At Codegram we've been offering a product for the past 8 years that has been self funded. This SaaS covers a very specific need from a niche group of schools and started as a side project. When we started this project, our competition had already been in the market for 25 years.
We had some advantages: our price was way below the others, we could give a powerful tool to a reduced part of this niche market and we were like a breath of fresh air for those customers that were feeling ignored by a company that had had the monopoly during more than two decades.
PEOPLE ARE PAYING FOR OUR SERVICE, YAY!
TL;DR of the first 2-3 years out there: things were going pretty good, with solid percentages in engagement, new customers and low churn rates - and we were bleeding our competition customers list. We never had a freemium model, so customers were paying us right away!
THINGS ARE NEVER AS EASY AS ONE MIGHT THINK
I know section's title is a cliche but... problems raised soon enough. Customers coming from a more complete solution (although unstable, because tech wasn't their strength) meant increasing resources so we could develop features that we didn’t have yet.
There should be no problem, you might think. Since we were growing on customers, there should be budget enough for this. Sure, there was enough income to keep the team at a minimum, but not to grow, so the whole project was starting to be more like a burden than an opportunity to do business. Our initial price was set considering a market quota that we hadn’t reached yet (and looking into it with more experience, it was impossible to get to). As we didn’t want investors to be involved, we had to rebalance marketing/sales and developing resources.
SO IT CAN GET UGLY
Obviously, less budget for marketing/sales meant a substantial decrease in leads/closed deals. But the amount of new features asked remained the same or even increased: customers that came from the competition had already been waiting a couple of years for features they already got with their old system. This led to a tug-of-war between the two departments which got us into difficult times.
On one hand most of our customers loved us (how we listened and improved the service to fit their needs) and they were spreading the word about our SaaS, but at the same time they needed some features that we couldn’t give them at that point. Getting new customers was difficult (we were at the end of the “early adopters” part of the curve), because they were remaining loyal to their provider as our solution wasn’t good/complete enough to accept the risks they associated to the transition.
There was clearly a problem in our narrative to get more people onboard, but we didn’t have the technical resources to backup any “promise” we made to those leads about what a piece of cake it would be to move to our SaaS.
I’m sure this is a situation most startups could relate at one point or another.
AND YOU HAVE TO TAKE A DEEP BREATH
We had to stop, step back and see what our options were. This was pretty counter-intuitive for us. We had been in a development/sales race for 5 years and it wasn’t paying off, so “stop everything” even for a week seemed wrong at best.
Revenue was not going to get better any time soon, and freezing development was risky: we had improved a lot in those years, but there still were some critical features that needed to be done if we didn’t want a big chunk of our customers to leave us in a short period of time. And the marketing/sales battle with our competition was being more expensive than we expected.
So what could we do? I’ve read a lot of blog posts/books/videos about analytics, getting the right metrics to “move the needle”, crossing the chasm, saturated channels, etc. What worked at the beginning was staggering, and most things we thought of weren’t enough to make a difference or seemed out of reach due to needed resources. I can’t explain some magic trick/strategy that saved the project; we tried everything we could to continue at our own but it didn’t work. We needed to do something fast or the project would see its end.
TO DO WHAT?
At that time, we had about 50% of our competition customers base volume, and they were pretty pissed that we had gone that far. So we used that, and made our move to partner up with them!
It took almost a year to close a deal, and during that time we reduced costs moving everyone non essential to other projects (lets not forget that we are a web development consulting company).
We established a commercial relation/alliance with what until then was our competition: we provided our SaaS to them for a fee (no one bought anyone). Everyone tried to leave all the “hate” behind so both organizations could contribute with the best they had and get to common ground. Since then, Codegram has been focusing on creating the best SaaS available in the market (and now we have the resources to do so), and they could forget about the technical part and focus on their customers. This agreement has been on for nearly two years now. It’s still not a smooth relationship, but it has brought us to an optimized use of resources, better revenue and and improved service for the final customers.
WHAT TOOK US SO LONG TO DO THAT
"Why didn’t you think of this before", you may ask? To be honest, we started this project to go big and do everything on our own, but there were variables we couldn’t control or ignore and we learned this the hard way.
And it’s not just that: there are a lot of differences between a startup inside a company like Codegram and a 25 years old company. We think very differently in many things. It didn’t seem possible to talk to our competition and work together back then. It hasn’t been a hassle-free quest, so we weren’t completely wrong...
So for the moment, despite using the same software, we are still selling different “products” to final customers. We are getting closer to work more like one product run by two different companies, but there is still a lot to do.
Things don’t go as you might expect, but selling the product, getting investors or shutting it down are not always the only options. Sometimes there are intermediate paths that let you gain resources and maintain 100% control of your project. It took us a lot of effort to see this, but maybe our story can help you find alternatives to your own situation ;)