SaaS ≠ Subscriptions
Unearthing (via painstaking iterations and resolve) the shortcomings of the subscription model, stumbling upon the merits of annual plans, and a stroll through a founder’s reengineered calendar.
Welcome to the forty-first edition of The Baton. A fortnightly newsletter that brings you three, hand-curated pieces of advice drawn from the thoughtful founder-to-founder exchanges and interviews taking place on Relay and the interwebz. So, stay tuned!
In this edition, you’ll find instructive and inspiring pickings from the brains of Wethos’ Rachel Renock, Vanta’s Christina Cacioppo, and Summit’s Matt Wensing.
Recently on Relay:
AMAs: Tray.io’s founder and CEO, Rich Waldron, on untangling the “mid-market briar patch,” the “forever iteration” of org design, facing the conflicting scale of startup advice, and more!
#1: SaaS ≠ Subscriptions — Wethos’ co-founder and CEO, Rachel Renock, on upending a “sacred” SaaS default, monetizing innovation, and unlocking massive growth. (Source: Relay)
We’ve done a tonne of price testing. Assessing different pricing models. And what we found was, for us, at least, the subscription model wasn’t going to work.
Because it raised too many questions that created too much friction. Our users were, of course, accustomed to the classic, Slack-like, per-seat model.
But being small studios and not full-fledged agencies, they scale their businesses up and down based on the types of projects that come across their desk.
Thus the typical per-seat model made no sense.
They were asking us questions like: ‘Am I going to have to pay per seat for the collaborators that I invite?’ ‘Are they going to have to pay a monthly subscription on their own?’
And we realized that we’re actually putting friction right in the place where we could be unlocking growth. If our customers aren’t inviting others to the platform because they’re afraid of whatever monthly subscription they’re going to incur, then we’re fucking up basically.
Unlike Slack, there was no ‘land and expand’ strategy to grow inside of a company. Each invited individual freelancer was a potential customer for us.
Then it’s a really tricky balance between targeting and knowing who your customer is. And then who is finding you and saying, ‘I’m your customer.’
At first the subscription model made more sense for our initial target audience, which was the high-earning independent segment, about 3 million freelancers in the US who earn over 100k a year.
Because of the pricing data we were publishing, we were getting an influx of demand from newer and greener freelancers; all the way to now, where 40% of our users are side hustlers. They still have full-time jobs. Paying a monthly subscription to run a side business just didn’t seem right.
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The key assumption a lot of the time is that once you’re on the subscription, you are going to keep coming back. The hard thing about more transaction-based models is the inherent risk of people not returning.
For us, though, I don’t find it to be less predictable than the SaaS model that we had. The reason for that is because a transactional funnel just has — although the conversions are different — a similar dynamic.
So when I look at our funnel, before, with the subscription model, it was: How many people have started their free trials? And then how many people convert into paying customers after they start those free trials?
Let’s say if a free trial is over, and you only converted 5% of those people.
Well, that’s it for the other 95%.
So just like any other SaaS product, we needed more time to keep engaging customers and keep getting them to explore new features.
Eventually what we discerned from that is: What are the actions that users are taking on the platform that have the highest propensity to lead them to getting an invoice paid? And how do we optimize for that, basically?
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The best path for us we found was: Come in > Create a scope of work > Turn that scope to an invoice > Send yourself that test invoice.
And now we know that a higher percentage of people who are exposed to that and onboarding are going to come back and actually become a real transacting user.
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I know, predictably, right now, that we are growing 35% month over month, each month, and January is a year straight of month-over-month growth, which is really hard to do at the transactional level.
That, to me, can be as stable as a SaaS model and sets us up for additional upselling or cross-selling in the future.
#2: “Charging annually, upfront, makes everything easier” — Vanta’s co-founder and CEO, Christina Cacioppo, narrates how their first sales person’s insistence on only pitching annual plans didn’t just simplify their GTM but also changed user behaviour for the better. (Source: Vanta)
So after you’ve confirmed that you are building a product people want, the second most important piece of scaling is to figure out how to sell and charge for your product.
And one of the lessons I’ve learned at Vanta is that charging annually upfront makes everything easier.
When we first started selling Vanta, we offered both annual and month-to-month contracts. This seemed like whatever other SaaS companies did. I had no reason to deviate. And it seemed how customers wanted to buy.
And then, we brought on our first sales person and he stopped selling month-to-month, basically on the second day; only offering annual.
I was concerned, somewhat confused. As I don’t think of myself as a sales person. So we were going with it. Figuring he probably knew something I didn’t.
Specifically, we were already creating this new product and category for startups. The Security Automation concept. And saying, ‘hey startup, you should invest in this and yes if you were founded in 2014, you wouldn’t think about this, but given you’re founded in 2019/2021, this is an important thing to invest in early.”
So we were already doing that. And then complicating things by adding a bunch of contract options. We built this product that was meant to relieve anxiety but then we were introducing all these other options and vectors for anxiety around how [they] should buy it:
[‘When will I kick off?’ ‘Should I pay month-to-month?’ ‘Is it better just to get a year upfront?’ ‘How fast can I do this SOC 2 thing?’]
So our sales person kept quoting just annual pricing. People kept buying annually. They didn’t even ask about month-to-month. And that was that.
When I thought about it, it made sense. Security isn’t something that’s [dealt with] month-to-month…
We also found that companies that were on the Vanta annual contracts, used the product differently. They were more likely to use it as a continuous security monitoring platform vs just preparing for a SOC 2 audit…
There’s an interesting lesson for me here that would change the way people use the product via the way we priced for it…
And charging annually improved a bunch of internal things for us:
a) Easier for us to tell where a customer was in their lifecycle. Easier to offer them good customer support. Giving them what they needed at the time they did.
b) It simplified RevOps with fewer SKUs. We literally just had one product with one pricing option…It made all of the administration around billing or Salesforce, much simpler.
c) Made our revenue more predictable. Making it less likely that we’d be forced to raise to avoid some sort of cash crunch.
I also think that charging annually upfront can be a really good barometer of whether you’ve built something that people want. And I say that because it takes a lot of confidence in your product to walk around and tell people they should pay for a year of it…
And ultimately we’ve seen that if you’re providing a valuable service, customers are going to be fine with paying annually because they don’t want to renegotiate with you month after month either.
#3: The strongly-typed calendar — Summit’s founder, Matt Wensing, sets forth how he reengineered time spent in meetings to realize “the beauty and efficiency that comes from everything growing in a designed — but not forced, harmony.” (Source: Medium)
So how can we reconcile the creative and the tedious? The important, not urgent vs. the important and urgent. The flair vs. the grind. Must they be at odds?
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All of those meeting invitations were more than inbound messages. They were requests for time.
So what if, rather than typing (categorizing) these requests at run-time — i.e. realizing during the meeting what kind of meeting this really was, I treated the invitations as objects of a type or category?
I could also statically-type most of the space on my calendar in advance: this time is for x, this time is for y. With this typing system, I could detect a mismatch when an invitation is received, prior to the meeting ever occurring.
Suddenly there was hope: I could design my calendar, rather than react to the world’s demands.
With this inspiration, here is the way I chose to strong-type my time:
Working Session [WS] — 30–60 minutes — close-ended
Purpose is to make steady progress on some topic or project.
You timebox that progress to whatever is realistic within 60 minutes (onus on the meeting organizer to properly scope).
This can end early if you realize you were wrong about scope or come to a dead-end.
Not a lot of credit for ending early unless there’s really no more progress that can fit into the remaining time.
Brainstorming, Then Organizing [BTO] — 60–90 minutes — close-ended
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This is all about collecting and organizing ideas … it’s NOT about action items. It’s important to that EVERYONE is heard and the ideas are sufficiently clear for the team who will be carrying the idea into a future session.
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Input: Raw, unrefined ideas, loose ends, inspiration
Output: An organized list of topics, ideas, that is well understood across the functional team. Then clearly define how this list will feed into a TK or DS or WS. The idea is to make the start of those meetings more efficient because everyone is on the same conceptual page coming in.
Thread Kicker [TK] — 30 minutes — close-ended
Purpose is to ignite all of the threads required to kick off a larger or more complex effort.
It’s all about speed! End early for major bonus points.
Input: List of potential threads (or the easy generation thereof).
Output: Functional team is aligned. Next steps and owner for each are defined.
Initial Daily 1–1 [ID] Session — 60 minutes, moderate risk of longer
Purpose is to begin to have a 30 minute daily 1–1.
First one always takes longer because you’re going to want to leave feeling clean and up-to-date and by definition you have more to share than you normally would (communication debt).
Daily 1–1 [D]— 30 minutes — close-ended
Purpose is to catch up on concerns, issues, positives, negatives
Can act as a thread kicker for “projects” (sets of tasks) only involving the 2 of you.
Design Session [DS] — at least 90 minutes — open-ended, high risk of much longer
This is an exploration where you need to summon the muse and don’t stop until you’re done.
It’s a sign of success if no one says “hey we’re coming up on x-way through the meeting and we …” because there technically is no halfway through the meeting.
Conversely something’s wrong if someone says that.
Input: Ranges from a problem to solve to pure creative energy (the desire to create order out of some chaos) in some areas of the business.
Output: Clarity and order, usually on a whiteboard. Take a picture and figure out how to share/socialize this artifact/concept more broadly.
This list may not be complete, but I’ve found even with a busy founder’s schedule where I am expected to both produce and manage, it captures most. Said differently, almost all meetings I’ve been a part of can be restated in terms of these types.
Until next time,