The SaaS Learning Curve (or, why SaaS = Service as a Software)
The SaaS Learning Curve for most founders is longer than it needs to be. So long that it outpaces most early funding, leaving founders short of the traction milestones required for their next funding round.
Founders can avoid this outcome with one simple but powerful realization: It’s not your technology that wins, but the insights you generate by seeking fit within a market.
That’s worth Tweeting, don’t you think?
That means you need to resist the temptation to focus on building a product and spend your time (and early funding) on working closely with early customers in solving a specific problem. A problem large enough to sustain you through the learning curve.
Service First Makes for Better Software
People don’t care about your products. They care about their problems. If you can solve their problems partially today via Service as a Software and more fully overtime via Software as a Service then you will increase your chance of winning. This requires you to be high touch and low tech until you no longer have to be.
Servicing your customer accelerates your learning. Your best opportunity to learn and build what you want is by manually servicing your customer. It can take years to build a self-service product. So build a service-first culture and leverage that approach to build what your customers want.
There’s No Shame in Leading with Service
The now-common refrain from the investment community about predictable, recurring licensing revenue puts pressure on founders which is not always correct. As such, it has convinced a generation of SaaS founders that they’re failing if they have to lean in with services while they are building a more whole and complete software.
This can create a whole host of unhealthy and misaligned behaviors that can result in a longer learning curve which in turn creates the potential need for more time and runway to learn and ultimately reduces win rates.
It’s true that humans don’t scale, but neither do startups that build interesting features without solving a market need. In the early days you’re not ready for scale. A services mindset helps you find fit with a market need (and, ultimately, something worth scaling).
Adopt a Service-First Mindset
A Service as a Software approach helps you develop deeper insights into the problems you’re solving and build a more robust and stickier software solution for your market. Far from worrying, SaaS founders should rejoice when their early customers are asking for service! Where they should worry is if the market doesn’t respond. Silence speaks louder than words!!
Service as a Software is more than an important mindset to help founders focus on problems over features. In some circumstances, services-first can help a SaaS startup beat the competition. Tom Tunguz penned a great blog on this topic. Finish reading this article and then head over to his site to learn why in early markets, services can be a competitive advantage.
Selling Vision vs Reality
Service as a Software does not mean stop selling your vision. It means stop selling your product to customers (as if it’s complete). Instead, recruit early partners who share your vision and are willing to implement your reality. And your reality as an early-stage startup is that most of what you’ve built is riddled with “happy accidents.”
A startup is a series of experiments. You need to constantly ask yourself WWBRD (What Would Bob Ross Do). He would celebrate being less wrong tomorrow than he is today! Be like Bob; be a learn-it-all (not a know-it-all).
So how do you identify and recruit early partners? I’m glad you asked
Recruiting Early Partners
I’m often asked “which customers do I go after first”? The framework for answering that question starts with asking the same question differently: “Which customers are open to sharing my vision while accepting my reality?”
The answer is in Geoffrey Moore’s must-read book, “Crossing the Chasm”. The cohorts most likely to share your vision with an appetite for accepting your reality are referred to as Innovators and Early Adopters. These groups of people are willing to take the risk associated with working with incomplete products to realize a share vision.
Innovators represent about 10% of the market and will provide you with great product feedback but rarely have budget. As such, they are quite useful in the pre-revenue stage of a Service as a Software company.
Early Adopters represent another 10-15% of the market and they have budget. They often buy because they seek a competitive advantage. They see that being achieved by working with you to realize what should become a shared vision for your product.
The Early Customer Mindset in the SaaS Learning Curve
Regardless of your customer, all commerce is human to human (until the bots take over). It is vital to recognize that humans rely on the humans building the product to solve their problems; they don’t rely on the product.
After all, when was the last time anyone sought recourse from a product when something goes wrong? Never! They seek recourse from those who convinced them to join them on a wayward journey. They expect service from you, not your product!
The Early-Stage SaaS Metric that Matters the Most: Learning
The next question I get is “how do I know where I am in the learning curve, or if I’m making progress?” To effectively commerciale innovation you need to accept that learning precedes revenue. If you start the journey with a Service as a Software mindset and build a functional learning organization, you will accelerate your path through the SaaS Learning Curve.
This requires you to create an environment that supports rapid on-the-job learning by adopting a growth mindset, developing your business acumen, facilitating cross-functional communication, and embracing ambiguity.
Learning powers your early journey as a Service as a Software founder. It helps you efficiently transition from a non-scalable (but critical) Service as a Software approach to a profitable, predictable and scalable Software as a Service business.