How To Sustain Growth By Remaining A Startup You Were

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(NOTE : Article was originally written for and published on Inc42  )

The disruptive nature of startups is widely discussed and acknowledged. There are certain characteristics that make a small team of startup disrupt markets and even build one.

Every startup obviously wants to grow quickly. They raise a huge amount of funding, they hire growth hackers, marketers and spends huge amount of money pumping up sales and marketing. When all of this happens, a few fundamental startup characteristics take a back seat.

If a startup wants to have sustainable growth, it shouldn’t rely on huge marketing spends and high customer acquisition cost, but  has to focus on remaining “startup”, all the while they grow.

Build Product That Speaks For Itself

Take any category leading startups with huge market share, there will be two attributes common in those startups – a consistent growth for a couple of years and an “awesome” product. When you have that “awesome” product, marketing and growth become easier. When the user experience of your product delights customers, they will, of course, spread the word about it. It could be slow but it will bring sustainable growth.

When was the last time you were so delighted by using an app or service, that you happily talked about it with a friend or colleague? A week or month back? These would be apps or services that are the category leader. As the startup grows, things like product scalability, customer support, backend and operational integration become a priority for the product team. Focus on making the product “super awesome” is reduced. The founder, who had a certain vision for the product, remains less involved. There is a complex hierarchy of CTO, product managers and developer team. So, core values and vision for the product gets diluted.

There should be a clear definition of the vision and proposition which should be effectively communicated from time to time to key product managers and tech people. Processes should be set for feedback collection, study, and evaluation of competition analysis, UX analysis, etc. Most importantly the tech founder—who envisioned the product—should still remain closely involved in product design decisions.

Listen To Your Customers

From the time of ideation to MVP and even further, founders collect a lot of feedback from the team, mentors, industry experts, prospect customers, users, etc. This remains at the core of strategic decision about the product. When startup focuses on growth, the founders gets busy with a lot of things, and feedback collection and learning from users becomes a low priority. The startup has a product, people are buying it, it has money to spend on customer acquisition, so they go on and keep doing that.

How many times have you felt so frustrated while using your favorite app or service, and felt like why those guys wouldn’t make that silly fix for it? Often, right? We discuss often that big companies don’t fix things quickly and their product don’t move quickly. That’s precisely what could be happening with your product. If it is not done, many strategic product decisions (and even other) could be affected, which in turn, could affect your growth over the long-term.

As startups grow, they need to transform feedback collection effort. Startups need to be using tools and processes to effectively gather and classify various types of feedback from various sources – from average users to influencers to industry expert to peers. While listening to customers is the most important thing for your product decisions, there are many areas for which you need to collect feedback from difference sources.

Cut Costs

For startups, an early stage is all about survival and sustenance. Hence, the founders always try to reduce the cost for everything from product development to operation to marketing. As soon as the startup raise bigger funding rounds, it appears as if they have been rewarded for all their struggles. An obscene amount of money is spent in marketing, plush offices, avoidable operational costs, unrealistic pay scales, avoidable hiring, etc. All in the name of seeking growth.

There would be hundreds of startups which failed because they couldn’t maintain their unit economics of customer acquisition costs and customer lifetime value, and not because their idea was wrong or market wasn’t there. Even if we disregard failed startup, the expenditure could play big role in how financials pan out in the longer run. There’s that popular image of startups who raise huge funding and spend lavishly, and hence founders tend to believe that huge spending now doesn’t matter because you are creating value for tomorrow and that’s how it works. But it certainly doesn’t have to be that way. It might be true for few startups (yes, unicorns as they call it). But for most, it is obviously not true. You might not be creating that huge value for future by spending that high today. Founders realize when they have difficulty in raising next round or the startup faces sustenance crisis.

Metrics and budget should be defined to track and limit the expenditure. Every major expenditure decision from hiring a senior executive to infrastructure cost should be evaluated rigorously for most optimum RoI. Founders need to remain conservative about finance and expenditure.

Be Lean

Startups in the early stage are agile and lean in terms of changing anything from product to business model to team and lot more. They are always on the lookout for trends in their target market and technology domain. As startups grow big, they abstract away from all of these.

Think of a leading local listing growing startup who could be challenged by a new startup who embarked social features and network effect of same when social media and social web had begun to become a trend. There could be a paradigm shift in industry or a social trend in targeted userbase that could suddenly make a huge impact to the growth prospects of a startup. Founders need to keep themselves well informed about developing trends in their industry as well as technology domain they are in. There should be an organized competitor analysis from time to time and have opinions and feedback of team on same. Most of the time founders remain adamant to stick to their vision of the product, and with a due arrogance that is expected out of tech founder to turns a blind eye to developing trend only to realize later that they missed the bus.

Sustain Spirit Of Startup In Team

In the early stage of startups, founders prefer to hire people who are fit for startups, which includes those who are fascinated by startups, are entrepreneurial and are well informed about the startup world, current trends, etc. This is obvious for various reasons. But when they grow quickly, they have to hire a lot of people in a short span of time and some of the checks are compromised.

When people are added to the team who doesn’t fit the culture, it can prove costly in multiple ways. For startups, the thought process of every team member affects the product or service of startup. When it is not in sync with the company’s vision or philosophy for product, innovation, and excellence gets affected.

Startups should employ means of communication through which they can keep the spirit of “startup-man-ship” alive. In a startup’s larger team, there would be people who don’t relate to the world of startup at all. Startups can make “startup training” part of induction and onboarding of people, where they can learn what are startups, how they are different, what is this startup and the vision, philosophy, values of this startup are communicated clearly. Open houses could be used to keep the spirit of startup floating. It is about ensuring that the whole team shares the same spirit and the vision.

Of course, in order to grow, startups need to really be “grown-up” in some areas as well and not to remain “startup” (like managing formalities, compliance, information organization, administration, etc.). And, of course, doing all of the aforementioned things isn’t the perfect recipe for growth. But these are the key ingredients of sustainable growth.

Various aspects of pricing SAAS product

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Deciding pricing can be very difficult at early stage of your product/starup. There are various things to care about.

Profitability aspect:

This is very subjective. As a good SAAS business you are supposed to be making at least 30% profit. But you cannot decide pricing by how much profit you want. Because that way you may possibly price the product which is not affordable by your target customer base. So in my opinion pricing cannot be determined by taking percentage of profit into calculation.

Look at Competitor pricing:

This is one nice way to price your product. You can find out similar product as yours. And then compare with feature and advantage or disadvantage and the price accordingly. You can create your subscription plan considering you disadvantages and turn it into advantage. Ie. If you are missing core feature, you can define low-end subscription which is cheaper than competitors subscription plan which doesn’t include that feature.
If your product in unique and you don’t have competitor having very similar looking product, you can look for product providing similar lines of benefits to the same target customer base. I.e. If your product helps in digital marketing to online businesses, and you don’t have direct competitor, you can look for products that helps with online businesses in any other sales/marketing areas. In that way you will be able to get insight about actual value of your product for your target customer base.

Be lean on pricing changes

In my opinion it’s no big deal if you have to change pricing too many times in your early days. This happens and it should happen. You should keep getting feedback from different customer segments and keep tweaking the price. But at the same time you should also try to find out the right price as soon as possible. When you have to increase price, you can keep customer who you have already sold at lesser price to same price as long as they maintain account with your product. Or if you have sold them at higher price, you can apply new lower price to them.

Increase perceived value

Sometime despite the fact that product is worth x amount rationally ( because for example it saves x amount in operations or human resource for customer) , customer might not be able to really see that. Because not everyone will be able to calculate and judge that. There are two things you can do, increase the actual worth of product by adding more features or functionality that adds more value for customer or you increase perceived value.

Perceived value is something customer perceives when they listen, see or read about your product from your marketing material, your website, you demo vide or call. Here, it helps to create that brand image and improve your marketing material. You can polish marketing material to give it be top class brand image, highlight high level unique advantages, show customer testimonials etc.

Keep one very premium looking subscription which has very high pricing. This is not to earn premium profit but it is to increase perceived value of product to customer.

Show customers future potential

When your SAAS product is targeting SMEs and is long term need for them, chances are customer will feel your price to be high. This true especially in India where people are accustomed to one off payment rather than ongoing services payment. In early stage, you might have priced the product considering long term prospect of features and usefulness of product. Because you know there will be lots of things that will be added in product in couple years down the line. But customer can’t see that value at the time of purchase.

So what might help is to create subscription plans with futuristic features. And that way you have subscription with currently available feature and subscription with futuristic features. And that way you won’t lose customer who want product which you have but don’t want to pay for the product which you will have in future.

Long term value assessment

There are few product for which the scale is more valuable than short term (2-4 years) revenues. Especially for startups whose product can transform into platform which can form its own ecosystems around various solutions. In such scenario I think it’s not wrong to price the product lower if it is visible that you can get more customers on your product/platform. For example for startups which is aggregating some sort of data can consider the data collection by means of sale as a value in addition to monetary value they gained by sales transaction. In such case you will need to put in more capital but then you are creating more value for long term.

While there’s no standard formula to price the SAAS product, I tried to discuss about various aspects of pricing at early stage of SAAS startup.

Looking beyond RR and LTV

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SAAS had emerged as very huge phenomenon in software industry around ten years ago. Most web, cloud and mobile software businesses are operating on SAAS model. Performance indicators related to startup growth are centered around Recurring Revenues, Life Time Value of customer etc.

Recurring revenue along with life time value is seen as a kind of assurance on long term opportunity of revenues and profitability for a software company. Of course we have to consider market size and share there. But most SAAS businesses evaluate themselves using these parameters. According to me, these needs rethinking.

Paradigm shift can change the dynamics of lifetime values and recurring revenue. The way digital technology and information technology is evolving, we are coming across big paradigm shift every 5-8 years (Internet, Mobile, Cloud, BigData, IoT, AI etc ).

Such paradigm shifts in world of IT and digital technoloy makes and breaks many enterprises. SAAS companies which are considered to have very attractive LTVs and RRs might not be relevant even in few years. So the other way to look at startup growth and sucess metrics is startup’s ability to stay relevant.

There are companies which are decades old and are still selling desktop based software on one time license purchase model where they dont have RRs. They are still huge and successful (Companies like Adobe or Autodesk and many more). They still are leader in their space. One reason why they were successful was they stayed relevant throughout decades. They innovated. That is obviously biggest quality to look at in order to measure the company in my opinion.

Opportunity of revenue and profit always relates to how much value a companies/products are providing to customers and markets overall. RR doesn’t ensure revenues forever obviously. If you stay relevant and keep offering new things to customers, you will keep making money. It is that simple. Because a business In general will always earn fair profits if they are providing fair values to customer in exchange of what they are charging for it.

Since we have seen early ten years of SAAS revolution, we have seen many software startups become million dollar companies and few even went public, becuse of these SAAS metrics dynamics that enables huge profit margins. I am talking about products which were just SAAS alternatives traditional software. Earning huge profits can’t continue forever though. So as in every business, there will be more compeition. And probably in next five to ten years SAAS market will become competitive in all categories of products overall. There will be multiple similar products from different companies fighting for market share by competitive pricing. And margins will have to go down. Ultimately the companies which will really stay relevant for longer and make it big will be the ones which can keep up with paradigm shift of technology. Those who can continue to innovate and excell in the product. Those who can provide the best to customer.

Ultimately, companies which innovates continuously, excels in product and stays relevant over tech paradigm shifts should be valued more, instead of looking at just “glamor” of SAAS with fancy RRs and LTVs.

Startup Hiring: Rethinking Rockstar Employee

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When you are running early stage startup, hiring or finding people to start with is one big thing you do. Everyone wants rock-star startup employee as early employee. This is how I define such “Rockstar Startup Employee”.

  • Person who is well aware of risk and opportunity associated with early stage startup.
  • Person who would prefer challenging roles vs roles with better pay and not-so-challenging role.
  • Person who is very much connected to starup ecosystem or at least reads about startups and trends frequently.
  • Person who probably have experience in startup or may be someone who had been founder himself
  • Add up usual things like smart, intelligent, don’t care attitude etc.

To earn something, you pay something

All startup want to have an unique culture and smart employees who are not usual employees. Hiring such Rockstar Startup Employee is great for your startup. But it’s very difficult. Sometime you might run into many problems. Following are few :

  • You waste lot of time finding them. Some tasks/initiatives which you have left for such employee may get delayed due to that.
  • Those kind of employees can create power issues in the company. There are chances of conflict in defining strategies or managent as an overall.
  • There’s risk that expectations from both side might not have mapped correctly.
  • There are also chances of issue related to culture-fit and ego problems.
  • They are expensive (salary or equity wise)
  • Chances of such employees leaving company are higher.

So while its always great if one can find such rockstar employee with whom you think issues like above will not happen, one should also think about the alternatives.

What if you can hire someone who can just do the job

If you think more about this, you might find that you don’t absolutely need that kind of rockstar startup employee for given role. And instead You might get the task/role done from a person who is equipped with required skilled, is decently smart and very much motivated for job.

I have seen in my experience as an entrepreneur that instead of those rockstar startup employee type qualities, what is more important is that the employee be highly motivated to do the job.

Well, even those “Rockstars” were made someday

Everyone learns. While person’s learning capability is directly related to qualities like intelligence, smartness, it is not very difficult to add some knowledge or develope some qualities in a person. If you can create some process within your office, you can make your team awesome out of not-so-awesome. For example you can try following things :

  • Taking team member to startup events.
  • Keep very frank and open culture and sharing everything with the team including mainly the vision, opportunity etc.
  • Encouraging team to read about startups (by setting up internal website which streams posts and news from curated source).
  • Weekend evening sessions where you organize talks, watch inspiring documentaries and movies etc.

There’s big world out there

Millions of people are working in hundreds of thousands of big companies and big businesses which are contributing in much larger share compared to startup ecosystem. There are capable people out there. It is just that they aren’t seen as fit for startup. In fact many of them aren’t really fit for startup because all they look for is fat salaries and easy jobs. But there’s always something in between. You can find people who are reasonably good from skills/smartness perspective, who can be trained to be startup-types and who are willing to work in startup.

I might sound being against hiring Rockstar startup employee. But intention of this post is just to point to the other side. Rockstar startup employee are always good for startup but it shouldn’t turn into hiring obsession for startup.