Most Common Growth Challenges for SaaS Founders | With Expert Kieran Flanagan

So let's get into kind of the weeds of the, you know, looking into SaaS companies. So we come across several SaaS companies that we work with. So they're growing, they're expanding at a reasonable rate, you know, they're growing year over year, month over month, but they don't have that growth engine to compete with, you know, those bigger competitors, either because they lack the scalable framework for like organic growth, or they lack, you know, VC capital that their competitors have. So they're just unable to grow fast enough that, you know, what they're hoping to achieve. What would you say, and, you know, based on your experience, are some of the most common growth challenges that SaaS founders face in today's environment? And What can you suggest to them that they can do to overcome them?

Yeah, I think, so first of all, it is hard, right? It's easy for— I see this sometimes and I'm probably guilty of it where we go, like I'm a pre-pandemic conference speaker, right? And I would go to conferences and I would talk about growth and I would say, hey, this is how you grow and here's examples of how we grew and this is how you double and triple your demand and your traffic. It's really not that easy anymore because every market is somewhat saturated or very competitive. People are better at their jobs, right? Definitely on the marketing and growth side of things, marketing has evolved from this place where it really wasn't on the table with sales and all of these other teams who generate revenue. to get onto that table. Marketing have got better at being able to be part of the core go-to-market and actually generate real revenue for the business. To do that, marketers, I think, have upgraded their skill sets and marketers are really good at doing that. The tools we've got are better.

Right.

If you look at the martech space, there are just so many great tools we can use to grow our business. That's the kind of— not to depress people, but that's the first— That's it. Trying to empathize with founders, it's hard. Anyone who tells you differently when you go to these conferences, most of that stuff is just conference speak. It's not reality of growth. I do think that you can approach things in a way where you don't try to just look at a carbon copy of your competitors and think, well, how do I compete on the same things that they're competing on? I think one of the mental models I'm fascinated by is first principles and how you break a apart problems into kind of their fundamentals and trying to see if there are ways that you can do things differently. Just because all your competitors are doing one tactic or one channel, it doesn't mean that that's the right way to do it or there's something that you can't do. I think there are a couple of things. I think the 2 reasons companies fail, for me, are they've misunderstood the problem they're solving and they've solved a problem that no one Not that no one cares about it, but no one cares enough about it that it makes a big impact in their life. It makes a difference if they have that thing or not, right? That's the kind of Sean Ellis NPS, like how much would you miss this product? He has one survey for it and it's like, how much would you miss this if we took this away from you? The other one is they kind of misunderstand or they don't think earlier enough of how am I going to acquire demand for this? That's what Brian Balfour calls product channel fit. You have product market fit and you have product channel fit. On the product channel fit, it's like how do How do I build something into my product, or how do I, at an early point, start to figure out where my product will actually acquire demand from? Trying to figure out if you can skew your product and your go-to-market into a couple of places where you can actually acquire demand and you can have something that helps you differentiate yourselves from competitors. One of the examples I used to always use was, I think their name is Genius now. They've kind of rebranded, but they were a site. That had rap lyrics. They would just show you the lyrics to songs. That was a really competitive space. It's wild to think how competitive that space was, but there's just a lot of lyric websites. How can you compete in that space when there's other sites that have all of these lyrics? Because if you think about it, if you break apart that problem and you kind of come at it from first principles in terms of what you know, the thing you can compete on is just having more songs than any other company, volume, and that's how every other brand tried to approach the problem. We'll just try to get more songs into our database. What they did is they actually pulled it apart and said, no, what we can actually do is we can create better user-generated content around these lyrics. They embedded these things into their product that allowed you to actually— I love hip-hop music, and one of the things in hip-hop is trying to figure out what the lyrics actually mean.

Mm-hmm.

They have user-generated content. You can comment on all of the lyrics, annotate the lyrics, and actually say, hey, this is what they were talking about. This is what they were talking about. And because they did that, they ranked better in Google than all of these other brands and they dominated and they went on to be the most successful company within that space or one of them. And I think that's how you need to think about how you can actually compete in the space that you're in.

Very cool. That's actually an awesome example. I never thought of that, that, you know, you compete on content, you think just creating more content, but yeah, having something else built into your product, I think that's more, like you said, product-led growth that leads to some kind of scalable. Now, what do you suggest for B2Bs? You talked about the channels, right? You know, this B2B SaaS scale-up, so they've done really, really well in their growth journey, but they've been primarily led by maybe just 1 or 2 acquisition channels, right? And then they hit a growth ceiling. What do you suggest to them to help them break through? Are they— should they just move to the 3rd channel, you know, look at some new, you know, whether it's paid, whether it's, you know, just trying new things, or should they, you know, modify what's working and try to find some other way to break through?

The first thing to do is panic. There is some amount of panic because I've been in this situation. Here's the thing, right? The thing that you can guarantee— actually, if you hit the point where you went from startup to scale-up and then went scale-up to hit ceiling on channel, it means actually you've been successful. First of all, great. You've had a great run, right? You're probably a public company. You're probably— had a good run in your stock price. Things have, in general, gone well, but you want to do even better. There are a couple of things I think about in terms of the growth seasons. One of the things is you want to always diversify from a position of strength. What tends to happen is you're like, okay, I'm growing from— a lot of the mobile apps grow from paid media. A lot of the large review sites grow from Google. There are certain channels that are going to help you scale. Outside of those channels, it's going to be hard for you to find something else. But, you want to diversify from a position of strength. When you are in a scale-up company, one of the things you want to be really good at is forecasting. One of the things that we do is we say, okay, we do a top-down model based upon existing trends. How do we think we're going to perform over the coming year if we keep all things the same, resources, playbooks the same? Then we look at bottoms-up and we say, how much revenue do we need to generate? Then how does that translate into the demand we need to generate to hit that amount of revenue? Then you take that, if you're kind of a leader within a scale company, and you say to your team, okay, bring me back the top-down model for your channel. Bring me down the playbooks that you're going to operationalize to hit that growth. What you'll start to see is a flag, right? There are some flags. When you see a flag in your month-on-month, quarter-on-quarter, year-on-year growth rates within the channel, that's a flag. When you're building forecasting models and you're starting to see diminishing returns and then your team are coming back with playbooks that are just the same playbooks and they're kind of running out of ideas, that's a flag. When your team tell you they don't want headcount for the coming year or they want a small amount of headcount because they're not sure what else they can do or how they can hire people to continue to grow that channel, that's a flag. And so, you want to get You want to diversify from a position of strength. A good example of this is Canva. Canva, what a phenomenal company Canva are, just a goliath in terms of what they've managed to do. What's fascinating about Canva is if you go back and look at their early growth, Canva grew from virality. There's really 3 types of virality, right? There's just word-of-mouth virality, user virality, which is your product is inherently viral. When I use a product and I would use it with you, You would be exposed to that in a way that would make you want to sign up. A really good example of that is Calendly. If you think about Calendly, I book a meeting with you, you see the meeting, and you're like, oh, that was a good experience. Kieran booked a meeting with me. What's this app? I will go sign up. Then the third type is incentivized referral, which is kind of like if you think about the PayPal story. The way PayPal grew in the early days was they actually paid you $20 to open an account. When you opened the account, there was $20 in the actual PayPal. Then if you actually referred other people, you would get additional money in that account. I think it was about at some point 10-15% of all of their demand is coming through incentivized referrals. Coming all the way back to Canva, they were really growing through word of mouth. Talking about product-market fit, product-channel fit, they solved a problem that people had, cared about, and this was the best solution. You saw a lot of their growth coming from direct traffic.

Mm-hmm.

What they did is they diversified from a position of strength, which is why I love their story because they built on this. They're still growing from virality, but they built on this amazing organic machine that every single company is now trying to copy, which is they built all of these different templates for every single use case. They scaled out those templates and they embedded them in their ecosystem. They drove links to different places and they managed to rank. Now they have this really nice channel in terms of organic as well. Just so people are listening and you're trying to build the Canva template model, keep in mind that Canva literally has thousands of use cases for their product. That's why templates work for them. It's not going to work for every single brand. They diversified from a position of strength. I think that's one of the critical pieces that companies miss in terms of those growth ceilings is that they wait until they hit the growth ceiling, they panic, and then they have a small amount of time that they can actually fix it because they're going to, at some point, plateau. It's just going to cause demotivation in the team. It's going to cause loss of trust in that team from the execs. At that point, it just starts to kind of crumble. cascade and starts to collapse on itself. The other thing I would say is, just one other thing on that, I know I'm kind of going along.

You're okay.

You also want to have a ratio between the goal, like the kind of channel that you're growing from, and net new channels. You think, I have this amount of resources, X% of it is spent on the existing growth channel, Y% needs to be spent on trying to discover a new channel. That ratio should probably depend upon how much growth you think is left on the existing channels. If I'm building in search and I think, wow, there's just a ton more growth for me, maybe I can grow 100%, 200%, 300% more year on year, then maybe 100% of my resources should be in there. Then, as that starts to diminish, I take 5%, 10%, and I start to look for new channels. You can kind of build that total addressable market models for channels. Paid is a really easy channel to see where your diminishing point of return is. You can build that. You can somewhat build it in search. You can't build it for all things. It is kind of hard. Then, just know that Sometimes you can't avoid it. This is part and parcel of being a scale-up. The way to counteract that is to have a really strong brand. Do not only invest in growth and performance marketing. Make sure you're investing in brand. That's hard for some companies because they can't get the metrics that tell them if the things they're doing in brand is successful. But, if you don't grow your brand and if you don't build a brand, at some point you hit these ceilings. Sometimes you start to plateau in performance metrics, performance marketing metrics, and then you have nothing left. I think that's something you want to be aware of. Thanks, Akeel.