The SaaS industry saw some serious growth in 2018. While businesses have been using SaaS platforms for years, more and more have been adopting and implementing SaaS applications as key components of their business operations — so much so that cloud infrastructure platforms such as Microsoft Azure and Amazon Web Services, the cloud-based foundations of numerous SaaS platforms, saw tremendous growth throughout 2018.
The new year is already well underway, and with such tremendous growth over the past year, 2019 is shaking up to be another year of strong growth for SaaS companies and the businesses behind their platforms alike. But with that comes increased competition. To help your company get in the best position possible, we’ve put together a few recommendations for the year ahead (and even the years beyond). Let’s dig in.
Find Your Unique Position in Companies’ SaaS Stacks
Before we explain what that means, we first need to touch on something called the digital transformation. This isn’t a futuristic, AI-driven event like the Singularity. Instead, it’s simply a transition that companies — i.e., your customers — are already undertaking from using on-device or on-premise software and programs to more advanced, agile, and competitive solutions. As a SaaS platform, you’re part of that transformation.
Digital transformation is a much larger topic overall, touching on business value, process, cross-departmental collaboration, etc., but SaaS is a major factor in it because more and more companies are building SaaS stacks rather than building solutions in-house, buying massive enterprise software programs, and undergoing extensive implementations that take months and cost tens of thousands of dollars (or more) to complete. Now, it’s a matter of subscribing, customizing, training, using, and eventually scaling.
For SaaS companies, this means a) more companies are looking for what you have to offer, and b) you’ll have more competition in getting selected. More than ever, it’s time to put your unique value forward to demonstrate how you can solve a problem or need for the companies that are looking for your offering. Companies are no longer trying SaaS to see how it works for their businesses — they’re actively looking for it as a strategic solution.
While there are many forms of financing out there, venture debt should absolutely be part of the options you consider. Why? Two simple (yet significant) reasons. First, venture debt keeps you in control. No equity dilution, no lost board seat, no outside interference. Just your decisions — and only yours. Second, venture debt is best used to accelerate sales and marketing. Equity funding is great for maintaining operations, but spending it on sales and marketing efforts can be risky.
Rethink Your SaaS Go-to-Market Strategy
Over the past decade, SaaS companies have strategized and reimagined countless go-to-market (GtM) strategies to get the customers and the competitive position they wanted. Some worked better than others. Some worked better earlier than others. Now, companies are once again at a turning point for their go-to-market strategies.
It’s not just early-stage or pre-revenue companies, either. Large, established SaaS platforms such as HubSpot have completely up-ended their own GtM strategy — not because what they were already doing wasn’t working, but because they knew it wouldn’t work forever. And so, they decided to disrupt themselves before anyone else could. To that end, they adopted a product-led GtM strategy.
Customers want to know the ins and outs of a product before making the purchasing decision. As a SaaS owner or business leader, you already know this. You’ve already explored, offered, or considered offering a free entry-level version of your platform as part of your growth model. But this stands in stark contrast to monetizing the platform. That said, it creates a dominant growth engine that leads to a wider top funnel and lower customer acquisition cost. These two benefits together propel you forward while competitors are trying to hire sales reps just to get more top-of-funnel leads (and spending more in the process).
Where does debt financing factor in? By allowing you to continually build your platform, hire key personnel, and invest in marketing low-barrier-to-entry messages and offers, thereby expanding your top funnel and lowering overall CAC while opening up your platform to a wider (perhaps even global) audience. From there, resources can be more strategically invested in onboarding, moving those top-funnel customers into paying customers and eventually long-term subscribers.
Be Strategic About SaaS Equity Dilution
Our final recommendation is more internally focused. We recently surveyed SaaS companies on how they’ve obtained, used, and learned from various forms of growth financing and working capital throughout their growth experiences. One of the most interesting results was that, while many SaaS companies considered and used venture capital as a source of funding, many indicated that they would consider it again.
Understandably, there are many strategic uses for equity financing for growing SaaS companies. But with most equity investors taking anywhere from 15–30% (or more) ownership in exchange for their investment, SaaS equity dilution and the resulting impact on ownership and decision-making is something that growing SaaS companies must take into careful consideration not just the first time, but every time. Because more investment means more equity dilution. And while equity investors bring insight and experience to the table, they are well within their rights to take your decision-making authority off of it. And that’s the last thing that you as an owner or leader of a visionary SaaS company needs.
As Weird As It Sounds…
Consider using venture debt financing in your growth capital strategy this year. Often, venture debt can serve as the foundation or starting point in a long-term strategy that eventually includes equity funding (we’re happy to discuss this with you as well). Whatever your strategy may be, pause, stake stock, and consider your next steps now and leading into the future. Any questions? Fill out the form below. We’d love to hear from you!