Insight: SaaS (37) Moving upmarket
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The requirements and essential competencies of SaaS PM were introduced in the previous article ‘Insight: SaaS (36) What kind of talents is qualified for the SaaS PM?’. Let’s speak about shifting your customer group today. Upgrade to Enterprise from SMB.
The SMB market in the United States is undergoing significant development. Freshworks, a SaaS startup focused on the SMB market, successfully went public in 2021 and now has a market value of over $8 billion. Asana also successfully went public in 2020, with a value worth $17 billion. VCs are increasingly prepared to back SaaS companies that cater to small businesses. Most importantly, the demand for SaaS among small businesses is continuously expanding. More than 100 SaaS products are used by the average SMB (less than 100 employees) (including free and paid).
For SMB SaaS entrepreneurs, the best is yet to come. However, I maintain to have a different viewpoint. I don’t believe that all numbers are relevant to a company’s final fate. Freshworks and Asana will flourish in the coming years. The same story won’t necessarily happen again. Statistical megatrends do not guarantee your success. SMB SaaS products still have a high mortality rate.
Many successful SaaS businesses make the transition from low-end to high-end. They moved upmarket after their initial success in the SMB segment. Examples are Slack and Zoom. This change, however, is not easy to undertake; first, we must distinguish between the SMB and Enterprise markets. We can receive the most immediate feeling from the following figure:
SMB: 67% of customers have ACV within 10k.
Enterprise: 57% of customers have ACVs above 50k.
This is the most significant source of disparities between SMB and enterprise markets. Different ACVs result in radically different growth models, sales channels, customer success criteria, and product features for the same type of SaaS product.
SMBs rely on bulk customer acquisition and employ low-touch approaches to reach customers. The customer success team focuses on solving common customer problems, while product functions focus on direct benefits to customers.
Enterprise will gradually expand its customer list and adopt an Account-based sales method, the customer success team is dedicated to solving various problems of big clients, and product functions are more focused on efficiency improvement and overall company-level success.
So which SaaS products are suitable for the SMB market?
The following SaaS are suitable for SMBs:
1. This is a universal tool, not an industry-vertical tool. For example, a management tool for team collaboration is a universal SaaS product. The product is not restricted to a single industry, allowing SaaS companies to take full benefit of the product’s broad coverage. Such a product has a big number of prospective clients. If you just sell SMB items in one industry, you’ll almost certainly run into this dilemma: Companies in the industry are already your customers and can no longer expand.
2. Benefits are easy to calculate, whereas efficiency gains are difficult to quantify. In the SMB market, SaaS tools that can directly calculate revenue are more popular than enterprise efficiency, which is difficult to evaluate. Small firms are more concerned with their survival, and they are happy to be SaaS customers if their SaaS solutions can help them generate more money or cut costs. The overall efficiency gains for large businesses are more considerable. A 1% increase in efficiency might result in a 10% increase in revenue. As a result, SaaS products that improve efficiency are popular among enterprise customers.
Why do I have to suggest moving upmarket since SMB already has several successful cases? In what ways is SMB inferior to Enterprise?
1. SMBs have a high risk of mortality and are less stable than Enterprise renewal. SMB customers are still in the entrepreneurial stage and, by nature, will go bankrupt at any time. Mortality rates are lower in larger firms. As a result, the natural death rate of SMBs is a challenge that SMB SaaS providers must overcome.
2. The NDR of SMB is lower than that of Enterprise. Enterprises are significantly more likely to renew than small customers, and they are also more likely to be Upsold or Cross-sold. Many businesses, including the SaaS industry, have adopted this rule.
3. Enterprise market has more Logo customers. Many corporate clients are well-known brands. These branding might give the product a stronger endorsement. Logo customers provide an evident boost to a SaaS business. In this aspect, Enterprise has an advantage.
As a result, several SaaS companies that previously served the SMB market are now targeting the Enterprise sector. This is a benign evolution. The income of Slack and Zoom’s major customers, for example, has risen year after year. The law of 2-8 governs revenue in the SaaS industry, with 20% of customers accounting for 80% of revenue. If you wish to move upmarket as well, try the following strategies:
1. Develop a PaaS. Create PaaS solutions based on your SaaS and user scenarios to satisfy customized demands.
2. Data. Provide extra data-related functions or services, such as enriching your dashboard.
3. Security. More reliable security measures, such as backup and disaster recovery, should be implemented.
4. On-premise. Considering various privatized deployment alternatives, many major organizations may demand on-premise or hybrid deployment.
5. Teamwork. Large company customers have more team communication demand and a wider range of user roles. Customers will benefit from more collaboration.
6. Industry-specific solutions. SaaS and Solutions are produced together. In many circumstances, SaaS cannot succeed on its own; it must be delivered to customers as part of a larger solution. The value of the Solution is the SaaS, as well as its proper implementation, administration methodologies, and processes.
Many businesses have thrived as a result of the transformation, but it doesn’t mean you have to be in the enterprise market. Concentrating on SMB does not imply that it will fail. Entrepreneurs must make the seemingly impossible possible.
Please send me an email (jasperhanlingyi@gmail.com) if you have any questions or suggestions.
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