When we started boldstart in 2010, a core thesis of ours was to invest in next-gen SaaS which we called SaaS 2.0 at the time and best highlighted in our end of 2015 review:
SaaS 2.0, reinventing for the mobile first workforce will continue to remain robust. We also see older school SaaS companies being rebuilt with more flexible back-end technologies like microservices and reimagined with a more responsive and beautiful UI.
While we continue to be excited about opportunities in SaaS startups, it is clear that the game has changed substantially since 2010. Despite the amazing productivity gains from open source, AWS, microservices and other new technologies, we have seen the time to launch extending and the cost of getting a minimally viable product (MVP) out the door increasing. So why is this the case?
- Most SaaS categories have multiple players and to build a transformative SaaS app means the bar to what a “minimally viable product” is much higher than it was 5 years ago. In other words, a MVP of 5–6 core features may now need 8–10 core. This takes more time, money, and resources. Founders need to make tough decisions on what their definition of feature parity is and what that one unique product angle will be to rise above the noise (more to come in a follow up post).
- The competition for talent has and continues to be fierce so as tech costs go down, human capital costs continue to increase.
- Cost of getting message to market has increased due to the noise from the many competitors in a particular space.
So what can a founder and investor do in this changing world?
- Go niche — pick a vertical, say old archaic tech and SaaS-ify it — my friends at appfolio have done a great job of this rearchitecting property management software, secure documents, and legal case management and they are growing nicely.
- Go big — you can’t be afraid to go after incumbents in the large markets because as they grow they can lose focus and underinvest in their technology and platforms. Salesforce is 15 years old and Workday is already 11 years old. We’ve taken this approach by investing in experienced founders with unique takes on old school large markets in certain categories like email, CRM, BI, or BPM and going after the big players from the bottom up. Many of these companies start with a simple wedge
- New category killers — make bets on the next potential category killers and SORs (systems of records) like collaborative data science, enterprise PII, or SaaS for professional services.
With respect to #2 above, we have always been believers in the idea that technology moves in waves and cycles. The larger an incumbent gets, the more it is tied to the short term public markets which moving upstream to larger customers and losing focus on product. Key to this is going bottom up, having an amazing product experience, and growing from there. Neal Conlon who used and loved salesforce at 8 different companies sums it up nicely in a recent post:
So a few months ago when I needed to invest in a CRM for my latest business it only made sense that as the CEO I #eatwhatIsell and reach out and get SalesForce. Like I love, love, love SalesForce. The easiest deal to close ever.
And yet the process for onboarding, the regurgitating of mundane process when I’ve asked for help, and the fact that the sales team knows nothing about me even with all the above mentioned data points are available just makes this customer journey painful. Nobody even looked up my social profiles during the buying process to get some insights.
This is happening across the board at these incumbents — small accounts don’t matter, they need to extract more money from their customers, and they need to get larger customers. This is all great news for startups.
Our approach at boldstart has been to go after 2 and 3, but we know many other investors that have done quite well going after 1. Whatever happens over the next few years, be prepared to spend more money and to take more time to get a product out the door. The bar is substanitally higher to deliver a MVP and also for raising funds.
Be prepared for a shifting landscape on the feature parity front again in 2017 as we see an intelligent layer weaved across existing platforms, SaaS 3.0:
SaaS 3.0, many of leading SaaS companies are 8–10 years old on archaic platforms, opportunity to rebuild with new stack from back-end to front-end and go after large incumbents (our pitch in 2016 and continues in 2017). SaaS 3.0 is adding an intelligent layer to this new platform.
