Analyzing a SaaS Startup's Peril: Does AppSumo deserve the blame?
Is AppSumo a death claw for a SaaS startup? Here's exploring all sides of the story to answer the million-dollar question.
The other day, I was scrolling through my LinkedIn feed and saw an exec share a post about a SaaS startup shutting down.
It's always a sad sight when you hear a startup going down.
But what caught my eye was that he blamed AppSumo.
'AppSumo is a curse for 99% of SaaS founders,' he said. Harsh words.
Frankly, it wasn't the first time I saw someone push AppSumo under the bus for a startup failure. And it probably won't be the last.
But there's always a pattern, as I've found to be the case.
Having had some experience launching lifetime deals (LTDs) for a SaaS startup on similar marketplaces like AppSumo, I am sharing my 2 cents.
And in that, I hope to analyze and answer the million-dollar question.
Is AppSumo at fault for a startup's failure? If yes, to what extent?
But first, let's drop some introductions.
Introducing the Suspects
There are three parties in the equation. You've got
AppSumo (intermediaries)
Product (sellers), and
Sumo-lings (buyers)
AppSumo is THE MARKETPLACE for folks to buy and sell software on a lifetime deal.
Though they sell courses, PDFs, plugins, ebooks, templates, etc., they're better known for their affordable software lifetime deals.
Lifetime deals (or LTDs) mean you buy once and use them forever.
LTDs are like Black Friday sales happening all year round.
Users (or Sumo-lings) go nuts for these steal deals. Who doesn't like an alternative to the pricey category incumbent for a nominal one-time fee?
AppSumo gets a cut from the sales. Users get crazy deals. And startups get some money and users.
A win-win-win, right?
Well, that's what it's supposed to be. But there's more to the story.
To understand things better, you'll need to understand the context of these three parties.
Startup Traits launching on AppSumo
As the talk is about SaaS startups, here are some insights about an average startup launching LTDs on AppSumo.
The founders of these early-stage software startups are usually first-time founders looking for PMF or user validation.
Choose your audience carefully, and not just anyone, for the sake of survival. Your first users shape your product.
Almost all of these up-and-coming software startups have one thing in common: Marketing is not their strongest suit. They don’t have a product-channel fit. Because of that, they rely on AppSumo for traction to acquire their initial set of users.
They have limited pricing control on AppSumo listings.
AppSumo User (Sumo-ling) Traits
AppSumo users are like characters in a TV show with an untouchable character plot.
Here are some insights about an average AppSumo user, sumo-ling.
Most AppSumo users are freelance marketers and small agencies hunting for ‘value for money’ deals they can re-sell to their customers.
Their reviews (or taco ratings) can make or break your product launch. Good taco ratings, and you’re flying.
Here’s a review of a rising SaaS tool launched in the marketplace.The majority of sumo-lings are supportive. They’ll help you refine your product and features. But you'll need to face the burden of their expectations in the long run. You'll hear queries about feature limitations, roadmap, feature requests, etc. It will get annoying if your vision has pivoted. And if you oblige, you might have to deal with feature creep.
Users might push startups to offer more credits or team seats through various license tiers to derive more value from the deal.
Users don’t respond to subscription-based upsell tactics post-purchase.
Most LTD buyers will barely use the service. They buy, thinking it might be helpful for them in the future, but end up not needing or forgetting about it.
I am no different. Here are some of my LTD purchases from AppSumo. And as you might have guessed, I have only used a handful of these.
AppSumo Characteristics
Here are a few things about the AppSumo platform.
The marketplace is more user-focused than seller-focused.
AppSumo offers a 60-day money-back guarantee to ensure the right fit for users.
You’ll find this notification for almost all paid deals on AppSumo. There are no hidden tricks here.They also have a ‘We Got Your Back’ guarantee, which ensures you get a store credit in case a tool shuts down within 1 year of purchase.
Rather than value-based pricing in sellers' interest, the deals are pushed at a nominal one-time fee to attract more buy-ins from sumo-lings.
AppSumo offers two programs: Marketplace and Select.
AppSumo Marketplace is the free version based on the self-serve model.
Organic searchability is very low.
Your product will likely get lost in the competition, which means no sales, revenue, or growth.
The founder has to work to get shoutouts, mentions, reviews, etc. It's a lot of work, usually to no avail.
But if you do well, your product will be shown in a section on the Homepage, 5-6 folds below. Here’s an example of the rising stars of the AppSumo Marketplace.
AppSumo Select, their premium gated version, provides more visibility and assistance to your product.
It's what you see when you go to their website.
AppSumo team does your bidding by promoting your product through ads, organic boosts, and a spotlight.
You can find select products on the first five folds of AppSumo’s Homepage, as shown below.They charge much higher for Select than their free version on the sale of a deal.
For the Select program, AppSumo takes around 75% of the sales revenue, subject to negotiations. That leaves around 25% of revenue with the startup.
Sure, it sounds bad.
It makes anyone ask questions about the sustainability of the startup.
And that's what most folks highlight as the death claw of AppSumo.
The argument is that the revenue sharing is so misaligned that it affects the startup's sustainability.
This begs an answer to the question, if the situation is so bad, why would startups want to launch on AppSumo?
Why do Startups prefer AppSumo?
You don’t need to be a rocket scientist to figure out why startups would choose to launch on AppSumo.
The answer lies in the numbers. With AppSumo, you get access to
3 million + users worldwide.
500k+ combined social subscribers and followers.
A vast affiliate network to promote products.
If that's not enough, big-name launches like Lemlist, Crello, Zapier, Shopify, Dropbox, and Intercom add to AppSumo's credibility.
Startups come for visibility and to take advantage of the platform's enormous exposure.
It's a golden ticket for those who wish to bootstrap and not deal with VCs.
But there's a catch. As there always is.
To leverage AppSumo's exposure, startups must compromise on the revenue share to get users.
This means being okay with getting just 25% sales revenue and a few users.
And we go back to the shouts of startup sustainability.
This 25% might make sense for a product needing little to no maintenance.
But what if there are costs involved for servers, data storage, support, etc?
It won't be long before that 25% goes down to single digits, and eventually, you end up paying from your pocket.
It all comes down to the opportunity costs.
That said, things might make sense if you find relevant users to validate and improve the product.
Some might easily compromise on short-term revenue for the bigger picture.
But if it's just for survival, without any goal or direction in mind, you're just delaying the inevitable—another statistic on the chart.
It’s time to answer the main question.
What blame lies with AppSumo for a startup’s failure, if any?
Is it right to blame AppSumo for a startup's failure?
Jumping straight into it, the answer is probably not.
Here are a few reasons why.
Nothing Personal. Just Business.
Like themselves, AppSumo is also running a business. And because they're arguably the best among their peers (Dealify, PitchGround, etc.), they charge a premium.
Cost of Outsourcing Marketing.
Since most startups launching on AppSumo lag in their marketing efforts, they rely on AppSumo for traction.
That's the price you pay for not having a product channel fit. If startups had this figured, they probably wouldn't need AppSumo in the first place.
Unfair Revenue Sharing?
Sure, a 25-75 revenue split sounds quite scandalous. It makes no business sense.
But nobody talks about how AppSumo does the bulk of the work promoting your product. Of AppSumo's 75% sales cut, they spend quite a proportion on ads, videos, and other promotions. And then there are also platform fees for the platform.
What they’re left with is way less than the 75% cut.
Startups probably aren’t aware of this, or even if they are, due to lack of transparency, this eventually becomes a value perception issue.
It leaves startups wondering how that makes sense. And that becomes a talking point.
But in reality, there are bigger risks that are unaccounted for.
Like the one where AppSumo only earns after a user purchases a software deal. So, they invest in marketing at their risk before seeing any monetary results.
Also, since not all products are winners, AppSumo’s margin further narrows down.
Maybe this business model is necessary for AppSumo's survival. Food for thought.
That said, not everything is black and white.
However, one certain thing is that startups and AppSumo need each other for survival.
And being the big brother, the responsibility falls into AppSumo's lap to ensure startups don't just survive but thrive in the long run.
And why not? AppSumo's success lies in the success of its partners.
You can't easily change user habits, but there are a few actionable stuff both AppSumo and startups can do to ensure maximum success.
What can AppSumo do to ensure that startups win long-term?
Here’s how AppSumo can create a supportive environment for startups, fostering long-term startup success beyond the initial product launch.
1. Help startups set sustainable launch goals
AppSumo needs to help onboard and offboard startups the right way.
Startups need realistic goals focusing on their long-term game rather than just initial sales.
Sure, any startup would want good coverage to initially get more users.
But you need to know when and how much is enough. Or it can quickly become too much to handle.
If a startup isn't ready, more users mean more problems in the shape of bugs, feature requests, UI/UX faults, etc.
And they suffer badly through this vicious cycle that they aren't ready for.
So, setting sustainable goals means you know the right time to unleash and go from an early-stage product with an MVP to a proper product that can support users and itself.
AppSumo can limit the number of codes available to users depending on the startup’s capacity.
And when the goal is achieved, startups need to offboard with clarity.
Finding that balance to grow is what sustainably is all about. And goals help find that balance.
2. Build a community
AppSumo can create a community ecosystem for startups to discuss challenges, share insights, and collaborate on projects.
Startups can benefit from exchanging ideas and receiving feedback within a like-minded ecosystem.
Creating feedback loops through this direct communication channel helps AppSumo refine its product offerings and align with market demands. Also, it helps enhance user engagement and foster loyalty among its partners.
3. Continuous learning and skill development
AppSumo could offer exclusive webinars and access to industry experts.
In addition, they can develop a library of online courses focused on essential skills such as marketing, fundraising, and product development.
4. Offer Transparent Pricing
AppSumo can improve its pricing models in relation to user offerings.
For starters, the two-month refund period for users can be halved if other guarantees, like ‘we got your back’ assurance.
As for the revenue split, AppSumo can share the actual split percentage after running promotions and other associated costs.
It would improve the value perception and not leave people guessing.
Final Thoughts
People can blame AppSumo all they want for the failures of a software startup.
However, the reality of the situation is not that simple.
That said, no startup should feel hard done for their AppSumo launch experience.
Startup founders need to be savvy enough to know what they need from this collaboration. That means setting the right goals and understanding that AppSumo is the means to get to the goal, not the goal itself.
As for AppSumo, its success lies in the success of its partners.
So, they must create a robust ecosystem that hinges on the collective responsibilities shared amongst themselves, startups, and users.
And possibly, we might see a win-win-win scenario.