why year 3 is the worst in enterprise SaaS
Enterprise SaaS investments have made a killing over the past decade, but there’s a couple reasons why it’s unlikely we’ll see those massive returns repeat themselves. First is price – when most investors were clamoring over consumer apps in the wake of Facebook’s and Twitter’s IPOs, the forward-thinking bought into enterprise SaaS at relatively cheap valuations. Today it’s the opposite, with enterprise as sexy as ever and garnering valuations it’s harder to win with.
Second, is debt. As we’ve touched on before, banks and alternative lenders are offering loans directly tied to software startups’ revenues. For founders, this is a much safer play than VC given they can retain equity and scale at their own pace. So while the best companies (or even just some) move to debt, the fundraising market will be more highly concentrated with less attractive, poorer performing startups. So not great for VCs... but interesting for more conservative investors who could buy into SaaS loan securities instead of playing the VC lottery.
🏁 Stat of the day – on average, only 17% of customers activate within the first week of their free trial. Improving that metric hinges on how well you onboard new signups more than anything else, so if you’re hoping to pump up those rookie numbers, you may want to check out these onboarding email examples which worked well. The Zendesk strategy of showing how similar companies (dare we say, competitors) use the product is great because FOMO is real and no one wants to be behind the curve. Another strategy shared which won’t necessarily increase activation but can still have a massively positive impact is asking users to invite co-workers. Hold these emails for high usage power users that you’re confident would speak highly of your product.
🔮 It’s easy to forget that the most prominent brands in the world today started as small startups. If you look at Amazon’s success in maintaining a loyal customer base, the answer to how they did it is surprisingly simple: they put their customers first and never stopped being curious. Consumers are really looking for two things above all else: ease of use and reliability. So keeping both at the forefront of your mind when you think about innovation, and trying to view your solution through a customer’s lens and not your own, is key. What Amazon did especially well with was anticipating how their customer base and the industry as a whole would look a few years down the line. They let the answer to that question guide how they continued to develop their product, and it’s a good principle to stick to.
🔬 We talk a lot about measuring the right data and using it to form action items that will actually make an impact on your company. Nearly everyone is using Google Analytics in some form or another for this kind of measurement, but the truth is Google Analytics requires your team to do the heavy lifting and make sure data is being collected and organized correctly. If you got a GA expert on the team, great, but there’s a reason that self-service analytics platforms have gained traction – it’s just easier. At the end of the day, a well-integrated data stack will enable your team to focus more on interpreting and applying the learnings than just getting them in the first place.
🍞 While not true in every case, enterprise SaaS startups typically see customer engagement (and growth) slow around the third year. Why year 3? Year 1 is a wash because it takes 6-9 months for the company to get up and running on the product, and Year 2 is just too quick for the customer to call it quits even if not many of their team members are using it. Year 3 is when there are no excuses left and if usage metrics still are still lacking, you’re toast. So now that we know this, it’s a great time for a reminder to kick customer retention into gear early and ignore the temptation of putting everything into sales and marketing! Customers aren’t worth much if they don’t stick around.
🥅 Simon Sinek (a Playbook favorite, check out his Ted talks) released The Infinite Game late last year, which distinguishes between finite and infinite games. Finite games have clear cut rules where winners are established, whereas infinite games are played by multiple players, both known and unknown. There are no set rules, the game doesn’t end, and typically no winners are declared. The objective is just to keep playing! Sinek points out that the businesses which succeed are often the ones that take an infinite viewpoint, focusing less on the somewhat uncontrollable variables that businesses will undoubtedly face, and more on understanding their clear vision for the future and pursuing it with purpose.