29 Oct 2018  |  Guide

Scaling Lessons from 1000 Software Companies

6 minute read

Having dealt with a variety of SaaS companies, we've picked up on what's helped them succeed. At this year's SaaStock, I gave a keynote speech on the lessons four companies learned about scaling. Below we have the video and some key insights from the talk.

After attending SaaStock two years in a row and enjoying the networking and fun we had there, we wanted to up our game and partner with them for the 2018 edition. It was nice to get out of the office, head to Dublin (Ireland), and have exciting chats with like-minded SaaS companies among the thousands who attend the conference every year.

It was also a great opportunity for me to share what we’ve learned about scaling a startup thanks to my Paddle experience - from starting when I was 18, to tackling the challenge of going from 35 to 140 people in 10 months. But since Paddle helps software companies run and grow their business, I also wanted to share a bit more of their perspective.

By supporting them every day, we have the unique chance to draw key insights from the aggregate set of data we have access to, coming from thousands of businesses around the world, all in different stages in their growth and all targeting different customer segments.

To complete this keynote, we also dived deep into the stories of some of these specific companies, and consulted four of our sellers: the software companies Flixel, Pinegrow, Framer, and Duedil. This included looking at the early business challenges, the importance of iteration, pricing experimentation and how best to build a team around you - see the key takeaways below.

Key Takeaways

What Not to Do

Before you scale you have to survive, the reason most companies fail isn’t anything dramatic. It tends to be false starts on the journey to scaling. It’s prematurely trying to hire a huge team, investing real money into channels which aren’t working or scaling as well as not getting to product/market fit before you start investing.

The Three Don’ts

  • Don’t watch the competition
  • Don’t launch too much stuff
  • Don’t ignore your customers

Iterating

It’s important to accept when something isn’t working, iterate on the business, iterate on the channels, iterate on the product.

Iterating constantly is something all four of the businesses we talked to have dealt with. The first version of Framer required designers to code to properly use it. I discovered it at Paddle when the first iteration of the company was built as a B2C marketplace, an ‘app store for selling software’, but people were more interested in the infrastructure behind that. Flixel’s lesson was finding they resonated more with creative agencies, compared to their initial vision of being a wholey consumer product.

In finding product/market fit and channels to scale, you start by focusing broadly; typically this is a dilution of the original product. You reach a point where you throw it out there and see which segments your product resonates best with.

Experimenting with Pricing

When you’re an early-stage business, focus is the most important thing. To get to that point, your total addressable market for the product you’re building isn’t the same as the target market you’re building it for right now. Understand where you are and where the maturity of the product is at your particular stage of growth is incredibly important. This is true of Duedil, particularly with their price experimentation. For Justin at Duedil “there’s always a good excuse not to experiment with pricing right now.”

Experimenting with pricing enables deep focus. The right segments are going to pay for your product if you double or triple the price. The wrong segments are going to self-select out of that process. This was true for Duedil, and especially for Flixel when they made a move from being a B2C to a B2B product.

Christian Owens speaking at SaaStock18

A good example of pricing iteration is Framer, who started as a desktop application. They’d initially sell their product for a one-time price of $150. When the next major version was out, customers who wanted to upgrade would pay another $150. It was a great solution at first: the upfront money enabled them to build an early team without raising much money. However, at that point, the challenge then became: “How do we align the value we’re creating in the product and how we’re shipping the product, with how the customers actually pay for it?”

As a result, they quickly moved to a monthly subscription model and then became a SaaS business. It was their first pricing iteration - they went from being $150 one-time to $15 a month. And then, from a $15 subscription sold to individuals, the following question for them was “How do we sell to teams?“ Which then become “How do we sell to enterprises? How do we monetize additional features? How do we expand the breadth of our product?”

Over the period of a year, they went through four or five different pricing iterations - and this is typically the behavior we see from the fastest-growing software companies, who often change their pricing on a 6-9 month cycle.

Building a Team

Building a team is another crucial topic that we discussed with these companies - and probably one of the harder challenges that we’ve faced at Paddle as well. Focus (on the segments, on the pricing, on the product, on the customers) - as an overarching topic and main takeaway - is directly correlated to the team you’re building. It’s about survival before scale and avoiding false starts.

When we started Paddle, we were two of us initially, then after 3-4 years, headcount was maintained below 20 people. Being 18 at the time, getting anyone to work for me was a challenge - but it did enable us to do one capital thing: to focus, due to being constrained from a resource perspective, on the things we wanted to work on. Also, as you don’t have a massive payroll bill, it gives you better maneuverability, and you’re able to take more risks as well.

The bootstrapped company Pinegrow came up with a formula that works for them: of all the money they make, a third goes into growing the team, a third goes into growing the product, and a third is saved for a rainy day.

For Framer, Flixel, but also Paddle, the approach we’ve gone for is to keep a small, nimble team till we were at our post-product/market fit stage. We waited until we were very confident in the levers of our business: the product/market fit, but also our ability to scale those channels that are working. We’ve grown rapidly - going from 35 to 140 people, hiring 110 of them in the last ten months. When you’re going through a period of hyper-growth and scaling, it’s easier to focus on marketing campaigns or sales strategies than focusing on the culture. It’s the hardest thing we’ve had to scale throughout our journey. What has worked for us is the idea of constant learning and iteration within the business. By encouraging this type of behavior in your team as well, you enable them to come on that journey with you - as a part of it rather than them feeling they’re just along for the ride.

Thanks to our sellers taking us with them in their growth stories, and thanks to our own experience, we’ve learned a ton on what works and what doesn’t. You can read in more detail how Flixel moved to subscriptions, now that you’re familiar with them!

We regularly share more on the trends we observe and their key takeaways - but we’re also happy to answer specific questions and see how we can help you run and grow your business.

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