deeply understanding what your customer needs to feel value at each of those touchpoints. It requires operationalizing that customer understanding for your team. And it requires giving your team the tools and skills they need to build high-value (and revenue-generating) experiences for your customers.
Since at least one — and more often several — of these growth levers are neglected by scaling companies, the over-reliance on “top-of-funnel” tactics continues indefinitely, until it eventually does lasting damage to the business. Don’t let this be you.
Companies need to take the big leap from viewing customers through a macro lens (an account holder, a subscriber, a segment, or a persona) to viewing a customer as a single sentient human being — and then operationalizing that view.
— Victor Milligan: CMO, Forrester
Scaling great companies, together.
For years, my own approach to marketing and company growth has echoed this quote of Victor Milligan’s. But it wasn’t until Claire and I began running Forget The Funnel together that we realized: she holds one piece of the puzzle, and I hold the other.
Claire’s expertise comes from the work she’s done with companies like Wistia, FullStory, Death to the Stock Photo, Calendly, and Edgar, where she’s gathered deep customer insights — then translated those insights into meaningful customer segments / “jobs to be done,” high-converting messaging, and as a result, marketing and customer communication campaigns that convert.
Meanwhile, I’ve been operationalizing customer insights to help high-growth SaaS companies like Appcues and Sprout Social scale. In fact, for the last 10 of my 20 years as a marketer, I’ve worked with and mentored nearly 100 SaaS companies. During my time at Unbounce, I helped grow the company from 15 to nearly 200 employees, Marketing from a founder-run blog to a team of 35, and from $1M to $16M in ARR with no major funding.
Claire brings customer insights chops, and I bring years of growing and supporting strategic teams. So we are now working with SaaS companies together, to help teams avoid the fumbling — and to help startups to scale up.