The T2D3 framework is the gold standard in the SaaS world, and it sets high standards for B2B SaaS wishing to hit a $1B valuation in five years. Your SaaS must grow the Annual Recurring Revenue (ARR) at 2 to 3X per year to achieve this coveted unicorn status. However, tripling annual revenue for two years then doubling it for two consecutive years is no small feat. Only innovative solutions can power the meteoric growth to the coveted $100m ARR. The unicorns that have achieved this lofty feat have one thing in common – nearshore SaaS outsourcing. Dig in as we explore how nearshoring outsourcing for SaaS is the go-to solution when looking to hit the gold standard in SaaS ARR.
What Is Nearshore Outsourcing?
Nearshore outsourcing is the process of delegating business tasks to companies in neighboring countries. Unlike offshoring, nearshoring software development happens in countries on the same continent. Mexico, Puerto Rico, Argentina, or Panama are nearshore outsourcing countries for North American companies. Likewise, U.K. businesses can move some operations to Bulgaria, Ukraine, or Poland.
Technical support, software development, and call center jobs are commonly outsourced to nearshore countries. Lowering operational expenditure is the primary goal of outsourcing, but nearshore is far superior to offshore outsourcing. With nearshore outsourcing, your company benefits from lowered payroll, a large, diverse talent pool, reduced training time, and overlaps in culture and language.
Most companies prefer outsourcing to nearshore countries to cut the distance and ensure convenient time-zone overlaps. A team of nearshore software engineers allows the same operational hours, reduces training time, and provides direct transport links.
Constant Present Headaches
While outsourcing to Eastern Europe or Asia may deliver the highest cost-saving benefits, nearshoring outsourcing has a higher ROI. When working with an offshore team, management problems, time-zone issues, and cultural differences are often problematic during software development.
These issues present a constant and ongoing headache with no ideal solution, leading to massive business setbacks. The lack of an overlapping time zone significantly dents your ability to collaborate with your remote teams.
An offshore team can still deliver a quality product while reducing the expenditure; it’s not ideal for the T2D3 framework. This framework calls for granular control over your entire business process. As opposed to a remote team on the other side of the world, Nearshore software outsourcing gives you this control.
Why Nearshore Software Development?
Nearshore software development is delegating software development to a nearshore country such as Mexico or Puerto Rico. Nearshore software development bridges all the shortcomings of offshore outsourcing. The convenient location ensures cultural proximity, time zone overlaps, and eliminates language barriers.
Having the remote team nearby is critical because it allows for seamless communication. Successful software development projects entail a lot of communication between all team members. Delayed communications can lead to acute failure or derail your time to market.
Scaling Your SaaS ARR Growth With Nearshore Development
Following the T2D3 revenue model, SaaS can scale its annual recurring revenue from $2 million to $100 million in 5 to 6 years. For the best results with the T2D3 model, your SaaS should have a few good-fit customers and $2 million in ARR.
Year One SaaS ARR
The first goal in the framework is to triple the revenue to $6 million. Most SaaS flounder at this stage by onboarding everyone remotely interested in their products. Even the customers who aren’t a great fit. Unfortunately, that leads to high churn rates later, and it negatively impacts your revenue. A better approach would be to polish your ideal buyer persona and create a small dedicated sales team with exceptional market knowledge. Have your team primed to make the most of market peaks and only target and onboard only the best-fit customers
Nearshore software outsourcing lets you downsize your in-house team and reduce your payroll. Your primary focus at this point should be on marketing. Nearshoring helps you build a sizeable marketing war chest without compromising product quality or customer experience. With the right nearshoring partner, you can build a team of world-class nearshore software engineers at a fraction of the standard costs. But most importantly, you get to eliminate any recruitment costs. Your nearshore service provider handles every part of the recruitment process.
In most cases, they have a team of seasoned software engineers ready and primed for deployment at a moment’s notice. They’ll only need to pick the best match, brief them on your needs, handle the orientation and training, and hit the ground running.
Year Two: Tripling to $18 Million
By the second year, you’ll have incredible insights into your service. Do the customers love it? Are they renewing their subscription? Are they churning out? If your sales team excelled in picking the best-fit customers, they’re likely deriving benefits from your solution and are likely to renew their subscription.
What’s more, your existing customer base is likely to recommend your services to friends and colleagues who could benefit from your services. Word-of-mouth and positive reviews are the gold standards in customer acquisition. Choosing good-fit customers in year one pays off in droves as they are likely to become brand ambassadors and help drive sales.
Smooth Reiteration
At this point, you’ll also get feedback above the features that your customers love, dislike, or hate about your product. A team of nearshore software experts lets you implement the changes quickly and efficiently. Having the team nearby allows seamless communication while saving on costs.
A 1 to 3 hour time overlap with a nearshore team is ideal because it lowers your costs. You get maximum value from paid developer time since real-time collaboration between the outsourced and in-house teams.
Never at any one time will the developers laze around waiting for directions or working the wrong way. Or get burned out from working overtime to make up for the lost time.
Year 3: Doubling to $36 Million
The third year of your T2D3 framework requires a top-notch sales team led by capable managers. The sales team should set sights on international sales, which places your SaaS ARR under increased scrutiny. Borrow a leaf from successful predecessors and prioritize quality over quantity.
It’s far more profitable to establish a strong market presence in a few select companies instead of spreading yourself thin across many. At this point, the CEO or the CIO is further away from the sales and development team. Your time is best spent cultivating international references and forging deeper connections with global leaders.
Staff Augmentation
A growing clientele base is likely pushing your solution to its limits, and you need to adapt quickly to the increasing demand. With nearshore solutions, you still have access to a crack-shot team of software engineers on the payroll, but it gets better. Since the engineering team has been with you for years, they’re highly familiar with your products and can work quickly and efficiently to meet your needs.
Better still, nearshore staff augmentation can help you bolster your capacity at a moment’s notice. By now, the nearshore SaaS agency has a standard operating procedure for quick and efficient onboarding. They can tap into their rich community of talented engineers and expand their workforce in hours.
Agencies have a rich pool of qualified engineers to pick from; hence they only recruit the best candidates. Adding high-caliber engineers lowers the learning curve to improve productivity and the ROI.
Year 4: Doubling to $72 Million
Operational challenges are prevalent at this stage of your growth, which creates even more recruitment challenges. You’ll have challenges deciding who’s to head your different divisions, especially overseas. Naturally, the best candidates should possess the technical, human, and conceptual skills to facilitate your expansion into the new region.
A Rich Talent Pool
Again, nearshore staff augmentation can come to your rescue if looking to expand into the nearshore country. They can readily tap into their community of engineers and furnish you with the ideal candidates. Software engineers make excellent account executives if they have the right technical, human, and conceptual skills.
Such individuals have deep insight into the product, the people in the target market and are in touch with the current market trends. The ability to ground people and conceptual skills in technical know-how is a recipe for success and can help scale your operations in a foreign country.
At this point, you’ll also need to build an extensive reseller network to help you scale your reach and bolster your sales. Ideally, you should embark on building your reseller network after you hit $50 million in revenue. At this point, you can have your pick among resellers as they’ll be vying for your attention. It allows you to negotiate terms from a power position.
Year 4: Doubling to $144 million
Crossing the $100 million SaaS ARR mark puts you in the unicorn territory, but you still have some work left to reach the coveted $1B valuations. Besides keeping your every metric on track, you need to champion additional growth while lowering your overheads.
Having reached the pinnacle of the T2D3 framework, you need to switch it out for the Rule of 40. The rule of 40 is a simple metric yet effective metric used by investors to value software businesses. It simply states that if your growth rate and profit margin combined work up to at least 40%, your SaaS is in excellent health and could double its value.
Year-on-Year Cost-Savings
A nearshore SaaS agency can also help you with this final yet critical step by keeping your overheads low. First off, you continue to build on the benefits you’ve enjoyed for the last four years. Operating with a small in-house team keeps your labor costs low, lowers the amount of taxes you pay, and eliminates other overheads such as rents and utility bills.
Engaging a nearshore agency amounts to working with a crack team of independent contractors minus the traditional hassle. You have all the cost and tax-saving benefits but none of the management hassles.
Scale Your SaaS ARR to $1B Valuation Today
At ParallelStaff, we put the power of over 50,000 talented and skilled software engineers for Latin America within your reach. We specialize in nearshore outsourcing for SaaS and can fill your ranks with certified software engineers at a moment’s notice.
Schedule a free consultation to learn more about nearshore staff augmentation. We will furnish you with a team of talented developers with the technical expertise to help you crush every KPI on your T2D3 framework. Have smaller goals for now? We can help with that too. All our nearshore engineers are within the same time zone for seamless communication and collaboration. Ready to scale your SaaS to greater heights? Contact us today!
- Benefits and Advantages of Cloud Computing (Pros and Cons) - September 21, 2023
- What are the key factors to consider when choosing an IaaS provider? - September 14, 2023
- Essential Considerations for Successful IT Outsourcing Relationships - August 22, 2023