How to use a growth flywheel to drive SaaS businesses

This interview is part of Kameleoon's Expert FAQs series, where we interview leaders in data-driven CX optimization and experimentation. David Fallarme is a Marketing and Growth Advisor who has worked with the likes of HubSpot, Electronic Arts, ReferralCandy, and App Annie. 

Why should SaaS businesses use a flywheel rather than a funnel model for growth?  

There’s nothing wrong with the funnel model as long as you recognize that funnels, like all models, have flaws. In the case of a funnel, it’s a limited and unrealistic representation of reality, but that in itself can be a positive. 

In fact, I was at HubSpot when they introduced the “funnel is dead, long live the flywheel” narrative, and we were all still using funnels for all internal reporting! 

It’s more AND, not OR. 

In SaaS businesses, where are the typical friction points slowing down the growth flywheel?

The short answer is the step between awareness and monetization. 

Getting eyeballs on the thing you’re building is largely a solved problem. But converting that traffic will perennially be an issue. 

The longer answer involves looking into strategic issues, such as;

• Are you targeting the right market? 
• Does your product have any truly unique features? 
• Is there Ideal Customer Profile (ICP) alignment across go-to-market teams? I work closely with Series A and B teams now, and what looks like a “lead conversion” issue is often a “teams don’t agree on the ICP” issue.

How can a SaaS business build a self-sustaining growth flywheel? 

The only true answer is to have product-market fit in a large addressable market. 

I used to think that marketers or growth teams could, with the sheer force of their skill and intellect, make the Annual Recurring Revenue (ARR) go up. I now realize that this is only true in businesses that already have organic traction in a large market. Many growth problems are market selection problems in disguise.

Most SaaS businesses today focus on new customer acquisition and net new ARR metrics, pipeline, etc. The amount of calories spent on net new versus expansion/retention is totally one-sided. To make the growth flywheel actionable, you must watch customer success and product value-related metrics like Net Dollar Retention and Net Promoter Score. 

It's also a common mistake to tack on features like a referral program without first diagnosing the strategic issue to resolve. Only once you identify the key metrics that matter to your company can you appropriately develop a prescription for improving those metrics.

How can product and marketing teams be confident that new ideas/initiatives/UX/features, etc., will support their growth flywheel?

First, have a portfolio mindset. Think in bets. 

Accept that not all of your initiatives will “work” in the way you expect. Test them using A/B testing or other experimental designs to evaluate how well they work before launching into anything wholesale. 

Your north star should be learning, which brings me to my second point. The way to increase conviction in your bets is by having a high-resolution understanding of your target market's problems and how your product helps solve those problems. Research and data help increase the conviction (or confidence) you have in your bets. 

Once you have these two things nailed, you can layer on your growth, product, and experimentation frameworks to help prioritize which initiatives to implement, such as RICE (Reach, Impact, Confidence, and Effort., Kano, ICE (Impact, Confidence, Ease) or PIE (Potential, Importance, Ease), etc.

How can a growth flywheel be used to increase engagement and retention within SaaS businesses? 

As mentioned above, the point is to elevate customer success (CS), post-sales, and expansion functions into a peer of the marketing, product, and sales teams. This is the true value of thinking in terms of growth flywheels. 

A growth flywheel can help focus marketing teams on creating experiences for existing customers, educating them about using your product, its different use cases, and new features. Feedback from your CS team should inform what you produce here. 

If there's a specific feature that you know drives stickiness or is a differentiator, then how can you create content that helps people realize that value? It's an opportunity for partnership between marketing and CS with revenue expansion opportunities. Likewise, CS might uncover gaps in the existing offering or what triggers a user to recommend the product to friends. These are invaluable insights that help to create a growth flywheel and can be used by the product team for further research and testing. 

David, you recently moved from Singapore to the US. What differences have you seen when doing growth and marketing for these regions?

The hard part about growth across a fragmented region like South East Asia is that every country is different. You might say it’s the hardest place in the world to try and grow a business. 

You might figure out the funnel/flywheel in one country only to find out it doesn’t work in another neighboring country. Language, buying behavior, and buying power are different, etc. Doing growth and marketing in SEA is a constant exercise of prioritization (and patience.)

In the US, it’s much “simpler” because it’s a single market with purchasing power, but the flip side is that it’s so competitive. So, your messaging and distribution have to be strong from a marketing point of view.