With the history of human commerce extending back into prehistoric times, SaaS, or “Software as a Service” is indeed one of the newest innovations in commerce, having only been made possible through the advent of the Internet age. SaaS startups abound because in the beginning, all it takes is an idea and code.
However, as your SaaS startup is gaining traction (and sales!) – learning how to scale your business is the next logical step, if you have not already had a plan in mind from day one.
The means of scaling a SaaS business will vary. There are, nevertheless, some key variables and strategic areas that a startup founder should consider carefully before they begin the journey of scaling up.
But first, a word of caution.
Don’t scale for the sake of scaling.
If and when you do scale, make sure you do it for the right reasons.
If you are thinking of scaling because you believe someone is going to dangle money in front of you if you do, or if you want to scale simply to flex that you’ve “made it,” you are likely to fail. And the size of that failure could threaten the very existence of the startup which you’ve poured your heart and soul into and extend out into destroying relationships, both personal and professional.
The reason(s) why you want to scale should have a justifiable business purpose and be reasonably achievable, all things considered.
Three critical variables of scaling
Timing
Market timing
Ideally, when you choose to scale your business should be ahead of the trends. This requires a bit of prognostication, and with any prediction, risk.
Curious to learn more about risk management in business? Read our blog on how to identify risks in business.
Execution timing
The amount of time that a scaling activity requires to execute is also important. Unless you are very lucky, most things will not occur according to the schedule you’ve initially established. Flexibility and being connected to reality are musts in planning the execution timing of a scaling exercise.
Money
Very simply put, money has to be available at the time it is needed to move the process from one stage to the next. Money comes in numerous forms – cash, equity, loans, credit – but the flow of money needs to be in alignment with the schedule you’ve decided upon in order to properly scale your business.
Resources
Besides tangible resources like computer equipment and servers, resources also include money, time, personnel, and capacity. And these all have to be in alignment as well for your scaling to be successful.
Capacity can be subdivided into business capacity and also personal capacity. Even if you have the business capacity in place–the right people, tech, money, infrastructure–if you yourself as a founder do not have the personal capacity to handle scaling your business when you choose to do so, there will be problems which could pose an existential threat to your SaaS startup from the inside out.
11 strategic areas in scaling a SaaS business
Below are 11 strategic areas to keep in mind as you mull scaling your SaaS business, and they are key points to bring up when speaking with an operations professional, such as a Fractional COO as you begin the scaling planning process.
1. Target audience
If your startup is already doing well, that means you have reached your target market and you have provided it with enough value to continue the business relationship. Scaling is always going to involve some adjustment to your target market.
For instance, if your services are used by a certain demographic in one geographic area, you may have to make adjustments when trying to gain market share in another. It is important to consider how your target audience is going to change as you scale, and if it is necessary to customize your messaging and outreach on any number of factors, such as language, cultural sensitivities, etc.
2. Marketing
Marketing plans need to be updated regularly during a scaling process, especially if scaling up results in the inclusion of wider and more diverse target audiences. Beyond linguistic and cultural diversity, there are other diversities to consider as you scale, such as industrial focus.
A scaling strategy will also require not just getting your message right, but also selecting the best marketing channels for your products in order to increase your clientele.
3. Customer support
Behind the idea of scaling is to gain more customers. But if your business does not have a plan to support an increasing number of customers in a way that makes everyone, from your Day Ones to the client you signed on last week, feel like they are your only customer, your attempt at scaling can backfire on you. It is critical to plan adequately for customer support throughout the scaling process.
4. Customer acquisition cost (CAC)
Customer acquisition cost, or CAC, is simply a measure of how much money it takes to bring on another paying customer. How to calculate CAC is quite simple. Over a period of time, say one quarter or one year, take the costs related to your sales and marketing efforts and divide this sum by the number of customers acquired during that time frame.
Depending upon what markets you wish to enter, your CAC is likely going to be more heavily influenced by your marketing costs than sales costs. If you are seeking a demographic which relies heavily on one social media platform over another, you will be beholden to compete for market share based upon that single platform’s advertising costs.
5. New product development
A SaaS provider in the ESG reporting space which has traditionally provided offerings to the banking sector will very likely have to adjust its product or develop something completely new to meet the ESG reporting requirements for the fashion and apparel sector. How ready, willing, and able this provider is to translate their original product from one commercial area to another is a very serious challenge.
Read our blog on building an ESG compliance checklist in 2024 (PDF Included), to get more insights from Bhuva’s Impact Global!
New product development, even within the same sector as your bread and butter clients, will require added resources while maintaining the same level of quality service on your existing products. New product development done hastily and sloppily will lead to understaffing and lower quality and customer satisfaction.
6. Team optimization
Team optimization is simply having the right number of people with the right skills who can work harmoniously together for the greater good.
Even if you have fantastic humans gifted with amazing talents, team optimization can falter if your employees are not equipped with the tools that they need.
Also, a spirit of teamwork can be easily destroyed by failures in leadership, namely through unresolved conflict, lack of boundaries, breach of trust, and communication issues.
Even something as simple as having meetings habitually going over time or spilling over to lunch when there is no real emergency can erode people’s good will and have your employees scouring the job boards at a time when you need them the most.
7. Architecture
Architecture in SaaS is somewhat analogous to the menu and seating at a restaurant.
If you are running a Mediterranean restaurant, it’s not too difficult to prepare and serve Greek, Egyptian, and Lebanese dishes, as there is significant overlap in terms of the ingredients and methods of preparation. But try fitting a sushi kitchen in that same restaurant, and you will have problems.
How you decide to scale–within a particular or across different industries–is going to play a major role in the type of architecture you choose. Using this analogy, deciding to enter a different industry, would require opening a new location with different ingredients prepared by a specially trained sushi chef.
Maybe in your Mediterranean restaurant, people don’t mind having open seating while others would prefer to reserve a booth or a separate dining room for privacy. Booths and extra dining rooms cost more money to build, install, and maintain. Similarly, the level of security and customization that you anticipate your current and future customers will need will also heavily influence your choice of architecture, and as a result, its cost.
Before embarking on any SaaS scaling initiative, you must understand what underlying architecture is required, the costs associated with deployment and maintenance, and a plan for how to provide value to your clients in order to recoup the money spent on it.
8. Sales
Although it is popular in many traditional businesses to lump sales and marketing together, the reality is that these are two vastly different endeavors that require the full attention of professionals specializing in each of these areas.
While your marketing team’s job is to look for ways to communicate the existence and benefits of your SaaS product, it is your sales team’s responsibility to seal deals.
Your sales team is your company’s human face. They are the personnel responsible for onboarding your new clientele and troubleshooting issues. It is critical that as you scale that you ensure that new members of your sales team are proficient in your product, and ideally, they should have experience with competing products in order to communicate the value proposition that your SaaS product provides over similar products on the market.
9. Infrastructure
Infrastructure can be cloud based or physical, on-premises servers. Your infrastructure choices are going to have a direct impact on the bottom line. Cloud based infrastructure makes scaling much easier but depending upon the nature of your SaaS business, on-premises servers may be preferred.
10. Churn rate
There are two types of churn which go hand-in-hand that you should keep in mind as you plan to scale your SaaS business: customer churn rate and revenue churn rate.
Over a prescribed period, your customer churn rate is determined by how many customers you lost as a percentage of your total customers. The revenue churn rate is the ratio of the amount of revenue lost as a result of customer churn over the total revenue during that same period of time.
Any situation where a customer has to expend what is perceived to be an unreasonable amount of time, hassle, or money in order to use your SaaS product is going to lower their perception of your product and inevitably going to lead to churn somewhere down the line. Therefore, keeping your churn rates low is heavily dependent upon the efficacy of your operations and the effort you put in to convey that your clientele’s business is indeed valuable.
11. Avoided cost
Avoided cost is the money you didn’t spend on typically preventable events, such as downtime, defects, and rework, through effective planning. Naturally, if you are able to plan your scaling strategically and carefully, your avoided costs should remain consistently high. That is not to say that the unexpected cannot happen – surely it will – but maintaining a sense of due diligence will help mitigate unplanned spending.
In certain circumstances, newer tools, such the utilization of AI can help with avoided cost. For example, an AI system can be deployed to help route customer issues to the correct expert on the team, avoiding the cost of having the customer go through several different employees who could be solving problems relevant to their expertise until the right team member with the needed expertise is found.
Scale Your SaaS Business with Strategic Board Leadership
As your SaaS startup reaches the $1 billion USD in annual recurring revenue (ARR) milestone, scaling effectively becomes essential for continued growth and market leadership. The most valuable step you can take now is securing trusted, strategic guidance that aligns with your long-term vision.
As a seasoned board director with deep expertise in tech and operations, I offer the strategic oversight necessary to develop a robust plan for scalability tailored to the unique needs of your business. My experience ensures that you’ll navigate the complexities of growth with confidence, making informed decisions that drive sustainable success.
That’s where I come in. With my extensive background in tech and leadership, I provide the governance and strategic insight required to scale your SaaS business effectively. Walk confidently into the future by adding experienced board leadership to your team.
Elevate your company’s strategic direction with my expertise. Join the ranks of leading tech companies that have benefited from my insights and leadership. Contact me today to discuss how my board membership can propel your organization to new heights.
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