Sequencing Business Models: Can That SAAS Business Turn Into a Marketplace?

Sequencing Business Models: Can That SAAS Business Turn Into a Marketplace?

In today's fast-paced business landscape, companies are constantly looking for innovative ways to grow and expand. One trend that has emerged is the transition from a SAAS (software as a service) business model to a marketplace model. But, is this transition feasible? Can a SAAS business successfully transform into a marketplace? In this article, we will explore the potential challenges and opportunities of this transition.

SAAS businesses, such as Slack, Adobe, and Atlassian, have gained popularity in recent years. These businesses offer software solutions that are accessed online and purchased through a subscription model. However, as SAAS has moved into more niche verticals, the opportunities for expansion through extension platforms have dried up. This has led companies to explore the idea of becoming marketplaces.

Marketplaces, on the other hand, are platforms where sellers provide their services to attract additional buyers. Buyers come to these marketplaces to seek out these services and find new suppliers. Marketplaces typically process transactions and charge a commission or lead generation fee to the supplier. By transitioning to a marketplace model, SAAS companies aim to help their existing customers attract more buyers by aggregating them on their platform and aiding in their discovery.

One of the key requirements for a successful transition is a change in the incentive structure for the company. Founders need to make the entire company's growth revolve around this new initiative. This can be achieved by creating a new team with separate goals and reporting lines. For example, Pinterest's founder, Ben Silbermann, made the entire company's growth revolve around the transition to a marketplace model.

Another crucial aspect is changing the company culture. Strong businesses usually build a culture that caters to the needs of their customers and their current business model. However, when transitioning to a marketplace model, employees need to care about a new customer and potentially trade off the needs of their existing customers. This cultural shift often requires new blood in the organization and careful recruitment of internal resources with consumer product development backgrounds.

Before embarking on the transition, founders also need to ensure that there is a demand side to the market they are entering. Many marketplace transitions fail because there is no actual demand for the services being added. It is essential to align the engagement strategy with the business models of both the company and its customers. Additionally, founders should ensure that the opportunity aligns with the characteristics of other successful marketplaces. Building on under-utilized fixed assets and focusing on the supply side first are common traits of successful marketplaces.

Incorporating these insights, along with the ideas that have shaped the author's life, can lead to a successful transition from a SAAS business to a marketplace. The Theory of Constraints reminds us to identify obvious failure points and steer clear of them. Preference Falsification highlights the importance of understanding customers' true opinions and desires. Mimetic Theory of Desire teaches us that imitating successful ideas can lead to success. Competition is for Losers encourages us to avoid competition and focus on solving unique problems. Secrets are Hidden in Plain Sight reminds us to look for learning opportunities in things that don't make sense.

Other ideas that can influence this transition include the Wisdom of Paradox, which tells us that counter-intuitive truths often hold the key to success. Parkinson's Law warns us about the tendency for work to expand to fill the available time. Legibility emphasizes the importance of measuring what counts and not overlooking intangible factors. The Penny Problem Gap challenges the assumption that demand is linear and highlights the behavior change once an action costs money. The Paradox of Abundance explores how markets of abundance can simultaneously be bad for the average consumer but beneficial for conscious consumers.

To conclude, the transition from a SAAS business to a marketplace model can be a viable growth strategy. By following the actionable advice of changing the incentive structure, shepherding the right resources, confirming the demand side, and aligning with successful marketplace characteristics, companies can successfully make this transition. It requires careful planning, a shift in company culture, and a deep understanding of both the existing customers and the new market. By incorporating the ideas that have shaped our lives, we can navigate this transition and unlock new opportunities for growth.