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Written by Ed Fry Head of Growth
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04 Oct 2019  |  SaaS

SaaS Growth Strategies: The Five-Stars Framework

6 minute read

How do you compete in the $600 billion software industry? In the run up to the SaaS Commerce Trends: 2020 Report, we dive into the shared strategic framework from the fastest growing SaaS companies.

SaaS is now a $600 billion industry. With more subscription payments in the cloud, on devices and anywhere in the world, the pool of users and total spend has dramatically increased. Both the way we buy and build software has dramatically changed. We introduce the way SaaS companies can grow in this new world of software.

In B2B, the value of features has reportedly dropped by 60-80% in the last six years, according to Profitwell, and with AWS and the like making it easier to build software than ever before, each software product has on average 3X the competition than they had 3 years ago.

How do you compete, survive and thrive in this new world of software?

To understand that, you need to understand how software companies really grow… and there’s one recurring theme.

In Paddle’s SaaS Commerce Trends: 2020 Report we dive into the trends and tactics we’ve seen with thousands of software businesses on our platform and researched through interviews with hundreds of fast-growing SaaS leaders.

Grab your copy »

In Paddle’s SaaS Commerce Trends: 2020 Report we dive into the trends and tactics we’ve seen with thousands of software businesses on our platform and researched through interviews with hundreds of fast-growing SaaS leaders.

How do SaaS businesses really grow?

In SaaS and the broader tech world, we like to talk about growth functionally , looking at how a particular group of people contribute to SaaS growth:

  • Build a product that people love

  • Build a scalable sales & marketing machine

  • Build a high-performing team  

  • Raise rounds of investment

But this isn’t the full picture - this describes how a function contributes to business growth, but it doesn’t explain how and why the whole business grows. Software businesses grow like any business - by moving into new markets.

The difference between a coffee stand and Starbucks is they have more products, in more locations, at more price points. The same can be said for almost any industry from airlines to pharmaceuticals, movies to banking, retail to radio - the list goes on.

Yes, functions within growth (such as fundraising, hiring, product, sales and marketing) are important, but they’re part of the bigger picture of moving into new markets.

In SaaS, there are a number of market-moving strategies. At Paddle, through managing SaaS commerce for thousands of software sellers, interviewing leaders across SaaS companies and talking to hundreds of software startups each month coming onto the platform, this is how we see the software market.

This is a perspective shared by investor thesis documents, S-1 filings when companies go public (and have to declare their growth strategy), fundraising announcements - and probably most of your board meetings.

The Five Stars of SaaS Growth

The five most common growth strategies - the Growth Stars .

  1. Monetization - Turn users into revenue through testing and experiment and optimize pricing plans.

  2. Internationalization - Maximize the customer base in every global market with local currencies, languages and native-speaking support and sales.

  3. Moving upmarket - Grow your ACV and move upmarket by bundling users into team plans and enterprise deals across whole companies.

  4. Moving downmarket - Introduce and scale self-serve to maximize user signups, then upsell via self-serve plans to grow revenues without intervention from a sales rep.

  5. Product expansion - Attract new customers and grow ACV with your existing customers by offering more products or a complete platform solution.

five-stars.jpg

There are other growth strategies like adding agency channel partnerships, growing an integrations ecosystem, buying complementary companies and so on, but they’re not as widely used as the five Growth Stars .

It’s important to note - Growth Stars don’t work in isolation. We see scaling SaaS businesses work on many in parallel to maximize their growth.

You can see this most clearly in public SaaS companies who document their Growth Stars in their investor communications.

How HubSpot, Shopify and Slack leveraged all Five Stars to grow

HubSpot became a five-star growth startup, going public (NYSE: HUBS) in 2014:

Shopify became a five-star growth startup, going public (NYSE: SHOP) in 2015:

Slack became a five-star growth startup, going public (NYSE: WORK) in June 2019:

Which do you focus on first?

Software companies like HubSpot, Shopify and Slack didn’t get there overnight - over time, they introduced new growth strategies to move upmarket, grow internationally, release new products and so on. All of them pursued a five-star strategy over time.

But what does that path look like for your software company?

We see it almost always follows the same pattern, depending on whether you’re a product-led or a sales-led organization.

Product-led software companies (like Slack) will first maximize and then monetize their user base ( Monetization ). Freemium pricing models where anyone can sign up mean they can reach a global audience from day one ( Internationalization ) to optimize for all the traffic and users outside of their home market.

As their user base grows, product-led software companies tend to grow best by selling through team plans and enterprise deals ( Moving Upmarket ) to maintain high year-over-year revenue growth.

Sales-led organizations (like Salesforce) will first need to find the pricing model that can be negotiated in a sales process ( Monetization) , including the value metrics their market understands. From there, the focus shifts to maximizing the size of deals within that sales model with bigger and bigger accounts ( Moving Upmarket ).

Sales-led organizations tend to sell globally at scale ( Internationalization ) later since the sales process depends on overlapping time zones or a local presence in different countries - both of which have a high operational overhead.

stars-flow.jpg

What’s next?

Whatever stage your software business is at, you need to think about how you will move into new markets.

Finding your path through the Growth Stars largely depends on whether you’re product-led or sales-led and how mature your revenue growth is.

In the SaaS Commerce Trends: 2020 Report we break down the trends and tactics to map out the beaten paths to growth in new markets. Grab your copy for free and find your path to growth.

In Paddle’s SaaS Commerce Trends: 2020 Report we dive into the trends and tactics we’ve seen with thousands of software businesses on our platform and researched through interviews with hundreds of fast-growing SaaS leaders.

Grab your copy »

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