No matter how innovative a product might be, a business can only succeed if it enables its customers. But, as a business grows, teams may find that this success hinges on overcoming one final hurdle: building a financial stack.
Suzanne Xie kicked off her journey in SaaS as the Founder and CEO of Lightwell. These days, as the business lead for invoicing at Stripe, Xie has earned her own stripes in navigating the unique challenges of building and thriving in the SaaS marketplace.
What makes a SaaS business so hard?
As difficult as SaaS companies can be to build, that can go double for things like setting up billing systems and automating revenue. Setting up your financial stack is often the last thing you want to do. But this reticence only results in greater pain. Maybe your billing system is not ready, your invoicing is a patchwork, or your reconciliation and invoicing have to be done manually. Making money shouldn’t be this hard!
“I thought I was crazy, that it shouldn’t be this hard. But it’s been comforting, being at Stripe — seeing that these struggles are incredibly common.”
During my time at Stripe, I have seen how we’ve grown our product with SaaS in mind: not just for billing and invoicing, but for everything from revenue recognition, to tax, to identity verification.
As your business grows in complexity, these drags on your infrastructure can impact your product development. Self-built billing systems can prove inflexible and resource-intensive, to the point where we’ve worked with businesses that spend 200-300 hours each month getting their books compliant with accrual accounting rules.
We’ve seen enough “spreadsheets of shame” to know how common they are. Fortunately, it doesn’t have to be this way!
Market trends: why is it easier than ever to build an online business?
Despite all these growing pains, it’s still never been a better time for online businesses. The internet economy is expected to double from 2019 to 2023—and that’s after the cost of software tools to run your business has collapsed, from $4M in 2011 to a paltry $4000 today.
“You can deploy subscriptions as a service, billing as a service, fraud prevention as a service. You get a service, you get a service, you get a service—everything is a service now.”
What are some of the major drivers of this growth?
- The explosion of low and no-code solutions. You can now outsource most of your business needs, from e-commerce (like Shopify) to website building (like Wix). Equivalent infrastructure that used to take months to build in-house is now as easy and cheap to build as your Spotify playlist.
- Rise of subscription-based business models. The recent bump in Netflix’s subscription cost may have grabbed headlines, but it’s also part of the greater trend that has had subscription-based services grow six-fold in the past nine years.
- Platforms-as-a-service. Software companies have realized how much of the market can be tapped by servicing horizontal use cases with vertical functionality. That’s how organizations like Substack—which started as a subscription management service—have already moved on to podcast monetization and revenue sharing.
In the long run, these services are helping to democratize entrepreneurship. And as these business functions become increasingly commoditized, the tools for building your product become even more accessible.
Build a killer product
Achieving success for your product requires a lot of legwork: not only by drawing in the right customer into rapid iterative loops but by digitizing your processes from the very beginning.
What does this look like from day to day?
- Be specific about who your customers are. Even at Lightwell, where we were our own customers, we still talked to our “canonical app developers” on a daily basis.
“Y-Combinator is famous for telling their startups: ‘It’s better to make a few people really happy than to make a lot of people semi-happy.’”
Find the most discerning customers you can find and build to their spec.
- Understand your customers’ problems and needs. Ask, and re-ask, what customers are really trying to do. At Stripe, as customers asked us for help growing their business in other countries, it turns out they weren’t asking just for payment methods for those countries—they were asking for our infrastructure.
- Design a product that aligns you with your customers. As an example, Stripe once added a feature that allowed invoices to be marked as “due today.” And it turns out that a small tweak like that can do wonders for businesses and Stripe alike!
Scale processes and distribution
But what about actually running your business? Take the time to reduce your own pain points.
- Leverage software to grow while managing cost. We worked with one founder who had days where the entire team would find themselves redirected to handling a backlog of invoices. How much time could have been saved by automating that process?
- Experiment with pricing and packaging. A good pricing strategy can align your product with your user’s needs, optimize value-capture, and streamline your first time to a sale. Whatever the priority, testing is key!
- Know your business’ financials and optimize your recurring revenue. Understand your key stats, whether that’s MRR, ARR, or churn. For example, Twilio used machine learning to retry cards at an optimal time and increased their authorization rates by two percent.
- Plan for compliance implications of your growth. As the internet economy grows, regulation and compliance costs grow with them. How can you use software to manage compliance for you?
Our experiences have shown us how critical it is to develop your financial stack—not just to save time and money, but to strengthen your product as a whole.
Make the most of market trends, listen to your clients’ wants and needs, and plan how to scale with both care and attention. Your staff, investors, and customers will be grateful that you did.