The Characteristics of the Most Attractive SMB SaaS Companies

What are the attributes of the ideal SMB SaaS company, an entrepreneur asked me recently. It’s a good question. There are product, marketing, and sales attributes to that ideal company that successful SaaS business have exemplified in the past.

Product

A beautifully designed, simple and elegant product is the first and most important thing.

The product satisfies the top three priority for the software buyer and consequently the software buyer uses a software very frequently. I believe that the next wave of SaaS companies will be centered around workflows, Event Driven SaaS, and this extends to SMB SaaS.

For example, NetSuite is the application many small to medium businesses used to manage their financials. The finance teams of these businesses live within the product, and it has become the system of record for some of the most critical information within the business.

The product has network effects and data network effects. In short as more people use the product and as more information is stored in the database, the more valuable it becomes. Slack is a classic example here. The more people use Slack, the more valuable it becomes, the more information is stored within it, the more people want to search the history, the more people pay. Human network effect plus data network effect reinforcing each other.

Acquisition

The product enables self-education of a user. In other words, a user can sign up, immediately understand the value proposition of the product and decide whether or not to use it. This is a combination of a product attribute and an acquisition attribute. Slack is a terrific example.

The product also grows through word-of-mouth as new users fall in love with it and become evangelists, spreading the word within their teams and companies and beyond. Zendesk grew in large part by building relationships with these evangelists.

The company is able to acquire customers through many different channels including organic, channel partners, and a viable online paid acquisition strategy.

Xero, the New Zealand based accounting company, has leveraged the accountant channel to dominate New Zealand and Australia, and expand into the UK and the United States. By educating accountants who then in turn educate their clients, Xero has built an enormous business.

Sales & Marketing

Ideally, the company creates a new category, the way that Hubspot defined inbound marketing. Building a brand that is synonymous with a category is a huge strategic advantage.

Last, the business and product are able to move upmarket as the market demands it of them. This means that the product can serve midmarket customers and the economics can justify an inside sales team. New Relic’s evolution from smaller accounts into larger enterprise business is a great example.

I don’t have the answer to building an amazing SMB SaaS company. I’ve written a list of the attributes of some of the most successful companies. Just because a new SaaS startup might embody many of the attributes the list I’ve written above doesn’t mean they will be successful. The business could be a Ford Edsel, even with all the market research and theoretical advantages in hand.

But as the illustrious list of successes above demonstrates these attributes do correlate with great success.

Published 2016-10-10 in SaaS  Product 


I am partner at Redpoint. I write daily, data-driven blog posts about key questions facing startups. I co-authored the book, Winning with Data. Join more than 20,000 others receiving these blog posts by email.

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