One year on, the three pillars underpinning B2B SaaS
By: Dawn Capital
Tags: Venture Capital, Investing, B2B, SaaS

Photo by Jeff Nissen on Unsplash

The past year has been one of change and uncertainty for businesses across every industry. But 12 months on from the start of the pandemic, it’s clear: the more things change, the more they stay the same for B2B SaaS.

No matter how chaotic the lockdowns have been, or how uncertain the economic future remains, there are a few key principles software businesses must stand by to survive.

Reflecting on their learnings from the past year, our team shares the three enduring success factors they believe are essential for early-stage B2B companies’ strong and sustained growth.

Solve real problems

“What has become even clearer over the past year is that a proposition that is “nice to have” just doesn’t cut it in the long run,” says Julie.

Where once a shiny product might have been enough to win over customers, it’s now no longer good enough to only deliver the best tech. The sheer number of B2B software solutions continues to swell — and with cloud becoming ubiquitous and a flourishing open source ecosystem, that trend isn’t likely to slow down.

What will set businesses apart is having “a targeted go-to-market that really demonstrates the value of the product to the customer”, explains Daniela. “It’s key in ensuring smooth sales cycles”. Vertical SaaS solutions that can leverage their knowledge to clearly solve very specific pain points for customers make sales a no-brainer. Use-case-based sales have an advantage here — they’re able to quickly and effectively demonstrate how they resolve particular problems, rather than spending time defining the problem in the first place.

“Products that solve a true pain point are ten times better, and have the opportunity to grow from a one-dimensional offering into a platform play”, says Julie. That’s been proven over the past year: businesses with great retention have been able to sustain or even accelerate growth, while those already struggling with churn were hit even harder.

As Dan explains, “deep economic moats remain the key to building sustained long-term value in B2B software”. Whether becoming a platform, a system of record, or building strong network effects into the core of the proposition, the best companies aren’t just delivering ROI for their customers. They think strategically at every step about building a business that enjoys long-term defensible barriers to entry.

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Prioritise product-led growth

Of course, knowing how to address a specific pain point and sell based on use cases requires a deep understanding of customers. Staying close to customers remains imperative for software businesses. “Good B2B SaaS teams know exactly who to sell to, and who their ICP (ideal customer profile) is”, says Laurens.

Josh agrees: “B2B software companies have to be close to their customers’ needs, and able to flex products and solutions to exactly what they want”. Regular check-ins are vitally important and, more than ever before, companies need great account executive functions to regularly take the temperature of customer needs.

But that doesn’t have to happen in-person. If anything, physical location is less important than ever — though it does introduce some challenges. As Laurens points out, “Zoom calls kill relationship-based selling and drive conversations to the essence: why should I be spending money on this software?” If your SaaS is not business-critical, forget about it.

One way businesses can prove their value is by offering low-friction trials or onboarding. If users can play around with the product during the evaluation process, you’re much more likely to be remembered and to win them over. Henry’s advice? Offer try before you buy. “Every SaaS company — even if it’s selling via a traditional top-down motion — should consider moving beyond the old “Contact Sales” button and think about the relevance of “Try Now”.”

Marketing — and specifically, product marketing — has become critical to stand out amongst the masses and win engagement. “In a way, software buyers have become easier to reach at global scale”, says David. “But on the other hand, they’ve become easier for your competitors to reach, too”. It’s meant that the relative contribution to customer acquisition of marketing versus sales has shifted.

It’s therefore increasingly vital to think carefully about scaling product-led growth. “I spend a lot of time thinking about developers as customers”, says Shamillah. “There, we are seeing a playbook being written right in front of us on how to close the loop between selling to a developer and selling to a budget-owner”. Everything should be centred around community, and driving an excellent experience for end- users. They’re ultimately the ones influencing the buying decision.

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Net dollar retention (NDR) is the holy grail

Happy end users mean retained customers. “If you were to ask any Dawn team member what their favourite SaaS metric was, I’m fairly certain they’d say net retention”, says Evgenia. The importance of the metric has only become clearer during the pandemic, and will continue to grow in the future. In such uncertain times, the ability to delight customers was more critical than ever — when many businesses stalled, the ability to retain and upsell was the only way to stay afloat, let alone grow.

Successful land-and-expand strategies will be vital to driving up net revenue retention over time, says Mina. The ability to expand usage and revenue from existing customers was extremely important during the pandemic, when landing new logos became much harder. That’s why a successful land-and-expand strategy has so many benefits for startups.

She explains: “the smaller initial contract value typically means a shorter sales cycle, reducing the cost to acquire a new customer… And it drives increased value over time from the same customers”. The result? Both the ‘holy grail’ valuations — growth, and high lifetime-value (LTV) to customer-acquisition-cost (CAC) ratios.

Founders should think about this carefully and structure their product and pricing plans accordingly. That could mean a transaction/consumption model like Twilio or Snowflake, growing the number of user licences like Alteryx, or adding new modules and product features.

However they do it, a clear path to expanding revenues from existing customers is one of the key pillars of successful B2B SaaS performance; companies who master it see net revenue retention rates of >130%. “Of course, this starts with having a killer product that customers want to use more and more of”, says Mina. “Just make sure that when they do, you’re getting paid for it accordingly.”

An associated phenomenon, says Virginia, is good revenue versus bad revenue. “Good customers — the right fit, right ideal customer profile (ICP), using the product the way it was intended — will lead to stickier, happier customers with increasing NDR over time.”

And this continues to spotlight the importance of prioritising the metrics that matter — knowing how to spot those customers. “The last year has taught us that the businesses that have a tight handle on sales metrics and efficiency have performed the best — and will continue to do so in good times, and in bad”, she adds.

Follow Evgenia, Mina and Virginia on Twitter.