The SaaS Evolution - The Development from Customized to Scalable Standard Product
Robin Sudermann from talentsconnect tells you in a guest article what the transformation of the growth model entails and what you should pay attention to.
- Transformation of the growth model – from Sales-led Growth to Product-led Growth
- Product-led Growth as an investment criterion
- Challenge and opportunities of the SaaS evolution
During a startup, the first step is to survive with your idea until you have convinced the first customers and made them satisfied users. As a result, the turnover that confirms a good idea at the end of the day is derived. Immediately afterwards, above all, the product is the focus and the question 'How do I further develop it so that existing and new customers become fans - not just satisfied, but also recommend it?'. The key in this early phase is often initially a more individual solution: The product is tailored to what is needed. This approach helps at the beginning, but there comes a point at which this sales-driven growth model comes up against or even becomes dangerous – and a transformation makes sense – in my experience it is absolutely necessary.
Transformation of the growth model – from Sales-led Growth to Product-led Growth
A good German example for the transformation of the growth model is Jimdo: Started as a website agency (Custom), transformed into a website builder (Product) and finally to a mass product (Commodity); there are many website builders that cover the same need at its core. Differentiation is happening today mainly through marketing and focus on submarkets.
On the way to a product company and thus scalability, the company has to learn to meet the needs of customers not with an individual solution (customized), but with a standard product. With this change, the growth model also changes from Sales-led Growth to Product-led Growth: Individual software solutions are usually in need of explanation and advice. Therefore, sales usually require direct contact between customers and sales teams and consultants, which weakens or even questions the scalability of the model. Growth – i.e. more customers – is thus tied to a growing sales team. This is referred to as Sales-led Growth.
Product-led Growth as an investment criterion
In contrast, a standardized SaaS product that is ideally self-service and easy to use (like Slack), can be scaled up without the need for a growing sales team. The purchase often occurs with no personal contact: Customers see the advertisement, click on the website, register, provide their credit card details, experience the product right away and hopefully recommend it in the short term. This makes Product-led Growth a buzzword for investors.
Challenge and opportunities of the SaaS evolution
For a company, the change to a standard product means both challenges and opportunities. Since the opportunities and positive effects outweigh the challenges and positive effects, I would like to start with that:
- With a standardized SaaS product, it is possible to reach and make significantly more customers happy in the same period of time than with a custom product. Internationalizing the business also becomes easier, as in many cases the software only needs to be localized to be marketed in a new country.
- SaaS products developed in this way can be scaled exponentially without personnel costs growing linearly. This scalability is what makes SaaS products so interesting for founders, employees, and ultimately also investors.
- If the transformation is successful, the company will no longer have to deal with individual feature requests or support requests and maintain several different systems in the worst case – but can focus on the continuous improvement of a closed product.
The challenges are fundamental, but at the same time we are talking about a process of months to years, which everyone in the company is involved in:
- With the transformation of the growth model, the company has to create a new organizational culture and integrate other skills and functions, because it no longer reacts to individual customer requests – but always has to abstract them and anticipate them in the interests of all customers. Now it is a matter of recognizing the greatest common denominator in customer needs and developing a standard for this.
- There is a successive reversal of responsibility: At the beginning of the evolution, the sales team received the wishes of the customers and briefed the product team. Now the product team has to take on the responsibility for the customers' enthusiasm, and marketing and sales support the growth.
- The greatest risk of transformation is to jeopardize product-market fit at this exact step. Existing customers are used to being individualized and can migrate as soon as they are no longer cared for individually. If the standardized product does not take off in the market, it will be tight.
These challenges can usually be approached very well with the right tools (like Jimdo), we have relied on these three at talentsconnect:
- OKRs or clear and transparent objectives: The described transformation takes place over a period of months or even years. What is crucial here is clear transparency about where the company is developing and at the same time individual clarity about what each person can contribute. In our case, OKRs helped a lot to achieve this clarity and always lead the right discussions.
- V2MOM or good discussion and decision templates: Discussions shift during the course of the transformation from outside (sales negotiates with customers) to inside (product and sales discuss the right functions for customers). The basis for this are clear and objective decision templates. In our case, the V2MOM developed at Salesforce helped a lot to support emotional discussions and opinions with facts.
- Value Proposition Canvas: The Value Proposition Canvas of Strategyzer helps to discuss product development and customer needs in a focused way and to match them. It juxtaposes product benefits and customer expectations and makes it easier to look at the product, marketing and sales from the customers' world. From the VPC, we later moved to a simple table to check our product and its features against a promise of value. With the table, we expanded the VPC by two additional categories that are not represented in the original model:
1. Reasons not to buy: Sometimes customers drop out at a little thing that actually does not question the value of the product. The headphone output on the iPhone is such an example. It is therefore always worth asking the question of what reasons are not to buy. On the one hand, it protects against getting in love with your own product and on the other hand it helps to have a response ready for these customers in advance that dispelled their doubts.
2. Entry Point: There are certain situations when customers are more willing to deal with our product or feature. The clearer we identify and target these situations, the more successful the approach will be.
As the term evolution already implies – it is a gradual change. At the same time, only what is best adapted to its environment will prevail in the long term. It is the same with the evolution from a customized to a scalable standard product. It takes time, but you should never lose sight of the set goal – namely the product-market fit and what the customers really want or need. If that succeeds, unforeseen opportunities are ahead of you.
talentsconnect develops its core product “JobShop” as Software-as-a-service for personnel marketing and HR departments. Their mission is to enable companies to offer their jobs maximally successful online, directly address talents and market jobs data-based through intelligent software – and thus indirectly make them more independent of digital job exchanges or headhunters. Their approximately 200 customers include E.ON, McDonald's, Viessmann, Fressnapf, OBI and Deutsche Börse.
