How Paddle changed the way I think about SaaS growth

I just joined Paddle to work on growth. They bent a lot of my thinking about how and why SaaS companies grow, and I wanted to share some of the reasoning.

Welcome to a tour of my brain over these past few weeks! :)

The first thing is the biases around growth in the SaaS world. And my biases too...

We like to think of growth as product. Finding user’s real needs, building and testing product, and then announcing and educating users with that product.

We like to think of growth as sales. Creating a scalable sales machine of hiring & training reps to building a repeatable sales process that wins deals.

We (especially me) like to think of growth as marketing. Figuring out positioning, creating *the* unforgettable brand in your space, and creating a lead gen machine for sales.

We like to think of growth functionally.

HubSpot grew with an inbound marketing strategy.

Slack and Zoom grew because an amazing product.

Salesforce built a predictable and scalable sales process.

But that’s not how companies really grow. But this is how the team at Paddle think and made sense of it for me across my time at inbound.org/HubSpot and Hull.

Companies grow by moving into new markets

All the effort that goes into product, sales, and marketing are really table stakes for growth. That describes how to get traction in your first market.

If you look at board meetings, fundraising announcements, and S-1 filings, the way companies describe their growth and ambitions for future growth is by markets. In particular, growing into new markets.

(Just like real markets. Your local coffee shop and Starbucks both sell coffee. One just grows by moving into new markets)

Once you’ve figured out your first market, you grow by moving into new markets.

So how do SaaS companies really grow? The team at Paddle spotted five of the most common strategies in SaaS - the five strategies I’ve seen at inbound.org/HubSpot and Hull I’ve worked at before.

1. Optimizing pricing

Pricing is much more than changing how much customers pay. It really determines who becomes a customer, how long they stay, 

Pricing’s been one of the most radical growth levers in every team I’ve worked with.

Pricing solved growth at HubSpot by adding value-metric based pricing to grow ACV and moving to annual contracts. This enabled them to move from a startup to a scale-up. CEO Brian Halligan describes it.

Two things happened. First, the math got better — instead of getting a 2.5x return on the investment to acquire a customer, it is now about around a 5x return. More importantly, it got better at scale. In other words, we were able to rapidly grow the number of customers we acquired without the return falling apart.

At inbound.org, we doubled pricing on our jobs board overnight… and doubled growth without losing customers. There was no price elasticity. We were in the same market, but with optimised revenue. 

At Hull, we used pricing to tweak our market positioning by losing our lowest pricing tier. With this, we moved on from the customer segment with the highest support needs whilst allowing us to double down on serving our more mature teams who had stronger usage patterns, process, and a longer customer lifecycle.

Pricing can drive revenue growth by optimizing your positioning in your existing markets, and move you to new markets.

My takeaway: Grow by using pricing to adjust your positioning in each market, and move into (or away from) market segments.

2. Growing internationally

How do you replicate your growth in your home market internationally? With different languages, cultures, market sizes, and so on? And can you match or beat your home markets unit economics?

HubSpot built an international customer base early, but the first “boots-on-the-ground” were in Dublin. The team there multiplied quickly with individuals swelling into teams responsible for breaking into local markets across EMEA. Then came Sydney for APAC. And so on.

Although there’s a high learning curve to adapt or create your playbook, often these markets don’t have the competition of US-English. The opportunity to win.

I dug up this video from 2012 announcing HubSpot’s first international office opening in Dublin. It show soundbites into how and why HubSpotters were thinking about international - all with nostalgic footage of characters from 7 years ago :)

At inbound, we saw a big difference between different countries and cultures participation and engagement. Shout out to Romanian and Israeli members for punching above their weight for active contributors on our platform - we’d actually focus our outreach and community engagement on these “engaged” countries in strategic timezones to maximize daily engagement.

We so happened to also have some of our front end developers and designers based in Romania. We had a gathering of our (all remote) European team and learned how Romania’s education system (focusing on English and technology) fosters a population that’s primed for working in tech. Paired with higher earnings compared to other local industries, folks were super-excited to engage. Bingo! Seeing and talking that through in-person made so much more sense than the initial SQL query and Google Sheets report.

And at Hull, we were international from the outset with founding offices in Paris and Atlanta. Atlanta’s B2B sales heavy ecosystem that flourished with the exit of Pardot (home of SalesLoft, Terminus, and “Eastern” base for Marketo, Demandbase, Salesforce, and more) and Paris’s freemium French SaaS community. Both had different playbooks to get accounts over the line that didn’t work in each other’s markets. We only learned that by being local.

My takeaway: Growing international is more than accepting signups from anywhere. It means developing all-new playbooks for each market, one-by-one, ideally with a local presence. And if that’s not an office, then get on a plane!

3. Growing upstream

As SaaS companies grow, it becomes harder to maintain the % year-on-year growth without either a radically increase in the number of leads or signups, or without increasing the value per product.

Though HubSpot recently packed up an enterprise suite of its products, they resisted for a long time. Dharmesh describes the trade offs:

The short version is a bunch of good things happen when you drift up into the enterprise. It’s very easy, and everybody does it for a reason. There’s a kind of reverse gravity, because it’s always easier to move upstream than down.

Listen to your customers, you get more money. Everything makes sense. There are downsides to moving to the enterprise, one of the biggest of which is the enterprise, because everybody drifts there, is so much more competitive. An order of magnitude more competitive.

There are other “blockers” which cause founders to hesitate. Thinking of functional growth again:

• Do we have the product features and processes that enterprise companies might need like compliance certifications, single sign on, a great dashboard, and so on?
• Do we have enterprise-ready sales reps, itching to endure an 18-month sales cycle?
• Do we have marketing content, offers, and nurture track for enterprise-ready leads?

But the reality is most moves into enterprise come from existing customers. At Paddle, across the 1000+ sellers on the platform, there are enterprise companies signing up for self-service or one-time plans all over.

Most SaaS companies are enterprise-ready because they’re already selling to the enterprise.

“Looks like another 5 seats from Google signed up today. Maybe we could wrap that up in one contract for them, and see if they want seats?

Thinking of enterprise growth functionally (product, sales, marketing…) imposes all these mental blockers and hurdles. In reality, a founder could test their “enterprise readiness” by picking up a phone or writing an email to people from larger accounts.

… and for multiple sellers at Paddle, this has been the reality to them opening up new markets and driving outsized growth - more than 2X additional year-on-year growth for some sellers!

My takeaway: Don’t think of selling upstream functionally (yet). Test it by seeing if you can roll up and upsell existing customers from larger teams to serve them better. Then begin to unpick the functional needs once you’ve already gained momentum.

4. Growing downstream

Growing by going downstream seems counter-intuitive, but is key to driving growth given the way people signup to software.

If you look at the homescreen of your phone, basically everything on that is giving you freedom. Here’s mine…

Feed me now. Take me there. Tell me things.

There’s an expectation amongst “normal people” how to signup to software - and these “normal people” are buying B2B too.

There’s another dynamic to this too. Given the ease of creating software (enabled by cloud hosting and other SaaS apps), there’s more competition than ever. The folks at ProfitWell found most teams have on average 12 direct competitors, up from 3 in 2013.

These two forces collide to make the buying experience incredibly important in SaaS - unless your software and jobs-to-be-done really needs to have careful, thought-through implementation led by a solutions architect and supporting cast, you are losing out.

This is the “product-led growth” world (shout out to the Product-Led Growth Collective that just launched). How do you lead with your product experience and growth revenues off the back of a user base?

The folks who build the best buying experience with drive more acquisition. This is the direction HubSpot chose to pursue with its entire product line, starting with its new sales tools in 2014 and then extending across the whole platform.

Kieran Flanagan describes their journey from marketing qualified leads to product qualified leads here. (Kieran also built marketing from HubSpot’s EMEA office… market maker’s FTW!)

In a new reality where Google and Facebook are the only two platforms that offer opportunities for user acquisition at scale, product driven growth allows you to decrease customer acquisition cost by reducing dependence on paid marketing, and sales for B2B products.

Because it’s scalable and cheaper, product driven growth is how the biggest products have grown so large so quickly. It’s also how new products will win in the future.

The next challenge is how they convert that through to revenue. (Spoiler alert: sell how your customers want to buy)

One Paddle seller is on track for 3X growth this with this downstream focus in the hyper-competitive design software space. With a better experience for entry-level process, they’re signing up over a quarter of million users each month (acquisition for them, not their competitors) that they’re turning into revenue with incremental one-time and tiered subscriptions in one seamless customer experience.

My takeaway: You have to solve for “going downstream” to drive scalable acquisition. It is hard, but it enables you to differentiate from competitors (and win users). And once you’ve done all that well, you need a seamless way to incrementally grow revenues from the users you do acquire.

5. Growing products

There’s a difference between trying to grow the number of - what Brian Balfour aptly calls the product death cycle.

But there is something in developing all-new products that stand alone (could acquire users just for that) as well as serve as a cross-sell opportunity. It moves you into new markets.

The ultimate expression of this is a platform that combines multiple products in one, and integrates with all your other user’s tools.

HubSpot’s move from a marketing automation product into sales, and more recently into services to create a “growth suite” - the goal being to serve the entire frontline go-to-market team.

At Hull, our growth as a platform depended was driven by new integrations (like Outreach, Snowflake, etc.) and new object types (like Accounts) - the goal being to sit at the heart of your real-time customer data stack.

The challenge with this is to create a seamless signup and cross-sell experience so the new product actually moves you into a new market. Part of this is product marketing (I think of Oli Gardner’s “we have 1.06 products” moment), but a big part of this is the buying experience.

You cannot use products to grow into new markets without having a seamless cross-sell and product buying experience. This isn’t a finance-led problem. It’s a product, growth and optimization-led problem.

My takeaway: Features don’t move you into whole new markets. New products with a seamless buying experience does for cross-sell and product purchase.

Moving into new markets

For high-growth SaaS companies, it’s not a question of if you chase any of these strategies but when. You can’t deliver continued year-over-year growth within the constraints of one market without at least one (but usually a combination of):

1. Optimising pricing
2. Growing international
3. Growing upstream
4. Growing downstream
5. Growing products

All five of these common SaaS growth strategies have functional burden - the complexity with product, sales, marketing, and finance all multiplies when you move into new markets.

The choice becomes how you tackle these problems…

Do you throw people at the problem? Money at the problem? Or do you (as tech people!) try something more intelligent?

Instead of building, maintaining, and scaling hosting on-premise infrastructure, use cloud services like AWS.

Instead of building, maintaining, and scaling office space around the world, use workspace services like WeWork.

In e-Commerce, instead of stitching together their storefront, inventory, payments, and all they need for a functioning online store, they can use services like Shopify.

In SaaS commerce, instead of stitching everything they need to grow and scale their SaaS subscriptions, billing, payment methods, invoicing, risk, fraud, chargebacks, global tax, compliance, legal, analysts… they can use Paddle.

Every high-growth SaaS company will crash into all of these problems because they have to move into new markets. With an all-in-one SaaS commerce platform + service solution, all of these challenges get taken away. Which makes it a great team to join as a SaaS junkie

… and that’s why I joined Paddle :)

Some helpful resources

There’s a solid webinar recording from January which outlines some of the trends that the team here are advising sellers with the "when and how" around three of the five common strategies:

1. Growing internationally
2. Growing upstream
3. Growing downstream.

But if you’re in a high-growth SaaS company and want to chat through your plans for moving through, message me here on LinkedIn (happy to connect if we’re not already!) or drop a note in the comments here.