SaaS Startups

5 Ways to Enter a Crowded Market. And 3+ Ways Not To.'

Jason Lemkin

In SaaS, usually one of 5 things enable a new vendor to break-out in a crowded space:

  • 10x better at One Important Thing. In the early days, you will be buggy and feature-poor. Maybe even in the not-so-early days 🙂 But if you are 10x better at (x) One Important Thing that (y) customers value and will pay for, that’s enough. Many founders get this wrong however, and build a key feature that is indeed 10x better — but not one important enough to pick a raw new vendor to get. It’s only a subset of critical functionality that customers will pay to have implemented 10x better than an existing, trusted vendor. Usually, the part that is close to the money they make, manage, process, or collect.  A little more here.
  • Dramatically Cheaper. This one’s tough to play. Because businesses trust and value brands they can rely on. But often, the way to become #3 in a space is to be cheapest. #1 often has the strongest brand, #2 is the most innovative, and #3 is often simply Still Pretty Good but Cheapest of the Top 3.  A little more here.
  • Developer’s Choice. Twilio, Stripe, New Relic, etc. exploded as the developer’s choice. Developers want trusted products that are very easy to deploy and that also scale. Many products that focus on end-users don’t put a top priority on their APIs. Vendors that do can win.
  • Uniquely/Best Integrated with a Key Partner.  This is a variant of the 10x point, but if you integrate uniquely, or better with a key platform than other vendors, you can get off the ground here.  Many new vendors are exploding on top of Shopify as a platform, for example.  But even just a few years ago, it wasn’t a large enough platform.
  • Most Enterprise, Best Solution Provider. While harder to do in practice than in concept, this almost always works. Global 2000 and larger SME customers pick the vendor that solves their problems. Not just a tool that has a certain set of functionality. They will pay $250,000 to solve a Big Problem (including services, implementation, customer success) … where they won’t pay $2,500 for a seemingly similar widget that has similar features but doesn’t solve their business workflow and process problems. But it’s a big commitment to deliver true enterprise solutions. Is this you?

It’s not easy, but one of these 5 vectors tends to work.  The playbook often has to change later, as you pass a few million in ARR.  After that, you sometimes to be good at more than just one of these 5.  🙂

But if you are thinking of entering a crowded space, either as a SaaS startup or as a product extension, perhaps ask yourself which of these vectors will enable you to win.  Because the existing competition is usually both better, and more good-enough-er, than most of us optimistic founders and builders think.

Now for a few things that tend not to work as well — even though we think they will:

  • Positioning as “Easier to Use”.  That may well be true, but it’s not enough reason to switch.  More importantly is often the question of easier to use for whom?  Yes, Salesforce is “harder” to use for a sales rep than Pipedrive.  But, the dashboards, analytics and C-level functionality is much stronger in Salesforce.  Pipedrive is far easier to use for a small business or small group.  But Salesforce does what a CFO, CRO and bigger-company CEO want out of a CRM.  Dashboards, worfklows, and actionable analytics for senior decisionmakers.
  • Positioning as “Cheaper”.  Dramatically cheaper can sometimes work, see above.  But 20% cheaper?  That works for commodities.  But most software is fairly cheap as it is.  Paying $4/month for a Dropbox competitor isn’t worth the risk the vendor goes down, leaks data, goes out of business, etc.
  • Brand extensions.  Yes, it’s great you are strong in a certain area.  But will customers want to buy another product from you in an adjacent space?  Maybe.  At least challenge yourself to understand what you bring to the table beyond a mini-brand in your existing product line / space.
  • 10x Better at an Almost Important Thing.  Sorry to be a little redundant, but this is such a key mistake.  Every big SaaS player has some things they aren’t great at, and some things they even barely do.  It’s so easy to point out the less-than-perfect parts of all the IPO’d vendors.  Yes, you can build that piece of functionality better.  But will the market truly pay for it?  There are only a subset of features customers will pay for.  Do you research thoughtfully here.  A better mousetrap that businesses find sort of interesting but won’t pay for is perhaps the #1 mistake founders make getting SaaS companies off the ground.  Budgets are slightly elastic, but not unlimited.  Customers tend to pay for the same categories over, and over, and over again.

Carpe diem!

For a look at how one amazing founder entered a crowded space a second time, take a look back at our discussion with Lew Cirne, CEO of New Relic from the SaaStr Annual below. It was an A+.

Published on April 2, 2018

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