Key Takeaways
- “Scale” defines the stage developments where a business rapidly expands in customer base, revenue, and size
- To achieve scale, companies must deliver a repeatable and distinctive solution to a robust market
- Software-as-a-service (SaaS) companies face unique challenges navigating the move to hyperscale
- Companies preparing to scale should intentionally prepare their platforms and systems for exponential growth
Japan’s Do-Dodonpa roller coaster doesn’t hold you in suspense. The initial launch accelerates riders immediately to 112 mph at more than three times the force of gravity.
If only tech startups could grow as quickly. Leaders at Independent Software Vendors (ISVs) and Enterprise Resource Planning (ERP), e-marketplace, and other Software-as-a-Service (SaaS) providers usually focus on the technical details of achieving a minimum viable product (MVP) first. By the time their software reaches the minimum marketable product stage, offering a richer array of features more appealing to a broad audience, many businesses cement habits.
And that’s when everything changes.
That's when the business starts to scale.
What we talk about when we talk about scale
“Scale” in the sense used here, means a stage in the business’s lifecycle where it experiences rapid growth in its customer base, revenue, and size. Scale can feel like the moment on the rollercoaster where you can feel the chain release and gravity does all the work – the center of power shifts from the business to the market.
McKinsey analyzed over 1,700 companies and found just 22% of products scale quickly.1 What makes the difference between companies who successfully achieve rapid growth and those who never get off the ground or build more slowly?
Harvard Business Review found two necessary conditions for companies to experience exponential growth:2
- A large addressable market with a problem they’re willing and able to pay to fix
- A repeatable solution distinct from potential competitors
These conditions feel like Business School 101, but many founders’ enthusiasm for their elegant solution eclipses the big flashing light indicating it may not be viable or too easily commoditized.
How SaaS companies navigate obstacles to rapid growth
Ironically, the seeds for successful exponential growth are planted in the startup phase. Independent Software Vendors (ISVs) and Enterprise Resource Planning (ERP), e-commerce marketplace, and other SaaS providers face unique challenges to hypergrowth. Founders can follow five basic (but not simple) steps to guide their companies to and through this critical stage:
- Set aggressive growth goals, then build the infrastructure to achieve (or exceed) them
- Look closely at your business model, find the most important assumptions, then confirm them
- Identify the blockers to your success, then decide which to overcome first
- Break through the first obstacle
- Move on to the next one
Diligently applying this process throughout an organization can create consistent and impressive results. Venture capital and private equity investors attribute 65% of their portfolio company failures to people and organizational issues.2 Anticipating the bottlenecks in your business processes when moving from finding, closing, and onboarding five customers a day to 5,000 establishes a foundation for success.
SoundCloud, the online music platform, provides a useful case study for software providers. From 2012 to 2013, SoundCloud’s user base grew from 10 million to 150 million users – a 15x increase. Their revenues over that same period increased less than 50%, while their operating costs grew 75%.2
Software companies in particular need to keep focused on how to scale strategically in a way that’s profitable, not get distracted by users and other non-revenue-generating metrics.
Embedded finance can help SaaS providers accelerate revenue as they scale. Embedded finance allows financial services like business checking accounts, payment acceptance, and lending to be offered on non-financial platforms. When these “banking-as-a-service” features work well, customers enjoy a seamless and delightful experience with their software provider. At the same time, SaaS providers can generate value-added income from the payments processed and the deposits generated by the platform.
Build your platform to scale
A minimum viable product demonstrates a solution’s ability to accomplish its primary task. A minimum marketable product demonstrates a solution’s ability to meet the needs of its ideal customer profile. For B2B SaaS providers, this can mean providing as many features as it takes for your customer to run their business, including a way for customers to collect money (payment acceptance) and a place to keep it (business checking accounts). They also have to know their systems and processes are robust to accept exponential growth.
These systems and processes come from both the supply side (actually providing the service) and the demand side (generating, closing, and onboarding new customer). Companies with models enabling growth outside the core business or into new markets are 97% more likely to outperform those that don’t.2
As you expand your market footprint, where are the choke points that need to be unblocked? How quickly can you open them?
Successful SaaS businesses are the result of long work and strategy. Overnight successes are often years (if not decades) in the making. Are you ready?
Maast helps Independent Software Vendors (ISVs), enterprise resource planning (ERP) and e-commerce marketplace providers rapidly scale their user base and revenue base through industry-leading embedded finance solutions. We built our Maasterclass series for software innovators hungry to discover what’s next. Watch past discussions on how to plan for a big exit and build your vertical’s super app.
1 Source: Jules, Claudy, Alok Kshirsagar, and Kate Lloyd George. “Scaling up: How founder CEOs and teams can go beyond aspiration to ascent.” McKinsey & Company. 9 Nov 2022.
2 Source: Rayport, Jeffrey F., Davide Sola and Martin Kupp. “The Overlooked Key to a Successful Scale-up.” Harvard Business Review. Jan-Feb 2023.
