Bottoms-Up SaaS & The Weather
Traditionally, software startups figure out the basics of their revenue model at an early stage. The revenue model will likely evolve, but it will be gradual. Bottoms-up SaaS is different. Revenue models evolve nonlinearly.
Today, it’s well-known that bottoms-up greats Canva & Benchling have wonderful SaaS subscription revenue models. But it’s virtually impossible to reverse-engineer where they started.
This type of emergent quality has been observed in many natural phenomena. The weather is an emergent system. Looking out the window right now doesn’t tell you much, if anything, about the weather 30 days ago.
Bottoms-up SaaS revenue models frequently display an emergent quality. Canva & Benchling both started out with popular free software products. Benchling initially planned on monetizing via ecommerce. Canva’s initial revenue strategy was selling premium images. Yet once they had thousands of happy free users, both startups radically evolved their revenue strategy.
For bottoms-up SaaS startups starting out with a free product, our advice is to focus on making the free product spectacular. Don’t spend too much time thinking about revenue. Unbundle the monetization hypothesis from the value hypothesis.
Once you have legions of delighted free users, you’ll have a much different perspective on revenue. If you can build free software that users love, it’s a good bet that you can keep on building until a successful revenue model emerges.
"Unbundle the monetization hypothesis from the value hypothesis". This is the meta-point i didn't realize until Sandy pointed it out to us years ago.
When we finally grokked that, we found our product hypotheses around adoption/monetization were correlated but different. It forced us to be clearer within our hypothesis definition process.
We realized we had to manage for the fact that within our customers there was a meaningful difference between users who use the product daily & the actual business unit buyer who signed the invoices and owned the underlying business case.