How to avoid stagnation of your SaaS business?

Stagnation - it sneaks up on you, but how? 

“How are things?” I asked a CEO in my network yesterday,

“Business has been stagnating the past 6 months, Ton….” he replied, clearly worried.

Stagnation. Stressful, to say the least,

I could sense that stress in the eyes of this SaaS CEO.

It happens to the best – because markets are dynamic. One year can be fast growth. The next, it’s flat – like The Netherlands.

Many reasons cause stagnation – sometimes they’re in your hands, other times not so much.

But there’s always something you can do to prevent it…

Let me illustrate that with a project I did last year with an international SaaS scaleup. The CEO told me about their ambitions and how it had become harder and harder the past year to meet the quarterly expectations.

They’d tried to fix things internally, but quarter after quarter, nothing moved the needle. So we started a project, and already in the first week, we found three reasons that caused stagnation.

  1. Their ICP wasn’t specific enough (anymore)
  2. The pain points weren’t specific enough (anymore)
  3. Their customers valued them for different reasons than they assumed

Being ‘off’ on some of these critical points is a key reason many SaaS businesses fail to build remarkable traction. And it’s the same reasons that cause stagnation.

How could this have happened?

There can be many reasons – and hence, this is the topic of this essay.

 

What are the reasons you’re SaaS business is stagnating?

Stagnation – it’s a complex topic that’s very much driven by factors out of your control, such as:

  1. Market Saturation: The segment you choose can become saturated with numerous companies offering similar solutions. As more competitors enter the market, it becomes challenging to stand out and acquire new customers, which can lead to revenue and growth stagnation.
  2. Economic Downturn: Economic uncertainties and downturns can impact any B2B SaaS company – including yours, especially if potential customers cut back on software spending. A result of this can mean slower sales cycles and decreased demand for new subscriptions.
    As with many things, not every economic downturn is equal. There are various gradations:

    1. Stagnation: Slow or no economic growth, often accompanied by high unemployment and reduced business activity, but not necessarily a decline in GDP.
    2. Stagflation: A combination of stagnant economic growth, high unemployment, and rising inflation, which is unusual due to the conflicting relationship between growth and inflation.
    3. Recession: A significant decline in economic activity, typically defined as two consecutive quarters of negative GDP growth, with reduced consumer spending, business investment, and employment.
  3. Talent shortage: This has become a bigger problem in the past decade – and can obviously stagnate the growth of your SaaS business. If you can’t get your hands on enough talent (or your partners) – this can have serious impacts on slowdown in your business.

And then there are the many dynamics that characterize your market: the cyclical shifts, perhaps unexpected economic shocks, structural factors such as demographics and globalization, etcetera.

The fact is – these can not be excuses for allowing stagnation to happen in your SaaS business.

Ultimately, it’s your responsibility to keep the company afloat, no matter how much the outside world works against you.

And that is what this Essay is about. We can only focus on the things we can control.

What mistakes do we make that introduce stagnation in SaaS?

What causes stagnation that’s within your control? Below, I’ve described the top 5 ‘Stagnation Magnets’ that I see most often when working with my clients in SaaS.

Stagnation magnet #1: We’re unfocused

A significant cause of stagnation in a SaaS business – how crazy it may sound: Trying to do too many things.

Having your eggs in more than one bucket is good – as long as you can make a meaningful difference.

It’s the latter part of that sentence where things derail. And this allows for stagnation to kick in because we cannot give ‘the eggs’ enough focus to make a difference.

We don’t have enough resources to do a good job. And slowly but surely, it slows the entire business down – including your initiatives that were doing well.

Unfocus hides in many things:

  • In segmentation, i.e., who you target
  • In product portfolio, i.e., what you build
  • In market choices, i.e., where you serve

Every choice you make, or better, do NOT make in these areas, has huge downstream implications.

If your segmentation is too broad, you’ll attract customers that you could serve, but they won’t become fans. The consequence: Implementation will be much harder. Customer Success will need to do much more hand-holding. R&D will get a lot more requests that don’t fit the roadmap. And so on.

The problem: ‘Doing more’ is often regarded as positive. It’s far easier for us to add something than suggesting to drop something – that requires guts. And it’s in the ease of adding something where the soil for stagnation to mushroom becomes richer and richer.

So how to avoid this? From my own experience, these three questions help:

  1. First: What’s the prime reason we want to add this: A problem or an opportunity?
  2. If it’s a problem, what if we fix the root cause?
  3. If an opportunity – answer this:  IF we’d add this – What’s our ability (1-10) to exceed customer expectations as an aligned team (R&D, Marketing, Sales, Services, Success)?

Don’t forget

Average SaaS companies keep adding more stuff.

Remarkable SaaS companies focus on the essence.

 


Question for you to reflect upon:

What part of your SaaS business is unfocused? What if you’d change that?


Stagnation magnet #2: We ignore the signals.

Avoiding stagnation is about being proactive. Seeing the shifts timely and acting timely. But what where to start? Here are some of the signals to watch for to stay ahead of stagnation:

  1. Decline in product/feature adoption, underutilization, or engagement
  2. Shifts in customer feedback, reviews, and support inquiries.
  3. How net revenue retention and customer churn rates evolve.
  4. Changes in customer preferences within your niche markets.
  5. Slowdown in new customer acquisitions or revenue growth
  6. Sudden moves of your competitors’ offerings, product launches, and market strategies.
  7. Changes in your ability to obtain positive customer success stories or referrals
  8. Trends from feedback from Sales on objections or concerns
  9. Fluctuations in cash flow, profit margins, and operating expenses.

In short, the core of the issue is hidden in three signals:

  1. The nature of the problem has shifted
  2. The expectation has shifted
  3. The urgency has shifted

Take those signals seriously.

 


Question for you to reflect upon:

What do you see if you look across your SaaS business and reflect on these three signals? Where’s the opportunity?


Stagnation magnet #3: Complacency takes over reality.

It strikes me every week again when I publish a new edition of my podcast how much contrast there is between the vibe in the new generation SaaS companies and the established ones.

You can feel it in everything. And I wonder out loud: Why? What is it that makes this difference so obvious?

My take: Too easily, we allow complacency to take over reality.

‘Complacency’ is this uncritical satisfaction with oneself or one’s achievements. That’s dangerous for a variety of reasons:

  • Losing track cause you’re too much in love with your own product.
  • Telling yourself stories (and believe them) that you’re doing great.
  • Failing to connect the dots of changing market dynamics timely.
  • Failing to spot the dangers of changing customer needs.

So, the question is: how can you avoid it?

It all starts by sensing it. Sensing complacency is hard simply because it’s born out of self-talk.

To open your eyes, here are three common signals across product strategy, sales, and marketing:

“Our customers are not ready for this yet.”

Believe it or not, I still meet product managers in commodity industries who fill their roadmaps with comfortable ‘stuff’ they think their customers need, thereby waiving away the things that should be prioritized with ‘our customers are not yet ready for this anyway.’

“We always have to discount heavily to win new business.”

It’s easy to hide behind the excuse: ‘The market expects us to give substantial discounts.’

Discounting is never expected. It’s done to buy the customer simply because the value is not clear enough (anymore). Therefore, the market is not the problem; it’s you.

“We’re in a commodity market – it’s hard to differentiate.”

All very true – but we shouldn’t use that as an excuse. I have done dozens of messaging heatmaps across various categories, and the same pattern appears time after time: Most vendors don’t even make an attempt to firmly take position. Most bet on ‘better, bigger, faster, cheaper’ – cause it’s easier and less risky. Well – that’s risky.

To summarize

– Don’t let internal stories or beliefs stagnate your business

– Challenge your thinking and that of your colleagues.

– Kill complacency the moment you smell it.

 


Question for you to reflect upon:

What stories inside your companies are born out of complacency? Imagine a new CEO taking over your role – what would they do?


Stagnation magnet #4: We not building enough S-curves

An essential cause for stagnation in SaaS is understanding the nature of the S-curve.

Every product we develop goes through the same curve

  • Create momentum (the route towards product market fit)
  • Accelerate (leverage your product market fit)
  • Slow down (losing product-market fit)

Stagnation happens when we keep our bets on that diamond that defines our business and ignore the fact that the time has come to find another diamond.

Finding that moment is challenging because it’s about reading the weak signals and overcoming complacency in our thinking and behaviors.

Then, it is about coming to the painful realization that you’ve entered a dead-end road. It’s realizing that adding more ‘innovation’ to your baby won’t help to make it revive like a star.

It’s not the lack of innovation on the product that’s the problem here.

It’s also (often) not even the technology debt that you’ve allowed to build up.

It’s the lack of innovation on the next new thing.

This kind of stagnation is typically not caused by ‘what’ you offer (i.e., the feature set) but by how you offer it. New technology waves are arriving that change the rules of the game.

Examples of that from the last decade: The shift to SaaS. The boost in computing power. The abundance of data. The maturity of AI. And so on

It raises the bar and creates new realities.

In other words – after some time, everything we build will become half as effective as it was when first delivered. Not because you have a lousy product. It’s because the rules of the game have changed.

Your SaaS product is suddenly downgraded from Star to a Cash-Cow or even a Dog.

The problem: These cycles that shrink the half-life of your product come faster and faster.

So how to avoid this? Here are two questions that work magically

  1. Imagine a SaaS business ‘just like yours’ was offered for acquisition; where would you put their product on the S-curve? How much would you discount it? Would you consider buying it?
  2. Imagine your best but most critical customers would come to market again – would they bet on your solution again?

What does that tell you?

Change when you are at the top of your strength – and momentum will continue to be yours.

 


Question for you to reflect upon:

Where’s your SaaS product positioned on the S-curve? Is it time to start strategizing about your next diamond now that you’re at the top of your strengths?


Stagnation magnet #5: We take shortcuts.

Last, but not least, Stagnation is not something that happens to a SaaS business; the harsh truth is that most SaaS businesses allow it to happen. It’s the sum of all the shortcuts we take.

Without knowing it, many SaaS businesses sabotage their growth:

  • by allowing the wrong customers to enter the business
  • by being obsessed with the short-term and ignoring the longer-term
  • by creating silos that are intensely focused on achieving their own targets

Here are some examples that I encounter in almost all SaaS businesses I speak or work with:

“What worries me is an increasing number of customers that take all our time. It feels like we’re developing just for them. And we never seem to get them happy.”

What happened? Misalignment between Sales and the rest of the business. The focus is on the high price (that $1M deal), ignoring the price you have to pay for years due to the slow-down it creates.

“We should have taken the transition to the cloud more seriously. We believed, ‘If we can host our software in a data center, we’re fine.’ We’re still playing catch up…”

What happened? Misalignment between top management and R&D. Critical platform design decisions keep being postponed quarter after quarter in favor of making small functional gains to fill a short-term revenue gap.

“What stresses me is that we keep losing deals because we don’t have enough features here, and not enough features there….”

What happened? Misalignment between Marketing and the rest of the business. Segmentation is way too broad, and consequently, you’re attracting a lot of waste in your pipeline. R&D is pushed left and right to solve the product-fit problem, making the product broader, not deeper.

In summary, stagnation is the sum of all the shortcuts we take.

  • Shortcuts in product development
  • Shortcuts in the way we market
  • Shortcuts in sales qualification
  • Shortcuts in business planning
  • and so on …

 


Question for you to reflect upon:

Where in your SaaS business are you silently sabotaging yourself, preparing the soil for stagnation to grow?


 

Stagnation – It’s all relative

When we hear the word stagnation, we think ‘slow down.’

But what if we’re not slowing down at all – the ‘others’ just start growing faster?

Stagnation is often about slowdown compared to ‘the others.’ That doesn’t have to be ‘decline.’ Often, your niche grows while you lag behind, even if you’re still growing as fast as before.

I experienced those moments of reality at Unit4. For context, Unit4 was a stock-listed company with quarterly reporting obligations.

I remember when we had strong growth, but the stock went down because we didn’t meet expectations.

So it’s all relative. But still serious. Because you’re still doing better than last month but losing market share simultaneously.

Whether you care is a different thing.

It all depends on what your objectives are and who’s setting expectations.

You’re growing, just not fast enough to gain market share.

You’re not declining, but your perceived value for investors is decreasing.

For bootstrapped companies (often) nothing to worry about (short-term). For VC-backed SaaS companies (or those that aspire so) – much so.

Still, there are things to pay attention to – even for bootstrapped companies:

  • More alternatives: once smaller (irrelevant) competitors gain share – that influences the short-list.
  • More alternatives affect decision-making: This influences the length of the deal cycle.
  • Decision-making affects buying power: This influences your negotiation position.

To win the battle, don’t focus too much on market data or the competition. Instead, stay focused on your dream customers.

Remember:

Whether you’re after a niche or a massive market doesn’t matter.

What matters is if you remain the obvious choice for your ideal customer.

Nail that; value will flow in volumes you can’t even forecast.

 


Question for you to reflect upon:

Where in your market do you have the most significant opportunity to be the obvious choice? Why not double down on that and stagnate the growth of your competitors?


 

Stagnation – it’s a foundational vicious problem

Analyzing stagnation in B2B SaaS, I can only conclude it’s a foundational problem. Once it ‘grabs’ you, it is hard to escape.

  1. It starts with unfocus: trying to do too many things
  2. Because of that, it’s harder to read all the weak (but critical) signals
  3. Then complacency kicks in – telling ourselves stories we’re all fine
  4. It kills our sense of reality – and leads to delaying the creation of new S-curves
  5.  Instead, we take short-cuts, making the problem only worse – and leading to even more unfocus

At first, it’s quiet because you’re still growing. Yet, others have found their momentum and grow faster, taking advantage of your mistakes. This means you’re losing market share.

Until the moment comes when growth starts to slow down, flatten, and decline. That’s where panic hits, often followed by unpleasant things. This can include laying off employees and selling parts of the company. This can also include down-rounds and other actions. Again – this makes the problem worse, not easier.

So, how can you prevent stagnation in B2B SaaS?

Here are five strategies that always work:

  1. Sharpen your North Star. Make sure your target is relevant to the outside world, not just focused on yourself.
  2. Fix segmentation, mainly, get clear about who you are NOT for. You want to find the spot where you can win 80% – repeatedly.
  3. Fix positioning: What I mean is ‘TAKE POSITION’ and be honest that you’re not the best for everything, but when it’s about ‘This’ and ‘That’, there’s no one else. It’s liberating – for customers and everyone inside.
  4. Clean up based on the clarity you just created. Define what this means, i.e., What can you STOP doing in each department? That’s creating resourcefulness.
  5. Get rid of silos and make sure all departments have the same goals. Stop conflicting actions within your company. Define the metrics that matter – act as a team to keep each other honest.

Do that, and it will be way easier to read all the weak (but critical) signals because you’re so focused.

You can avoid complacency kicking in because you’re aligned.

You will be able to create new S-curves timely because you’re resourceful.

And you’ll avoid having to take shortcuts because you’re on top of things – and can deal with things as you’re at the top of your strength.

That’s it –

Avoiding stagnation starts with focusing on the essence: Who you’re for and what you’re for. Get that sharp, and you’ll stagnate the growth of all your peers.

 


The last quick question for you to reflect upon:

What’s the weakest point in your SaaS business that can cause stagnation?


 

Additional resources to help you avoid stagnation in your SaaS business:

The easiest way. Book a free call to explore if there’s a fit to do this together.

Otherwise – here are three other options

 

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About the author

Sales Pitch

Ton Dobbe is a former B2B software product marketer who's on a mission to save mission-driven SaaS CEOs from the stress of 'not enough' traction. He's the author of The Remarkable Effect, the host of the Tech-Entrepreneur on a Mission podcast, and writes a daily newsletter on the secrets to mastering predictable traction.