I was talking to my friend Piotr Zaniewicz the other day about the importance of network effects on SaaS businesses.
I mentioned how the common misconception around network effects is that, in order to achieve a real network effect (this is the reason some people say B2B SaaS can’t be “viral”), the level of critical mass necessary for network effects to take place usually requires a lot of time, effort, energy, and resources to develop, on top of that ‘mass’ of users and customers.
But Piotr, the CEO of RightHello, an outbound sales startup based in Poland, and I know different. We started talking about this really awesome way he came up with to generate network effects, but on a small-scale. This is exactly what he did for his company.
I told him – as I do – to write it down and let’s publish it so everyone can learn about it. He obliged and his post is below.
I have a couple of notes and some more resources for you at the end that you’ll want to read, but for now… take it away Piotr.
Achieve Network Effect on a Smaller Scale
Network effect is the holy grail of every startup. Happy clients recommend you, adding more clients (in consumer market however you go “viral”). The basic idea is that each new user brings 1+x more along, and you start to experience organic growth.
We all read stories about Dropbox and Slack, yet it seems more like magic than something you could repeat.
And if you counted on a step-by-step how-to-guide here, I’m afraid you’ll be disappointed; there is no proven or repeatable way of achieving that. There are too many factors, starting with a great product or service.
Though there are strategies that might help you achieve it.
In RightHello we managed to achieve a network effect on a small market of about 1000 companies and I wanted to share things we did right. I’ll spare you dozens of those we did wrong.
Niche = Tribe
Even if you can sell to most b2b companies (stuff like invoicing software) there is always a smaller market where it works better or it’s easier to acquire a customer. Lincoln built his Ideal Customer Profile framework around this idea.
A good niche is a set of people or companies that know themselves pretty well. Similar companies find ways to talk to each other. Through social media, discussion boards, magazines, they keep in touch. In smaller circles, everyone knows everyone.
Good example of a niche are startup founders – they read similar media, they know each other, they communicate on discussion boards and conferences. They are a kind of tribe that understands a lot of things in a similar way.
But this tribe is massive – let’s say there are about 100.000 startup founders out there. There is a little chance that CEO of an early-stage B2B saas from Berlin knows guys that just created a fitness app in San Francisco. So if you have a tribe this big it’s a good idea to narrow it down – by industry, type of business or location.
Startup founders from London for sure know each other better and communicate more frequently. The same goes with companies within a certain niche – let’s say sales support. From my experience good tribe to start with has from 1000 to 10.000 people/companies in it.
In our case we chose a niche of Polish IT companies (services & products). As IT market here is still quite small (but growing quickly), we could estimate that there are about 1000 companies that could be our customers. And the best part is that Polish IT companies know themselves very well and communicate frequently.
Signing First Deals
To start closing deals in a new segment, you have to build trust. It’s hard because you can’t show any results for similar companies in your portfolio yet. What you may already have won’t help much as well.
The easiest way to get your first customers in a new market is by approaching your closest network, where people already trust you just for who you are. If you don’t know anybody from the tribe, the best way to start is to ask your network for introductions and referrals.
If you don’t have anyone that could introduce you to first customers, just start marketing and selling, but be prepared that it will be tough. Without knowing what’s important to decision makers in a given segment, it’s hard to get them onboard. You need a few early adopters who trust you for who you are, not what you do.
And give you honest feedback.
Our first customers here were companies that I know (and they knew me) pretty well. I also pitched a few times on local startup events – there are always plenty different people there and it’s likely that you will find somebody that would be in your target audience.
Get first case study ASAP
Next milestone is to build your portfolio and get your first case study with a company from the tribe. The reason why is quite obvious – if you can show that you helped a company your future clients can identify with, you will build trust. And close new deals easier and faster.
There is a not-so-obvious reason as well – if you already have a customer that you brought value to, you will be more confident while selling your product. It’s a milestone in your head as well.
This part is the trickiest one – even if your product is proven on other markets, there will be problems you can’t predict before working with new clients. You will have to test and measure and most of all improve over time.
It took us two months to finish our first case studies, with clients who loved our service and had a lot of connections (big thanks to Tomek Karwatka from Divante!).
Effects on sales were amazing:
- we started to get leads from recommendations
- we closed more deals, faster – to deal with objections, we would show a case study and say “talk to this guy, he is similar to you and he was very happy with our services”.
Your first advocate, that you know will talk about positive results to whomever you point to, is a game changer in B2B deals. Especially if you don’t offer free trials and each new customer has to pay something upfront (back then this was our case).
Don’t forget to show non-believers that you did your homework. It’s wise to come back to clients whom didn’t want to buy first due to lack of track record. Show them those successful case studies. It might change their mind.
Direct Sales and Marketing
Now should be the time you can invest in marketing and sales with much bigger ROI than before proving yourself. You know where the leads are, what to do to make’em happy and you have proof of how well you do business.
If you chose your target audience well you shouldn’t have a problem with choosing a channel to start with.
As we could list almost every company from our target audience, we just started cold emailing almost every of them. Once we let them know we’re here and eager to solve their problems, they started discussing whether to try us out.
And of course they reached out to companies we had in our portfolio (pro-tip: be sure that if you listed somebody’s brand on your site you actually did great work for them. They will be asked about you by other companies).
Of course, this is not the only way – maybe events and conferences will work better for you (but before going to one read this). Or paid media, content marketing, twitter ads etc.
Cold Email Hack
To get more conversion from our sales at the start, we did a little hack by reaching out to people who knew companies from our portfolio.
We just went on LinkedIn and checked our portfolio clients employee networks. When we see somebody from a company in our target audience in his network, we just approach them and use our client name in the email. It’s stalkerish, but also effective and that’s the only thing that matters.
With every new prospect approached and every new deal closed we started getting more and more inbound leads and referrals. We only needed a bunch of happy customers and dozens of companies that knew about us. Had we gone to a bigger market (for example whole Europe), it would have been much, much tougher. In terms of footprint big enough to create small network effect, 10 customers from Germany + 10 from Poland have a totally different effect than 20 from Poland.
After some time, when somebody asks for a lead generation company on a polish IT discussion board, there is always somebody that points to us. Then we could focus on markets other than Poland (we have customers in 11 now), because a stable number of leads from Polish IT simply comes in every month.
There is a drawback here though – with every new market we are heading into we need to do the same job almost from the beginning. But with the scenario I just showed you it gets much easier.
If you would like to learn more, I recommend a book entitled ‘Crossing the chasm’ by Geoffrey Moore. I think it’s a must-read for all technology entrepreneurs and an inspiration for me in choosing a go-to-market strategy. If you’d like more about those aspects after reading Mr. Moore I’d suggest to try Seth Godin.
In the end, there is one last piece of advice:
Don’t Screw It Up
If you won’t manage to provide a value, have poor support or just screw something up, you can spoil your network effect. As you chose a small tribe of people and companies, few unhappy customers could kill your sales.
A mistake can happen to anyone, so if you mess it up – do everything you can to fix it. Offer discounts, give money back, improve your product, do whatever it takes to make them smile again. Negative opinion will cost you money, happiness, health and your last shirt.
But if the customer sees that you are more sad than him and that you are doing everything to make the sun shine again, you can win him back.
About Piotr Zaniewicz
After Word by Lincoln
This is a great example of using an Ideal Customer Profile – one heavily weighted on the Advocacy Potential input – to drive results. Sometimes, to grow big… you have to think small.
Here are some additional resources for you:
- Ideal Customer Profile Framework
- Infiltrate Their Network (for good, not evil!)
- 5 Rules for Successful Growth Hacking
- SaaS Marketing: 21 Growth Hacks to Test Today
- 7 Sanity Checks for Sending Cold Email
- Customer Success is NOT about Happy Customers (since Piotr mentions happy customers)
Hope this helps!