Scaling your SaaS startup is akin to that classic Spiderman moment when uncle Ben addresses Peter Parker, saying, “Great things are going to happen to you and your life, and with that will come great responsibility”.
Your SaaS startup is at that stage where the greatness you envisioned for it is beginning to seem like an attainable goal and not a distant dream. Your venture is ready to take-off. The question now is, are you ready for the responsibility that will ensue?
On one hand, you have unbound ambition and on the other, a checklist of practical challenges. You have the firepower but you fear burning out midair without parachutes.
When to push the pedal, when to pull the plug? Let’s go through a list of insights about Start-up scaling that will help you avoid blunders, manage crises and keep it all together as you ride the upward trend.
Table of Contents
- Before You Scale Your SaaS Startup
- Core Priorities for SaaS Startup Scaling
- 1) Scaling Stage
- 2) Sales and Marketing
- 3) Technology
- 4) Team Expansion
- 5) Payment Model
Before You Scale Your SaaS Startup
There’s always the tendency of getting ahead of ourselves when we talk about scaling. We’re too excited about adding slab after slab of revenues, that we may ignore the pitfalls that await.
Hence, before you chalk out your SaaS Startup Scaling Plan, here are a few questions to ask yourself first.
Scaling Vs. Growing the SaaS Startup
Scaling is pretty different from growing, while the goal is the same – to increase revenue.
Growth refers to the holistic expansion of your startup in terms of headcount, customer service quality, and increased business offerings. All of which will (eventually) return more customers and higher revenue. Not only will your brand grow in the market, but you will also move with the sure-shot capacity to take on surmounting user volumes.
Scaling is the process wherein you’re investing in minimal but strategic ways, in order to derive proportionately higher revenue. You hire the right people, invest in the right tools, and come up with a killer plan that is supposed to skyrocket your efforts. You’re putting in a little bit trying to churn a lot in return.
Scaling may sound more lucrative and fancy, but it works on a set of assumptions. Growth, however, comes with surety and sustainability while being costlier in comparison. You need to have a compelling reason for choosing one over the other.
Is it about time that you started scaling?
From a bird’s eye view, you need to assess the scale readiness of your SaaS startup. In market terms, when a startup is fast acquiring customers and average annualized growth has been around 20% for 3 years consistently, the startup is scale-ready. OECD refers to businesses qualifying this criterion as “scale-up businesses”.
Other qualifiers that can help you identify if you are there yet could be the presence of a formalized HR department, selling to international clients, expert Accountants managing your finances, etc. These are a few mini-achievements that reflect positively upon the startup’s scalability health.
In your specific case, these factors could be different – the point is to delve into scaling only when you have several statistical validations proving that your SaaS startup is ready for scaling. For instance, for me, the point came when the application hit 20,000 paying users. Scaling from that point onwards made a lot of sense.
Do you have the ingredients for scaling your SaaS Startup?
According to Bob Sutton, Organizational Behavior expert at Stanford,
“Scaling is actually a problem of less.”
Your goal is to outdo your inputs with the outputs, for which you need specialized tools, mindsets, and people. I am not saying you will be aiming for the moon by spending dimes, but you need efforts that bring about radical growth.
The question here is, do you have these specialized tools? Is your Startup geared with the big guns that’ll get you where you want?
Generally, the tools include nifty software applications that increase your team’s productivity, Subject Matter Experts both on technical and non-technical ends, and the right scaling mindset.
Speaking of scalability, budding teams have massive favorability for tools that don’t put restraints on team growth. The biggest example of which are the tools that come with a flat-fee policy.
I have, therefore, applied the same principle to ProofHub. The tool supports unlimited users for a flat monthly price, which doesn’t make team expansion any costlier. Secondly, it offers features for 5-7 workplace apps, wherein teams don’t pay separately pay for each app and enjoy reduced consolidated pricing.
See how ProofHub meets your startup scaling needs with unlimited users at an affordable monthly fee. Check pricing.
Core Priorities for SaaS Startup Scaling
1) Scaling Stage
Let’s continue the discussion on Startup Stages. According to a Startup Genome Project study of 3200 startups, which also made to a Forbes article, found that 70% of startups fail due to premature scaling.
When the founders try to jump the gun, it backfires painfully. It’s easy to understand why. Startups, until they become established businesses, always tread the fine line between burning the cash at hand and making enough revenue (or securing funding).
The problem, therefore, is about timing. You need to know if you are ready to scale yet. Let’s look at the four stages of startups to understand the concept of the “Scaling Stage” better.
Four Stages of a Startup
|Startup Stage||Key Characteristics||Key Challenges||Scale Readiness|
|Pre-Startup||Can’t scale because the business is still finding a market fit to sell.|
|Startup||Moderately poised for scaling. Need to acquire a decent number of customers and get enough funds to scale.|
|Growth||Substantially geared for scaling. Need to pick the components for scaling carefully.|
|Maturity||Past scaling experiences have been successful. The focus needs to shift from scaling to market expansion.|
As evident from the above comparison, not all stages are perfect for scaling up. In the early days, you’re figuring out a sound business plan and as you mature, you struggle hard to gain enough customers.
The sweet spot for scaling comes only when you’ve balbreanced customer growth with process efficiency.
Overcommitting to scaling up too early can lead to Sunk Cost Trap which prohibits you from pivoting your scaling efforts when needed. You marry your scaling plan by investing unrecoverable time and money and end up flogging a dead horse.
2) Sales and Marketing
Sales and Marketing are going to take the center stage in your scaling efforts.
It comes as a surprise to many when I tell them that we still don’t have an active sales team at ProofHub. Most of the user acquisition takes place with the help of Digital Marketing efforts. It’s also no surprise that the Marketing team has more members than any other team, thanks to mindful scaling.
Mindful scaling is the keyword for your marketing department. You can’t shy away from adding more people for more results but each new member will also add more costs.
The same goes for making investments in marketing technologies such as a website, a CRM, and marketing project management software. You’ve to carefully monitor the ROI and not let the expenses exceed beyond a limit.
I’d like to mention words of wisdom by Olga Mykhoparkina, a leading SaaS marketer and founder of Quoleady.
“I’d say people are more cautious with their budgets these days looking for the proof of concept before proceeding with the next month’s cooperation, but once they see the results they tend to double down on content marketing as a proven channel for them to get a steady stream of quality leads.”
Herein, she reflects upon the cost-efficiency of content marketing which is a spearhead for SaaS startups.
Content Marketing used alongside Digital Marketing efforts can help you keep costs at bay as your signups and lead flourish. Personally too, I have found great respite in Content Marketing as a tactic for scaling customer acquisition.
This is further validated by Neil Patel in his blog post which highlights how content marketing leaders are able to produce a 7.8X higher y-o-y unique site traffic.
Scale your marketing efforts easily with a tool that is high on productivity, and low on price. Create a Free Marketing Project.
Technological prowess is what your idea and SaaS Startup thrive on. And it is something that will be tested to full measure while scaling.
Technology scaling decisions are super unique to each startup, simply because the intricate mechanisms powering each SaaS tool are way too complex for an outsider to comment on. Therefore, generic tactics such as buy bigger servers or switch to Kubernetes may not bode well for this article.
I do have some tips on prioritizing technology in order to keep things smooth as you scale.
Upgrade Critical Components
It’s no mystery that each SaaS application has certain critical components that haven’t received their due share of upgrades. This could be anything from the Redis server or the handful of APIs that haven’t been shifted to the latest version.
In my personal experience, these impending upgrades are ticking time-bombs that need immediate fixing. The issue is that it’s hard to predict what will go wrong when. The best approach would be to take corrective measures for such critical components before marketing is scaled up.
Invest in Contingency Measures
The next logical step is to ensure that contingency measures are in place. If the server blows up or a critical error comes up in the first 3 days, it’d be very hard to regain lost users due to system outages.
Hence, make sure the fallback and failover efforts are being taken. Automating cloud backups, setting Disaster Recovery, and setting up contingency protocols, do everything that will help you face emergencies easily.
Scale Up DevOps with a Goal in Mind
Scaling-up DevOps is a decision that is highly time relative. Therefore, you need to have some estimation of how many new sign-ups can be expected in the next 6 months before the next scaling drive takes place.
Scaling up for let’s say 25,000 new users will give you more clarity on how much expense needs to be allocated, rather than aimlessly buying new server assets. The same goes for hiring new DevOps engineers.
Hiring a System Architect
In typical scenarios where the SaaS infrastructure requires radical changes, it’s advisable to hire a trained System Architect. This will help you avoid taking U-turns later in the development stages or making patches for backward incompatible updates.
A system architect can provide foresighted advice on scaling the infrastructure by keeping present code, and new implementations in mind. You’ll be able to both prepare for the heightened application load and futureproof the components.
4) Team Expansion
Scaling suggests that you need more people on your team. Because that’s how more work gets done, right? Wrong.
In order to scale well, you need the right people rather than more people. While this means that you need to go head-hunting for exceptional talent, it might also point to laying-off.
Here’s a classic tale from the early days of Google to elucidate on this.
In the initial days, when Google was rapidly scaling its workforce, Larry Page found himself stuck. The team had grown into a sprawling campus of 400 staff members and inevitably, there were more managers than ever.
Page began missing the simplicity that came with a small team and found the extra load of managers really bogging. So, what he did next may sound whimsical but he let go of all the managers. Because that would solve the “too many managers” problem.
This resulted in 100 people reporting to 1 managerial head, which didn’t do any good to the decision.
Later on, Page became really conscious of hiring more people in the name of team expansion and focussed on the right people. A decision that is pivotal to Google’s success through the years.
5) Payment Model
The payment model, may it comprise monthly subscriptions, pay-as-you-go, or fixed-term contracts, is the essence of the SaaS industry. When you plan on scaling, revisiting the payment model may come in handy.
I believe that the market disruption caused by SaaS is majorly due to the introduction of easier payment models. Users facing cashflow hurdles can easily pay up to $100 a month rather than licensing software worth $3000 or more in one go. Even if they pay for the entire year, it’s still 40% of the full cost.
For your SaaS Startup, here’s a very valid point made by David Skok in his SaaS Economics Series. He observed how the cashflow changes when payments are gathered for the full year in advance, rather than on monthly basis.
In the left-side graph, it’s easy to observe how Yearly Payments (blue) follow an upward trend right from the beginning whereas Monthly Payments (mustard) take a dip in the 3rd week.
Further, the Yearly Payments graph nearly touches the $30,000 mark in the 15th week, while the Monthly Payments graph barely crosses $20,000 in the 24th week.
As pointed out in the right-side graph representing Cumulative Cashflow, the Yearly Payments graph equalizes the Monthly Payments graph.
In addition to Yearly Payments, another aspect of your payment model that can bring in exponential user growth is the Freemium Model. Offering a free trial or free limited features not only takes away the initial skepticism but also lets you onboard users at a breakneck pace.
Why 5 or 10? Onboard your entire team for free on ProofHub. Create A Free Project.
For founders, scaling up could be really challenging due to the tricky decision-making involved in the process. Pre-scaling plans, post-scaling consequences, and the vision to drive it all, ultimately befall upon your shoulders.
One thing I have learned while scaling my startup is that it’s easy to lose focus on important things. You have to keep an open mind but also keep the spending really tight. Trust me, each idea seems as good as the other, ad it’s hard to label what is less important.
Therefore, consider scaling an opportunity to practice your SaaS management skills and make sure you are ready for the fall. Scaling will give your entire team a lot of action, which will be fun to take on.