Why you need to build a multiplayer SaaS business: Lessons from a serial entrepreneur
Famous entrepreneur and investor David Sacks famously writes about multiplayer versus single-player game mode in startups. He explains the concepts in detail, which I don’t do here. Instead, I want to illustrate how we’re applying these principles in our fintech startup, AltExchange.
As a briefing, startup founders have to make the decision of whether they will build a single-player or multiplayer experience. What he means by single-player is focusing on building your SaaS business for one single user. Multiplayer refers to team-mode, or building your SaaS business where the tool is being used by a group.
The important takeaway is that without doubt, if you can build a multiplayer experience that’s natural to your business, you’ll experience easier, longer-lasting success. Often, multiplayer mode isn’t available to B2C businesses, so it pays to consider ways that you can attract B2B clients with multiplayer advantages.
3 key factors to multiplayer success:
- Multi-player is team play. Think of teams as groups within your company. Groups have a harder time making a decision to churn, or leave your business.
Slack is a perfect example. Once a few colleagues use it, it’s “sticky,” i.e. will likely stay around. In fact, services like Slack, on average, lose only 1–2% per month compared to around 5% a month for “single-player” mode. As a result, Slack doesn’t exactly begin to define you as a real user until you’ve enabled “multiplayer” mode- or you’re collaborating, and seeing the most value out of their platform.
2. Deal sizes are larger. This is easy: Would you rather sign up one user, or many users at once? As your clients experience growth- or simply rely more on your product, they’ll add more seats.
3. Revenue compounds much faster. As a result of low churn, growth tied to your ability to solve more problems for your client (per seat, as new team members are added), revenue compounds at a much faster rate.
Multiplayer startup case study in AltExchange
Let’s look at my current alternative investment startup, AltExchange, as an example. The alternative investment market is currently so inefficient, but there are many participants, including investors, their financial advisors and their tax consultants. In short, multiplayer mode is not only natural to our business, it’s essential.
Our model works like this:
- A high-net-worth investor signs up for our alternative investment platform and their access is largely free- if not entirely free.
- They invite their wealth advisor (and their advisory team), and their advisor can now better “know their client”. In short, they have a better understanding of how their client is investing online or in traditional alternative investments. Their advisor can pull down data for alts reporting, help their client meet capital calls, and more. Here, we charge the advisor for giving them the workflow improvements around alternatives, and also the ability to win more deals.
- Next, they can invite their tax advisor, who can now see quarterly estimated income, and have tax documents automatically collected for them. Advisors also pay for access to improved workflow, and overall improved service to their clients.
We’ve “enabled team-mode.” These users are receiving the most value from our platform, and therefore are less likely to leave, as all participants are receiving the highest value possible from the platform.
The single player vs. multiplayer decision
The success of AltExchange hinges on inefficiencies in the alternative investment space. Both high-net-worth investors and their advisors are lacking a wealth management platform to keep track and manage their private market investments.
Not only that, but they’re lacking collaboration around their investments. As an investor of alternatives, capital calls are dropped, K1s are lost, advisors have little input in which alternatives I invest in, and tax professionals generally aren’t part of the investing decisions when they should be.
While building, we had the decision to charge our direct users and investors — let’s call this individual player mode. But not only does this not solve the problem for their advisors, it also is bad for our business because. What’s bad for business — in terms of having a higher churn or lower growth environment, are things we’d have to make up for later in sales and marketing. That’s not what you want to do as a founder.
The bottom line
If you’re only thinking about the single player mode when establishing your business, you may experience the pitfalls of B2C or “individual play,” such as high churn and subsequent lower growth rates. Ultimately, you’re doing yourself a disservice in the long run by not focusing on the multiplayer opportunities at hand. As David Sacks said, B2C businesses are often effectively an arbitrage business on customer acquisition costs. The problem is that attrition just makes it difficult to get to significant size.
As you think about your business, determine how you can get to multiplayer mode as fast as possible, so that you can really accelerate your growth.
