Questions for Orienting Your SaaS Strategy

Setting strategy at a SaaS company has many pitfalls. As a software product, there are innumerable directions that you can steer your roadmap or your go-to-market (GTM). With the whole world arrayed in front of them, I often see companies make terrible strategic decisions because they don’t ask basic questions to orient themselves before moving forward:

• Assuming that their buyer’s preferences will never change, and leaning stubbornly into purchasing or usage patterns from the past

• Missing the fact that a rising partner is evolving from a friend to a threat, and ceding market leadership due to simple unawareness (rather than being out-executed)

• Over-investing in aspirational bets, such as going all-in on a speculative new business line, without the resources or culture to actually make the bet work

• Missing chances to deal competitors a death blow by stepping on the gas when they’re unfundable

To set an effective strategy, you need to orient yourself in regards to your company’s strategic landscape – where the opportunities lie, where there are gotchas in your market, how the dynamics are likely to evolve. Here are the questions that I try to make sure I’m always able to answer before setting SaaS product or business strategy.

Questions About Your Customers

Is your buyer “rich” or “poor”?

Are your customers under budget pressure, or are they able to spend aggressively (like sales, engineering, and marketing teams during boom times)? Are you selling your customers their second Ferrari, or their first 2004 Honda Civic?

Rich and poor customers couldn’t be more different. Rich customers are usually experienced at buying software, know exactly what they can pay, and care about lofty goals like future-proofing their business, having a high degree of customizability, and gaining an edge on their competition. Poor customers are in survival mode, and typically favor speed to deliver modest value. They’re often under pressure to consolidate products to reduce total spend.

More importantly, if your buyer is a big spender, you’ll often face significant competition. But it’s often worse if your buyer is broke – you’ll either need to dominate your market entirely or find greener pastures, which usually requires a risky leap to re-establish a broader product-market fit. Many startups break themselves on the rocks of a market with destitute buyers.

How are your customers changing?

Customers periodically go through different evolutions – engineering, sales, and legal are currently being disrupted by AI; marketers were heavily disrupted by the web and mobile. Changing customer dynamics are an opportunity to sell as a challenger vendor and a risk for disruption as an incumbent. Companies lose product-market fit when their buyers change, so you need to constantly stay on top of whether your ideal customer is in motion. One of the most common ways to fumble the bag on a great business is by assuming that your buyer will never change.

What else do your customers buy?

This is a subtle but important point. Many buyers want to consolidate their SaaS applications into a single vendor where possible – are you at risk of being consolidated out? And on the positive side, is there an opportunity for you to expand your Total Addressable Market (TAM) or beat competitors by consolidating their functionality into yourself?

Questions About Competitors

What are your strongest competitors good at?

Many teams like to focus on why their competitors suck – to pump up their sales teams, to gloat, or to quiet the anxious voices in their own heads. I like to think about what my competitors are awesome at. Observing your competitors’ strengths is a great way to understand strategies that resonate with your buyers, since they’ll run a different set of plays that you can observe. It’s also an important way to avoid getting flanked in the market and to track the state of the art for your industry, which will typically be defined by the top 2-5 players.

Where are your competitors structurally weaker?

Many competitors have fundamental weaknesses that can be exploited. Examples include:

• Is your competitor built around an architecture that you expect to have major issues? For example, maybe they’re built around mobile web and can’t easily pivot towards native mobile apps.

• Does your competitor have some form of team-related disadvantage? For example, a mandatory-in-office company located in Arkansas likely has a different talent pool (and cost structure) than a hybrid company based in New York, and is less likely to outcompete you on pure engineering horsepower. On the other hand, a team located entirely in the Bay Area can access the most qualified talent but will have a much higher cost structure that will necessitate raising more capital, growing faster, and burning more.

• Does your competitor have a known cultural weakness – for example, perhaps they’re lax about QA, and are bringing a “Move fast and break things” attitude to an enterprise market that doesn’t tolerate it. You can often exploit cultural patterns like this in sales cycles, or pivot your strategy to capture opportunities that others can’t.

What is the health of your top competitors?

Are your competitors going to need funding soon, or are they flush with cash? What was their last valuation – could they hit that valuation today? Have they had layoffs or are they hiring?

Companies that are dying tend to get desperate: They drop prices, they throw in free services, they lie about their competitors (you). Cornered animals are dangerous, but you can take advantage of their weakness. Beat a weakening competitor for 2-3 more quarters and their team might quit, allowing you to remove them from the picture and reclaim focus.

It’s also worth mentioning that a strong company with a valuation that is way too high can be just as weak as a middling company whose valuation is right-sized. That company that raised at a $1.5b valuation with $10m of revenue is very unlikely to attract strong talent if growth slows, which means that if you can further slow their growth you can throw them into a tailspin.

Understanding the state of your competition helps you understand how your market will unfold. Don’t step off the neck of a weakening competitor until they’re no longer a threat, and beware of competitors whose fortunes are rising.

Questions About Partners

Which of your partners are likely to become competitors?

In the long run, companies who are partners often evolve to become frenemies. The best partner usually has a directly adjacent related capability to yours, and these adjacencies (i.e., your business) are the most tempting directions to expand their own product offerings. Be careful about how you position yourself versus your partners; assume that they truly are agnostic whether you win or lose and are eyeing your market share. And if you find a partner who doesn’t want to compete with you (and whom you don’t want to compete with), make them your ally forever.

Which of your partners are most likely to succeed or fail?

Investing in a weak partner is incredibly wasteful – you put in real time and effort, and then your partner is acquired or weakens and can’t support their side of the deal. You need to hitch your wagon to strong companions. Some partners, particularly successful systems of record with large revenue bases, will tend to become the central nexus points through which influence and power will flow.

A challenge: Weak companies have a strong incentive to seem like they’re very strong to prospective partners, because suckering in a better company into a business relationship is a reasonable last-ditch effort to succeed. You need to look at the team, market, and product to try to assess how strong a partner really is. Put on your best growth VC hat when you’re analyzing where to place your partnership chips.

Questions For Yourself

What are your team’s natural product and technology advantages?

Are you great at engineering? Is your system architecture highly differentiated in some way? The better and faster that you can build, the more ambitious you can be with your product strategy. Out-executing the competition in a straight-line development race is a great way to win, if you can do it, and it can overcome go-to-market (GTM) weakness.

What are your team’s natural GTM advantages?

Are you great at sales? Great at marketing? Is your CEO an incredible public speaker, or are they famous or notable in some way (this could be something as subtle as having a compelling life story or being extremely good looking)? The stronger your ability to execute at GTM, the more you can win with a reliable-but-not-necessarily-differentiated product.

How is your supply chain changing?

What do you rely on to actually deliver value? What type of people are essential to your business, and at what level – do you have ready access to the talent level that you need? Are you entirely dependent upon another platform as a vendor or partner? Is your vendor landscape changing – are your costs going to plummet in the coming years, or conversely, are they going to skyrocket?

For a SaaS business, your supply chain starts with your people – mainly engineering and sales as the most important teams in a SaaS business. It also includes key factors like cloud services and SaaS vendors. You should always lean into unique supply chain advantages – for example, if you have the world’s best AI talent, or a sweetheart deal for cheap infrastructure, you should leverage them to the maximum possible extent.

How does your company actually operate?

It’s vital to know how your team actually operates, and how things get done at your company. Do you mainly do things that the CEO wants? Does the CEO have little control, with a decentralized command-and-control structure? What will it actually take to get something done? Do you have a culture of perfectionists or do you like to blast out MVPs? Do you identify and give up on failing ideas quickly, or are you doggedly persistent? Knowing how your company actually operates is essential for any broad strategic calls. And keep in mind that your company will tend to become a more extreme version of itself in high-pressure times or when under duress.

This final question is essential, as there are often strategies that just won’t work because you don’t have the cultural DNA to execute on them. You can’t run a strategy that requires tons of exploration with a highly centralized culture. If your plan is to build a perfect UI, you’re unlikely to achieve usability nirvana if this is the first time you’ve ever attempted perfectionism. Knowing the type of strategy that you can actually execute on is the final filter for knowing what sort of plans to put into practice.

On Execution

One final thought. In my experience, something like 75% of strategy is just sticking to a simple plan: Keeping the team reasonably focused, pushing the plan monotonically forward, and not operating like some kind of foraging rodent that’s distracted by shiny objects. If you can set an impactful plan and hold to it for a few years (e.g. “win this market that we already play in”), from what I’ve seen you are way ahead of the game.