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SaaS (software as a service) is one of the fastest-growing segments in the IT industry. Cloud-based services that use a subscription model have become widespread for several reasons, such as accessibility, flexibility, and cost-efficiency.
This growth was accelerated during the pandemic because of stay-at-home orders and the rise in remote working. On an individual level, SaaS businesses need to be part of this growth to succeed. But getting a foothold in this competitive market isn't always easy.
In this article, we'll look at the Three Pillars of Healthy Growth. These pillars make up the principles of sustainable growth that SaaS businesses can use to build up their customer base in a healthy and repeatable way. No tricks, no hacks; just sound methods that work well.
What is Unhealthy Growth?
Before we look at the Three Pillars of Healthy Growth, it is essential to define what unhealthy growth is. Growth, whether it be in user base or revenue, is a vital measure of success. Founders, investors, and the broader team are all concerned with getting the product in front of users. However, this concern can cause products to take some shortcuts. It's these shortcuts that we can consider as unhealthy growth.
User onboarding can be done in several ways. However, some of them are less sustainable over the long term than others. Creating engagement and user habits are considered a big part of increasing the number of users for a product. But anything that prioritizes user engagement numbers over the user's best interests can be viewed as an unhealthy way of growing the product.
The pressure to succeed can prompt developers to make products that are so sticky that they are addictive. But if this addiction causes adverse effects for the user, questions need to be asked. Apps should attempt to solve a users’ problems, not cause them new ones.
Many developers take the stance that the means justify the ends. They concentrate on making their product as addictive as possible. Or, they cast a wide net and try to get their product in front of as many users as possible and hope that some will stick around.
This unquenchable thirst for user numbers can cause focus to shift to the wrong place. For sustainable growth to happen, the means of getting there are essential. In some ways, it's the difference between long and short-term thinking. For example, aggressive and expensive marketing and advertising campaigns can result in a bump in users. However, they aren't always the best allocation of resources — especially if user churn swiftly eliminates the gains.
For example, let's think about customer acquisition costs (CAC). If developers put a lot of their budget into acquiring customers instead of improving their product, they might get a short-term bump in users. However, soon these users will lose interest because the product isn't at the level they require.
Without delivering long-term value via a helpful product, many of these users will taper off. And if they don't stick around, you'll continuously fall short of your CAC payback period, i.e., the time that it takes a customer to pay back the costs of acquiring them.
Every app has its monthly targets. But achieving these targets, whatever the cost, can cause unhealthy growth. For businesses to achieve growth targets in a healthier, more organic way, a different tactic is required.
So, let's look at the Three Pillars of Healthy Growth.
Pillar #1: Path Design
There are two ways that you can think of path design. Firstly, you can consider it a well-designed product that solves a particular problem. Or, you can take a bird-eye view of why the customer is engaging with your product and consider the environment they are using it in. From here, you can optimize it for the entire path.
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| Photo by Nick Fewings on Unsplash |
Either way, good path design is looking at how a user interacts with your product. This process is the problem that user onboarding software has been dealing with for many years. It requires asking questions like "what is the user trying to achieve?" and "what steps do they require to get there?"
There are several ways to assist the user in achieving their goal within the app. You can use a digital adoption platform to guide the user towards understanding the value of an app, i.e., helping them realize their aha moment. Additionally, a digital adoption platform can use product walkthroughs, a user onboarding checklist, or a product tour to orient the user within the software.
So, the best way to look at this is via the path a user takes with a product. This path will encompass their starting point of opening the product all the way to the moment when they achieve value. Additionally, it will take in all the obstacles along the way.
The path that users take is really about getting users to reach the desired outcome. If your app's value is that it facilitates social photo sharing, then the path should lead to that outcome. Essentially, in development, we must work backward to achieve the result. Look at the endpoint (when the photo is shared socially) and consider the steps needed to achieve this end.
However, you also need to work forward too. Because you need to think about who your user is and their current pain point that you will solve. These situations are something that user onboarding software is very conscious of solving: guiding the user along the path and demonstrating to them how they can use the app.
The critical thing to remember, which might seem subtle, is that users have goals when interacting with your product. So, if you have a feature that you'd like users to engage with more, and you create a path to it, that's great.
But also, the end goal of that feature is in the user's hands and being used in a particular situation. Path designconsiders how users will use it in that situation.
Each user action is made of small steps. These steps need to act in accordance with each other to build a set of different paths that come together to lead users towards solving their problems.
Each outcome consists of several more minor actions. So that's an overall goal, plus several mini-actions that push the user towards the goal, be it onboarding or their aha moment within the product. Of course, it should be noted that each action must be focused on the path and streamlined towards the goal.
As you see, this is a different philosophy than cramming a product with cool stuff. In a way, it's quite minimalist in that it examines and takes away different parts of the path until all that is left is that which directs the user to the outcome.
So consider where the user is when they begin using the product and how you can move them to their desired state. That is the essence of path design.
#2. Performance Valuation
Performance valuation is about tracking user behavior in relation to a variety of design decisions. In particular, it focuses on how those changes help the user get value from the product. Additionally, performance valuation is also concerned with how these changes affect business goals (revenue, monthly users, etc.)
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| Photo by Markus Spiske on Unsplash |
The key to performance valuation is understanding what changes are leading to product growth. So, for example, if you have product walkthroughs to assist users in getting value from the product. What these walkthroughs are comprised of needs to be measured somehow. Otherwise, you can just be adding things for the sake of it.
One of the most common ways to track performance is through revenue. With a SaaS model, this revenue isn't just about initial conversions but also about customer retention over the following weeks or months.
Again, think about CAC as an investment that gets paid back over the customer's lifetime. So the starting point is signing up, and the endpoint is when they start producing revenue for your business.
That path, or journey, can then be measured so you can see where users are being lost, for example. When you look at this path, patterns can begin to emerge. These patterns can allow you to understand where customer attrition occurs, allowing you to remedy the situations along the way.
Understanding these paths that your customer takes can be an excellent way to predict revenue. And, by identifying (and solving) points where customer churn is high, you can work on predictably improving revenue too.
Again, the key here is not to view revenue from users at different life cycle stages and leave it at that. Instead, look at users who signed up in the same week and place them into groups. Then, as you add different features, functionalities, etc., you'll have a far better idea of how and where these changes are making a difference.
This is an excellent way to work out customer churn. For example, if you start with 100 users, that number will reduce after week 2 or 3 and drop off due to customer churn. The overall users of the company could be expanding, which will look entirely different as the chart goes the other way. But, again, this can be misleading when tracking how changes affect the product on a micro-level.
So instead of taking monthly recurring revenue (MRR) from a company timeline, it can be more helpful to look at MRR from the perspective of users who signed up at the same time. Then you can look at their journey and what the customer churn at this level tells you. It is a much faster and more focused feedback loop.
#3. Super Outcomes
All the talk about path design and performance valuations has been leading up to super outcomes. Essentially, super outcomes describe the fact that every time a user engages with a product, it's because they want to alter something in their current situation. It can be something minor, like editing a photo, or something more extensive, like sending an invoice. Whatever it is, they are performing an action to achieve the desired outcome.
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| Photo by krakenimages on Unsplash |
Again, understanding where the user is at and what they want is essential here. The job of a developer is to meet them in that state and get them to where they want to go.
The best part of designing products in this way is that you don't have to coax or trick the user into engaging with your software. They are already motivated. What you need to do is to make their path easy.
Many products promise outcomes. For example, a finance app might tell you that it will help you save for a car or even stop you from being in the red at the end of the month. And while it is true that these apps can assist you in doing this, ultimately, there are various sets of actions that you'll need to do to achieve these aims.
So, let's step back and consider this. The promise is helping you save money, but it's somewhat loose and vague. The actual steps to achieve this goal are what a piece of software needs to do.
In short, the super outcome is the goal of saving money. However, that is made up of a variety of different actions and paths. These could be something like setting up and allocating capital to a savings account. Or they could be a way of visualizing your spending so that you can see where you are spending way too much or what you can cut back on.
So, in this instance, they are in a situation where managing money is a pain point. So engaging with this type of user is just about setting up paths that guide them towards their outcome.
One of the big mistakes that people make is thinking about their product as an object. There are a whole host of attendant assumptions that happen when you think about it in this way and not as a set of actions.
If you think about your product as an object, you'll start thinking about your product within the context of personas. There are typically several different personas that can use a product, and by concentrating on one, you'll do this at the cost of the other personas.
So, step back and start thinking about various scenarios (or paths) instead. Consider the outcomes of using the product instead.
In short, you can look at things in two different ways. Firstly, you can build a product with a market and acknowledge that this market has a few different needs. As a result, your product will serve these needs in the most general way to include the maximum amount of the market.
Or, you can look at your product as having a set of actions that solves problems. Then, look at those problems in the context of what motivates users to come to your product. If your product isn't perfectly solving these problems, this is a great area to identify for growth. Using this as your drive — instead of other metrics — you can begin to think about your product differently.
From here, it comes back to the design path. Specifically, forging a route for your customer to take to solve their pain point or reach the aha moment. If the user comes to your product and you have a streamlined path to solving their issue, they'll stick around. If you don't, they'll leave.
So, in short, if you know and understand the super outcomes, i.e., what brings a person to the product in the first place, and combine that with a design path that guides them to the solutions, this can be powerful. From here, thinking about pillar two (performance valuation), you can start to see which actions are the most valuable to you and the user.
Often you'll have different types of users. And each of them will have their own goals and desires. Figuring out what they are can tell you a great deal about who your audience is. How many of them want to achieve goal A? How many of them have problem B?
From here, armed with these users’ demographics, you can easily measure who is more likely to convert, signup, spend money, etc. Instead of taking an overview of all the customers, you can look at who is getting value from the product and why? What do they have in common? What are the pain points or problems that bring them to the product?
You can have a design path that goes from their desire and straight to their outcome. Because, in product development, the users don’t define the value of using the product itself. Instead, they determine value through what the product can do for them or help them achieve.
Summary
So rather than forcing growth, the best way to think about it is to design a path that accommodates organic growth by thinking about how users go from having an issue to how you set a route for them to solve their problems.
Blog header image by Sushobhan Badai