The nature of a high-growth SaaS company demands constant change in how you do things. When I look back at the last years of our growth journey at LeanIX, I often found myself torn between two models of driving change: Between small, consistent change and big, radical change.
Toyota and other big car manufacturers have popularized the approach of continuous improvements. If you compound your results over a long period, you will eventually reap a considerable payoff. This approach reflects the mindset of “10%” better. In sharp contrast, the “10X” advocates argue that you need to make a giant leap forward to break out of your current way of doing things. It represents the silicon valley mindset of Peter Thiel & co.
To me, both concepts resonate but seem somehow contradictory. Is either of them superior to the other? Which one is appropriate for high-growth SaaS revenue operations? You will find keen supporters on either side of the spectrum. And as with so many things, the truth is more likely somewhere in the middle.
The case for “10%”
Whatever field you are looking at, things tend to evolve rather than to change rapidly. When the general public became aware of zoom in 2019/2020, Eric Yuan (founder and CEO) has been building his company for close to a decade. You clearly cannot “hack” your way to IPO. Usually, it takes years of mundane work to become an overnight hit. One can trace back all kinds of successes to first principles. These principles describe our world’s basic laws: gravity, values, calories, and many more. Any fancy diet hack you follow that breaks the first principle of losing weight, to burn more calories than consumed, will lack results. If you, on the other hand, continuously work these first principles, you will progress.
In big-ticket SaaS revenue operations, you will continuously work to improve a few first principles: pipeline generation, close rates, net dollar retention, capacity, and a handful more. The “10%-approach” seeks to slowly but steadily improve these. If your company only gets 1% better each day in some of these first principles, you will be 37x better after one year. On the flip side, if you become 1% worse each day, you will end at -91% (thanks to Thomas Tunguz https://tomtunguz.com/1-01365-37-7). Net Dollar Retention illustrates this compounding effect very nicely. Take two SaaS businesses: SaaS-A and SaaS-B. SaaS-A has a Net Dollar Retention of 95%, SaaS-B of 105%. You won’t notify any materializing difference after a couple of weeks, and only slight differences after a couple of months. But if you check in after two years, the differences will be startling. The one business will look like an overnight success, and the other one will be out of business, as they have a leaky bucket problem. You are either getting better or worse; there is no such thing as staying the same.
In hindsight, I sometimes think, what if we just had done this significant change earlier. What if we had introduced a marketing automation platform twelve months a year back? But what looks easy after the fact, at the time, was a giant leap forward. I believe you need to work through stages with diligent, consistent work first, and then break through the next plateau. Cal Newport writes in “Deep Work” puts it this way: “Scientific breakthroughs, as we just learned, require that you first get to the cutting edge of your field. Only then can you see the adjacent possible beyond, the space where innovative ideas are almost always discovered.” You first have to grind away to touch the cutting edge before moving the edge.
Taking baby steps also has psychological benefits. For your team, it is much less stressful and daunting to take smaller steps. Small improvements require less initial capital investment and are closer to what already works today, easing implementation. These incremental improvements don’t need a big act of bravery but consistent momentum. As soon as your organization falls into that rhythm of constant progress, great habits start to form. Objects in motion tend to stay in motion, and it takes less energy to keep momentum than to kick-off always a new project. A slow plane that remains in the air for a long time will consistently beat the fast plane that lands and takes-off multiple times in between.
Cautions about 10%: “local maximums”
The principal objective against improving in tiny steps is that you can get stuck in a so-called local maximum. Growth curves rarely behave exponentially forever. They flatten out. Imagine a graph with a maximum at the top. The closer you get to the top, the flatter the curve becomes. Returns diminish, and you might miss out on a different, higher local maximum if you don’t break out. That is the reason why all optimization gets stuck eventually.
opsloft-10x-vs-10_image1Let us take one classic go-to-market example in SaaS: A/B testing. You take two versions of a landing page and optimize some aspects of it. We assume there is the single best possible landing page. So you run experiments A versus B to get there slowly. Over time you only account for slight improvements. You can draw two conclusions: First: further improvements might make it worse. Think about the annoying fear-injecting features of some booking platforms. Second: while you are tinkering with the color of your call-to-action button, you miss out on the 10X advancement (e.g., providing an industry study rather than a 1-pager with googled bullet points behind your download form).
Finally, let’s not neglect the motivational aspects: Tiny tweaks have the risk of being less inspiring over time. From time to time, it is inspiring to rally people behind big, ambitious projects.
The case for “10x”
Imagine for a second that it is the year 1790 and that you are in charge of improving a textile factory’s processes. You are very dedicated to optimize the warehouse layout, minimize distances between workstations, and to train the weavers. Year over year, you produce more of the latest 18th-century fashion. Three short years later, you find yourself out of business. You were just too busy optimizing so that you never listened to that salesman for the steam-based weaving machine.
Peter Thiel says: “So if you’re planning to do something with your life, if you have a 10-year plan of how to get there, you should ask: why can’t you do this in 6 months?” Even Peter Thiel admits that you sometimes have to go through the 10-year drudgery. Nevertheless, it is a tremendous mental model. It forces you to think outside your usual categories and adopt creative solutions. As a quite interesting side-effect, it can even be easier to improve 10x rather than 10% – because only very few attempt to do it.
I apply the 10x mindset to break through plateaus and to avoid getting stuck in local maximums. The approach forces you to aim high and significantly move the needle. Related to SaaS revenue operations, you would typically see a 10x improvement around a technology shift, hiring for a new role, or a pivotal change in strategy and tactics.
When we first started at LeanIX with a structured demand generation approach, we used a zoo of tools. We spent most of the time executing manual workflows (e.g., sending out a whitepaper) and copying data from a to b. We had to piece together landing pages, social media, a legacy website, our blog, and the CRM. After introducing a marketing automation platform (we chose HubSpot), we suddenly did not have to worry about this whole process anymore. By becoming one of the top percentile heavy users, we jumped multiple rungs on the demand generation maturity ladder. From spending 80% on the process, we moved to focus 80% on results. The platform enabled, combined with arduous work, not a 10x but more a 100x increase in marketing qualified leads (MQLs) over one year. Unthinkable with manual work. While this is an asymmetric positive return on the investment, we also made it a single priority for the whole team. Don’t underestimate the impact on morale to see such a dramatic improvement.
Some other 10x improvement examples that come to mind for revenue operations: role specialization. The introduction of dedicated Sales Development, Sales Engineering, and Customer Success provides a 10x better prospect and customer experience. Jacko from Winning by Design has done a tremendous job clustering the roles based on different go-to-market strategies.
Cautions about 10%: “dabbling”
“Your only path to success is through a continuum of mundane, unsexy, unexciting, and sometimes difficult daily disciplines compounded over time,” says Darren Hardy in the compound effect . A lack of consistency is the biggest obstacle to success. A lot of innovation and projects with the potential for 10x improvements have also failed for us at the time: AI-driven outbound email prospecting, chatbots, LinkedIn automation, and more. You will struggle to drive 10x break-throughs frequently. The critical risk is always to jump on new shiny projects without getting anywhere.
Frequent extreme change is intimidating for most of us. If you can’t maintain the pace, it causes backtracking and quitting. Strategy Consulting faces this problem. Consultants are expected to develop a big, game-changing strategy. But a strategy is only a plan, or let’s face it, a bunch of slides. Of course, more often than not, these get quickly stale in some project folder. The interesting question is more often not “what to do?” but “who does it?”.
Risk and return: How to balance 10% vs. 10x
There is a fundamental truth about investing: The return on an investment is the reward for the risk involved. While the risk of losing all your investment in a 3-month AAA government bond is close to zero, it is much higher when you invest in early-stage startups. The potential return behaves reverse. The 10% approach to change is like the AAA bond. It delivers reliable returns but won’t make you rich. 10x change is the startup that is likely to fail but might literally bring the 10x payback you are looking for. While there are ample champions for either approach, I struggled to find a framework accommodating both of them.
opsloft-10x-vs-10_image2The situation is one parameter to consider. Brian Christian and Tom Griffiths introduce their optimum stopping concept with an excellent example in their book “algorithms to live by.” If you are new to a city, you will try out many restaurants. There will be some disappointments during this journey, but you will also find your all-time favorite. However, if you were to leave the city in a few days forever, you should revisit only your favorite restaurants. You have investigated enough and should reap the rewards, rather than risking disappointment. There is apparently even an optimum point of time when to leap after looking – after 37% of the time. When you’re at the start of your interval, you should be doing more and more exploration, and when you’re at the end, you should do more exploitation.
If you are in the early phase of the SaaS growth journey, you will have to drive more radical change, because naturally, you haven’t figured out many things. Adding new technologies, introducing new roles, and entire new go-to-market strategies are essential. As the company matures, more focus is put on improving what is already there. If stuff stops working or a major shift occurs, like a new product, an acquisition, or declining demand, you need to retake more risk.
Assess honestly if your ongoing improvements yield good results. A common trap is to fall for vanity metrics. You add month over month more ARR? Sure thing, this feels like constant improvements – the total ARR in your reporting increases. Still, if you have tripled your sales team, the yield per sales rep might, at the same time, go down. If you are making real improvements with small changes, double down on it. If not, find inspiration for 10x growth.
I am still stunned how comparably easy it is to benchmark yourself against other SaaS businesses. The model is usually so comparable that it is easy to pick a peer that does some aspect of the business dimension better than you. And you can safely assume that almost every company is doing something by dimensions better. I like to triangulate between an industry superstar that feels like being light-years ahead, a portfolio sister company that is maybe two years further on the growth curve, and one highly comparable peer. Talking to your peers gives you confidence in these giant leaps. What feels like a big leap for one SaaS business (e.g., introducing an expensive marketing automation platform) would raise no eyebrow at a mature €100m ARR business.
Google asks its managers to spend 70% of their time on their core responsibility, 20% on adjacent problems, and 10% on “blue sky problems.” I tend to think in the simplified 80/20 model. Usually, the priorities for improving what is there (core responsibilities) come quite naturally. Therefore, when assigning priorities, make sure that your teams spend at least 20% of the time or one day on bold change. Four days a week on operating and improving what works. Don’t underestimate this neither. It takes much time to run all processes and systems and slowly improve them. This work is crucial because things that don’t become better degenerate. Of course, this framework will rarely be an exact science, but it helps to have a mental model to assign a sufficient balance between slow and rapid change.
Cal Newport says in “Deep Work“: advancing to the cutting edge of a field requires a focus on a narrow collection of subjects for a potentially long time. It takes a lot of small steps to get to the cutting edge of a field. But once you reach the edge, you must go after it with bold action. Think big, act small. But not too small.
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