Stop Blaming Product-Market Fit for Your SaaS Growth Problems
Last updated: August 21st, 2019
Founders of B2B SaaS companies are uniformly concerned with optimizing what’s known as product-market fit: the ability and position of a company to serve a large market with a service that satisfies an urgently felt need or desire. Given that having a large, enthusiastic customer base, and products or services to satisfy and delight them, is the foundation of any successful business, this makes sense.
And yet, at the same time, we’ve found that SaaS companies too often assume that each and every growth hiccup — lower revenues than they would like to see, higher cost of acquisition (CAC) etc. — must be the result of imperfect product-market fit. More frequently than founders tend to think, this turns out not to be the case. Nonetheless, to fix what they perceive to be the problem, we’ve seen SaaS companies try various approaches:
- If you build it they will come: Companies taking this tack proceed from the expectation that if they offer a well-designed product that addresses a specific need, eventually, the market will come to them, regardless of other variables.
- Advanced customer development: Rather than rely on inspiration and market research, some companies try going directly to the people, surveying public interest and designing products/services that seem to correspond.
- Founder’s circle: A more targeted cousin to the customer development model, the founder’s circle approach aims to establish paying subscribers before the product/service to which they’re subscribing actually reaches the market, providing these early adopters preferential treatment in exchange.
It’s not that any of these strategies is wrong, per se; each of them has been used successfully many times over. But they all boil down to trying to achieve product-market fit, often incorporating pivots from one product to another, one market to another, or both. And when a company cannot think beyond product-market fit, they’re liable to miss something frequently hidden in plain sight: product-market fit isn’t always the problem.
Our B2B SaaS clients almost always have great products, and they’ve usually identified the right markets for them. So when it comes to analyzing why they aren’t doing as much business as they’d like, or the kind of business that they’d like, we very often find ourselves looking beyond product-market fit. Over the years, we’ve identified and defined six other “fits” that B2B Saas companies commonly have issues with that are often mistaken for issues related to product-market fit.
- Message-market fit
- Customer-channel fit
- Customer-content fit
- Journey-offer fit
- Funding-velocity fit
- Customer-offer fit
Full disclosure: message-market fit has its origins in direct response advertising; it’s a concept that’s been floating around for a while now. Likewise, customer-channel fit has been in the marketing ether. But the other types of fit are our original coinages — frameworks we developed in-house — and we’ve come to realize that they’re entirely distinct from product-market fit.
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What they have in common with one another is that at their core, they’re problems of communication — of failing to say the right thing to the right customer at the right stage in the customer’s journey toward subscribing to a SaaS solution. In this article, we’ll explain how to spot the symptoms and work toward solutions for each, so that SaaS founders can begin making the appropriate fixes to the “fits” that are actually broken, and to spend less time worrying about product-market fit, when that may not even be the problem.
An additional area, which we think of as complementary to these other types of fit, is something we call talent-trajectory fit. We won’t be exploring it in depth here, but it’s worth keeping in mind. In short, SaaS companies need to be sure that their talent, both in-house and external agency hires, are of a caliber equal to the ambitions of the company — that their abilities allow them to follow the planned trajectory of the firm. This might sound obvious, but time and again, we’ve seen founders trying to reach growth goals without hiring a team that was up to the challenge. And to truly capitalize on the potential of these six other types of fit, it’s absolutely essential that founders get the right people on board.
Note: If you want to learn more about how our team can help your SaaS company diagnose and improve all six other types of fit, you can contact us here.
How To Perfect the Other Six Types of Fit
Some years back, a B2B SaaS company called Structure Studios, a maker of landscape design software designed for professional contractors, came to us with classic symptoms of faulty message-market fit, which occurs when a company’s messaging is somehow filtering ideal customers out of their sales funnel.
When Structure got what they thought of as the right leads — contractors who’d already decided that they would invest in landscape design software of some kind — they saw great sales conversion rates. But contracting pros who were less sure about a software solution were slower to bite, and many ultimately opted out entirely, often citing concerns about costs. As a result, Structure’s customer acquisition cost was high, and in response, they had been focusing almost exclusively on capturing bottom-of-funnel traffic, having effectively concluded that ready-to-buy contractors were their ideal customers.
Of course, that wasn’t true — or at least only very partially true. This over-reliance on the acquisition of exclusively bottom of funnel customers is an extremely common problem among SaaS companies — the problem being, it severely limits the acquirable market, which stifles growth. Basically, for Structured Studios, there were tons of additional ideal customers out there. They just needed the right messaging to reach them.
Getting message-market fit right isn’t simply a matter of coming up with a catchier tagline. To fix it, B2B SaaS companies need to figure out what about their messaging is failing to communicate the benefits of their product to their ideal customer.
In the case of Structure Studios, they were taking for granted that contractors would see for themselves that Structure had great software and sign-up. But even many contractors who readily acknowledged that high-quality of Structure Studios’ products weren’t converting.
The problem was that Structure’s messaging wasn’t doing a good job of explaining how their software could grow contractors’ businesses. Properly deployed, it wasn’t a cost. The software was a revenue generator, allowing landscape contractors to show homeowners in navigable 3D renderings what their new $100,000 backyard would look like. By eliminating the need for landscaping customers to imagine what their projects might look like on the basis of line drawings on graph paper, Structure’s products stood to allow contractors to pitch and win bigger, more complex, more expensive contracts.
By helping Structure redesign their messaging to emphasize their software’s value as a marketing tool for landscape contractors, we helped them take advantage of a much larger segment of their ideal market, increasing their annual revenue by 50%, to more than $12 million ARR. You can read in greater detail about how we did it here.
Getting customer-channel fit right is a question of figuring out the acquisition channel(s) best suited to a company’s customers. The classic symptom of trouble in this area is a blog with a heavy traffic of visitors that do not convert or otherwise engage more deeply with the website. This suggests that the company’s marketers are plying channels frequented largely by people uninterested in their services.
To be sure, for most B2B SaaS companies, organic search is one channel that will be included in any strong marketing strategy. But too many organic search marketers focus on high-traffic search terms, rather than terms that reflect the pain points of their company’s (or client’s) ideal customer. This kind of misfire can be seen in especially stark relief in the case of category-creating SaaS companies — say, HubSpot circa 2005 — that need to create, rather than harvest demand. But it’s common across the board — a substantial reason for the sort of high-volume, non-converting traffic we mentioned above.
In addition to honing in on pain point-based keywords, the most successful B2B SaaS companies are thoughtful about targeting keywords that indicate intent to purchase — searches that suggest awareness of a problem and a motivated journey toward a solution.
We’ve written previously about the importance of pain point-awareness and understanding ideal customer intent in the context of paid ads. This is a core part of our process when working with SaaS clients. And to some extent, getting a message in front of the right customers is a matter of testing paid channels to see which one(s) produce the best results. But strategic thinking is important here, too. Is the SaaS solution something the ideal customer is likely to be actively looking for, making intent-based channels like Google and YouTube ads most logical? Or is it a solution for which little awareness exists, making latent channels — where the customer is present but not necessarily looking — like LinkedIn and Facebook more sensible?
Customer-content fit is a subsidiary of message-market fit — the degree to which a SaaS company’s marketing content is effectively educating and motivating their ideal customers. It goes awry when content appropriate for customers at one stage of the sales funnel is being shown to customers at another stage. For B2B SaaS companies, a common version of this mistake is to show customers at the top of the funnel — those who are problem unaware — content that’s best suited for customers at the bottom, who already intend to purchase a solution: a CTA to sign up for a free demo, for example.
Although many SaaS companies aren’t conscious of the fact that they have this problem, it’s an easy one to spot: If there’s a mismatch between marketing content and the customer viewing it, there’s a customer-content fit issue.
It follows, then, that when customer-content fit is on point, customers see messaging that speaks to their current place in the sales funnel, and which moves them toward readiness to purchase:
- Customers who are problem unaware see content designed to heighten their awareness and to provide some cost-free utility: a path toward their desired result, or a strategy for mitigating risk of avoiding loss. (Examples might include an excel template or calculator.)
- Customers who are aware of the problem but not with a solution see content that mirrors their pain points and offers case studies showing how others who’ve been their position have moved past the problem by implementing a solution along the lines of the one the SaaS company offers.
- Customers who are solution aware and actively seeking to make a buying decision see content including testimonials, advertorials, and webinars; what’s important at this stage is that the content enable the customer to see themselves using the software before they opt in.
In our experience, most B2B SaaS companies know what their goals for monthly recurring revenue (MRR) are, and they know that they need a budget for paid ads and organic search/content marketing. But they rarely understand that there’s a direct, mathematical connection between those two things, and they don’t know how to calculate the latter (which we outline below). For a company with lacking funding-velocity fit, the most common — and obvious — symptom is that they’ve tried a variety of approaches to their marketing investment, dedicating various portions of their budget to various channels without reaching their target MRR.
Almost invariably, the underlying cause is a marketing budget that is too small for the company’s growth goals —an investment in marketing funding that doesn’t reflect their hoped-for growth velocity.
When we relate this to SaaS founders, they’re often not surprised. They sometimes even have an (admittedly arbitrary) idea about how much they want to increase their spending. For companies in the $1 million to $10 million annual revenue range, the figure for increased marketing spend tends to come in around $10,000 to $15,000.
That’s not necessarily a bad place to start. Better to ramp up gradually and observe the effects — almost always more demos, and at a stable or lower cost — than to charge off into the unknown. But it also amounts to a goal without a real plan, little more than a wish.
For funded B2B SaaS companies, we generally recommend a 3:1 LTV-to-CAC ratio. We’ve written previously —and extensively — about how SaaS companies can calculate their marketing budgets with great precision, using a formula we’ve devised to work backwards from target MRR to arrive at the proper marketing spend in a few easy steps. You can read more about it here.
Because marketing content generally comes along with an offer or lead magnet of one kind of another, the symptoms of imperfect journey-offer fit might easily be mistaken for those of faulty customer-content fit. The difference here is that there’s a mismatch between the customer’s position in their journey toward purchase, and the offer (specific call to action) being extended to them.
The number one mistake in this category is to offer a demo or trial to a customer who’s not ready for one — for example, they’re not familiar enough with the problem that the SaaS solution addresses, and/or with how the kind of solution on offer stands to help them get where they want to go.
For the same reasons we discussed in the section on customer-content fit, this is a pretty easy issue to spot —provided of course, that the marketer can parse the difference between journey-offer fit and customer-content fit. But in addition to filtering ideal customers out of the sales funnel, failing to get journey-offer fit right helps to prevent SaaS companies from differentiating between the customers visiting their website — a serious problem.
When journey-offer fit is properly calibrated, customers see offers that are appropriate to their current place in the sales funnel, and which encourages them opt-in so as to more clearly define themselves in future interactions. It’s true that knowing a customer’s email address doesn’t reveal very much about them, but knowing what enticed them to opt in does.
For example, if someone opted-in to get a PDF cheatsheet of the topics they read about in a blog post, then they’ve likely gone from being problem unaware to being problem aware. If they downloaded a google doc—a customer acquisition cost (CAC) calculator, let’s say — then they’re aware of what CAC is and they’re trying to find a way to understand it and then reduce it. This is a customer, in all likelihood, who’s moving toward solution awareness.
Likewise, if someone downloaded case studies, visited service pages, and requested a proposal, then they are sure to be solution aware, seeking to make a buying decision.
For SaaS companies, customer-offer fit is about keeping the customers they have, keeping them for longer, and offering them new — often more expensive — products to deepen their engagement, making the company’s SaaS solutions seem indispensable to their business. In our experience, many companies get this right, or close to right, expanding revenue through upsell and cross-sell packs offered through email and/or pop-ups: Did you know that if you upgrade to our Gold Solution, you will get A, B, and C add-ons?
The trouble is that even the SaaS companies that do a pretty good job of this tend to stop too early, limiting the channels through which they approach their existing customers and thereby increasing their churn rates and constraining their ability to increase revenue.
Go back to the well. To optimize customer-offer fit, SaaS companies need to tap the same channels — paid media, content marketing — that they used to win their customers in the first place. (Ideally, they’ll also implement the strategies we’ve described above.) Founders and marketing teams sometimes pushed back against this suggestion. “Why not just reach our existing customers through email?” they say. “It’s cheaper —there are no additional incremental costs to tell customers that they should upgrade.”
That point is well-taken. There’s no downside to using email in this capacity. But it’s not enough. The problem is that email open rates are going down, so SaaS companies need to reach their customers in another way. And given that SaaS companies know a ton about their existing customers’ behaviors, needs, and — often —frustrations, they’re in a perfect position to target them through the appropriate channels with precisely the kind of messaging, content, and offer that’s likely to get them to opt-in to an upgrade.
If you want to learn more about how our team can help your company perfect all six other types of fit, you can contact us here.
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