Fully self-serve SaaS: The golden ticket or a silver lining?

9th May, 2022

Fully self-serve SaaS has been seen as the holy grail for founders and investors alike. Many of the most successful software businesses over the past 10 years such as Dropbox, Slack and Zoom have leveraged a ‘human-light’ business strategy that doesn’t rely on sales departments, onboarding resources and/or customer success teams to scale more quickly and efficiently. With a thirst for high margins, many software companies have looked to execute the same strategy. Given the multiples they demand at exit, it’s naturally also a focus for many investors, but is it always the best choice? Mercia‘s Investment Manager for Midlands Engine Investment Fund (MEIF), Kiran Mehta has more.

One size doesn’t fit all

Self-serve SaaS clearly has its advantages because a business doesn’t need a large customer success or sales team when everything from marketing to closing sales is done by product-led growth (PLG) and a seamless end-user experience. The ascension of Zoom during the COVID-19 pandemic was something that couldn’t have been anticipated beforehand. However, Zoom’s ease of use and the ability for its customers to create accounts without speaking to an employee, meant it superseded the long-established Skype in a matter of weeks, primarily on customer referrals alone.

However, Zoom also showed that businesses that do well adopting a self-serve hyper-PLG model typically don’t have a niche audience – its product must be easy to use and appealing to most end-users. For many SaaS businesses, in particular in B2B that provide a solution to a complex problem, a full off-the-peg solution doesn’t always fit.

It’s crucial to listen to your customers

The problem with pushing for all SaaS businesses to adopt a self-serve growth model is that it can cause businesses that would benefit from engaging with its customer base regularly to disconnect from its market. This isn’t ideal when the product it’s providing is for specialists or is a unique service that requires a complex sales process.

Specialist products typically need a sales team to persuade potential customers why they should adopt this software above others. Self-serve is great for products like Zoom or HubSpot that are consistently useful in business contexts and in our everyday lives but, for complex solutions, it often takes a human to take customers to that ‘aha’ moment. Enhanced margins are great, but time-to-value remains the biomarker for low or no churn.

Software that’s designed to solve complex business problems also benefits from a customer success team that regularly engages with high-value customers who provide feedback on how to refine the product in order to constantly meet their needs. This feedback makes sure that the business retains a good understanding of its target market. As a result, even if a fully self-serve model is the ultimate end game, many early-stage businesses should rely upon regular client engagement to further iterate the offering.

A great model, but not the only one for success

Yes, the hype around self-serve SaaS is somewhat justified. If a product is designed to appeal to a target market of everyone – a product that anyone can find use for in their everyday – an off-the-peg model functions similarly to a magic money tree. You’ve built something good and the product does your marketing work for you. This dramatically reduces your company’s customer acquisition cost and makes product development the main expenditure. Investors like it for a reason.

However, this is the silver lining to a good business, not a golden ticket to build every software company around. There’s still strong potential for SaaS businesses that don’t adopt an off-the-peg model to scale successfully. The focus should always be on providing value for its customers. It’s still entirely possible to grow margins and a profitable business with a sales-led growth strategy. As an investor, Mercia recognises the need for an array of business models and we remain very interested in companies that are successfully solving a need for their target market and, despite the hype, that doesn’t always have to mean a zero-touch self-serve model.

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