Dmitry Davydov

@did_78238

The 5–3 Method Behind Strategic Planning At Bitrix24.

On April 12, 2017 Bitrix24 turned five years old. We grew big, real big. Five thousand new companies signing up with your service each and every day all over the world is nothing to sneeze at. There are now over 200 ‘bitrixoids’ spread out in six different offices. There are markets, like Eastern Europe, where we are the dominant player, bigger than Salesforce, Slack, Sharepoint or Asana in each respective niche. There are markets where our market share is still 1% and many businesses don’t know how to spell our name. We’ll get there. For me personally, the five year figure is just an excuse to write another SaaS strategy post, because we use the 5–3 method over here and I think many of you fellow ‘saasters’ may find some of our approaches insightful.

The 5–3 method is simple. When launching a product or a service, one single strategic decision has to be made — what is the BIGGEST change that will happen to your industry in 5 years that most of your competitors are blissfully unaware of? That’s where five years come from and it’s the only BIG strategic decision you need to make.

The three year part is pretty straightforward as well. Which technological changes are so obvious, everyone will do it in three years. For example, the ‘mobility’ trend is an obvious one. So a decision to make the best mobile CRM, because many sales agent will access CRM via smartphone, would be a tactical one.

Many mistakenly confuse these two parts. They think that mobility trend is ‘strategic’, but it’s not (at least not in this model). Yes, you absolutely do have to have very capable mobile app for your service. But the point is that ALL OF YOUR COMPETITORS will have those in three years. You WILL suffer, if you don’t, but without other strategic bets that decision alone won’t give you much of an advantage.

So let me spell our past strategic and tactical decisions that we made years ago, reasons they were made and the effect they had on our service and competition.

1. Strategy behind Bitrix24 service.

In 2012, we thought that the most important strategic bet to make is that by 2017 people will start to realize that integrated business tools have a tremendous advantage over standalone ones. It’s clear that Microsoft holds the very same position — they’ve added MS Dynamics option to Office 365 suite, purchased Yammer, launched Teams, all in addition to email and document management tools they’ve had for a long time. But, though not as bad as Zoho, these MS tools still aren’t as integrated with each other as in Bitrix24.

Salesforce is only testing waters with Quip purchase. It’s clear that they want to go beyond the sales department, but they don’t seem to have the strategy how to get the entire company. Surprisingly, Google did nothing of substance with their enterprise tools over the five-year period, other than renaming Google Apps a couple of times. With Gmail, Google.Drive, Google Docs and Google Calendar being clearly superior products, Sergei and Larry don’t seem to show interest in offering businesses sales management tools or collaboration ones, other than for documents.

None of the other possible scenarios that we envisioned, like IBM buying Box and other players in order to have SMB suite comparable to Microsoft, or Dropbox growing into a full blown collaboration platform that goes beyond documents, have materialized. Facebook at Work seems to make the very same mistakes Yammer made and there’s no talk of buying Asana ‘back’ to give FB business users at least task management.

This strategy gave us both advantages and disadvantages. Clearly, there’s still aversion to Bitrix24 being too complex and powerful. At the same time, it made Bitrix24 so different, it instantly put us on the map and helped us grow at a tremendous pace without any outside financing (the total costs for launching the platform were about one million dollars). Personally, I am watching closely Slack, Asana and few other tools (mostly CRM) that have exploded over the same time period, have excellent products and a very loyal fan base. If our assumptions were correct, they are about to pay dearly for the decision they made five years ago to stick to their core competence. (I know I sound like a megalomaniac, but I prefer putting things in writing for historical reasons. After all, not very many people read this blog and if I am wrong, I just sound like an amateur. But if I am right, all of a sudden Bitrix is full of superintelligent people who foresee the future for years ahead).

Enough with the five year strategy. Let’s talk smaller things, like pricing.

2. Bitrix24 pricing.

I’ve written before about our freemium strategy and advantages it offers. Quick entry, easy calculations, comfort of knowing your costs aren’t going up as your team grows. But let me explain another important consideration that went into making this decision. Before I do, again, a couple of thoughts about the SaaS market to help you understand logic behind why we did what we did.

You’ve heard the term ‘market consolidation’ and know what it means. If you are older, you remember Lycos, AltaVista, Excite or WebCrawler names from the 90s, but it’s all Google now. I am writing about this, because you can probably easily name a dozen project management tools or CRM solutions just as easily as you could search engines in the 90s. There are actually more than a hundred of active companies in each niche. Some believe that this situation, when there are more than a dozen popular CRM or PM platforms around, each able to find own customers, will last forever. But we think that it’s not only possible, but actually likely that situation can turn as quickly as it did with the search engines. If you look at this as a very real possibility, you sure better plan for the upcoming ‘saasicide’. We do.

Now let’s talk about SaaS pricing and why almost everyone charges per user. CACs (Customer Acquisition Costs) are substantial for most SaaS. This is what makes or breaks a service. And when you pay $30 to Google to get someone to try your CRM, you have no idea if it’s a solo entrepreneur or a large company that is going to buy dozens of licenses and bring tens of thousands of dollars in revenue.

This has two outcomes for most SaaS companies. First, a small section of large clients brings most profits. Second, acquiring small clients is oftentimes a money losing proposition. The end effect is this — if you starve an average SaaS of clients that purchase multiple licenses, they are toast.

If you are an IT pro with a Russian passport, you know that several Russian based Bitrix24 competitors threw in white flags, despite having a substantial head start. This is a direct result of our pricing strategy that in effect severely limited their ability to acquire and keep customers. We expect similar effect in other markets, once our marketshare passes a magic number there.

For those in the west, let me give you an example you can easily understand — dramatic Basecamp decline after Trello and Asana were launched. (Statistically, average project management account has seven to ten paid seats and free Trello and Asana plans are quite accommodating. I’ve written about Basecamp’s and Jason Fried mistakes before). When asked for a project management recommendation in 2017, you are much more likely to hear Trello or Asana, not Basecamp. Basecamp is done, since their product is now both inferior technologically and priced less attractively. It has no future.

Anyway, when thinking whether we’d like to be on the giving or the receiving end of the upcoming pain, we’ve made a decision that our pricing strategy isn’t going to be about profit maximizing, but rather increasing our chances of surviving and disrupting markets in our favor. This is a much more important decision than deciding whether your prices should end in 9 or 7 — yet this what what many SaaS founders bicker about .

3. Worldwide expansion.

Many European startups target US as their primary ‘foreign’ market. The prevailing view over here is that it’s better to hold 2% market share in US, than 20% in Bangladesh (more money). We think differently. Even though our #1 market is US and #2 is Germany, Mexico or India generate same volume of sales for us as does UK. Our sales in Vietnam, Indonesia and Philippines are higher than in Australia.

Sure, targeting ‘the developed world’ gives you money, but that’s about it. You won’t be able to beat Salesforce or Microsoft at their own game on their own turf. It’s just not going to happen. Plus, contrary to what you might expect, the developing world is oftentimes more receptive to new ideas. We have partners who’ve worked with the city of New York and the city of Ho Chi Minh. One municipality runs on modern social intranet and another uses a mish mash of antiquated legacy solutions that would make you believe the 90s have never ended. Try guessing which one is which.

Here are some other ‘contrarian’ thoughts that I think are worth sharing as well. First, it’s easier to protect you home turf, if you expand to other countries. If you stay local, you are dead in five years. Second, stop giving Silicon Valley too much credit and underestimating yourself. Zoho creates more troubles for Salesforce in US than Salesforce does for Zoho in India. If you aren’t using this as an advantage — it’s your own fault. Third, you need to create a product that the ENTIRE world will use. This doesn’t just mean localization and languages, it also means pricing, partners and other considerations.

Suppose 20 years ago you had a choice, you could invest $1 million in Japan, an incredibly wealthy country, or China, which was and still is considerably more poor. Which country would you pick back then, knowing what you know now? The answer is obvious. This is why I am surprised that most SaaS vendors are flocking to US or UK, even though it’s clear that it’s countries like Nigeria where the market will grow tenfold in the coming years.

Closing thoughts

I have no idea if the 5–3 method is our invention or not. I wouldn’t be surprised to learn that other companies use similar methodology, calling it by a different name. Very few things are original in this world.

Personally, I was very skeptical in 2012, when I met our CEO for the first time in person and he was talking about what collaboration inside companies would look like in five years. I’ve never seen product committees that spent so little time analyzing competitors and so much time arguing about which features will be so popular in three years, we need to add them to our product as soon as possible. This was all very different from what I read in TechCrunch or ProductHunt, where the overwhelming emphasis still is on design, user interface and ‘do one thing, but do it better than anyone else’. (Oh, and by the way, I am still pissed at TechCrunch in general, and Mike and Ingrid personally, that they’ve never wrote about Bitrix24 in those five years. Really, guys?)

Now that the five years have passed and we’ve made another set of strategic and tactical bets about markets, pricing, competitors and features, I feel like I have to share some of our past ideas and approaches. They’ve worked for us and they probably will for you as well.

It’s important to think big. It’s important to think ahead of the market. It’s important to think beyond your VC presentation and the next round. It’s important to thing beyond ‘let’s make it pretty’. A single big idea is more important than a hundred of small ones. Don’t reduce yourself to ‘Uber of this’ or ‘just like Slack, but…’

I hope you find these ideas insightful. But than again, I am just an amateur.

P.S. If you speak Russian, here’s yesterday’s Bitrix24 presentation and the five year anniversary celebration.

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