The SaaS Industry Shuffle, Is It Here?
In the near future, this major shuffle could spread to the entire SaaS industry.
It was rumored that an HR SaaS company was facing closure, and another HR SaaS company was also laying off its staff at large. It’s also rumored to be relocating its headquarters, with the aim of reducing operating costs and keeping itself alive.
HR SaaS is one of the most noteworthy SaaS race tracks.
First of all, the HR track has run out of a public company like Beisen Holding Ltd, and is forming a competitive pattern of one leader and many followers.
This will also be the final pattern of most SaaS tracks.
Secondly, the HR track has attracted a large number of entrepreneurs, including many large corporates, the competition is very fierce.
Coupled with the impact of the “economic downturn”, companies have cut back on hiring activities, and the size of the corporate workforce has been declining, all of which will affect investment in HR software, further contributing to a significant reshuffling in the HR SaaS track.
In the near future, this reshuffle may spread to the entire SaaS industry.
So how should SaaS companies compete to win survival in this great shuffle?
What kind of product strategies should industry leaders, followers, and big players adopt?
In this post, I’ll use the HR track as a template to analyze this question.
I hope it can inspire you.
01 Leader’s Strategy
Large enterprises are very rational in their SaaS purchasing decisions, and “whether the product can fulfill the needs” is always the core condition to win the order.
Therefore, if a SaaS company can become a leader, it often means that it has the most comprehensive product modules and the most in-depth functions.
For example, Beisen on the HR track has the most comprehensive product modules.
Of course, you can list some of the so-called “leaders” that have taken the most market share “by virtue of strong sales”.
However, such companies are often very inefficient and can easily face the threat of death if external financing is interrupted.
Therefore, they can only be regarded as “pseudo leaders”.
1) Risks of Leaders
In order to increase sales, the leader tends to cover a lot of niche tracks.
This product strategy of comprehensive coverage increases the company’s sales scale, but it also brings a number of potential risks.
The key is that SaaS is a highly non-standardized track.
The leader can not through a set of products take all the industry.
Coverage of multiple tracks will inevitably need to face a number of sub-track players “siege”.
At the same time, the strategy of comprehensive coverage, but also greatly increases the investment in infrastructure construction.
For example, Salesforce’s PaaS team size of up to 4,000 people, because there is no strong PaaS, Salesforce has no way to deal with the personalized needs of various industries.
Huge investment in infrastructure is not a problem in itself, there is no corresponding sales scale to share the cost of research and development is the biggest problem.
As a result, the leaders often also face enormous pressure to develop the market.
2) Product strategy of the leader
Industrialization and integration are the strategies commonly adopted by leaders, and Beisen is no exception.
Industrialization is the core means to meet the personalized needs of customers in the industry. Without industrialization, the territory of the leader is not stable and will be “swallowed up” by the followers sooner or later.
Integration of power comes from two aspects:
First, the customer needs integration.
Especially in large enterprises, interdepartmental coordination is very painful work.
Although the departmental software through, can greatly reduce the cost of coordination, the software through itself is also costly.
The integration of the product, often already through most of the “need for high-frequency collaboration scenarios”, thus solving the pain points of the enterprise.
Another driving force for integration is SaaS companies.
First, integration often means that customers will purchase multiple functional modules, which will greatly increase customer stickiness.
Second, integration also means that there is a lot of room for customer cross-repurchase: once a customer has procured module A, it is easy for them to go on to procure module B or even module C.
This is the “secret” of many leading SaaS companies’ high NDR.
Industrialization and integration look beautiful in revenues, but they put high demands on the capabilities of the SaaS product.
Theoretically, the wider the coverage, the more personalized needs to face, and the complexity of the product will be accelerated.
To solve this problem, the only way is the PaaS platform, which is also the consensus of most SaaS companies.
Therefore, the track leaders have almost all invested heavily in building PaaS.
Finally, PaaS solves the problem of tools, and the delivery of software solutions, but also relies on “professionals”.
At the same time, it is impossible for any SaaS company to fulfill all the needs of an organization.
For the leader, focus on what they do best, and outsource the product, the methodology, and customer resources, through the ecosystem to meet customer needs. Not only can it enhance its own competitiveness, but it can also effectively make up for the lack of innovation.
Therefore, the ecological strategy, too, will be the inevitable choice of the leading companies.
3) The Leader’s Concern
In fact, the SaaS track is very friendly to the leader.
Because the B2B software has a strong customer stickiness, which means that “the strong will always be strong”.
The leader does not even have to lead the innovation, let the startup first trial and error, their own timely harvest fruit is good.
Oracle, for example, was the one once publicly downbeat SaaS model of the B2B software giant, by actively transforming, but still succeeded in getting into the SaaS era.
Many people do not realize that today’s Oracle’s market capitalization, in fact, is much higher than the market value of Salesforce.
Of course, the leader is not without hidden worries.
For example, a multi-industry / multi-product line of combat will inevitably bring high-level attention, and the company’s core resources are scattered.
The product line spread too wide, beyond the SaaS company’s ability to greatly affect the competitiveness of the product, and reduce the company’s operational efficiency.
For example, an industry-leading SaaS company in 2021 had crazy expansion, cutting into too many industries, but most of the products in fact lack competitiveness, only a couple of customers are still barely using them.
When the company makes a big cut in 2022, it faces an awkward situation: these products have no prospects and lack the manpower to iterate, but because there are customers using them, they can barely maintain operations.
Therefore, the leader can not be “arbitrary”.
In addition, when an organization starts to rely heavily on processes and professional managers, it may lead to organizational rigidity and even loss of innovation.
Therefore, leaders should also have an entrepreneurial mindset and should not believe too much in the so-called leading edge.
Always pay attention to the front line and stay sensitive to the market in order to be invincible.
02 Anxiety for followers
For the followers, it is also anxious.
On the one hand, their sales scale is still far from the listing, the market development pressure.
On the other hand, they are faced with the constant “invasion” of the leader, and must find ways to maintain the leading position in the segment.
Under pressure, some segment players will try to imitate the product strategy of the leaders.
After all, as direct competitors, they can best understand the power of the leader’s advantages.
However, directly mimicking the leader’s strategy may be more applicable to incremental markets where there is a huge amount of space — in such markets, as long as the execution is in place, the laggards still have a decent chance of overtaking.
However, in a principal market, a simple follow-the-leader strategy can seriously reduce a company’s operational efficiency.
The core reason is that the result of converging strategies often leads to price wars, and the first-mover advantage of the leaders is enough to ensure that they win in the end.
1) Followers’ product strategy
There are 3 key points in the follower’s product strategy, which are: pursuing reuse rate, single point of penetration, and SaaS+.
The essence of the pursuit of reuse rate is to attach great importance to efficiency, not blindly expand the product line, not hastily expand the team, and not engage in inefficient marketing and promotion.
Expanding product lines around core products and capabilities, doing deep integration around core customers, and fully utilizing core resources such as industry Know-How and channels can greatly enhance the company’s operational efficiency.
Essentially, the competition of SaaS companies is the competition of efficiency, as long as you maintain high efficiency in the niche track, SaaS companies can be invincible.
The single point of penetration is to achieve absolute №1 in the niche track, not to leave market space for competitors.
Finally, SaaS+ is actually a very effective product strategy for followers.
Taking the HR track as an example, there are some HR SaaS companies in the niche track that not only provide software but also business consulting and even operation services.
SaaS products are the foundation of their success, but their core competency is “SaaS+”.
Such companies are often able to avoid direct conflict with the leaders, and even have a cooperative relationship with them.
2) From follower to leader
What defeats WeChat is not another WeChat.
WeChat has strong user stickiness, so convergent product strategies cannot pose a substantial threat to WeChat.
SaaS products also have strong customer stickiness, and simple imitation can only bring clumsy results.
Therefore, followers should have the strategic determination and not be forced to surpass.
Be patient and look for the right opportunity to attack the “weak spot” of the leader to have a chance to realize a comeback.
03 The Risks of Big Corporates
Perhaps the biggest risk for large corporates is overconfidence.
They tend to believe too much in the leadership of their own resources and strategies.
For example, the logic of the HR SaaS product launched by a big corporate is the commercialization of self-developed products.
The commercial success of the big company itself makes them firmly believe in the advanced nature of self-developed products, and they take it for granted that enterprises “in order to become an advanced organization” will naturally scramble to buy the so-called “advanced products”.
As a result, these large SaaS vendors either encountered difficulties in market development or incurred huge costs in product delivery.
Their product strategy was wrong from the beginning, and the root cause was that they didn’t understand B2B products.
The SaaS business of the big manufacturers should first have a startup mentality.
In fact, B2B products are a highly personalized field, and different industries have different Know-how, the difference is great, and all need time to accumulate.
Therefore, even if you are the №1 in your industry, you should never just look down on other industries.
In addition to this mindset, the big SaaS business also needs to know how to respect the laws of the industry.
The most important thing is not a lack of resources, as well as the so-called “advanced management practices”.
But these are not the key to SaaS success.
If not paying attention to product strategy and over-reliance on resources of the big SaaS, it will be difficult to develop.
04 Final words
The fierce competition itself is not a problem, but excessive homogenization of competition, in addition to wasting resources, does not bring real value to the industry and customers.
Grasp your own position, adopt an appropriate product strategy, and have less war of attrition, this could help to survive in the reshuffling of the industry.
I write about fintech startups, entrepreneurial stories, and investments, opening up opportunities for new business perspectives! As a startup entrepreneur based in Helsinki, Finland, I will share with you my experiences and insights from the startup scene. Whether you are a beginner or an experienced investor, I will provide you with valuable content that will help you succeed in this fast-growing field. Follow me and join me on an exciting entrepreneurial journey in pursuit of new heights of business success!
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