Risk taking is a fundamental part of running a SaaS business. But how can you determine which are the right risks to take?
Today, I'm turning to the example of Mattermark, and looking at how they solved one of the biggest problems a SaaS business can face: deciding when to expand into new markets.
The Mattermark Dilemma
At Inbound 15, I attended a talk by VC Jeff Bussgang.
He hosted a Harvard Business School-style discussion, where we talked about the hard choices faced by one of his investments: startup darlings Mattermark.
The company had reached traction by targeting the venture capital market, using their data analysis expertise to help VCs identify the latest and greatest startup investment opportunities.
However, on the road towards scale, they were faced by a paralysing dilemma:
Should they double-down their efforts on the relatively small VC market?
Or should they widen their focus, and start targeting other investors and professional service firms?
Solution 1: Widen the Focus
To lend some context to the discussion, the VC market is smaller than the professional services market. Much smaller. There are fewer potential customers to reach, and the total value of the market is lower as a result:
By widening their focus, Mattermark could dramatically increase the size of the market they could target. They could open themselves up to a whole new source of revenue, and arguably, reduce their dependence on VCs.
By the same token, intensifying their efforts to reach VCs could also have a negative impact on their lead generation. By focusing their marketing efforts on a single market, Mattermark would risk alienating potentially lucrative customers from other markets - the angel investors, accountancy firms, marketing agencies and other professional services.
It seems like a no-brainer. As a growth-hungry SaaS business, why would you take the decision to limit yourself to such a small market?
Solution 2: Double-Down
A ton of people (many of whom were founders and directors of SaaS businesses) agreed: they thought it was best for Mattermark to widen their focus, and start marketing to a broader audience.
However, as Jeff explained, that wasn't the direction Mattermark decided to take, for three important reasons:
1) The VC Market Is Big Enough
The VC market is smaller than the professional services market, sure… but it’s not a small market. With potential revenue of up to $5 million/year (assuming a 30% market share), the VC market is plenty big enough to support and scale even the most growth-driven of businesses, at least for the next few years.
2) It's a Known Entity
Though committing to a single market may feel like a risk, actually, Mattermark are focusing their energies on a known entity; they have a track record of proven success with VCs, and they have a great understanding of the problems they can solve for them. There's room to grow and expand within the market, and they can work through their growing pains in a controlled environment.
3) You Can't Be Everything to Everyone
Different audiences face very different problems, and marketing material that's relevant to a VC won't be relevant to a professional services firm.
To target both markets effectively, Mattermark would need separate marketing, sales, pricing and product development strategies. Without the resources necessary to develop seperate strategies and develop them well, at best, they'll confuse their audience; at worst, they'll alienate them.
The Right Risk at the Right Time
Doubling-down on a single market is a risk. However, trying to expand your business into larger, unknown markets is a much, much bigger risk.
Few growing SaaS businesses will have the capacity and expertise to understand and cater to several distinct markets at once. Though the most direct path to growth may look like quickly diversifying into other markets, by trying to be all things to all people, you'll end up being nothing to anyone.
In other words, before your SaaS business can be a big fish in a big pond, it has to be a big fish in a small pond. Before you can take the risk of expanding into new markets, you need to take the risk of committing to an old one.
You need to do what Mattermark did:
Prove you have product/market fit in a single market
Dig-in and double-down in that market
Ride out all of your teething pains during this controlled phase
When you've smoothed out the creases, and built a stable base of recurring revenue, start expanding
Take the right type of risk.
Learn how to identify the right audience for your product, and double-down on your lead generation, by downloading our free eGuide below.