Mike Slaats

Is Scaling the Right Thing for Your SaaS?

scaling saas

Thinking about scaling your business? Think again. Otherwise, you may kill your business. No, I’m not being dramatic. “Premature scaling” is a real thing that you definitely want to be aware of.

TLDR; Principe 3 is by far my favorite!

According to the Global Startup Ecosystem Report, published in 2019 by Startup Genome, “One of the most important principles successful companies possess is Balance. Creating a successful startup is a balancing act amongst many variables simultaneously often amidst environments of extreme uncertainty and volatility.”

The report notes that “one of the most important balancing acts is between The Inner Dimensions and The Outer Dimensions of a startup.”

The Outer Dimensions include elements such as users, customers, product usage, and revenue. The Inner Dimensions, on the other hand, refer to customer relationships, product, team, finances, and legal aspects.

Subsequently, the report concludes with “the primary reasons startups fail is that their Inner Dimensions get ahead of their Outer Dimensions,” also called Premature Scaling. In other words, the balance between The Outer and Inner Dimensions is very fragile, and scaling your startup may lead to disrupting this equilibrium.

Scaling your startup is so much more than just acquiring investments and pouring all those resources into different areas. It comes with its fair share of challenges and requires a well-defined growth strategy that will result in a sustainable action plan. Otherwise, chances are you’ll make a series of scaling mistakes that will lead to failure, or worse, to ruining your business altogether.

Mistakes you’re at risk making without a scaling strategy

Stepping on the gas pedal and scaling the organizational capacity to drive growth is a milestone most entrepreneurs and founders dream about, yet only 1 in 12 startups succeed in doing so.

Moreover, as the Global Startup Ecosystem Report 2019 concluded after analyzing compressive data gathered from over 34,000 companies, scaling is one of the most dangerous steps a business can take. A premature or unsustainable scaling may lead to the death of your startup as a result of a few mistakes, which I’ve outlined below.

Mistake 1: Moving in the wrong direction

wrong direction saas

Scaling up comes with a high degree of excitement. Once you have the resources, you’re eager to start all of the projects that you had on standby. You’re also looking into upgrading all of your teams and processes. There’s nothing wrong with that, but when you don’t have a strategy and a “why” behind your actions, chances are you’ll grow in the wrong direction.

Just think about it: Let’s say you’re ready to triple your marketing investments by paying for ads, hosting online events, and doubling down on your content strategy. When it comes to the success team, however, you’re simply hiring more people without improving the onboarding process of your customers. What will you end up with?

You’ll be responsible for an exhausted team that can’t keep up with the demand, and more leads and customers wanting to try your product and having an unsatisfactory onboarding process. Simply throwing around resources and senselessly growing your startup isn’t a good idea. It’ll lead you in the wrong direction and weaken your results.

Mistake 2: Adding more complexity to your business process

complex

One common mistake startups make is seeing scaling as a way of adding more, instead of simplifying and improving the process. Once you have the resources, you may feel compelled to invest in adding more tools, more features, more people, and more projects, building a highly complex business aka a monster that needs to be constantly fed.

Paul Jarvis notes in his book Company of One: Why Staying Small Is the Next Big Thing for Business that “Solving with ‘more’ means more complexity, more costs, more responsibilities, and typically more expenses. More is generally the easiest answer, but not the smartest.” In other words, “more” may end up being messier and worse.

Mistake 3: Wasting money on things that won’t grow your revenue

money

For some entrepreneurs, “scaling” means getting bigger and fancier offices, installing ping-pong tables for their employees, buying expensive software they don’t really need, or throwing luxury parties for the teams to “celebrate milestones.” These businesses often associate growth with acquiring expensive, shiny things. How wrong is this mindset, though?

Why waste money (for the sake of scaling) on things that aren’t directly related to growing your revenue? Instead of throwing expensive parties for your executives, why not invest in getting a business consultant or sales expert to help you and your team improve your process? Why not buy the software you really need? Why not focus on growing those specific elements that are directly tied to your revenue and customer satisfaction?

Mistake 4: Growing your teams unsustainably

team

Another thing that may lead to scaling failure is hiring a bigger team. It’s great to find more professionals that will help you grow your company, but sometimes these hires may be unsustainable for your business.

For example, you may decide to hire ten more people as part of your marketing team instead of growing the product or the customer success teams. When scaling your team, however, you should be aware that if your business fails, you’ll need to fire people. To keep your business from dying, you’ll need to make some wise hiring decisions that will actually strengthen your company.

Mistake 5: Creating more assets

more

Finally, when having more resources, entrepreneurs will jump into creating more assets. This can be anything from marketing elements to product features and updates. That’s a good thing in theory, but be mindful of wasting your investments, time, and effort on quantity instead of focusing on quality (having fewer assets, but working on them and making them exceptional).

Things you can do instead of aggressively scaling your startup

Scaling is not bad. However, premature or unsustainable scaling may destroy your startup. To keep this from happening, you’ll want to develop a growth strategy focused on a few basic principles that will help you transition from a smaller company to a bigger company in a smoother and gradual way. Let’s take a look at what these principles are:

Principle 1: Automate your business process using fewer resources

Why do you want to hire more people? Is it because you need new employees to engage with your customers and keep them happy? Or do you simply need to solve different logistic problems and want more doers on your team?

I’m asking you these questions because in some cases, you may simply need to update and automatize some of your business processes, and you can do that with fewer resources. Let’s say that you want to run a series of virtual summits for your leads and customers. You may think that you need an entire online events team to make that happen—someone in charge of the logistics, someone in charge of the event marketing campaign, and a core team that will strategize the online event, find the speakers and build an entire network around the event. And let’s not forget the moderator.

But what if you could simply use a virtual summit platform that helps you automate the logistics and marketing campaign, leaving you space and resources for the online event strategy? Then you don’t need an online events team—all you’ll need is someone from your marketing department to strategize the online event and a good moderator with a charismatic smile.

This approach will help you reduce costs significantly. So before you consider scaling, ask yourself: “Can I automate these tasks and reduce the resources I’m spending on them?” If the answer is “yes,” then go for downsizing as opposed to scaling.

Principle 2: Find ways of generating revenue by investing less money

As Paul Jarvis asks in his book, “What if you generated more revenue by finding a way to spend less (again, for higher profits)?” Then, he adds, “You can scale up revenue, enjoyment, raving fans, focus, autonomy, and experiences while resisting the urge to blindly scale up employee payroll, expenses, and stress levels. This approach builds both a profit buffer for your company to weather markets and a personal buffer to help you thrive even in times of hardship.”

Wouldn’t this be an awesome business strategy? So instead of investing money into growing your business recklessly or in the wrong places, analyze your current situation and find ways to generate revenue with less money.

For example, you may discover that content marketing is much more effective (in terms of time) than paid ads and helps you generate more leads. Or, instead of creating advertising for your Instagram or Facebook, you could develop a sustainable, free LinkedIn strategy to increase brand awareness and get people interested in your company.

And instead of increasing your marketing team, which would lead to needing a bigger office and more supplies, you could find one or two reliable freelancers who could work for your company remotely. There are numerous ways to increase your revenue without draining the company’s resources.

Principle 3: Reduce the number of assets and get better at selling them

There’s no bigger temptation than wanting to grow your product by adding more and more features or to “double down on your marketing strategy” by creating different media content, such as podcasts, YouTube channels, different blogs, webinars, etc.

I tend to believe that more means better: more product features, more customers, more webinars, more leads, etc. But this is not always the case, because of quality trumps quantity. People don’t want to use a cluttered product with hundreds of features they will never try. On the contrary, your users need a well-crafted product that will help them solve a very narrow and specific need.

User feedback tool Upvoty
User feedback tool Upvoty.

Instead of “growing” your product, use tools such as Upvoty to collect user feedback, see what needs to be changed, and improve your platform for friendlier usage. Also, instead of just creating massive amounts of content, learn how to distribute them better by building a community.

So whenever you want to scale up, remember that increasing your number of assets (whether related to your product or marketing strategy) isn’t the answer. Instead, you’ll want to use your resources to get better at selling the few excellent assets you have to offer.

Principle 4: Focus on reducing the churn rate

Scaling usually means doubling down on your marketing and sales teams to increase brand awareness and attract new leads and prospects. But why not use these investments to strengthen your product and customer success teams, which will help reduce the churn rate?

You see, as this ProfitWell article explains, “Statistics vary from industry to industry, but research indicates that customer acquisition is a far more expensive venture than retention. In fact, it may cost up to 5 times more to acquire a new customer than to keep an existing one. Why such a huge difference? When it comes to new customers, remember that you are basically starting from scratch. They likely have no previous experience with your brand, and may not even trust your company. It takes time and money to interest them in your product, and even more time and money to convince them to buy from you. With current customers, you don’t have to fight against as many barriers to the transaction.”

With that in mind, you may want to focus your scaling strategy on reducing the churn rate, especially if it’s a high one.

Scale slowly and strategically

Growing your business is not a bad thing, especially when you have the resources. Scaling your company mindlessly, however, may lead to some negative results. So instead of throwing away money right and left, I recommend you take a more strategic approach to your growth:

  • See if there are things or processes you can automate instead of investing in new team members.
  • Get creative and find new ways of generating revenue with fewer resources.
  • Don’t get too excited and waste your time and money on creating more assets. Focus instead on creating a few, high-quality assets you can sell.
  • Finally, customer acquisition is super important, but not as cost-effective as reducing the churn rate. So try to solve the problem of customers who leave your platform.

Wish you a successful scaling!