SMB’s have high churn, therefore you can’t build a big SaaS business in that market. Right? No…
Patrick Campbell of ProfitWell (formerly Price Intelligently) (a must follow btw) recently published some great benchmark data on churn (http://bit.ly/2vS877E).
The data showed higher churn correlated with lower ARPU customers (likely smb’s). A common conclusion from this is you have to shift up market to build a big business. This is wrong.
Churn, while critical, is a one dimensional view on a business. To fully understand the business you need at least a 3-D view (acquisition, monetization).
So what do you need to build a big business at the small end of the market?
1. Mission Critical Value Prop – Think Gusto and payroll. An easy way to pay employees is not a nice to have, it is mission critical.
2. Low Cost, High Scale Growth Loop – Some form of a low cost, high scale growth loop like virality to make up for the SMB’s that do inevitably churn.
Combine the two and you get an amazing business like Dropbox, Slack, or SurveyMonkey.
If you don’t have these two things, that is where you need to shift up market to where your value prop does become mission critical (think analytics) and/or you can support a higher cost growth loop.
References
- https://www.linkedin.com/feed/update/urn:li:activity:6433046247216680960