Explaining the land & expand business model for SaaS
Every B2B company needs a sales team, right? Wrong! Companies like Atlassian, Slack, Basecamp, and others show that there's another way: Land & Expand.
Peter Thiel has a famous quote in his Book "Zero to One":
“Sales is hidden”
He is right, nobody likes to be sold to. Thiel goes on, "The best salespeople hide in plain sight. They don't even have the word 'sales' in their job title."
I paraphrase: "People who sell ads are called 'account executives'. People who sell businesses are called 'investment bankers'. And people who sell themselves are called 'politicians'."
But why is sales hide?
One reason is the bad reputation salespeople have and the annoyance that sometimes comes with being approached.
Another reason goes much deeper: the world has changed. The internet opened the door to a life of abundance and easy access. But it came at a heavy price: our attention. Everything and everybody compete for our attention nowadays, whether people, phones or apps. It has become a commodity. In response, we constantly keep our guard up.
The purpose of this post is not to hate on sales. Let's be real, some businesses need sales and that's okay. The question I want to raise instead is “Can a B2B company thrive without a sales-team?” Can it even scale to a 100M ARR?
The answer is: yes. But how?
That’s the topic of a presentation I recently gave in Berlin for TheFamily, a European incubator/accelerator.
Check out the slides
Kevin Indig @ The family: Massive revenue without a sales-team from Kevin Indig
Watch the video (coming soon)
What to expect from this article:
Not every B2B company needs a sales team
When Mike Cannon-Brookes and Scott Farquhar built Atlassian in their college dorm room, they didn’t have enough money to hire salespeople. But when they released Jira and the company started growing exponentially, they still didn’t hire salespeople.
Atlassian now has 100,000 customers worldwide and no sales team. And they're not the only successful SaaS company without this business model.
Slack has a valuation of $5B and no sales team.
Basecamp has 2.5M users and no sales team.
There are more. Here's how they do it.
The real role of sales in the SaaS world
Most people think that you either have sales or you don't. But it's not black and white - sales exists on a spectrum.
The common rule is that the higher the price of your product, the more sales you need (people and effort). If you put some that on a graph (see screenshot) and add companies to it you would fine self-service companies like Dropbox or Mailchimp at the lower end. They have hardly any salespeople because their CLV (customer lifetime value) is not high and their product not complex enough to demand a dedicated team.
Further up are companies like Hubspot or Salesforce. They still do a good amount of marketing but are sales-driven.
At the top of the curve, we have companies like Oracle or IBM. They’re so sales-driven that if all their salespeople would get sick for two weeks, they’d be finished.
But the story doesn’t end here. Because this common rule is wrong.
Companies like Palantir or SpaceX have super expensive products but they have only one salesperson: the CEO. Their customers are so big and their products so expensive that the customers usually want to talk straight to the CEO. Elon Musk and Peter Thiel are very busy flying around the world to close deals.
And there's more.
Companies like Slack, Basecamp or Atlassian operate in a higher priced market segment but have no sales team. Like, at all. Instead, they use a business model called "Land & Expand", also known as "seed and grow".
I'm fascinated by outliers: people or companies who are successful despite doing something different.
Land & expand, the alternative to sales for B2B businesses
The traditional way to sales follows a top-down approach: you target the CTO, head of engineering or even CEO. That in itself is its own job, hence why salespeople exist.
The opposite is bottom-up: selling to the engineers. This is “land & expand”: starting with a single user, usually engineers, and expanding from the to the whole team, then department, then company.
For Land & Expand to work you need to figure out three things:
- Product-Market fit (PMF)
PMF describes the moment at which you build something a significant amount of people love. Good indicators are high growth rates, high NPS, score and high user-retention.
“Market” and “Product” are a little more complex.
The market requirements for land & expand
The pillars of "market" are target users, competitors and pricing*. There's a lot to say about target users and I have a whole section on user journey further down, so please bear with me.
If competitors are pushing traditional methods and the market has already matured don’t go for “land & expand”. It’s unlikely to pass established competitors.
When thinking about competition, pricing is just around the corner. Before even evaluating “land & expand” against having a sales team, you need to know if you can afford one. If your customer lifetime value is below $1,000 you can’t. If it’s between $1,000 - $5,000 you can think about it but the product should be very easy to sell. Above $5,000 you can start thinking about hiring salespeople.
Land & Expand wouldn’t work without a “Go To Market” strategy that revolves around Inbound Marketing. It includes all pull-channels: SEO, E-Mail, Organic Social, Video marketing, podcasts and influencer marketing.
Counterintuitively, SEO has become a crucial customer acquisition channel for many B2B companies. One reason is that B2B mimics B2C more and more, for the reasons discussed in the beginning of this article. Another is that the internet and search behavior is so adopted that people do substantial amounts of research on Google, even for business products.
SEO plays a crucial role in customer acquisition at Atlassian and Slack, for example. The latter gets most organic traffic from integrations. I know that because most of Slack’s ranking pages are in the /app/ directory.
However, when it comes to SaaS your SEO strategy should be built by addressing all three stages of the content funnel:
- TOFU (top of the funnel)
- MOFU (middle of the funnel)
- BOFU (bottom of the funnel)
At the top, you serve purely informational content. No sales, no mention of your product. In the middle, you talk about the problem your product solves. At the bottom, you sell your product to the max.
Up until 10 years ago, it was enough to serve 80% BOFU content and 10% MOFU and TOFU each. You basically screamed "buy my product" into your visitor's ears. That has changed.
Nowadays, most of your content should be educational and informative (TOFU). You need to show people that you're more than just a store. You're a partner, educator, and source of information.
E-Mail marketing seems like another artifact that many deem dead. Nothing could be further from the truth.
Email is very much alive, only shitty Email is dead.
Trello's subscriber count is way upwards of 7 digits. Azeem Azhar's "Exponential View" newsletter has 100,000s of subscribers. In a recent episode, Azhar invited China expert David Schlesinger, former Chairman of Reuters in China, to write a whole edition full of exclusive content.
This is the way you have to approach email as a channel: provide unique value that users can only get through email. Give away beta-access, write about your opinions or curate content from the web. Make it informative, not sales-driven.
Whatever happens to other platforms like Google or Facebook, a strong email list can keep you alive. It's a platform you can control.
The same information-driven and product-passive approach should be applied to social media. Organic reach on most platforms is declining and pushing your product too aggressively only makes it worse. If your users don't engage with your posts they will stop seeing them in their feeds. That's why you need to prioritize providing value over selling. Pareto's rule (80% information, 20% promotion) is a good rule of thumb.
Many believe that social media "doesn't work" in B2B. Again, wrong! Slack, for example, used Twitter for early traction quite successfully. They pinned user's tweets that praise the product on the Wall of Love, an efficient and creative way to show customers how much they're valued and create social proof at the same time.
Podcasts work like a charm nowadays and there seems to be no end in sight to its growth. Intercom and Basecamp both run successful ones.
On the video side, Moz has been dominating the game for over 10 years by releasing an educational video every Friday. I personally think that B2B companies can get way more out of video content than they currently do.
Community is one of the most underrated growth channels - ever. Most people think of online web forums when they hear "online community". And yes, they can be pretty valuable to foster relationships with (potential) customers, get product feedback and understand what your target audience is talking about.
But it doesn't always have to be a web forum. For other formats, see my article on "The underrated power of online communities for growth".
Communities exist offline, too. Atlassian, Slack, NewRelic, and many others know about the power of meet-ups. They give you a chance to talk to your customers face-to-face, see their reactions to (new) product-features and find out where they get stuck in the flow.
The product side of land & expand
The number one thing I look at when evaluating a product for Land & Expand is friction. Onboarding is a driver of conversion rate but often it's also a big pool of friction.
Trello solves that pretty well: it takes you only two clicks to get in the product. Another example is Brightcrowd, which lets you get on board with your Gmail account. Or Crowdfire, which onboards you with a chat-box (pretty cool).
The goal is to make the sign-up process as easy as possible. You need these first initial users to get Land & Expand going. They also help you to find more friction in your product.
Referral is one of the four core stages of growth marketing and vital for Land & Expand. So, helping users to share content is the next logical step. Without referral, how will your product expand? Make it stupid easy for users to invite other users, for example by sharing content with their friends. Then, when their friends get the invite to view the content, invite them to sign-up (quickly).
One concept that helps to get the foot in the door is "first user free", meaning single users don't pay for the product. Single users don't create much revenue for Land & Expand companies but they're absolutely vital for the model to work. If you can't land, you can't expand. "First user free" ensures broad and quick adoption but even more so it gets users hooked.
One example of the power of getting people hooked comes from Ryan Holiday's book "Perennial Seller". It's the one of rapper 50 Cent. It turns out that back when 50 was a crack dealer in New York City, he sent his crew to rob other dealers and give away their crack for free. Not only was that a nice incentive, it also got people literally "hooked" on the product and he was the only dealer with inventory. Crazy but (street) smart.
For more information on getting users hooked, see Nir Eyal's book, video and presentation.
Product-scalability is a minimum requirement to expand. Your product must solve small problems for single users but also big problems for large teams (or companies). That's not an easy feat to accomplish but a necessary key milestone to figure out during development.
Network effects are the basis of scale
Network effects are key to product-scalability. The more people use a product the better it becomes. Think of Facebook: if you were the only user it wouldn't make sense to be on. But when your whole family and friends are on it, it makes a lot of sense.
Products with good network effects have a huge competitive advantage. But you can't simply "attach" them to a product. They have to be engrained in its DNA.
There are two types of network effects: homogeneous and heterogeneous. In SaaS, we usually encounter the former.
In homogeneous networks, users are connected to each other (example: Slack). Heterogeneous networks are marketplaces, in which users are connected with apps (example: Zapier) or another type of user (example: Airbnb, though not B2B).
Networks have a degree and a clustering coefficient. The former is the number of connections each node (user) can have.
The latter is how likely the connected groups in a network stick together. Imagine for example that engineers within a company a very well connected on a messenger app but managers are not.
Now, what can you do with all this information? Optimize your product by reducing friction! Slack, for example, found out that if teams send about 2,000 messages, 93% of them are likely to stay on the product.
When you find out that a certain group is very well connected in a network, but another is not, then you can optimize the product to fix this imbalance. The same applies to marketplaces: when one side gets too strong, you need to focus on the other one.
Many people think network effects and Virality are the same. They're not. Virality (also known as "k-factor" or viral coefficient) is the product of the amount of referrals and their conversion rate:
k = invitations x conversion rate
Of course, k has to be greater than 1 for Virality to occur. It means that every user invites more than one other user on average. That creates compounding effects that drive product adoption over time.
The same concept exists in marketing and it's called "flywheel".
Scaling customer acquisition with marketing flywheels
A Marketing Flywheel is a sequence of channels that are closely connected to each other and create a loop for users. By reducing friction and making the transition between channels as easy as possible, marketers can create flywheels that sustain themselves after an initial investment.
One (fictional) example involves going from SEO to E-Mail to Organic Social Marketing:
- Users land on a microsite from organic search.
- On the microsite, they sign up for a newsletter.
- On the newsletter, they get awesome content related to the microsite, which they share on social media.
- Through social media, more users find that awesome content and link to the microsite.
- The microsite ranks higher and more users find it on organic search.
There are multiple ways to create marketing flywheels but the most efficient one is to look at the user journey. It has several stages with different touch points.
Stages can be "problem awareness", "research", "consideration", "comparison", and "conversion". They can be different from product to product - they're not set in stone.
Within each stage, users have touch points over different channels, which have different goals.
Filling the user journey matrix out helps you to identify flywheels by looking at the different channels used in each stage. From here it's relatively easy to spot the process but you have to validate them with data.
Reducing friction happens by making the transition from channel to channel as smooth as possible. That can be as simple as adding sharing buttons to your content or encouraging users to engage with content.
Here are a couple of example tactics that reduce friction:
- Adding a "Tweet" button to an E-Mail newsletter to make it easier to share and remind users to do so.
- Creating a summary of an AMA on your Slack channel that's easy to share.
- Allowing people to comment on blog posts with their Facebook account.
- Retargeting users who visited your blog 3x in a week with a special offer.
The art of Land & Expand
Land & Expand is a very efficient business model that's often overlooked. Companies like Basecamp, Atlassian, Slack, Dropbox, and others used it to scale to $100M ARR.
To make the most out of it, companies need to engrain network effects in their products and Marketing Flywheels in their marketing strategies.
On the market side, they need to have the right fit of competition, pricing, inbound marketing mix, and community. On the product side, they need to ensure frictionless onboarding, easy referral, and scalability.
An efficient way to sell passively and build a loyal audience at the same time is to create remarkable content. Its value has to be so high that you could charge money for it but don't.
I want to close with another Peter Thiel quote:
"Look around. If you don't see any salespeople, you're the salesperson."
It's true, we all need to sell.
But there's more than one way.