The SMB argument (revisited) 🦊
“SMB is where the ’N’ is,” the hard bits of succeeding in the productivity space, and setting great board contributions in motion.
Welcome to the 76th edition of The SaaS Baton.
A fortnightly newsletter that brings you hand-curated pieces of advice drawn from the thoughtful founder-to-founder exchanges and interviews taking place on Relay (curated with 💛 at Chargebee for Startups) and the interwebz. So, stay tuned! And thanks for reading!
In this edition, you’ll find the following instructive and inspiring pickings:
#1: WP Engine’s founder, Jason Cohen, employs often unconsidered (or straight-up misunderstood) facts to make a (smart bear :)) case for the strategic gains of staying with SMBs, even when one is headed in the enterprise direction.
#2: Kairn’s co-founder, Patricia Bernasconi, shares hard-won points of reference (and rupture) for startups operating in the productivity SaaS category, drawing from building and tearing down their own distinctive (“bridging project and task management — individual and team”) attempt.
#3: TigerEye’s (previously PlanGrid’s) co-founder, Tracy Young, makes effective recommendations to remedy the dreadful sting of the “three-hour, too-in-the-weeds, non-strategic board meeting.”
Finding these discerning founder takes valuable? Please consider forwarding this edition to an ever-curious teammate or a much-cherished SaaS friend. 🙂 New readers can sign up here.
🗞 Recently on Relay:
Heuristics and Hunches (June 30th) — Prioritizing Engineering Momentum over Accurate Timelines and Building on the Merits of a Car When Users Might Want Faster Horses with Compose’s Co-Founder, Rami Kalai
— The Race Car Method
— The 1-day, 1-week, 1-month lens for deducing scope
— Instrumenting quantitative and qualitative measures
— Differentiating in the ever-demanding inbox space
— Starting with 2 specific, well-defined personas
— Building with intuition as much as customer feedback
#1: The SMB argument (revisited) 🦊
(From: WP Engine’s Jason Cohen) (Source: Relay)
I think more and more, companies are staying with SMB too. I could list many examples: HubSpot, Slack, Zendesk, Github, GitLab, all cloud platforms, and not only WP Engine but all our direct competitors.
The reason to leave SMB behind is ARR growth and margin expansion, and sometimes fewer competitors. All of those are good strategic reasons, so the company’s aren’t necessarily wrong for shifting their attention.
It’s also hard to maintain a product that serves many customer segments – not impossible, but hard – so it’s also a good strategy to not tackle that particular problem, and stay focussed on a segment, even if that segment changes.
However, there’s lots of advice from solid pundits and investors online, who say you should never give up the SMB market. Jason Lemkin comes to mind immediately. Why is this a good strategy?
One major one is that SMB is where the “N” is. N has a lot of benefits – attention, lots of users. Lots of users means lots of feedback. It means people are constantly changing jobs and maybe taking your software into the new job.
There’s a lot of data, which means you can detect subtle things, which means your optimization or customer dynamics can be more data-driven.
Another is going global – there’s even more SMB vs ENT outside of the USA, and even more outside of Europe. The best way to grow in India is not to go upmarket.
Another is that it keeps your operations efficient; low prices means your service and infrastructure need to be efficient. With ENT, that translates to even higher margins.
A counter-point is that you’re not built for the needs of ENT, but at least you’re keeping your baseline low, which can lead to higher margins than competitors who feel they can burn margin to win higher ARPU.
Another is that SMB and ENT growth can be uncorrelated, because the market forces are different, and the reasons people buy the software might be different.
As an example, WP Engine at its lowest price is still 10x more expensive than a commodity shared host, therefore for SMB WP Engine has the “differentiated best” competitive strategy (using Michael Porter’s language).
Whereas in the Enterprise, where the main website is probably on Adobe Experience Manager or something else that costs millions / year to develop and maintain, WP Engine’s expensive plans are the inexpensive option, so we’re the “low-cost leader” using Porter’s language.
So it might make sense that, for example, in a bad economy, SMB and ENT might have different behaviors based on those different positions.
In any portfolio theory, having uncorrelated assets yields stability, at the expense of maximum single-year growth. Ideally, still maximizes long-term growth, or at least does on a risk-adjusted basis. In that language, serving both SMB and ENT is a diversified portfolio, which for a maturing company is a strength, because it means it can be more predictable.
I started by mentioned some of the counter-points. There are many more. Therefore I think both strategies are valid and wise. The only thing I believe is unwise, is taking some choices from strategy A and some from strategy B. That’s just a confused and bad strategy!
So pick one or the other, and make consistent decisions based on that choice.
Related Relay reads:
#2: The productivity riddle 🃏
(From: Kairn’s Patricia Bernasconi) (Source: Notion)
…despite a great start, topping Product Hunt’s favorite projects, receiving awards and fancy titles, we realized that we were working on a utopia, or at least, the way we took was one and we got stuck.
…
Now, let’s dig into some of the reasons - maybe it will help the next team trying to solve this productivity riddle.
We don’t think a personal task mgt tool can really become a project management app for a team anymore. Task mgt is very personal and subjective. The tool that fits one indiv will probably not be the one that fits the rest of the team, it makes it very hard to grow across all team members. The tool needs to be very flexible (= Notion 👋) and take years to build. Even discussing with the new CEO of Superlist (our main competitor with whom we shared a very similar vision at the beginning) we see how they have done a complete switch to a team based tool only.
We don’t think anymore that product led growth is the way to go on that market. While the value for the individual user for a task mgt app is clear, there’s little incentive to share projects. You could share a task but that’s very 1-1 relationship while PLG needs a 1-N basis. Miro is a great bottom-up tool because the indiv creative user has a strong reason to use it (materialise their visual ideas) but the team also has a strong reason to use it (align people on visual ideas online). Thus the bottom-up motion works. The indiv has a driver to onboard everyone, and each user has a reason to join.
Project and task management is overly popular = hard to keep users’ attention and you need strong exit barriers. We knew it was a crowded market but we didn’t realise how many new apps appear every week. Unfortunately it’s also a segment where people love to try new apps, and managing to keep users’ attention, and not have them try and switch to another tool is hard. You build little exit barriers, as your past tasks on projects don’t matter. Thus as soon as a project is finished the user has no issues in switching tools. The only 3 sticky reasons would be: (i) analytics that build up with usage, (ii) having spent time organising your tool (but many users actually love to spend that time again and again), (iii) having built a habit like our top users with our macOS shortcut - but it’s hard to make it not copy-able by competitors.
Integrating with Notion was a great acquisition move but a bad monetisation one. Our users came for our Notion integration, with the dream to follow-up on everything that was asked across Notion. That meant they already had a project management app they were paying for, so to pay for Kairn as a team, we had to at least match Notion’s features which significantly improved on project mgt over the last years. So make sure you’re not a feature of one of the tools you integrate with…
The willingness to pay is close to … zero except when you’ve caught up with Asana/Monday/Notion. On task management there are way too many free apps / free features from apps paid by your team, to make the mass pay. You could focus on a niche, but then you’d need to significantly increase the price vs our thinking of mass adoption. Even when we launched very demanded features like a Chrome extension / an iOS app / a gCal integration etc, users liked it but it didn’t drastically change their willingness to pay (nor our acquisition metrics…)
Of course another reason for us to stop was the tech market crash. It changed the dynamics of fundraising and made it increasingly hard for PLG companies not monetizing yet to get good financing.
We knew our roadmap would take forever to monetize so we’d need a big raise to get there. To raise, we needed a clear roadmap to monetize, given what we had discovered about the market (☝️ cf above) that meant a strong pivot to change our company’s future.
As a solo founder I had to make the decision, did I see clearly enough how we were going to attack the market and believed in it or was I pushing for the pure sake of having a startup story on my LinkedIn and Twitter profiles. Would I be asking for people’s money to simply put another coin in a cash machine that serves no point? Weighting it, I decided it was time to stop.
#3: Kill the Board Deck 💤
(From: TigerEye’s Tracy Young) (Source: Tracy writes)
TigerEye’s board meeting is one hour. The short length of our meetings has a lot to do with our size — we’re an early-stage startup. But I still plan to keep it concise and productive even as we grow.
I’ve led and attended over a hundred hours of board meetings, and I never want to dread my own board meeting again. I also don’t want any founder to have that feeling. I have made many mistakes, and now I am sharing lessons on how to generate better board material and give more effective board meetings:
Eliminate 80-plus-page board decks: Every board deck I’ve made and seen is more than 80 pages long. I am not exaggerating. The challenge with this much content is there is a finite amount of minutes of attention we get from the board, and only so much information can be absorbed in one sitting. If there is truly that much material and information that needs to be communicated, consider sending out regular email updates, or having one-on-ones with the board, to keep them updated outside of the board meeting. The goal of the board materials is to quickly get your board up to speed on your assessment of the business, shine a light on the problems and get their help strategically.
Show where the business hurts the most: It is important to celebrate the hard work of the team. But I’ve seen many board decks that over-index on wins and don’t focus enough on the losses. In my experience, everytime I ignored where it hurt in the business, it cost me triple the amount of time, because problems tend to compound — and do not go away on their own.
Never bury bad news: I once experienced a situation where, with fifteen minutes remaining in a board meeting, the founders told us something that would completely change the business and put it at risk. We needed at least an hour to talk through our options, but everyone was out of time and steam at that point.
Eliminate the showboat: As a CEO who wanted to give each department head autonomy, I would structure the board decks with open spaces for each executive to provide updates. The challenge with that approach is that we ended up with an incohesive, showboaty board deck where each department leader used their allotted slides to brag about their teams’ wins and defend their roles. Instead, bring your board on your journey of wins. If a big deal closes, text your board or email them as it happens. Have a good cadence of communications with the board so they feel included. This will also help to cut down on the victory lap sections in the board materials.
Use existing artifacts: At my last company, it would take a few weeks to generate new graphs and artifacts for the board decks, and I’d later present them in All Hands. I now realize this was wrong. If we do our jobs as leaders, the whole company already knows how we think of our business and understands near- and long-term goals and how we are working hard at pushing the company forward together. A good way to capture and communicate the direction of the company is to have the team create artifacts that highlight the business, so they’re brought along early — and present those materials to the board.
Allow for closed-door sessions: A valuable lesson I learned from being on a board is the importance of closed-door sessions. The CEO held a beginning closed-door session to go over legal matters without their executive team. Then, there were two closed sessions at the end, one with the CEO and board and one with only the independent and investor directors. This gave the board space to debrief, discuss how to be most helpful, and create an action plan. One of the directors would then follow up with the CEO. Closed-door sessions allow for open and honest communication and can lead to more effective decision-making.
🤝 Founder social:
Until next time,
Team Relay (Chargebee for Startups)