EP26: What is the SaaS Black Hole?
As a new SaaS founder, you’re about to embark on one of the most challenging yet rewarding journeys: bringing your product or service to market.
You’ve put in tireless months of research and development, coded feature after feature, and finally have a minimum viable product (MVP) to test.
Welcome to the SaaS black hole.
At Demand Maven, we define the SaaS black hole as the unpredictable and chaotic period between testing your MVP with non-paying users and bringing your product to market. This blog post will explain what this means for your startup, what you can expect, and how to eventually get out of the black hole.
The SaaS Journey Before the Black Hole
As a startup founder, your journey probably looks something like this:
- You’ve identified a problem you believe you can solve.
- You’ve researched and refined your potential solution
- You’ve developed an MVP, which is your solution to the problem you’ve identified.
- You test your MVP with users who are not paying for the service or product.
- And finally, you launch your MVP for paying customers.
We refer to step number four as the black hole. This stage can consume a startup and spit out an unrecognizable business on the other end. There is no way to predict, guesstimate, or map your journey as you test your MVP with non-paying users, but we find that you’ll likely end up in one of these three groups.
- Nailed It – Your product is a match for the market and audience. Your users convert to customers at a high rate, and you’re startup is ready to grow.
- You Almost Nailed It – Your conversion rate isn’t high, but it’s not low either. Overall, there’s significant room for improvement before you take your product to market.
- Back to the Drawing Board – Your conversion rates are low, and it’s time to rethink some things. Your product may not be a match for the market. Much like Pluto, you could be in for an identity crisis up ahead, and it’s anyone’s guess where you’ll end up.
Now let’s look at what this means for you.
1. You Nailed It
If you’re in this group, congrats! Your test users found value in your product and converted to paying customers. Now you can invest your energy into finding new acquisition channels and identifying areas for growth.
2. You Almost Nailed It
Many people use free tools simply because they’re free. Unfortunately, the second you place a price tag on your offering, you introduce a value exchange to the relationship. The user now has to assess whether or not the product is valuable enough to warrant an exchange of money.
If you’re in this group, you’re likely finding out that more users do not find value in your product than you initially thought. While this is disappointing, there’s still value in your users. Determine what your users are unhappy with. What are they missing? What don’t they like?
Many companies in this group discover they built the wrong product, targeted the wrong audience, or a combination of both. But often, exploring new product models or pricing structures can go a long way.
3. Back to the Drawing Board
When a startup experiences low conversion rates during its product testing phase, the product is not resonating well with potential customers. This can mean the product doesn’t meet customer expectations, marketing is underperforming, or you’re targeting the wrong audience segments. The implications of a low conversion rate can be detrimental to a startup, so take a step back and reassess.
This will require the company to collect and evaluate relevant data, including user feedback, competitor analysis, industry trends, technological advancements, customer preferences, and other market dynamics.
Once you’ve identified the primary reasons for low conversion, you can begin making informed decisions to reshape your product and improve its overall value proposition. This entails reassessing the product-market fit and ensuring that your product or service effectively addresses the target audience’s needs and pain points.
You might also revisit how you define your target audience. This involves an in-depth understanding of your customers and their needs and preferences. A well-defined target audience allows for more effective marketing strategies, better customer acquisition, and maximized return on investment (ROI).
As you continue to analyze customer feedback and testing results, it’s important to iterate and improve your offering. Over time, you’ll see improved conversion rates and higher traction in the market. Unfortunately, one of the most challenging aspects of the SaaS blackhole is that it can last anywhere from a few weeks to a few years,
During this time, taking on new employees can be difficult and even unproductive. We recommend only taking on team members that will help your startup launch a paid service or product. In many cases, this is someone with experience launching a product, with startups, or with startup growth, which brings us to our final question on the SaaS black hole.
When is it Right to Seek Help?
As a consulting agency specializing in SaaS startups, we often engage with founders in or around the SaaS black hole. A common question is, ‘When should I hire help?’ The best answer is before or after the black hole.
In the black hole stage, your startup may pivot entirely, change up its marketing strategy, or redefine its target audience within a day’s notice. That makes it hard for new members to gain traction and add value. Adding valuable members before the black hole can help you perform customer discovery or assess product-market fit before you bring your MVP to the testing stage. Similarly, adding members after the black hole stage allows you to communicate a strong direction, vision, product, and strategy so they can hit the ground running and help you grow.
Are you in the SaaS black hole? Rest assured, knowing it won’t last forever, and the end could be in sight. But remain flexible and ready to adapt to any changes the data might encourage you to make.
Wrapping up
To learn more about how to reach your growth goals for your SaaS business, check out our top offers here:
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