The upcoming 2024 bloodbath in SaaS

Becoming vertical may be your lifejacket

The age of acquisition is officially dead. Long live the age of growth.

SaaS solved many problems for us, making access to markets easier and making them more transparent. It also consolidated a lot of real-life markets into the digital space and increased their size substantially.

With AI, we now have a new solution creating another big problem: the creation of products has become much much simpler and cheaper while the size of the market did not change at the same rate:

There is a big pile of competition rolling towards all of us.

• How do you grow in a market like this?

• What is the difference between acquisition and growth?

• How does this affect product & sales?

Let’s map it out:

The SaaS revolution - The age of acquisition

Around the year 2000, SaaS shook up the world. It fundamentally changed how we distribute and evaluate products. It gave easier and more uniform access to potential users. It became much cheaper to broadcast and access parts of the markets.

It also made it much more transparent to end consumers on the offerings available for whatever problems you have. Offers slowly became comparable, and companies started differentiating on price and pricing models (like subscriptions).

The foundation was missing for companies to be forced to think about customer success beyond their products and the buying experience. With competition, potential customers are willing to discard potential solutions simply because they don’t offer them enough transparency. They can instead try a transparent service.

The game of finding some solution was over for consumers. It became about finding one good enough in a reasonable amount of time. Customers started to have choices.

SaaS consolidated not only acquisition channels but also introduced a new age of data. Finally, we had enough people to analyze their behavior at scale and derive testable insights for our product development.

And these insights outperformed the prevailing “product sense” from sales, marketing, or the CEO. It became fashionable to test stuff. The Product discipline started to have its moment.

Product managers became a real thing. Transparency showed the ugly side of our products quickly, and that was hard to argue with. We couldn’t hide behind products that didn’t perform anymore. Customers simply cancel their subscriptions and go to a competitor.

But the age of SaaS is coming to an end. For the vast majority of businesses, there is no choice but SaaS. It has become a tablestake and is not enough to differentiate by itself save for some niche tech markets.

We are at the beginning of a new tech age. The age of growth.

The age of growth

There is a crucial difference between acquisition and growth, which to this date is misunderstood by companies, product managers, marketers, and people in sales.

In 2023, this misunderstanding will cost you revenue. In 2024, it will cost you your business.

Why? Because you’re not dealing with an acquisition problem when shipping something becomes easy:

Efficiency in production

At the end of 2022, language models crashed into our lives, and its effects are slowly materializing.

On the face of it, it’s a cool thing, it’s easier to create prototypes, streamline operations across all functions. It became just much cheaper to run a company, shipping and marketing a product from end to end. We are all becoming much more efficient in what we’re doing.

There is a crucial difference, though, to the SaaS revolution, where we started to gain more uniform and cheaper access to big parts of the market. Back then, the market became bigger for tech while also bringing more competition onto the scene.

The current AI boost to productivity will mostly bring competition but not more market size.

It introduces much competition in markets where it was too expensive to compete before.

• It makes it “easier” to acquire → Generic messaging

• It makes it “easier” to retain → Generic products

• It makes it “easier” to monetize → Generic monetization

You can replace the word “easier” in the above statements with “cheaper”. Maybe you believe your own hype and think that your product and messaging is different. Better than the rest.

That won’t spare you from the fallout effects. Customers who have their needs addressed “well enough” simply won’t churn from other products and are not available for you to grab.

Another amplifying effect is that these customers not only already have “good enough” solutions but won’t pay that much money for them either.

Common phrases you will hear in sales and user interview calls sound like this in 2024:

• “Our current solution is good enough.”

• “We have some other priorities right now; I’ll deal with it next year.”

The likelihood that your product will end up in your prospect's top 3 list of pains to address decreases more and more. Add to this that your solution might cost $ 20,000, whereas their shitty alternative costs them $50 a month and is “good enough.”

The race to the bottom

This is not surprising; this happens whenever there is a jump in technology. Prices become pressured, and businesses have to adapt or die. Innovation is on the menu again.

When you ask GTM leaders in 2023 how they try to address this problem, there are three trends:

PLS survey 2023 among GMT leaders runy by Pocus, Keyplay, ProducTea with Leah

• “We need to escape upmarket (increase ACV).” → Charge more per individual account

• “Find new sources of leads” → More leads

• “Improve sales productivity” → Make those salespeople more efficient

B2B GTM leaders know what’s happening and how brutal it will be for their businesses.

But two of the above answers do not deal with the core issue:

• “Finding new sources of leads” & “Improving sales productivity” are classical plays on trying to optimize acquisition.

You are trying to bring your CAC and CAC payback into suitable ranges by hoping there is something to be optimized there.

Don’t get me wrong, it would be unwise not to leverage the productivity gains for yourself. You need to optimize how you can drive down costs at scale.

But it’s not enough by itself. We are not yet seeing the full effect of the AI boost materialize, so the current trend of bad unit economics is expected to get much more dramatic due to the increased competition.

A good proxy for that is net revenue retention. It’s declining even though products objectively become better with time.