6 Reasons Why Finnish SaaS Companies Fail to Get Success They Deserve

 

Finnish #SaaS companies have great solutions and potential, yet many take ages to reach 1 M ARR and another age to find a scalable growth model to reach the success they deserve. Here is why.

Having helped dozens of them in various roles, interviewed 60+ SaaS entrepreneurs in my Menestystä Etsimässä #podcast, and hosted 100+ events for SaaS Finland, a club of Software Finland ry, over the years, there seems to be a clear pattern that leads to slow success.

When it takes 8 to 15 years or more to reach 1-3 M ARR, the size required for the next major push towards 10 M and beyond, the founders are often tired of grinding, ending up selling the company too early, never reaching its full potential.

This is a huge problem for Finland and founders alike.

The IT industry is Finland's fourth-largest export sector and fastest growing, while SaaS is the strongest grower within the sector. We are now building great SaaS products for foreign buyers to cash in on.

The long shaft in our hockey sticks means it takes ages to reach the blade, the high growth phase. This is bad for all parties, from investors and founders to employees and society. The quicker we/you could grow our/your SaaS company, the bigger and more successful it would become, allowing it to grow by acquiring, bringing bigger payoffs earlier (exits/IPOs/dividends), enabling investors and founders to invest in new starts, and freeing up experienced growth specialists to take another company from one level to another.

#1. Starting from Finland. The small home market means no niche is big enough, so one has to broaden the targeting, which leads to losing focus. So most are targeting too many segments, in too many price points, through various channels without properly making it in any. Finding the focus again when going abroad takes ages.

Yet, starting from Finland is easy; thus, everybody is doing it.

The saying that "if you don't succeed in your home market first, you won't succeed in foreign markets either" is invalid when starting from a small home market.

#2 Transitioning to a sales mindset too early. The road to 1-3 M ARR should be founder-led. And that means you can do things that do not necessarily scale, like sales, with the main purpose of learning about the market to optimize product-market fit for future growth.

When you treat it as a sales operation rather than a learning operation, you tend to stop learning and start pitching. Product-market fit stays loose, which will affect growth from there on.

Many founders hire a salesperson or even a VP of Sales or change their own mindset to sales-driven way too early.

#3 Defaulting to sales as a growth model. In our small home market, where quality decision-maker lists with direct or mobile numbers are easy to acquire, everybody knows everybody, trusts another Finn, and answers the phone, defaulting to sales as a growth model seems to happen without considering other options. Especially if you don't understand that the founder-led sales phase is all about learning about the market and perfecting the product for it while making necessary pivots if required while doing things that don't necessarily scale. You will think it is all about selling if you don't get it.

However, outbound sales are much harder in foreign markets, where you cannot often acquire good lists. You are a foreign company, don’t know anybody, and don’t speak the language. You have to reach prospects through switchboards that don't even bother to answer their phones. You face much harder competition, both directly and for their attention and time.

By now, we have lost focus, have poor product-market fit, and have a wrong growth model. What else?

#4 Death Valley price point of 298 to 498 euros/month. Most have priced their product to a Death Valley between 300 and 500 euros/month. This is too much for low or no-touch models and too little to properly cover customer acquisition costs and fuel growth.

One reason for this price point is wide targeting, where you don’t properly understand the value you provide for each customer segment. You have too many, and your product is not the best for most. Thus, you have to fix it with the price.

The other is that selling in Finland is too easy. Thus, you don't learn early enough that your customer lifetime value (CLV) to acquisition cost (CAC) ratio is going to be way too low.

#5 Vague messaging. When you are targeting a wide range of customers (within your broader niche) AND using outbound sales, your messaging on your website, ads, and more tend to be vague, not to give a prospect reasons to decline a salesperson’s proposition to meet. Such messaging seldom generates demand and inbound, though.

#6 Going abroad too early and in the wrong way. Finns seem fixated on going abroad too early and country by country. Even Business Finland's Market Explorer suggests that international expansion has to happen country by country, which usually requires a physical presence.

Setting up a country operation takes time and a lot of money, often 300,000 euros per market.

The first country manager worth her salt is often the third one. Why?

Why would any sane person choose to be employed in an unknown small Finnish SaaS startup abroad with little chance of success unless she has no better options?

By the third country manager, there might already be some traction to get a decent one or a willingness to pay the headhunter properly. But this all costs time and money.

The rule of thumb for international SaaS companies is to set up a country or market office only after they have 3 million ARR revenue from that market.

For us Finns, we set up the first country office when our overall revenue hits the 0,5 to 1 Million ARR bracket, and the costs will almost kill us. As the Finnish proverb says, most will "come back with a milk train", with nothing but losses to bring home.

How To Succeed?

#1 Be honest where you are. One of the biggest mistakes a founder can make is making decisions believing (=hoping) they are further than they are, that is, trying to scale before a proper Product-Market Fit, for example.

#2 The market is a need, not a country. The world is a huge market: 8,1 billion instead of 5,5 million people, 441 million in the EU, 750 million in Europe overall, and 330 million in the US. You need to have a sharp focus to find where your target market congregates and what messaging catches their imagination.

#3 Born Global means you go after a need internationally, not a wide range of needs locally.

It does not mean you try to conquer the world initially, though.

You have to select the language(s) to use for your content and collaterals and where you try to reach your target audience, e.g., where to place your ads or which conferences to participate in. You will likely select English to target markets where English is actively used as the first or second language.

However, the competition in English is fierce, and you may find success in other languages, such as Spanish. Think Latin America and the US, not just Spain.

#4 Start Inbound early. Cracking inbound is hard, especially after years of pitching outbound. Inbound is all about understanding what prospects want to achieve and helping them get that with content that connects your offering nicely to their path.

Growth is so much easier if you have warm leads queueing up for sales. And they tend to stay longer as a customer.

Inbound may be organic search or social media based, boosted with paid ads, or even referrals and viral.

For many of those Finnish SaaS companies that are growing fast, inbound is playing a major role in fueling the growth.

#5 Utilise Inside Sales. Many fast-growing companies are using inside sales from Finland. Many such operations rely heavily on inbound, although in certain target markets where prospects are easy to identify and reach, outbound may also work well.

These operations usually start with their current sales team but are quickly expanded by hiring foreigners living in Finland to sell in their mother tongue and English, while English is used as the working language within the company. Many foreigners have trouble finding work in Finland if they are not fluent in Finnish, so there are plenty available. For them, an inside sales job may be a perfect match, allowing them to live here, speak their mother tongue, and stay in touch with their home country.

These companies will often eventually set up country offices, but only after they have a good customer and revenue base in the country.

#6 Solve one price point at a time with the right growth model. Different price points have different marketing and sales funnels and processes and require different skills within the company. At the lower end, you need to master marketing, self-service, and automation. At the high end, your product, operations, and agreements need to be enterprise-grade, and selling is a well-orchestrated team effort, with everybody having their opponent at the customer.

Yet, many Finnish SaaS companies try to cover 2-3 price points with a small team plus language and market variants and a possible partner channel while trying to get them all to work.

Getting even one work is very hard, let alone many.

In order to succeed, you have to focus on one price point and one growth model, build and experiment until you can profitably acquire customers in volume, and develop the required competencies.

You are trying to get a funnel/sales process to work and build the competencies required in it. Each price point generally has a different model, steps, and materials. Focusing on one simplifies work.

Once one starts to work, you should be able to do the math: What are your conversion rates before a lead becomes a sales-qualified lead or product-qualified lead and after it becomes a customer?

You want to understand how valuable the customers are to you (Customer Lifetime Value, CLV). The spread shouldn't be too large.

Now you should be able to calculate how much you can pay for a lead. Knowing that there are multiple steps before someone becomes a SQL or PQL, you can also calculate how much you can pay for an ad click.

If the numbers make sense, you can hit the pedal to the medal and start scaling.

I have seen a small SaaS company jump from 150k to 5 Million ARR in a short period of time. They struggled for a couple of years before finally focusing on one price point, cracking the funnel for it, and finding they could profitably feed the funnel with LinkedIn Ads. They soon spent 1 million a year on LinkedIn ads before hitting a class wall there and reorganizing for the next growth leap.

Finally

Due to the mistakes I listed, our hockey sticks here at the Finnish SaaS scene tend to have super-long shafts. The vast majority of my podcast guests or SaaS Finland members who have reached a million or more in ARR have made mistakes, and most are still paying the price.

Luckily, more and more are making the right decisions, like the ones on my non-exhaustive list of solutions, and making great progress.

Some are solving problems where there are justn't enough customers in Finland, and international customers are naturally easy to reach. Thus, they are avoiding many of the listed problems by luck.

Many are seeing results from inbound, leading to inside sales and opening doors to international expansion without heavy upfront country offices.

But the old habits and "truths" stick hard within the cluster.

We need more proof that there are other ways to grow than starting from the local market, selling from early on, using outbound as the only option, and expanding country by country. In the game of international SaaS success, back to basics means back to SaaS basics, not old internationalization playbooks.

If you are struggling with these issues, let me guide you towards the success your company deserves. I am always happy to spar with SaaS entrepreneurs, as I have been, for the last 10 years leading SaaS Finland.