I’ve been working on SaaS products for nearly 15 years, which feels kind of crazy to write. While I’ve worked on a lot of very cool products and helped many other PMs over the years, it doesn’t seem like it’s been that long.
What lessons have I learned?
The other day, a friend asked me what rules I’ve learned that I would apply from day 1 the next time I start a company. It got me thinking, and once I jotted my thoughts down, I realized it was worth sharing as a post here.
There is no need for a lengthy preamble, so let’s get right to them.
10 Lessons for Scaling Your SaaS Startup Faster
Consider this a checklist of simple tactics and approaches that I’ve seen first hand work repeatedly. Maybe your situation is different, but they’re all worth at least experimenting with, and very likely moving up your priority list to do sooner.
Many of these I learned the long and hard way, and wish I had done sooner, which is a big part of why I decided to write and share this post. It’s the kinds of things I coach my clients to think about regularly, so this is also a reference for them in the future, too.
I hope you learn a thing or two, and make a few extra dollars faster because of them.
1) Start charging as soon as you can. Earlier than you think you can.
One of the greatest mistakes I see founders make is to wait to charge money for their startup. It crushes me to see friends and mentees waste months, or in some cases even years, of their lives building their product for free, avoiding the hard question of, “Will anyone pay for this?”
The fact is people will use a lot of things when they’re free that they’d never pay for. And equally important, you don’t learn many key things when you put off the discussion about them paying:
- What is their buying process?
- What kind of budget do they have for this sort of problem?
- Is this problem important enough that they’ll pay for it?
- Can your user even make buying decisions?
- Will they pay enough for this product to make your business viable?
In one particularly sad case, a friend of mine went years without charging for his product. In the process of chasing the mythical startup where he’d charge based on progress next month, he not only ultimately had to shut down the startup, but he destroyed his personal credit, his wife divorced him, and he lost custody of his daughter. I wish I was exaggerating any of that.
Don’t be a cautionary tale. Cross the penny gap as soon as you can.
I’m still amazed that I got customers to start paying for my startup, Lighthouse, when we were a barely functional CRUD app. You could post some notes, and we sent a morning reminder email, and that was it. Yet, people not only paid, but my second customer ever actually prepaid annually. Quite the vote of confidence.
The Bottom Line: Start charging customers before you think you can. Often, you can even get them to pay *before* you build anything. But you won’t know unless you ask.
2) Offer annual subscriptions from day 1.
Now that you know you should start charging as soon as you can, and earlier than you think, the next move is to have an annual plan.
You may be surprised to realize that many people prefer annual agreements; it’s standard for procurement departments, and if you need reimbursement or approval to spend money, you only want to go through the hassles once a year.
And that’s before you get into basic persuasion.
The single most profitable, highest impact experiment we ever did in the history of Lighthouse was an email we sent to customers.
After 3 months of them paying monthly, we sent an email that essentially said, “Looks like you’ve been enjoying using Lighthouse. Why don’t you save yourself some money and buy an annual plan?” Our annual plan gave them 2 free months, and that’s all they needed to think it was a no-brainer to pay annually.
Some founders I’ve met are afraid to offer annual plans up front, and to some extent, I thought people wouldn’t want to. But the fact is, if you offer it, some will say yes, and if they say no, you’ll learn helpful things anyways.
The Bottom Line: Offering an annual plan can help you grow your revenue much faster. Especially if you’re bootstrapping, this can provide critical rocket fuel to fund and grow your business, all while lowering your churn rate (they can’t cancel for 12 months, after all).
3) Charge for services you provide. People will pay.
You’ll notice the first two tips are all about helping you make money faster. This third one is also about money, too.
The fact is, you need revenue to grow your business. It’s the oxygen to keep your business going. (Obviously.)
Investor capital only goes so far, and getting that next round of funding is usually related to how much revenue you were able to generate with the last round of funding.
And if you’re bootstrapped, more revenue lets you quit your job sooner, or fund more growth faster.
Either way, more revenue sooner is a net good thing.
Yet, some people frown upon services revenue. They think charging one time costs for things like setup, training, manual work, custom integrations, etc is a bad thing because it’s not recurring revenue.
However, if you look at lot of successful publicly traded SaaS companies, services revenue is a real part of their total revenue each year. No, you don’t want it to be 90% of your revenue, nor do you want to become a custom development shop for anyone, but you can easily make 10-20% of the value of your contracts include one time services revenue. This is on top of whatever your annual subscription rate is.
This is awesome for you for a few reasons:
- It’s free money on top of what you expected to make: You probably have to do the things you’ll charge them services revenue for anyways. Now, you’re making money for doing it. If it’s a $10,000 or greater deal, they probably expect it, so why not ask for it?
- It’s a second negotiating point & an easy place to discount: Procurement is usually rewarded for saving money on the total contract, not necessarily an individual point. That means when they negotiate, you can discount the one-time, services revenue, while preserving the price of your recurring subscription. You can also use tactics like telling them you’ll waive it if they close today.
- Renewal time is easier: While in year 2 you may have less services to charge for (or none at all depending on what you provided in year 1), you’re hopefully growing your subscription fees. With the services price down in your contract, you can often then grow your MRR in year 2 without substantially increasing the total cost to your customer. This is win-win as their books look better, and you show growth on your side.
The Bottom Line: Services revenue is your friend. It’s free money for any deal you’re negotiating of reasonable size, and you can ask for it as soon as you start charging customers.
4) Use software to make yourself more efficient.
One of the great breakthroughs of the last decade is how software has been eating the world; there’s now software to help you do just about everything. This saves you time, money, and allows you to do more with a smaller team than was ever possible before.
It’s amazing to me how much my team and I have been able to do never being more than a team of 7, thanks to the fact that virtually every department has software to help support it.
A few of my favorites include:
- Intercom: Covers all of our help docs, customer support tickets, in app messaging, product tours, and chat on our marketing site.
- Gusto: Simple payroll so I never have to think about paying employees or contractors, nor worry about tax time.
- Upwork: For easily finding high quality, inexpensive workers in other countries. Takes care of paying them, monitoring their work, and helping you run an efficient hiring process each time.
- Digital Ocean: So easy to use that as a non-technical CEO, I can go in and make upgrades and check or fix things in a bind.
- Strikingly: Simple landing page tool, which has allowed us to build landing pages that look great even with no designers or engineering involved.
- Stripe: The easiest payment processing setup I’ve seen, that makes it easy to manage your subscriptions, handle refunds, and use across multiple offerings you have.
And I could list out dozens more, all of which combine to save us time and money.
Over the years, I’ve embraced this idea more and more, which has led to a few simple rules for adding software to our stack:
- Anything that costs less than $50/month is a no brainer: Any team member can ask for the company to pay for a tool at that price or less. If it helps them do their job, it always pays for itself. All I ask is what it is, and an invite so I can enter the credit card.
- With a strong case, most other tools still are purchased: Above $50, we have a quick discussion about it. The team member requesting it has to help us calculate the benefit, and as long as it generates more value than we pay for it, we’ll purchase it.
I’ve rarely regretted buying any software to help my team and I, and even when it doesn’t work out, it’s usually tool specific, not use case specific. That means we cancel one tool to switch to another, similar one that’s better/faster/cheaper.
And all of this was learned before AI came along. Now, I’m rethinking this further, as now I realize tools like ChatGPT and Claude.ai can automate and speed up things I never thought software could.
The Bottom Line: Software helps you and your team go faster. Don’t slow yourself down by making it hard to add helpful tools to your stack, or being penny wise and pound foolish.
5) Marketing has to be a part of your plan from the start.
At the peak of the bottoms up SaaS era (which I consider roughly 2010-2020), it was often thought that building a great product that can expand virally in a company was the most important thing you could do. Some even thought of freemium as a form of marketing en lieu of other strategies.
While some of those rules still apply, it’s become clear that marketing must be a part of your plan from the start. Building software has gotten easier and faster, and AI is rapidly bringing commoditization to many markets, so you cannot ignore distribution.
Build it and they will come was never a particularly great strategy, but now it’s fatal. I think at this stage, teams should think in the frame of “Technical Cofounder” and “Distribution Cofounder”, because frankly, distribution is the most important thing a founder can work on if not building the product.
The good news is, all that effort investing in marketing early on can help you in a variety of ways:
- Sourcing customer interviews: I used this blog to source the 40 managers I interviewed before we started building Lighthouse. If you can write a blog post, create an ad + landing page, or otherwise get attention for a problem, you can funnel that towards interviews and customers.
- Easier trial and sales: Even if you have a great network, and you’re building in an industry you know, you’ll run out of friendly people to try your product pretty quickly. If you’re spinning up marketing efforts from the start, you can grow a lot faster.
- See faster what you’re up against: Much like you don’t know if you have something until you charge money for it, you don’t know what marketing will work until you try it. Finding out your costs of acquiring a lead are much higher or lower than you expected can help you understand the viability of your business much faster.
- Lay a foundation sooner: Especially if you want to try SEO or social media as a key tactic, it can take some time for it to start to pay off. That means the sooner you start, the better.
While I started thinking about marketing from the start of my last startup, I will be even more aggressive next time. Instead of blogging on my personal blog for the first few months, I would have started the company blog from the day we bought our domain. Every bit helps and gets you to escape velocity in your marketing faster.
The Bottom Line: Don’t wait to figure out marketing. You need to be thinking about it from the start to be sure you really have a good business that you are well positioned to grow.
6) Choose your industry wisely, and learn all about it.
Spotting a problem or an opportunity to make things better is a great way to come up with startup ideas, but it’s not all it takes to be sure you’re onto something special.
It’s really important to think through the business you’ll be building and the industry you’d be working in. They all have their flaws, challenges, frustrations, and benefits. Make sure they’re things you’re well suited to tackle, and would enjoy tackling.
A few examples of pitfalls that I’ve seen stop founders in their tracks:
- Two introverted engineers start a company that turns out to sell best at trade shows. It was not a good fit and exhausted them quickly.
- A product minded founder built an easy to use product, but couldn’t find a way to reach his target market consistently, because they rarely were by a computer.
- Two founders who loved helping their end user found they couldn’t stand dealing with the buyer for larger deals, who had different goals and incentives.
- Founders looking to pivot their business thought they had a great idea for a different department, only to discover that department had no budget for what they could do.
The point isn’t that you need to find the perfect market; that doesn’t exist, because they all have their flaws and challenges. However, you can save yourself a lot of frustration and heartache if you do your homework up front to understand your market more clearly.
When evaluating an industry or market, be sure to find out:
- Who is your end user?
- Who is your buyer? How do they like to be marketed to and what is their purchasing process like?
- What features are absolute deal-breakers for them, or the most important ones for their current solution?
- What do the largest companies in your industry do best? What did they get really right?
I know it’s easy to think that your one insight will carry you to winning the market, but that’s typically only part of a bigger picture. Taking the time to get to know your industry can help you place much smarter bets early on, and make sure it’s a mission you want to be on for the next 5-10 years.
The Bottom Line: Do your homework thoroughly to really understand your industry. Read public company quarterly filings, interview people all through the value chain, and look at companies that have succeeded and failed in the market to truly learn.
7) Raise your Hierarchy of Value and avoid “nice to have”
Other than not charging money soon enough, the number one mistake I see founders make is starting a business that’s actually a “nice to have.” In fact, those two mistakes tend to go hand-in-hand.
There are a lot of things people will use for free that they will *never* pay for. Unfortunately, this is particularly true in the world of SaaS. But is it really SaaS if people don’t subscribe?
As I’ve seen many startups come and go, rise or fall, exit or shut down, it’s led to a theory on how to evaluate the value of a startup:
The point is, you have to think about the value you’re providing from the start of your company.
The clearer, and more important, the value you provide, the stronger your business is. If it’s only nice to have, or it’s a very vague time or money savings, then you’re likely to have a hard time (hence the grim reapers in the image).
However, all is no lost. Often you can raise your value over time, jumping or expanding from problem to another. In particular, I’ve seen this in HR tech, where a small tool grows into a full suite for performance management (most companies feel they need annual reviews), and then ultimately adding payroll (a legally obligated action) to rise all the way to the top of the hierarchy.
There’s a lot to this, which is why I wrote a whole post on the hierarchy of startup value and what to do about it here.
8) Remember the buyer vs end user dilemma
Of all the lessons I’ve learned in SaaS, this was one of the hardest for me to learn. It essentially comes down to these fundamental truths:
- Just because you solve a problem for an end user, doesn’t mean a buyer cares.
- If you don’t give the buyer what they need, it often won’t matter how much the end user likes what you do.
- The bigger the buyer, the further distance they typically are from end users. They may not even speak with them at all.
Until you understand both the buyer and the end user, you don’t know what your business’s potential really is. Especially as the bottoms up SaaS era winds down, you can’t shortchange what buyers are thinking. When budgets are tight, markets consolidate, and IT re-asserts they role in decision making, you can’t count on front line users of your product to get the deal done for you.
Who is your buyer? How far are they from the end user?
These are the two most important questions you need to ask when starting to evaluate a SaaS business.
That’s because the farther removed they are from your end user, the more likely you’re at risk of a Siren Song; in cases where there is a large gap between buyer and end user, the end user likely has a terrible experience and is not consulted at all in the buying process.
That’s a dangerous temptation for founders, who see the end user experience and then think that’s a great startup opportunity.
A great example of this is the performance management space. That’s because:
- HR is the buyer
- Managers and Employees are the end users
- HR doesn’t consult with managers and employees when choosing their performance management software
- Most performance management software is painful for employees to use, especially at large companies (just ask anyone who has ever used WorkDay or Ultimate Software…)
When I started Lighthouse, I was so singularly focused on the end user (managers, in our case) that I didn’t even think about the buyer. That lead to some painful and challenging lessons as I found our product was ill equipped for what the buyers (HR) really wanted.
And it’s not just about the features you have, or are missing. It’s also the structure of your organization, the buying process, and your positioning.
What resonates with your end user, and how you acquire them, can be totally different than what your buyer wants. If you’re not careful, you can have your entire company structured in a way that is counterproductive to your long term growth goals.
That’s why this is one of the most important lessons to keep in mind from the start.
The Bottom Line: Learn who your buyer is, why they buy, what their process is, and the features that matter to them as early as possible. You may be surprised to then realize that the incentives the buyer creates are why the end user experience looks like it’s so appealing to start a company to solve (but will ultimately limit your potential unless you satisfy the buyer, too).
9) Customer service is every startup’s greatest advantage.
Have you ever used enterprise software and sent in a support ticket? Often, it will take days to get a response, and at best you get a work around, but never an actual fix of the problem.
For many people, they deal with these kinds of problems and response on a daily basis.
That means that when they try a startup’s tool, and they see the startup actually listens, and actually fixes the problem, or later adds the feature they requested, they’re overjoyed. Because of this, they often become incredibly passionate and loyal to the startup, even if it’s missing some features or has a few wars.
Roll out the red carpet and fix mistakes fast.
It never gets old seeing customers respond positively to startups showing them care and attention. Customer service is a huge asset for startups, whether founders directly talking to customers, a highly responsive customer success team, or engineers that take pride in fixing bugs.
One of the best things you can do in your early days is to lean into this advantage. The bar may be low to be better than your average enterprise tool, but you have an opportunity here to really wow your customers.
To do this, all you have to do is:
- Involve your team so they see and fix bugs: Make sure your engineers especially are aware of customer feedback. Let them see the customer’s own words. “A player” engineers take pride in their work and love telling customers they saved the day and fixed or built the thing that was important to the customer.
- Make it easy for people to contact you: One of the dumbest things I see startups screw up is making it hard to contact them. Make it easy! Whether you use Intercom, or another tool, the easier you make it for them to contact you, the more valuable feedback and positive interactions you can have with them.
- Follow up and show you care: A lot of times, people just want to feel heard. It’s amazing how often even just asking a few questions to understand their request will make them feel special. Of course, if you then build the thing they asked for and follow up even a few months later, they’ll *love* you.
Best of all, doing this helps keep churn low and can cover for many limitations in your product. People love rooting for an underdog story, especially when, like a training montage, they see you continually getting better.
The Bottom Line: Customer Service is a huge opportunity for every startup to stand out. Lean into it and you can really build some amazing affinity for your product.
10) Set up analytics as soon as you launch. It only gets harder later.
When I ran product at KISSmetrics, I saw this problem all too often. Companies wanted to measure their product usage and run experiments, but they kept putting off starting. Then, by the time they realized they *must* set it up, it became a really big project.
At that point, they now had to think about either devoting a whole sprint to tracking everything in their product, losing a sprint of feature building or tech debt work. That’s a tough tradeoff to make when trying to hit key growth milestones, which often led to even more procrastination.
That’s why the best thing you can do is start tracking from the very first feature you launch.
In doing so, you can make it second nature to add a few events and properties to track every time you launch something. It’s very easy for engineers to add them while they’re already in that part of your code base, and you can make it routine to do so if it’s part of how you write out your product specs (as I describe here).
Bonus points: Build the habit of reviewing key metrics every week.
It’s amazing the difference a single email can make. While it’s great to be able to log into MixPanel, Amplitude, or another analytics tool to quickly look up a key number or funnel, it’s even better to have numbers you and your team can’t miss on a weekly basis.
That’s why one of the most useful things we did at Lighthouse was start having my virtual assistant go to a few sources to report 4-5 key metrics each week in an email to us. Here’s a snippet of part of it monitoring some of our key marketing metrics:
Thanks to this email, every Monday morning we knew if last week was better or worse than expected, how it compared to the previous year, and if there was an anomaly to investigate.
I’ve lost count of how many times we caught an issue we would have otherwise missed for weeks, as well as the many times we found something to celebrate.
The Bottom Line: Make measurement and looking at your data a central part of your startup from day 1. It will pay dividends for the rest of your startup’s life, and save you playing painful catchup later.
These are 10 lessons I’ve learned over the years that I keep in mind every time I work with a new client, and will remember when I start another company in the future.
What are the hardest or most important lessons you’ve learned? Share your advice in the comments.