What is the Hidden Chasm?
The biggest challenges for high growth SaaS enterprises have a pattern. Can you find your level?
Not every company hits every level in the same order.
The Early Years
You respond to every customer request in your product, sometimes spinning up siloed one-off products to serve their needs. You bend the company's strategy to the needs of your new and growing customer base. This is all normal and good.
There is a lot of unplanned and organic technical evolution.
You've gone through the major R&D investment to build and deliver V1 of your solution and you are now coasting along with this gaining traction and making ad-hoc updates as customers ask for them.
This may go on for years.
The Good Years
You've helped define a market, revenue is coming in, and the macro indicators (NRR, NNR, EBITDA, etc.) all look good. It seems like you can do no wrong in terms of strategy.
Your product has evolved and you've expanded into more than one offering. Structure, process, domain knowledge, and technology has become siloed within these products.
Inefficiencies and problems are resolved with a hero-culture approach. But thats ok... its working and you're still growing!
Silently Enter the Chasm
New competitors with more modern adaptable technology enter the market. We cross over into the chasm silently and the results begin to show over time.
You've been the definition of a successful company and it has been many years since your founding.
You may start seeing new competitor advertising and unfavorable SEO rankings.
Cracks are showing
Growth is still good, but parts of the organization are starting to feel misaligned.
TAM/SAM/SOM is achievable within the individual product lines, but research is showing that more should be possible through the integration of solutions and monetized data.
Net Recurring Revenue (NRR) and Net New Revenue (NNR) start slipping.
Buy vs Build conversations usually start around this timeframe as a means to grab market share despite not having an integration strategy for the siloed product lines.
There may be a push toward Digital or Agile Transformation as a silver bullet.
Accelerating into the Chasm
All indicators point to a serious problem in the business but you haven't yet pinpointed the root cause.
If you're multi-product, Apps per customer flatten or trend down.
Professional services expenses and revenue are trending up.
COGS are trending up.
Employee retention is trending down.
There is a realization that new features have not been released in a long time.
Engineering estimates are becoming very large and unmanageable.
Deeper into the Chasm
Missing expertise, strategic gaps, and misalignment begin to show across the organization.
The lack of an overall effective strategy to drive org structure, operating models, and compensation structure begins to drive dangerous and toxic patterns.
Anywhere from 40% to 80% of the engineering capacity is tied up in maintenance, tech debt, and defect remediation.
Around this time, there may be a call for a new UX as a quick fix to entice users and address declining retention.
Leadership is becoming aware of gaps in understanding around cost, impact, and organizational maturity. There may be a renewed discussion about Agile or Digital Transformation.
The engineering organization is now working well over 100% capacity, investing personal time on weekends, and burning out rapidly – all without making significant progress.
Brain Drain and Platforms
A year or two may have passed since initial indicators of a problem and the situation has likely deteriorated. Leadership and investors may panic. It's at this point that the company will usually seek outside perspectives.
You may also hear the words "platform" or "re-platform" being thrown around, but everyone has a different definition of what this means.
There has been a "brain drain". People (often the "heroes") with deep understanding of the highly bespoke systems of the company begin to leave and take their knowledge with them. There may have also been turnover in senior leadership across product, technology, and sales.
Product may interpret the concept of "platform" as a new commercial vision of the existing solutions.
Technology/Architects may interpret "platform" as a new foundational technology suite that enables a new product direction.
A debate has started on how to fund the "platform", even as there is still no consensus on what the "platform" even is or how much effort may be involved.
Crossroads
Throughout this process the company may look to de-risk and solve the issue by throwing funding and people at the problem.
If cash flow and reserves are not enough, the company may become interested in de-risking through institutional investment.
If you take investment, it will likely include an initiative to drive change (including leadership)
A New Strategy
At some point between the tipping point and now, usually after outside perspectives are brought in, most companies will conclude that a new technology strategy that prioritizes enablement, modernization, tech debt, and analytics is necessary to cross the hidden chasm.
The notion of the "platform" is revisited, and a compromise is reached between a strategic, commercial, and technical definition.
You need help to climb out of the chasm
Five major risks stall or stop progress despite this impressive turn-around in terms of rallying around a more future-centric vision.
Eventually, if the company cannot address or get ahead of these risks, it will spend millions over years before either stalling out in terms of market growth, slowly becoming irrelevant, or fail outright and be forced to restructure through new leadership.
If cash flow and reserves are not enough, the company may become interested in de-risking through institutional investment.
Expensive consultants, vendors, and SaaS commercial solutions are being discussed or evaluated.
Company leadership may be discussing migration or upgrades for customers out of band and without context of the actual work being completed.
There have been some technical leadership changes.
There have been some business development leadership changes.
There may have been some product leadership changes.
THE HIDDEN CHASM PODCAST
Learn more through our podcast series where we explore these challenges in depth.
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