July 12, 2019 Growing your SaaS business
The Four Stages of a Bootstrapped SaaS Business: Which Stage Are You In?
Understanding the stages of a SaaS business provides perspective on where you currently are and sets expectations for what is to come
How do you know if your SaaS business is on track? What is the “right path”? If you find yourself asking these questions, you’re not alone.
Bootstrapping a SaaS business is a unique, challenging, and rewarding journey. There are no perfect maps, no detailed directions, and no road signs telling you how fast or how slow to go along the way. It’s not always easy to orient yourself or to know how you’re progressing, and we frequently get asked the same question from SaaS founders… where do I stand in the market and what should I be prioritizing now? Our experience suggests there are generally four stages of a SaaS business: start-up, ramping, commercialization, and expansion.
Stage 1: Start-up
The start-up stage of a SaaS business is defined by creativity, freedom, and white space.
The business: You’ve found a problem you want to solve, an audience you want to serve, or a product you want to build. You have the freedom to figure out who you are and how you will bring your idea to life. That freedom can be a blessing and a curse. A blessing because anything is possible. A curse because everything is possible.
The team: You might have a co-founder and a handful of early employees.
Revenue range: $0 – $2 million
The first challenge in this stage is fairly obvious and well chronicled – namely, how to find customers willing to buy your product. You have a strategy, you have a product and if you’re lucky, a proposition that begins to resonate with paying customers. But the second – and less well understood – challenge for the start-up stage is how to avoid the tyranny of strategy drift. We all know and celebrate the power of the pivot. But the temptation to find yourself “doing stuff for money” to chase revenue traction can end up leaving the founder with downstream regret. Product roadmap distractions and early customers with different needs outside of the core strike zone can slow down the team and reduce the company’s attractiveness to investors and acquirers.
Best advice: Keep maniacal focus. In the words of Bruce Lee, “I don’t fear the man with 10,000 kicks. I fear the man with one kick, practiced 10,000 times.”
Stage 2: Ramping
The ramping stage of a SaaS business can be described as rewarding, fast-paced, and a bit frenetic.
The business: Congratulations, you’ve survived the start-up phase – you know what you’re building and who you’re building it for. You have product market fit, reasonably good traction on inbound leads and referrals, and established ROI. – But you’re probably not yet investing in outbound sales and marketing and frankly that idea may be somewhat scary to you.
The team: 5-15 employees who are all wearing multiple hats.
Revenue range: $2-5 million
The biggest challenge in this phase is there is only one of you. You love your co-workers but let’s be honest, you’re really the sole decision maker – you’re closing customers, making product decisions, managing a lease for office space, and everything in between.
For most of this stage, you’re playing scrappy and you’re playing to win. You’re making short term decisions with limited resources. For a while, that leaves you perfectly located on the “efficient frontier” – what we at ASG call “everything you need, and nothing you don’t.” Problem is, at some point, imperceptibly at first, that mindset can begin to shift. You start to realize that your decisions carry a larger price tag and the choices you’re making look a whole lot different than they did in the start up and ramping stages. The personal checkbook dynamic – when you face higher dollar choices with longer payback periods like whether to hire your first “real marketing person” – can cause you to play not to lose, rather than playing to win.
This is a critical inflection point.
If you’ve ever considered a transition, this is the time to be intentional about exit strategy if you haven’t already. The slope of your revenue is at its greatest, allowing you to optimize the risk/return trade off for the years of hard work you’ve put in. However, you also sense a growing set of fundamental questions… Will my growth slow? Do I personally have the experience to get us through this next phase? And of course the #1 imposter syndrome question every one of us founders faces… Wait, what if I screw this up? This is the perfect time to think about what it is you personally really want. For some, it’s staying on in the business but in a different capacity. For others, it’s going to pursue their next idea or taking a break to spend more time with their family or friends. Or, maybe it’s keep going in the same way you always did.
This is where we meet most of our founders. They had the cleverness and creativity to turn an idea into a company, the resilience to make it through the start-up stage, and the courage to see it through ramping. At this point they realize that maybe they don’t love what their job has become or all that goes into running and leading a business. Perhaps they want the flexibility to go back into the functional role where they love to “geek out” (such as CTO or head of business development). Or maybe they just want to do something else entirely and create independent wealth for the hard work they’ve invested this far. Either way, in every single case, founders want to see their business continue to grow and their people taken care of.
This is the sweet spot to consider what’s best for you and your business.
Stage 3: Commercialization
The commercialization stage of a SaaS business can be described as long-term thinking and operationalizing your business.
The business: In commercialization, you’re building an organization, not just a product. You might be expanding your leadership team to manage entire functions within your organization. You’re asking questions like “how do we flip our sales from inbound to outbound?”, “How do we stand up a marketing team?” “How much should we spend on marketing?”. The point is – you’re thinking long-term and making strategic decisions, not just short term gains. You want to hold onto that cultural scrappiness you created but you also need outright functional expertise and leadership experience in company-building.
The team: 50+ employees
Revenue range: $5-40 million
The challenge in this phase is going from the sole leader and decision maker, to building a team you can trust and empower to run the various operating functions. This transition can be hard and at times, emotional. The other challenge is fighting the urge to play it safe. Your business needs long-term thinking and it can be uncomfortable to shift into this mindset.
Stage 4: Expansion
The expansion stage of a SaaS business can be described as professionalized and sustained growth where trains run on time.
The business: In this stage you’re expanding what you have to new markets and new products. The business is focused on making sure teams are high functioning, leads are getting generated, and your business is running at a healthy pace. You have a true product roadmap that ties to a five and ten year vision for where the company is going. The leaders are typically been-there, done-that executives focused on building successful teams. There might be a shift where innovation comes from the ground up instead of top down. At the same time, you have to make sure that those leaders have entrepreneurial DNA and are not turning your baby into a management bureaucracy. (Note to you Silicon Valley HBO fans out there: think “conjoined triangles of success”)
The team: 200+ employees
Revenue range: $40+ million
The challenges in this stage are focus and people. To truly expand, you’ll need to relentlessly focus on your long term vision. Even more important than your long term vision is developing the people and culture it takes to get there.
Understanding the stages of a SaaS business provides perspective on where you currently are and sets expectations for what is to come. No matter what stage you’re in, there’s always opportunity for growth and the need to ask the hard questions (of yourself and your business) – do I have the capital and the team to go to the next level? Should I invest in a full sales and marketing organization? And the big one – Is it time to think about an exit? It’s tempting to keep your head down and push forward. Picking your head up to see where you are can give you a new perspective on where you need to go and ensure you don’t miss out on an opportunity that’s right in front of you.
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