(2015-04-19) Tunguz The Innovator's Solution For SaaS Startups: The Flywheel SaaS Company

Tomasz Tunguz: The Innovator's Solution for SaaS Startups - The Flywheel SaaS Company. In the Innovator's Dilemma for SaaS Startups, I outlined the path of many software companies, which disrupt incumbents by first serving the small-to-medium business and then move up-market by transitioning to serve larger enterprises with outbound sales teams. I argued this transition is largely due to the more attractive characteristics of larger customers, namely higher sales efficiency and reduced churn rates. This is the “traditional” way of disrupting. But, as Kenny van Zant of Asana and Mike Cannon-Brookes of Atlassian told me, there's another way, a novel way of building companies that still isn't very well understood: the Flywheel SaaS Company

The Flywheel Model differs from the Traditional Model in one fundamental regard. The enterprise sales team is exclusively inbound. They are explicitly denied the option of seeking business outside the customer base, and must gin up business from only existing customers. The enterprise sales team is an up-sell and cross-sell team. In fact, so is the mid-market sales team. Only the SMB marketing team is permitted to acquire new leads.

The marketing engine spins a customer acquisition flywheel that captures all kinds of customers, both big and small. Some of these customers are true small businesses; others are teams or departments in companies. Over time, the product spreads from team to team, and department to department, increasing customer size and revenue to the startup. It's the responsibility of the mid-market and enterprise teams to find, cultivate and upsell these growing accounts

Atlassian has mastered this method and achieved terrific success

Flywheel models work very well in sectors where the ultimate buyer has is very difficult to sell or market to, (e.g., product managers and engineers).

In addition, Flywheel models work in markets where products can expand from any part within the continuum of SMBs to enterprise

In contrast, ERP software isn't a flywheel business

Last, Flywheel models may not work as well when an industry has intense competition already pursuing a Traditional model