I have spent my career selling FinTech and EdTech software inside venture-backed startups. My managers taught me and my teams to sell based on the “value“ we supposedly brought to the customer. Whether we were truly innovating or just dressing up an old horse to look like a Ferrari.
Yet me and my teams struggled to justify our very own price tags. When I talked to my peers, it turned out they faced the same issue. I was relieved it wasn’t just me. Still I was baffled.
Today, I believe the price isn’t based on the value the product delivers to you. It is based on the returns the investors expect from the founders. The SaaS pricing model is broken.
When a company takes $100M in venture capital, they make a promise to their investors: We will return a billion. This promise changes the DNA of a company.
I experienced this change after the startup I worked for raised $350M. We aggressively expanded into 12 new markets. Each market had its very own requirements. While we hired dedicated sales teams for each market, we didn’t hire new engineers. The engineering team was stretched thin. The focus on our core product was lost.
Yet, I understand the strategic shift from the board’s perspective. To reach a 10x, or better 20x return, you have to grow at an unnatural speed. You stop asking, “How can we make the product better?” and start asking, “How can we sell more licences?”
The “Growth Engine” is now the actual product and it’s very expensive.
As a customer you are funding a small city designed to fuel the growth for the 10x return. This city is full of people you will never meet and they have jobs you didn’t even know existed. My favourite job title is ‘Senior Revenue Operations & Architecture Strategist’. I still have no clue what this colleague did from 9-5.
You are paying for the Account Executive who spent three weeks badgering your CTO on LinkedIn just to get a “discovery call.” You are paying for the Customer Success Manager whose primary metric is “expansion”, finding ways to make you pay more this year than you did last. You are even paying for the Solutions Engineer, brought in because the product has become so bloated and “enterprise-ready” that the salesperson can no longer explain how it works.
But you will never talk to the ‘Senior Revenue Operations & Architecture Strategist’. Still you finance his/her salary.
When companies add all these roles, they create distance between their users and engineers. The engineers never feel the customer’s pain. The product stays mediocre because these added roles are there to patch over the flaws with meetings and slide decks.
At All Quiet, we believe that if a product is designed well, users don’t need a hand-holder. If there is a problem, we want our users to talk to the people who build the product. So they can make it better.
We can only do it this way because we decided to go the revenue-funded route. We don’t have a sales floor and will never have one. We don’t have a Chief People Officer and will never have one. We don’t have a fancy office and will never have one. Our overhead is low, our price reflects the tool’s utility, not the cost of our headcount.
When I speak to procurement teams, they often ask. ‘How can we know you’ll still be there in 2 years time?’ I respond “Because we don’t spend more than we earn.” This is the principle of a healthy business.
A Series A creates the image of financial stability. Until you miss the ‘10x growth’ target and can’t naturally sustain the business you’ve built. What follows? You either need to drastically raise prices or you go out of business. Both outcomes aren’t very popular among procurement teams.
LinkedIn is full of ‘SaaS is dead’. I believe the way SaaS prices are determined is dead. Prices will move closer and closer to the value the platforms actually bring to the customers.
- Niko, Co-Founder & CGO All Quiet - IRM & On-Call
