Venture Capitalist at Theory

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4 minute read / Mar 21, 2016 /

Your Customer's Top 3 Priorities

What are your top three priorities in your job right now? If I asked you that question, I suspect within a minute or two you could articulate them. Is the software you are selling at your SaaS startup solving one of those three needs for your target customer? And, if it is, does your software meaningfully differentiate along one of the key competitive axes that your customer cares about?

No one has enough time in their jobs to attend to the fifth or sixth most important thing today. So, one of the questions I typically ask potential customers during diligence calls is, “Where on your list of priorities does this problem fall: top 3, top 5, or top 10?” If the answer is not top three, then the software is not important enough for a buyer to prioritize and champion budget. The startup will observe slower sales cycles because the sales team will be challenged to create urgency within the buyer’s company.

The notion of differentiation along a competitive axis demands a bit more nuance. Sometimes, SaaS companies differentiate themselves on the established competitive axes. Other times, they challenge the buyer to reconsider the parameters by which they judge software.

In the world of business intelligence, the competitive axes have remained the same for decades because the question is the same. “How much quicker can the software help my team make better decisions?” Competitive differentiation in BI has historically involved computing more data, increasing the productivity of the data team, and displaying more beautiful charts.

Looker brings a unique technology to the business intelligence market that is fueled its explosive growth as it competes on these three axes. First, Looker operates in-database On next generation data warehouses like Amazon Redshift and Google BigQuery, which enable it to process more data. Second, LookML, Looker’s data description language, enables everyone within the company to manipulate data as if they understood the data architecture like the data team does. This increases everyone’s productivity. Third, because Looker is web native, the products can leverage the latest advances in visualization technology. This technology innovation enables the company to develop a substantial go to market advantage.

Salesforce dominates Customer Relationship Management (CRM) software. CRM buyers want to know, “Will my sales team attain its bookings targets this period?” They have defined the key competitive axes in the category as: flexible and insightful reporting, breadth of ecosystem, customization ability of the platform. Ultimately, CEOs and VPs of Sales purchase Salesforce for the sales projections it provides. In order for those reports to be accurate, the software must match each organization’s uniquenesses in the sales process and the types of data capture. Overtime, Salesforce has built a massive application ecosystem for both internal applications like the Marketing Cloud and external applications like FinancialForce to integrate.

No startup can win when pursuing a strategy to challenge Salesforce head-on on those three axes. It would take the start up too long and consume too much capital to replicate what Salesforce has built, nevermind exceed it. To compete with Salesforce, a startup must change the parameters buyers used to evaluate CRM software. RelateIQ focused on account executive usability to differentiate, arguing simplified data input implies better data quality which leads to greater visibility.

When competing along existing axes, the marketing and sales teams’ efforts are often focused on educating customers about the substantially better performance of their product. When seeking to change the axes, marketing and sales initiatives aimed to educate potential customers that they ought to be evaluating products differently.

A SaaS startup’s strategy should be to focus on one of the top three problems of their target buyer. In addition, the company should clearly decide whether it is innovating on the existing decision-making parameters of its buyer or seeking to redefine those parameters. And all of the efforts, be they product, engineering, sales or marketing, should support that strategy.

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Disruptive Innovation in SaaS by Competing with Non-Consumption