One of the most important decisions any SaaS provider will have to make is when to scale. Your SaaS company will move through several phases in its lifecycle and at some point, your startup is no longer a startup. However, it’s estimated that as many as 70 percent of startups fail due to premature scaling.
If you try to scale at the wrong time, you may end up crippling your company. So it’s important to understand where you are at in the lifecycle and to pick the right moment to scale. By choosing the right time, you’ll greatly reduce risks and increase your chances of success.
First, what do we mean by scaling? While the word is sometimes overused, and in some cases may be morphing into nearly meaningless jargon, the underlying concept is still important. Basically, scaling refers to that point when you attempt to massively grow as a business, taking on bigger clients and securing more market share.
Most companies are constantly trying to grow, but when you scale, you’re putting your full ambitions on display. A small startup might avoid a large corporate contract, for example, while they work out their product or service offering or make sure their SaaS is functioning properly and that crippling bugs have been addressed. When a company is scaling, they’re ready to take on the biggest clients and are actively seeking them out.
Anyways, let’s take a look at the different lifecycle stages your SaaS will go through and when it’s best to start scaling in earnest.
Before your startup is even a startup, you’ll go through the “pre-startup phase”. You can think of this phase as the “discovery” phase where you will try to nail down your vision and mission, what problem you want to solve, and how you’ll address it.
In the pre-startup phase, you’ll spend a lot of time dreaming up ideas.
In this phase, you’ll start to identify funding sources, such as friends and family or venture capital firms. You might also look at entering an incubator or accelerator group. Establishing connections with advisers and mentors is likewise a smart move.
Another very important step is creating a minimum viable product. This will be an early version of your SaaS and will contain just enough features to source feedback for future development and to explain to potential investors and customers how your product will work.
You also need to identify major risks and start writing a business plan. This business plan will help you chart out your growth through the next stage and the financial models will enable you to identify a path to profitability.
It’s essential to write out a business plan.
Now, you might be wondering “how do I know when I should move from the pre-startup phase to the startup phase.” First, ask yourself “what is the problem I am trying to solve.” Then, ask “does my SaaS solve that problem?” If the answer is yes, it’s time for you to start testing.
You can now strike the “pre” from “pre-startup phase”. In the startup phase, you’re going to test whether your product is a fit for the market. More or less, you’ll be validating your solution. In this phase, you will not be focusing on scaling. That’d actually be a distraction.
Instead, you want to refine your product and core features. And as you learn more about the market, you might decide to pivot, changing even core features to make your product a better fit. You also need to identify the right channels to target and you need to establish key metrics and analytics.
It’s time to get started!
You will also be building your team out, perhaps finding other co-founders or paying staff. You’ll try to lock down your first paying customers as well, and will be approaching angel investors for seed money. When it comes to obtaining customers, your primary concern isn’t revenues. Instead, you want to see if your customers enjoy your product enough to stick around.
Once you build up a sufficient customer base to prove that your product solves a problem and markets can support your business, you can shift into the efficiency/process stage.
You’re closing in on the scaling phase but you’re not quite there yet. In the efficiency/process stage, however, you will begin to focus on growing your customer base. You’ll also clarify your value proposition and will start to optimize your funnels by identifying channels and developing a repeatable sales process.
It’s time to build out your team and hone your business processes.
However, while growth is important it won’t be your only concern. You’ll still be monitoring markets and identifying risks. You might still be tweaking your SaaS as well. And while you will be acquiring new customers, you’ll also be working out kinks in your sales process and tweaking your marketing efforts.
Once you refine your various business processes and have addressed any major issues with your SaaS, you’re ready to move into the next stage!
You’ve made it! You’ve proven that you offer a compelling solution and that there is demand for your product. You’ve also optimized your marketing and other business processes. Now you can focus on growth!
Finally, it’s time to focus on growth and scaling!
This doesn’t mean that you’ll forget about everything else. The perfect SaaS program can always be improved and markets are constantly changing. You made need to offer new features and tools or may need to tweak your pricing as conditions change.
However, once you reach the growth stage, scaling becomes one of your primary focuses. As you scale, you can spend more on development, marketing, sales, and everything else. A&B testing is a great idea as well. And while you may have a vision in place, you can continue to tweak your efforts.
At this stage, you’ll also be appointing executives to grow and run the company. You may seek series A funding or other big investments as well. These steps will enable you to scale your business more quickly.
PayKickStart Followed the Above Lifecycle
Like most other SaaS companies, we followed the above life cycle, growing from an idea into a mature company servicing countless customers around the world. Our shopping cart solution continues to evolve, however, and we’re constantly adding new features and tools.
Yet as a mature company we can focus on scaling without worrying that we’ll be overwhelmed. Likewise, if you’re launching your own SaaS, make sure you have a plan in place for sustainable growth. If you move too quickly, your company could end up failing.