We came across a really interesting piece in Wired last week that speaks to perhaps one of the more unspeakable questions. What is the best exit off-ramp for an SMB SaaS company?
The piece offers an intriguing idea for tech companies to boost growth. Turn top users into shareholders in order to turbocharge their customer advocacy. One of the Wired piece’s authors was involved in an effort a few years back at Twitter to make its users co-owners of the company. The proposal was apparently put to Twitter shareholders but received only a smattering of votes.
The piece goes on to explain that in 2018, Uber and Airbnb approached the SEC about granting equity to their users. In this case, that means drivers and hosts, respectively. Here’s what Airbnb’s letter suggested. “The increased alignment of incentives between sharing economy companies and participants would benefit both.”
This would drive more loyalty from users of a platform. By offering equity to customers, the platforms could build advocacy. Perhaps like none we’ve seen.
Suitable for a Struggling SaaS?
So here’s why we are intrigued by this notion. Consider a SaaS company that is in the mid-stage of its growth but cannot seem to push through to the next scale milestone. Imagine if that company could choose to, rather than hire and onboard hundreds of SDRs or BDRs, provide equity to its best users.
Now those users become a self-driving advocacy group, encouraging additional adoption by their peers in the local markets they operate in. For today at least, we’re not going to run a model to demonstrate the potential financial outcomes might look like. We do think such an exercise could prove compelling. Just think about the roughly $100,000 a new BDR consumes over a year in onboarding, training, and so on.
Now consider what the hard costs would be of arming an already loyal user with a few shares of equity. That already loyal user now has the additional motivation to “scream from the treetops” to tell their peers, colleagues, maybe even competitors about the virtues of the platform.
Turbocharged Customer Advocacy
This leads us to wonder the following. Imagine you’re an eight-year-old SMB SaaS solution – perhaps operating at the intersection of reputation, conversation, and commerce. You’ve been pushing hard for almost a decade, your growth has slowed, there are a lot of similar products in the marketplace. Differentiation is challenging. The VCs will sign up for more but that requires a herculean effort to drive up customer counts. But that, of course, comes with dilution.
Now instead of pushing down that path, you identify your best 1,000 users. You can identify them from your internal data. Then you grant each say 20 shares of company stock and take care of any tax consequences. You simply cut them in on the growth and financial success of the company.
Now all of a sudden your sales team is fielding inbound calls from SMBs your best users have pointed your way. Your CAC starts to drop precipitously, usage by the new customer cohort exceeds that of earlier cohorts and your sales team is pushing a rock downhill instead of uphill. Seems pretty glorious, right?
This idea seems to be getting some initial traction. According to the Wired piece, late last year the SEC proposed allowing gig companies (why just gig companies?) to pay up to 15% of compensation in equity. For the SaaS company, this would involve giving a customer a piece of the company.
Please comment and let us know what you think. What’s wrong with this idea? Has anyone out there tried it?