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What SaaS Founders Can Learn From Milk Farmers

Plus: Why Branding Matters More Than Ever

Good morning MRR lovers,

For this week's newsletter, I wanted to try something different and talk about a topic I've encountered repeatedly in my conversations with SaaS founders: How do you stand out as a product when everything else looks the same?

Let's dive in 💪.

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🍿 Quick Snack

  • 🍳 There are two key ingredients for a SaaS company to outlast competition: value + branding. Too many founders focus on irrelevant functionality.

  • 🎥 How Loom became a Billion Dollar company with one simple branding trick. Position yourself as the only one.

  • 🍟 Extra Fries: Build a moat in a crowded market, and how to implement remote work (properly)

🍔 The Full Meal

The Commoditization of SaaS

Many believe that SaaS has become a commoditized industry, meaning that its products/services are widely available and seldom different from one to another.

There are arguments for both sides of the spectrum:

1) Software is about to become more competitive as an industry.

"We are almost at the tipping point of a set of tools that will allow competitors in a matter of days to compete with an 80% feature complete solution at a fraction of the price" 

-Chamath Palihapitiya, All In Podcast (Episode 161)

2) Not everything in Software will be easy to displace

"[For any] SaaS category leader […] you realize that the product […] is kind of an iceberg, I'm just seeing the tip of the iceberg. Below the waterline is all the business logic that has been written into the system (subtle features, integrations, ongoing support, etc.)"

-David Sachs, All In Podcast (Episode 161)
  • The key word here is "system," which means "a set of principles or procedures according to which something is done."

  • People like to use systems to achieve outcomes. So, the good news for SaaS founders is that they can build a defensible business by focusing on outcome-driven solutions. And the harder it is to build or integrate a particular system, the better.

But let's assume commoditization in software is or could be a thing. What is going to happen?

The good news is that "commodity" markets are nothing new, so we can learn from them. In particular, we can learn a lot from milk farmers.

Lesson #1 - 'Value' is a non-negotiable.

  • Dairy, as an industry, has existed for centuries, and as such, even though it is a commoditized industry, it does not mean it is not worth participating in.

  • However, milk is a product many deem "essential," meaning it delivers a certain value (i.e., there is a willingness to pay). That is why it is a product that continues to exist.

  • SaaS products should not be any different. The more value they provide and the more "essential" they become to a customer or process, the better.

  • There is only one way to deliver value as a commodity or a differentiated product: by addressing customer's needs.

  • Too many founders focus on irrelevant functionality (see graph below).

Lesson #2 - In a crowded market, 'brand' is everything.

  • Dairy farmers, for the most part, compete with other local farmers, and there is virtually no opportunity for differentiation. Milk is milk.

  • The opposite is true for SaaS. Software products are not bound by geography, meaning competition can arise from anywhere, irrespective of the market you serve.

  • When you're competing for demand, all else being equal, 'brand' is their ultimate differentiator.

  • There is a reason why you're likely to think of these companies more often than their competition:

    • Airbnb - "Experiential travel at an affordable cost."

      • Competition: Vrbo, Wimdu, Sonder, Homestay

    • YouTube - "Give everyone a voice and show them the world."

      • Competition: Vimeo, Dailymotion, PeerTube, Veoh

    • Spotify - "Unlock the potential of human creativity."

      • Competition: Tidal, Deezer, Pandora, Soundcloud, Gaana, Napster, Apple Music, Amazon Music, Youtube Music

    • Shopify - "From Hello World to IPO"

      • Competition: BigCommerce, Squarespace, Wix, Ecwid, WooCommerce

  • To be noticed in a crowd, you NEED to stand out. Period.

Case Study: The $1.5 Billion Screen Recorder

I found this excellent case study on branding from Harry Dry. Here's an abbreviated version 👇

When Loom launched in 2016, it was called OpenVid, and it was just another "easy-to-use screen recorder."

One day, Loom came up with a few observations:

  1. The way remote teams communicate sucks.

  2. Meetings are boring. Calls drag on. Email lacks personality.

  3. The solution? Async video messaging.

The result? A new category was created: "video messaging for work."

Thanks to one simple branding trick, Loom is now valued at $1.5 billion.

🍟 Extra Fries

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