Offence is about making advancements that your opposition can’t keep up with. For Serge, creating new market categories or winning a particular market segment requires “getting lucid” about your ideal customer profile (ICP). A truly global company can unlock tens of millions of dollars in revenue from a single ideal customer profile. A mistake Serge sees SaaS companies make is that they broaden away from their ICP before they’ve gained the most value from that particular vertical.
“You've got to be super laser focused on your ideal customer. Who are you solving the problem for? There's a lot to be said for real focus, narrow focus, with a global market in mind. There's a big difference between those who are just targeting a number of different potential customers within a vertical versus a really niche company that just does X for Y. When you think globally, the smallest of segments are just enormous businesses.”
Serge didn’t want to talk too much about his own companies to avoid favouritism but he shared some examples of companies focussing on their ideal customer profile:
“The thing that ties them all together is just the clarity of purpose. Some advice for founders out there - the clearer you are about the good you want to do in the world, the easier your journey will be.”
It’s that sentiment which sums up Serge’s predictions for the future of SaaS.
“It's not going to be about software. It's going to be service-as-a-service in the next ten years. Focused niches underpinned by AI.”
Finding efficient tools for underpinning your value proposition leads us to the defence play.
Defence is about backing up your offence and playing to your strengths. For New Zealand SaaS companies, this means launching new services by building on available technologies. The blueprint has been leveraging cloud infrastructure like Amazon and Microsoft, and to some extent Google. Serge predicts that AI will follow suit.
“The mental model of building AI applications on top of these global champions whether they be Microsoft or Amazon or whoever, is already a model we've proven with the B2B vertical SaaS scenario.”
Adjusting to the speed that AI offers will be new for Kiwi companies however.
“We're going to leverage OpenAI or the anthropics. I don't think it's that different but I think it's how furious the pace is going to be. Slow and steady is probably not going to work. So I think the two consequences of that are New Zealand companies are going to have to be designed for growing really, really fast in a way they haven't had to in the B2P/SaaS era, because of the AI dynamic.”
It’s easier than ever to establish the fundamentals of being a global company. Compared to when Serge took MCom global in the early 2000s, New Zealand now has a reputation it certainly didn't back then. While most categories are crowded by more competition, this is offset by the cost of experimentation being drastically cheaper.
“In terms of AI, I think it's a great thing for New Zealand tech because I think it lowers the price of everything, lowers the price of writing a business plan and lowers the price of getting legal advice. It lowers the price of understanding the tax consequences of entering Canada or whatever it happens to be. And so capital efficient all-rounders, which is how I describe the average New Zealand founder, would actually do better proportionally.”
Your proposition must be global from day one. Serge observes that too few software companies are applying this thinking. “You've got to use language and problem statements that are universally applicable. If you've got a .nz on your URL, it's a pretty strong indicator you haven't really thought about it. And that still happens today. I don't know why.”
Serge describes Kiwi founders as “tinkerers.” That culture comes into play during the “accelerating growth” phase, a time when New Zealand startups most commonly fail by hitting a ceiling of growth, short of investor expectations.
“The things that help you to start with aren't the things that help you grow later.”
Serge explains how a lack of experimentation causes growth to stagnate but startups who get it right, break through.
“I think of most companies when they've grown really well, when they look back, it was some experiment they did three years ago that happened to pay off. And so that experimental mindset is the most important thing to get right.”
“To start up early in your journey doing that, so running three or four experiments a month and reviewing those and keep measuring them. And if you can build that into the culture of your organisation, then you can sort of break through that accelerating growth. And I think it's just different companies that have relied on one or two predictable revenue models typically based on paid search and SEO - they often get to a certain scale and then get stuck and don't have the muscle memory or the DNA to continue their experimentation mindset.”
Beyond the Series A stage, leaning on your team’s ability to experiment gives you some level of confidence to scale further, once the traditional methods no longer return the same results.
Serge gives kudos to the capital efficient nature of Kiwi founders. It’s massively attractive to offshore investors. In his opinion, being capital efficient means focusing on growth, and finding your place in the world without spending too much money.
Serge offers some practical advice to founders for pinning down ‘smart money.’
“Physically make a list of the 20 people in the world who are best qualified to understand your market opportunity. If they all say no, it'll be for a reason. If some of them say yes, then you've got the best kind of investors because they can verify or validate that there's a market opportunity.”
For example, when Serge was doing due diligence on Montoux, a company that provides automated actuarial services, he found out they had the support of Charles Hett, who was chief actuary at Deloitte.
“That was pretty strong validation that there was a market opportunity. Charles was probably the best person in New Zealand to invest in that company because he could tell you the ins and outs of the opportunity that Montoux was trying to address.”
Serge makes a call for more funding at the pre-seed stage and for investors who come from wider areas of expertise.
“It's at the seed pre-seed area where startups have insufficient capital. [There’s] enough capital in the market for the series A's that have broken through the seed stage.”
If Serge had his wishes granted, there would be more partners from professional services investing in software startups or funds that support those, plus more ‘exit-ed’ founders putting their cash to work in the next generation of founders.
“The founder recycling question is a critically important one. Now, obviously I can't tell any founder what to do once they've sold, bought themselves a holiday house, taken a few months off to ride bicycles or play golf or whatever they do. But there's a role for them as an investor, there's a role for them as an advisor, there's obviously a role for them as an operator of some sort. I think it's really important to recycle that talent and I think New Zealand does quite a good job of it, but we could do better and it is really the only way to accelerate the learning cycles.”
“Helping someone who's doing something similar to what I did 15 years ago is purely an accelerant of knowledge, let alone the capital question. It's absolutely crucial. We're doing okay, but nowhere near as well as we could. And I'm personally really committed to it.”
A massive part of growing beyond what’s predicted is bringing people into the sector through storytelling. Telling stories about what it’s like being in tech helps entice people to start their own business, invest their money, re-skill, or make a choice to study a tech-related profession. Finding the next generation of founders or an additional 50,000 cloud software and AI professionals for the SaaS sector requires training and onboarding models that pull people with great brains and human skills out of low productivity sectors. Serge admits there will be some displacement with AI, but keeping up efforts to bring more people into the sector is on balance, an opportunity.
“One of the things I love about the tech sector is it's not an exclusive club. Anyone with an internet connected computer can actually stand up a service of some sort that's valuable for someone. And so the barriers to entry are very, very low comparative to the incomes they produce. It's unlike everything else. If you're an actuary, a lawyer,or a surgeon, the barriers to entry are very high. The cost to get there is hundreds of thousands of dollars and you can't control whether you get in. Tech is nothing like that. So by design, it has none of the constraints and barriers to get in.”
Serge’s closing remark is that he thinks the tech sector, especially the cloud sector could be taking inspiration from models like the winegrowers association or the kiwifruit growers association to influence policy makers and drive change collectively.
‘What I'm trying to do is turn the software sector despite all those different differences in target markets and propositions in to some form of community that is both enjoyable to be part of as well as have influence in government policy, which includes some of the things we've talked about like how do we influence the educational curriculum? How do we influence educational models? How do we influence funding of various things? We have to figure out as a sector, without creating layers of bureaucracy and political structures, how we work as a sector, for an industry.”
Bigger, better, faster might be the desire for the SaaS sector - especially off the back of the immense growth prospects. But, with AI’s latest developments, we need to be mindful that ‘bigger’ isn’t always better.
SaaS already provides leverage for companies to grow their customers without growing their headcount. AI may well have a ten-fold effect on that dynamic. We may see the end of CS teams or reductions of 90%. Further, our sales efforts may become more automated than ever. There are a myriad of possibilities.
When we think about the future of SaaS, we need to think about where it's going, rather than where we are.
Do we need thousands more employees to keep up with growth? Yes.
Do we need millions more in investment dollars to fund companies? Yes.
But what I believe is most important is the innovation that’s fostered within companies. The changes from AI over the next decade may well be the most significant we’ve seen, ever. It's innovation that leads tech, and to become leaders on the global stage, we need to ‘lean in’ bigger, better and faster to the future than everyone else.
Can we keep up with growth? Yes, and it’ll be our number eight wire mentality that gets us there.
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