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THE PITFALLS TO AVOID IN FAST-SCALING SAAS

Updated: Oct 3, 2023

WHAT IS SCALING?


When SaaS and Software companies find themselves scaling fast, regardless of whether it’s 100% or 1000%, you will see a shift in the team focus. This impact can be often seen to a higher extent within the departments responsible for services delivery, onboarding or implementation.


Before getting into the nitty-gritty of this topic, it's important to first understand what it means to scale. In business, this term refers to the process of increasing revenues at a more rapid rate than costs. Scaling encourages increased growth at a faster rate because a small investment can potentially yield far greater returns, allowing for further scaling if this is reinvested.


It sounds almost too good to be true. While it is indeed possible to achieve scaling as described above, it comes with its own challenges which may cripple a SaaS business if not managed properly.



SCALING VS GROWTH


These two terms are often used interchangeably, and that needs to STOP!


Growth can be defined as a company increasing its revenues and resources at a similar rate, rather than at a disproportionate rate. Growth runs the risk of deterring long-term expansion, as a business’ ability to increase its profit margin can be severely limited.


Consider this example. A startup business is looking to bring in 10 new clients. As a result, they need to hire 10 new salespeople to manage these new customer accounts. This is evidence of a growth period, but the cost of bringing in these 10 new employees will likely counterbalance the revenue generated from these new clients.


Scaling, on the other hand, would lead to an outcome where the team can successfully deal with a larger customer base without a significant increase in resources required to do so. Growth is a costly endeavor, so scaling SaaS companies now gear more towards a less intrusive way of expanding resources to support growing operations.


Growth at any cost is a mindset people are rapidly turning away from.


CHALLENGES TO AVOID WHEN SCALING


The scaling phase is a period where the majority of startups can ultimately fail. The Harvard Business School highlights this, with research stipulating that the number of US companies failing after five years is over 50%, and 70% for companies after 10 years. Frightening numbers, and Halloween is months away!


If you want to avoid being just another statistic, see below our top three challenges to steer clear from to successfully scale your SaaS business.

1) SCALING AMPLIFIES THE NEGATIVES AS WELL AS THE POSITIVES


If a SaaS company is experiencing a period of high growth, then they are experiencing that for a reason. In short, the service they are selling is attracting more customers and as such they must be doing something right!


The more happy customers a company gets then the more amazing feedback they will receive in return, maybe somewhere between a positive review on Google and vowing to name their first-born after your company. Developing and managing a network of happy customers in the SaaS industry is an invaluable tool as it only helps to spread your reach further, potentially picking up new clients along the way.


This reach is not all sunshine and rainbows however. Just as the good is cranked up to 10, so is the bad.


As a SaaS company, a temporary outage or another problem with the software can cause outrage with customers, and the more you have, the more widespread the anger. According to the White House Office of Consumer Affairs, around 13% of dissatisfied customers will tell more than 20 people. Now, if you have 100 customers, that's 13 of them. Not ideal, but not the end of the world. Now a couple of successful years have passed and you’ve grown to 10,000 customers. That means a whopping 1,300 are now letting everyone else know online you’re not all you’re cracked up to be. That’s significant damage to your brand, and creates more of an uphill battle when trying to claw back trust.


According to Writers Block Live, around 86% of consumers trust word of mouth recommendations and online reviews. An unsurprising statistic in this digital age, and a worrying one if you’re getting slammed online by unhappy customers. It also leaves some room for hope however, as any positive reviews or recommendations are likely to be listened to, so if you’re doing the right thing, this eye-opening figure can be very promising.


At the end of the day, it's difficult as a small SaaS business, but it doesn’t get any easier as you grow. Be proactive when things go south, and be prepared to fight harder after every setback.



2) THE TRUE COST OF SCALING


Given how ideal I made scaling sound at the start of this blog, more fool you if you thought it would come without spending a couple of bucks!


Initially, SaaS businesses before scaling, with a few hundred customers should be able to handle these with no issue, and costs will be relatively fixed.


However, as the number of customers you’re responsible for rises, so do the costs, exponentially so, and across the board:


  • Back-end software which is price-dependent based on the needs of your customers

  • Servers and the infrastructure required to facilitate them

  • Analytics tools that base prices on volume of traffic

  • Customization becomes challenging


As you can see from the list, none of those points are recruitment-based. The real costs are coming from the day-to-day necessities that are needed before you even think about bringing on new staff.


Scaling is the part of growing that isn’t pretty, where some of the biggest challenges are solved by throwing lots and lots of money at it. If you aren’t sitting on a small fortune, then where you choose to put what money you have is crucial.


In the scaling phase, awareness is developed and market share is achieved. That’s if challenges such as these don’t snowball, and your SaaS company has enough money on the table to welcome new customers as well as just being able to keep the lights on!



3) SCALING IN A HIGH-VELOCITY SERVICES DELIVERY ENVIRONMENT CAN INVITE CHURN


For those of you for whom the term ‘High-Velocity Services Delivery’ may be alien, think that no more.


High-velocity services delivery represents a new wave of SaaS companies, companies whose Professional Services (PS) and Customer Success (CS) teams work collaboratively. This is an environment where PS teams are responsible for delivering repeatable implementation projects, differentiated by their resources being actively engaged across multiple projects concurrently.


In a scaling SaaS business, the volume of projects and tasks will only increase as you grow. This introduces greater levels of complexity and pressure because your teams are managing a much wider range of activities, and timelines are constantly shifting around. Combine this with multiple stakeholders on the customer side during an engagement, and managing all of this while still providing the ideal service is quickly becoming a game of Jenga. One wrong move and it all falls down!


Customer retention is the magnum opus of increasing revenue, and churn on any scale is very bad news. If you don’t have a handle on all of your projects, then I can hazard a guess that your customers aren’t completely satisfied. Customers only have so much patience before looking elsewhere, so you’re going to want to nip this in the bud as soon as possible.


The need for a clear and precise overview of what is happening and when is crucial to success. The best SaaS teams make sure that they have:


  • A clear view of capacity and availability on a daily, weekly and monthly basis

  • An accurate forecast of future utilization so that new work can be allocated to the right people who won’t be overloaded.

  • Automated project creation based on templates driven by the products you sell - and as such, reducing the admin burden for your PM’s and Service Teams.

 

LEARN MORE BY WATCHING OUR WEBINAR

Learn how to master the art of scaling!


Watch our insightful webinar with industry expert Alex Farmer, VP of Customer Success and voted Top 25 CS influencers in 2021, and learn how to ensure your SaaS company blossoms in a scaling environment.



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