In an attempt to iron out what billing plans you should make if your SaaS company is growing, I left a few questions open-ended. Three questions to be exact.
“If a billing system really holds the spokes of the subscription wheel together, can it help optimise them for growth? If a billing system handles all my customer payment information, can it be used for more, revenue recognition and my revenue recovery, for example? Does a billing system help productivity? How?”
The answers are yes, yes, and yes. And the details are fascinating, you can check them out here.
This post is how I arrived at the answers, and how they brought back memories of problems cognitive scientists and philosophers have been dealing with for decades.
The question behind the question
Behind the question of whether a billing system can accelerate growth, another was hiding. An even bigger question, I discovered, that I had no idea how to answer.
What does it mean for a SaaS company to grow?
Finding an answer was particularly difficult. And not for lack of attempts.
Between go-to-market strategies, aligning sales and marketing in the right way, and generating word of mouth, I discovered that practitioners mostly divided up into three groups of people:
- Those who went after definitions of growth: There’s the T2D3 framework, the growth efficiency ratio, LTV/CAC ratio, the churn for growth ratio, the 40% rule and the create a growth engine diagram.
- Those who went after characteristics that successful companies have: like being product-centric, having negative working capital, repetition in communication, predictability of process and the like.
- Those who went after strategies that have worked for other companies: a few great resources here are Growth Hacker’s growth guides, Chris Von Wilpert’s breakdowns of Shopify and Slack’s growth, and so on.
All useful resources, no doubt, but none quite answering what it meantfor a SaaS company to grow and, consequently, how to actually do it.
The closest I came to finding an answer was Suneet Bhatt’s question for all the entrepreneurs asking him how to grow, ‘well, how you grow depends on what do you want to do, what do you want to do?’.
His question shed some light on why I was having such a problem finding the answer — definitions, properties, strategies, and hacks, all lacked context.
The whole thing reminded me of two robots I encountered years ago in a dusty philosophy paper.
How context killed Lennon and McCartney
Imagine a robot, created in a lab, named Lennon.
Lennon’s only task is to take care of itself — provide itself with anything that it might need to keep existing. One day, Lennon’s creator designs for it to learn that it’s spare batteries are in a room down the hall, and Lennon decides it will retrieve them. It’s equipped with a command — PULLOUT — that it can use.
The problem is that inside the room, Lennon’s batteries are on a wagon that’s also housing a timed bomb. Lennon manages to get the wagon half-way across the room before the bomb goes off.
Lennon’s creators see the problem immediately. Lennon could see the intended consequences of using PULLOUT on the wagon (it would get its batteries), but it couldn’t see the unintended consequences (it would also get the bomb).
So they decide to build another robot, McCartney, who can see the intended consequences and the unintended consequences of the command.
The problem, this time, turns out to be different.
McCartney is frozen in front of the wagon, calculating all the unintended consequences of moving it. There is the obvious one that Lennon failed to see — that the bomb on the wagon would move with it. But there are others — that pulling the wagon would cause it’s wheels to turn more revolutions than there are wheels on the wagon, that the movement on the wagon would not cause the color of the walls to change.
McCartney is calculating the unintended consequence of friction on the paint of the wagon when the bomb explodes.
McCartney could see the unintended consequences alright, the problem was it had no idea when to stop. It failed because it lacked context — it couldn’t tell which consequences were relevant to what it was trying to achieve.
This problem, called the Frame Problem in cognitive science and AI circles, is a tough nut to crack because there’s no way to write context into a formula.
The same way, it seems, that SaaS growth is a tough nut to crack.
Accounting for context when thinking about growth
Here’s the thing: we solve the Frame Problem everyday.
If you invited a friend out to a bar and he said ‘sure, unless I’m stuck at work’ you wouldn’t think twice, but you’d pause if he said ‘sure, unless I’m killed on my way there’. Context is all that separates the two reponses — the second response wouldn’t be so weird if it occurred in a conversation in 1942, nazi occupied France.
We just know which consequences, intended and unintended, are relevant to where we are, who we are, and when we are.
Context comes easy to us because we have innumerable ways of organizing information — with frameworks, feedback loops, thought experiments, diagrams — allowing only relevant information in to solve a problem, understand behavior, or formulate a plan; the world makes sense to us because of our mental models.
The key to tying recurring billing to growth, I realized, was to think about growth holistically.
True, I could go with a metric and detail all the ways that recurring billing could push it, but that wouldn’t do justice to all the things a billing system can do, on one hand, and all the different ways that you can grow, on the other.
Billing doesn’t move the product by itself, collect payments by itself, or support customers by itself, but it can bolster all three in big ways (product with subscription flexibility, customer care with dunning, transactional communication and revenue recovery, and the health of your business with accurate reports, and revenue recognition to call a few of the upshots out).
First, it is a guide that presents a contextual approach to growth that will help you think about what your strengths are in relation to the five pillars of the customer lifecycle — acquisition, activation, revenue, retention, and referral. It makes a case for why this is better than isolating a growth metric or hack to pursue — each can lead lead to wins, but growth will stick only if you can turn sporadic wins into consistent ones.
Second, it is a guide to taking stock of your billing system, how it fits into the context of your company, how you can use it to accelerate what’s working and experiment with what might.
I hope it adds value to everything you’ve read about growth so far, and most importantly, I hope it helps you see that a billing system is a powerful weapon for growth, and not a mere utility.