Opportunities and Challenges when Scaling Software

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December 12, 2023

5 minutes

The internet has fundamentally transformed the way we live. All businesses and consumers now need to be online in some capacity to be relevant in the modern world. As a result, the vast majority of technological and business model innovation over the last decade has taken place over the internet, and it’s unlikely that this is going to change in the coming decades.

The concept of SaaS as an effective business model exploded along with the evolution of digital infrastructure. Salesforce, Concur, and a handful of other companies realized early the massive cost and efficiency benefits to storing data off-prem and were able to deliver this value to their customers. In addition, the rise of key infrastructural elements (AWS, Azure, and GCP, for instance) empowered platforms of all shapes and sizes to deliver SaaS to their markets.

However, as Friedman would say, it also flattened the world. These advances empowered skilled engineers, designers, managers, and others to build and service SaaS products from anywhere to…well, anywhere. The reality is that the sheer nature of our digital world has opened up significant opportunities to build, compete, and win in SaaS. Here’s why: 

  • Dissemination of knowledge. From Khan Academy to MIT’s OpenCourseWare to random online forums, the sheer amount of information that can be accessed online is mindblowing. More importantly, this means anyone, anywhere, can learn about anything. Barriers to information no longer exist, which means we are maximizing human potential. In other words, everyone who could create value now has the ability to create value and we are therefore maximizing our total value creation.
  • Labor market democratization. You might have a development team in India, customer support in the Philippines, and sales and marketing in the United States. This geographical arbitrage–using true comparative and competitive advantages–allows you to access the world’s best talent without compromising on quality while also keeping costs entirely manageable.
  • Protectionism. Age-old industries were established in countries through ruthless protectionist measures that effectively prevented a lower-cost or higher-quality product from another country from disrupting that particular industry. It’s a lot harder to do that in SaaS!

Having said all this, there are still meaningful challenges that may need to be addressed when building out SaaS businesses across geographies: 

  • The world is not one-size-fits-all. Localization matters. Misunderstanding cultural nuances or local languages can lead to ineffective marketing strategies or dissatisfied customers. 
  • Some verticals have regulatory compliance oversight. For example, operating in an industry that is historically overseen by government agencies (insurance, financial services, etc) or requires precision (healthcare, specialty manufacturing, etc) will have barriers that limit scalability. 
  • Time-zones are important. With a team that may be based in a timezone far from their customers or one another, there may be longer support ticket resolution times or communication asymmetry between team members and functions.

While there are both opportunities and challenges, the ultimate goal of any SaaS business is to attain global reach. Some do this by tapping into local markets effectively (Netflix, Shopify), others by ensuring their entire premise is geo-agnostic from day one (Deel, Atlassian). It is important to recognize and avoid obstacles that may come in the way–sometimes entirely unavoidable (Zenefits, which struggled to comply with various state-level insurance regulations which ultimately led to legal issues) and other times due to micro-decisions that turn the tide (Evernote, which struggled to adapt their product and thus lost ground to local competitors).

To thrive in a highly competitive and globalized world, SaaS products must consider how to play the geography game to best fit their business model, value proposition, and customers. There is no question that, if done well, there are opportunities that can catalyze growth and value creation across the board. It’s not easy, but it’s probably worth it.

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