Understanding T2D3
To grasp the T2D3, you need to understand all three dimensions of this model: Traction, Transition, and Dominance.
Traction
Think of traction as the launching pad. It’s when your SaaS company enters the market and tries to hold out on its own. It’s also the hardest stage. In Traction, a SaaS business tries to find a customer base, develop the service, and put a marketing strategy in place. You want your customers to validate your product with their wallets. To quantify it, the idea is to hit the $1 million mark in Annual Recurring Revenue (ARR).
Transition
Once your SaaS business has secured some footing — the customer base believes in the product, revenue is coming in, and the marketing strategy is working — the next step is Transition. It’s all about scaling up. In the next two years, your revenue should triple — $1 million should turn into $3 million, then $9 million. It solidifies your place in the market further. SaaS companies in transition improve operations and expand their teams.
Dominance
The Dominance stage is the final stage. With a steadily growing revenue and an expanding customer base, your SaaS business is ready to take on the big players in the industry. The aim is to go beyond survival and become a dominating force in the market dynamics.
In sheer numbers, it translates to doubling your Annual Recurring Revenue (ARR) for three years inyears, in a row. It should balloon from $18 million to $36 million, then $72 million.
The T2D3 model gives SaaS businesses a clear, structured path to consistently hitting those revenue milestones. It also measures how impactful a company is in a given industry.
Traction: Gaining Ground
Momentum is the first thing you need when getting your SaaS business up and running. Traction provides that momentum, propelling the venture forward.
In more tangible terms, it’s about securing $1 million in Annual Recurring Revenue (ARR). In those early stages, it’s more than just revenue though. It’s proof. It’s a seven-figure vote of confidence that the market believes in what you’re offering.
Provide value
Traction starts with validating your product. A viable product meets a demand, solves a problem, or fills a gap in the market. To turn that viable product into a valuable product, you should fill the market gap or solve the problem in a way no one else is doing.
Finding the Customers
The next step is to get that valuable product or service into the hands of customers. You’ll need to connect with potential and existing customers — figure out what they need and how your product or service can best meet those demands.
Case Study of Slack
An effective marketing strategy, good customer service, and good old word-of-mouth marketing are indispensable. Slack cornered the enterprise messaging market just with word-of-mouth marketing.
In its early days, Slack leaned heavily into marketing on Twitter. And their easy-to-use integration and collaboration tools offered some unique solutions. It helped Slack gain Traction and eventually dominate the market.
Hitting the $1 million benchmark is critical in the traction stage. But the numbers aren’t everything. Traction is also about delivering value with your service, finding the right marketing strategy, and getting customer validation.
Transition: Aiming for Growth
The second T in the T2D3 model is all about scaling up. With the initial momentum on your side, you are ready to accelerate your growth. In pure numbers, your SaaS business should be tripling the Annual Recurring Revenue for two years straight. It means moving from $1 million to $3 million, then $9 million.
Team building
Rapid scaling takes two strategies in particular: team building and developing a robust business strategy. You want to hire people who will directly contribute to your unique vision and growth. You can invest in training, free resources for the hires, and foster a positive company culture.
Business strategy
Next, you want to focus on your business strategy. You want to grow smart, not necessarily fast. Direct your efforts toward customer retention, optimizing and scaling operations, and fostering partner programs with other businesses.
Case Study of HubSpot
Consider HubSpot. It’s a popular CRM service provider that primarily scaled using a customer-centric business strategy. HubSpot understands and keeps up with its customers’ needs. The sales and services don’t end with a purchase. Post-purchase, they’re constantly innovating and delivering more.
HubSpot also has a thriving business partnership program. And they invest heavily in training and development.
The middle stage is all about shifting gears towards accelerated growth. Here, a powerful business strategy and a strong team will not only help you hit your revenue goals, but it’ll also streamline things for the next phase.
Dominance: Lead the Market
When your SaaS business enters the Dominance phase, it’ll be far from a scrappy startup pulling itself up by the bootstraps. Instead, your SaaS company will have become a market-defining force.
Hit the ARR mark
On your way to becoming an industry leader, your business will need to double the Annual Recurring Revenue (ARR) for three years in a row. After the transition phase, you’re already sitting on $9 million. When that $9 million is doubled three times, it’ll go from $18 million, to $36 million, and to a jaw-dropping $72 million. Once you hit that milestone, it tells the market that you’re here to stay.
Preserve Value
For SaaS businesses in the Dominance stage, upholding the product value and establishing industry leadership is key. The product or service should retain its value as the business scales. Constant innovation and adaptation maintain that value. You also want to stay on top of changing trends and customers’ demands.
Establish Leadership
When your company is commanding a good chunk of the market share, you’re ready to assert that leadership. That assertion can take many forms — discourse, new standards, and references for others to follow. It’ll also strengthen your brand image and allow you to steer the industry toward sustainable practices.
Case Study of Adobe Inc
Adobe Inc is a prime example of dominance. They consistently provide excellent value to their customers with regular updates, staying ahead of industry trends, and listening to user feedback. Adobe invented PDFs and made Photoshop a verb. Their comprehensive suite of products serves all kinds of creatives. Today, Adobe Inc is a $221 billion company and it carries a huge weight in the software industry.
The term Dominance might have a ring of finality to it. But even when you’re an industry leader, you’re not at your destination. Dominance is a journey of constant growth, innovation, and maintaining relevance.
How To Use T2D3
We’ve walked through the three stages of the T2D3 model. Now we’ll explore how to turn that knowledge into an actionableinto actionable strategy. As the various phases of T2D3 demonstrated, success in the world of SaaS is highly intentional. Businesses have to understand their customers, deliver value consistently, and build a strong work culture.
Understand the customer
Understanding the customer is half the battle in SaaS. Success comes from solving real problems, addressing painpaint points, and meeting their expectations. It’s a game of how well your products and services can grasp and deliver those solutions.
Customer Retention
Customer retention is the lifeblood of any SaaS operation. You can minimize customer churn by keeping your promises and consistently adding value to your customers’ lives. It can take all kinds of shapes — regular product updates, spectacular customer service, and listening to customer feedback.
Work Culture
Your team is the heart of your company, which makes it the biggest asset a business can you have. A well-motivated team that’s eager to execute your vision will propel your SaaS venture to new heights. To give back to them, you can nurture a work culture of innovation, collaboration, and positivity.
Analytics
Keep an eye on analytics and data. You don’t want to blindly hop from one stage to the next. Instead, use data as a compass to infuse the principles of T2D3 into your business. Data tells you what’s working and what’s not. The insights you gain from analytics will inform your next steps.
Conclusion
We took a deep dive into traction, transition, and dominance. And through our exploration, we also studied how successful SaaS companies have implemented the T2D3 model to their advantage. Lastly, we covered the best practices you can adopt to follow T2D3. However, T2D3 should not be considered in isolation and businesses also need to consider other metrics and models, including the Rule of 40 and other key financial metrics.
We learned that Traction is all about carving out a space for your SaaS business in the market. Once you hit your first $1 million, the next phase is aggressive growth. The business picks up pace during Transition. In Dominance, the SaaS company cements itself as an industry-leading force.
T2D3 is a roadmap to SaaS success. But it’s also a mindset. It’s a mindset that focuses on customers, adds value to their lives, and remains flexible. T2D3 should not be considered in isolation and businesses also need to consider other metrics and models, including the Rule of 40 and other key financial metrics.