Thread by @SmallTimeVC

I held a ‘deep dive’ Office Hours session [book yours - esp. if you have scaling issues - here: calendly.com/smalltimevc/co…] that highlights some issues with B2B SaaS that I see a lot ... /1

#thread

2/ the startup is somewhat customer-facing, but mainly provides back office support for SMEs ... and, a lot of those SMEs will be sole-traders.

There are a LOT of competing solutions.

So, this founder has decided that his value-proposition is:

To be the LOW COST provider

3/ so, this founder is targeting the shittiest end (sole and smallest traders) of a shitty market, at the shittiest price point possible.

And, the product (so far) requires F2F sales.

4/ F2F sales are fine - actually, required - whilst you are still looking for Product/Solution Fit:

ie is this product solving a problem that people are willing to pay for?

But, it’s not acceptable when moving beyond to Product/Market Fit ...

5/ Part (a major part) of knowing if you have true PMF is knowing that you can profitably acquire customers at scale.

And, for most B2B price points that I’ve seen ... esp. those targeting SMEs ... are TOO LOW to support any F2F (or even inside sales eg telesales to close)

6/ I’ve always worked on these Rules of Thumb:

B2Enterprise / F2F sales (ie BDMs in the field: min. $100k p.a. contract value

B2B / telesales: min. $2.5k - $5k p.m. MRR
(saastr.com/smb-sales-reps…)

B2SME / inbound + content marketing: min. $500 - $1k p.m. MRR

7/ but, most SaaS targeting SMEs (including this one) have a Price point that ranges from

$50 to $150 p.m.

And, I believe that there is NO PAID ACQUISITION METHOD that can work profitable & at scale ... at those price points.

8/ You can run the numbers & think you make it work ... (and, the Saastr post shows how that might happen, as long as your core rev is >$3k pm per client) ...

But, it doesn’t work.

I’ve long since come to the conclusion, and told this founder, the solution is:

To act like B2C

9/ the best B2C startups grow by fostering:

- amazing engagement with their apps

- word of mouth (eg building in all sorts of viral loops)

to make the magic of growth happen.

SMEs - esp. at the small end of the market - are just people; they have friends, they like to share

10/ I suggested to this founder, and it’s my suggestion to most B2C SaaS founders sitting on a (eg) $50 - $150 pm price point:

- IF you can add, say 0% to 10% features to your product and become the HIGH PRICE VENDOR in your market segment ... THEN do it!

- ELSE ...

12/ ... cut the price of your product to ZERO.

Make it FREE.

BUILD IN word of mouth.

Use the base product in one (pref. both) of TWO WAYS:

1. As lead-gen for that self-signup-highest-price-in-your-market-segment PRO version of your product, and

2. As a platform to ...

13/ ... sell other shit to the same client (&/or their clients)

eg in this founders case we discounted the idea of adding a marketplace & taking a clip of transactions (mainly because it’s already being done by bigger VC-funded competitors)

OR ...

14/ ... sell other shit to these same SME customers:

Use your free software to build trust / knowledge/ & a beachhead into these SMEs businesses (hence, lives) & build an eCommerce store to sell them your own products (physical or digital/information) or other ppl’s (affiliate)

15/ the latter isn’t sexy, and isn’t VC scaleable but is eminently bootstrappable and - potentially- profitable.

A side note on Customer Development:

Founders get into these low-value products because they typically don’t ask the right questions before they start:

16/ asking the wrong question may mean you find a problem to solve, but a very low-value one.

eg this founder asked SMEs in his target market:

Would you like to grow your business?

The answer is most likely going to be: YES.

He then found the barrier to growing their business related to their back-office issues and solved that.

BUT had he asked “what keeps you up at night?” I don’t believe the problem he solved would even rate in the Top 3.

Which is why his SaaS is worth so little monthly rev.

18/ the main issues keeping SMEs up at night usually (you’ll have to ask to find out for yourself) relate to MONEY ... or lack of it.

Which is why fintechs in this space are going to kill it

& little back-office-problem-solving SaaS products probably aren’t

/END