Beta Testing: The most skipped phase in B2B SaaSApr 12, 2022
Most founders will claim they had a beta phase in their growth, but when I dig deep, these beta customers sound much more like standard customers, that were never truly leveraged to inform customer or product development.
This typically happens because founders, under pressure from investors, peers and their cash-out timeline, get over eager to make $. This eagerness to get $ in the door doesn’t appear to impact the company from an $ARR perspective in the moment, because revenue flows very nicely to begin with.
The short-term temptation to lean into closing contracts at the highest value possible at this point is one that founders fall for time and time again, however, the impact of this overzealousness to go to market often only rears its head further down the line when founders attempt to scale their business.
By this time, the standard operating procedures, company culture and vision of the future of the startup have been increasingly cemented. Founders often only realise they’ve made this mistake at the point of taking series A funding when they are expected to double-down on their growth and deliver 3x ARR inside 12 months.
Suddenly, they realise they can’t deliver close to 2x ARR, and for every month that passes, for every salesperson that gets fired the ARR multiple required to deliver on the promise to investors increases! The growth from $2m ARR to $6m in ARR soon becomes growth from $2.5m to $6m inside 6 months! It’s a nightmare situation for both founders and their teams, but especially the sales org.
Failing to truly successfully exit the beta customer phase is a ticking time bomb, and one every business founder and VP of Sales should look out for.
Here are some pointers for how founders should prepare for the beta customer phase, some successful exit criteria to look out for:
But first, a glossary of terms:
- KPI: Key performance indicators - the major metrics upon which a business measures success, often different by business.
- ROI: Return on investment - the measurable return (often in $) a business can expect for every $ spent
- ARR: Annual Recurring Revenue - the amount of revenue that recurs annually in a business eg: 12-month subscription revenue in SaaS
- ACV: Annual Contract Value - the annual typical contract value of a client contract
- MVP: Minimal Viable Product - the first product developed as a working prototype as a result of customer development work.
How to successfully prepare for beta customers
In the early phases of your startup, it’s all about customer and product development. Unless you listen to the market, you’re not going to build a product they truly want, and you’ll never get product-market fit for the market you intend to target.
In order to do this, you have to find a way to put aside the desire to make significant $. It doesn’t mean you have to burn incredible sums of capital either, however the idea that you are going to be wildly profitable at this phase of growth is likely fanciful.
Your initial goal is to get your product into the hands of as many customers you deem to be your likely ideal customer profile as possible - the more the better.
These should be your primary goals of the beta phase:
1. Volume: Get the product into the hands of as many customers as possible, the more the better. You’re looking for as much feedback as your customer success (account management) resources can handle.
2. KPI impact: Set an expectation that accepting to becoming beta customers (and getting the product at a significantly discounted rate, getting white-glove treatment etc) they also agree to give you deep insights into what extent your product impacted their KPIs.
3. Customer Success: It’s one thing selling them on the vision, the real challenge at this phase is getting them to successfully use the product. Another major mistake founders make at this stage is they assume beta customers will be more adept at using their MVP than they are. This can ruin the beta phase of growth.
You have to fully commit to successfully onboarding your beta customers otherwise this phase will be waste of time, delivering a series of false negatives.
4. Ownership and champions: I like my beta customers to have at least some skin in the game. Normally that means writing a cheque of some kind, albeit heavily discounted from what you believe to be the fair value to be. Write out a clear set of expectations, that includes someone tasked with being the champion at the client, and agree a cadence of insight and feedback meetings, with clear agendas that are designed to understand where they are getting most (and least) value out of the product, quantified in hard business numbers that relate to your hypothesized product value - such as increased revenue, time saved/increased output.
Successfully exiting the beta phase
To successfully exit the beta phase you will most likely end up with a spectrum of positive and negative feedback.
What I look for to determine the difference between positive and negative in the beta phase largely comes down to one simple thing - KPI impact.
Of course, there will be invaluable feedback around product features and onboarding, but all of this feeds into KPI impact.
If you positively impacted your beta customer’s KPIs and most importantly they can clearly illustrate it, that’s positive feedback.
If you have enough positive feedback, from a customer profile you feel reflects the addressable market you are targeting, you’re now in a position to test the realisation of the true value exchanged by asking for a longer-term and more equitable relationship, which in SaaS typically means an annually or monthly recurring subscription.
If you either did not positively impact their KPIs or you did but they are unable to clearly illustrate how that’s negative feedback.
If the feedback is negative this is when you’ll begin to double down on iterating the product features, onboarding and all other feedback of the MVP they used. Or maybe you’ll need to go back to the drawing board altogether!?
You have to be clear as to what constitutes positive and negative feedback in beta, and avoid acting on false positives.
One of the most common anti-patterns in beta to look out for is your beta customers validating they have a need for a particular feature or two you have developed, but in reality, they are not prepared to pay for it, because it’s not core enough to their business for them to easily illustrate the KPI impact or ROI they get from these features.
There are many more anti-patterns to look out for:
- Failing to onboard effectively
- Giving the product away for free or with no skin in the game
- Ignoring the negative feedback
- Using friends of the company as your entire beta set
- Getting someone other than you (the founder) to do this
Once you’ve successfully exited this phase you are going to have to realise the value exchange in signed contract $ARR. So you’re going to have to be both crystal clear and confident in the value exchange to confidently price your product and close your first real contracts.
If you’ve done beta really well, you may be lucky enough that your customers proactively come to you telling you what they want to pay, and it’s typically all downhill from there!
To wrap up
Whether you’re boot-strapped or funded, running effective beta testing of your MVP is critical for the future of your startup.
I get that it’s hard to do this earnestly when cash is tight, but I would urge all founders to ensure they have enough cash flow to run effective beta tests - otherwise you risk sabotaging your startup out of the gate.
Effective beta testing guides both product and go-to-market development. The most common story I see in the market is founders at series A stepping on the gas, to then see revenue stall versus accelerate.
When I run an audit of their sales maturity more often than not I conclude they did ineffective beta testing.
If you’re a founder or sales leader reading this, and you have that sinking feeling you fit into the category I just described, don’t worry, you’re definitely not alone!
However, hiring more salespeople is not the answer. Find someone who has seen the movie before, bring them on as an advisor or consultant and have them walk this road alongside you.
You’ve got this! 👊🏼