In the What is SaaS? SaaS is the abbreviation of Software as a Service, and refers to a software licensing model based on user subscription with monthly or annually payments. The model… world, you can never let down on growing your user base.
Even if you do everything right –have a great product, active users, low costs of acquisition, the right growth funnels in place, robust feedback loops, fast product development and design, and a large addressable market – too many products face the issue of slowing growth rates despite success.
If you find yourself in such a position, it would be worth looking into your adjacent users as your next target market.
Savvy marketers with well-performing SaaS companies know the importance of data-driven decision-making, and there are many ways business teams look at and break down how they are doing in the market. Unfortunately, too many companies miss a golden opportunity to target adjacent users who can help fuel a new wave of growth.
In this post, we discuss everything you need to know about the Adjacent User Theory and using it for your own interest.
First things first…
Before we get into who and what your adjacent users are, it would help to take a step back to look at how marketing and sales are generally approached by many SaaS and digital/IT companies.
Consider the following list of common growth, revenue, and adoption metrics:
- Revenue Generation: Are you hitting your revenue targets? What can you do to boost sales? Are you addressing the right markets? Do you need to adjust your prices?
- Costs Per Lead: How much does a new lead cost to generate? Are these costs backed by acceptable conversion rates?
- Cost Per Acquisition: You must balance between revenue and cost per acquisition for it to make sense to go after a new user. If your cost per acquisition is too high, your revenues will take a hit.
- Average Revenue Per User: This is another useful measure that helps give you a bird’s-eye view of how you are doing and how much you earn per user.
- What is retention? Retention refers to a customer continuing to use a business’ product or a service and to pay for the said product or service. It is a key…: Do you lose users after spending money to acquire them? Why might you be losing users?
- Upselling: Your current users are already familiar with your product so it is often worth the effort to try to sell a higher-level tier or package to them in lieu of acquiring new users unless you can do both things at the same time.
- Conversion Rates: Digital marketing is nothing without an understanding of your conversion rates. If you fail to convert users, you may have to address the quality of your leads, your messaging, your target market, and maybe even your basic product offering.
- Active Users and What is churn? Churn refers to a customer cancelling their subscription to your products or services. It is a common metric among especially SaaS(service as a subscription) businesses. Churn exists… Rates: Your active users – and paying users from within your active user pool – as well as your user churn rate are important metrics to know so that you can tweak how your onboard, interact with, or serve your users so that they stay with you for longer or level up to a paid or a higher level offering.
Some companies hit their revenue targets, control their acquisition costs, have great conversion rates (high), and churn rates (low) and are able to upsell to a large and growing active user base yet still struggle to keep pace with growth that their addressable market can sustain.
This is a critical error because if you are not reeling in users that you can acquire, someone else will.
A common approach in such a scenario is to adopt growth strategies using the metrics above, such as improving retention, adjusting pricing, or even targeting a wider market – even though the product-user fit for new markets may not be ideal.
However, there is a niche of users that too many companies fail to target, and they are your adjacent users.
Who Are Adjacent Users?
Adjacent users are those who are a) aware of your product and b) may have tried to use it but c) they, for whatever reason, did not sign up, register, or otherwise become what you would define as an acquired user.
We could also use the definition by Bangaly Kaba, former VP of Growth at Instacart-Instagram who had achieved an exponential growth with the Adjacent User Theory:
The Adjacent Users are aware of a product and possibly tried using the it, but are not able to successfully become an engaged user.Source
In most cases, this happens because the way your product or service is positioned is not ideal for these users or the What is user onboarding? User onboarding is the crucial process that starts from the first login of a new user and ends up in their aha moment, and usually beyond…. experience is too clunky or has barriers, hassles, or other obstacles that stand in the way of What is product adoption? Product adoption is the process where an individual learns of a new product and becomes a user of it, learning what it does, how it does….
You will almost always have adjacent users who linger around the fringes of the various user groups you have. They all have different levels of knowledge and/or experience with your product and can present you with a great opportunity to quickly reel in low-cost users with the potential for a great deal of upside.
What Is the Difference Between Personas and Adjacent Users?
Why do we need to look at adjacent users when we already have personas that are known to help target users?
Well, here are a few issues with the persona approach.
Firstly, personas are often used to categorize your current users so that you know as much as you can about who uses your product and how.
Based on user demographics, usage patterns, and user likes and dislikes, product and service prices, features, and messaging can be tweaked. This is a reactive approach to marketing.
With adjacent users, you proactively predict who your next users can be so that you can preempt the challenges and obstacles they may face in becoming active users instead of waiting for them to become users themselves and then work on their product experience.
Secondly, personas are often very static.
Once the marketing, design, or development team comes up with descriptions of power users, early adopters, laggards, and other groups of users, those definitions and descriptions often stay the same for months or years.
Adjacent users evolve on a much shorter timeline and change in terms of wants, needs, and expectations very quickly, and adapting to rapidly changing and evolving user descriptions can keep you more relevant.
Thirdly, personas are sometimes made to be very broad and lack focus.
This is sometimes done deliberately to help the company target different users who may fall to any degree within a targetable user demographic. While this helps to ensure that you do not miss out on acquiring any user who may have some need or interest in your offering, it can be difficult to take meaningful action based on broad user descriptions.
Adjacent users, on the other hand, are finely defined sub-groups within your larger user groups that are within arm’s reach of becoming users themselves, and acquiring them must, by definition, be done on a very custom and individual level.
Usage vs. Descriptions
Finally, personas are usually not based on product or service usage; instead, they are based on biographical or emotional factors that the company believes to apply or are true for their users.
For adjacent users, you must pinpoint issues, metrics, and obstacles pertaining to usage on a granular level as part of the group’s definition and then address usage-specific issues while trying to bring in your adjacent users into the fold of being active users. This enables a much more data-driven, proactive, and actionable approach to the problems your users face.
The Importance of Identifying Adjacent Users
Why do you need to know who, out of the market as a whole, are your adjacent users?
You must solve for your adjacent users because of three reasons:
1- Growth and Scaling Based on Your Current Product-Market Fit
Identifying your adjacent users can help you extract extra value from your offerings based on your existing product-market fit.
Your current userbase does not necessarily represent the true size of your addressable market even if you do nothing to change your existing product. There are always people who know about your product or may be interested in using it but just need a little assistance in navigating whatever obstacles or challenges they face in closing the deal.
2- Long-Term Compounding of Benefits
You have adjacent users because you have active users.
If you can create actual users from your adjacent users, you expand the set of your overall users, creating a new set of adjacent users whom you can target in iteration #2. Your efforts today change the competitive user landscape tomorrow, and this cycle can grow your active users while also powering better retention, lowering acquisition, and generating revenue.
3- Redefining Product, Design, Sales, and Marketing Efforts
In the discussion above, we talked about the shortcomings of using personas as they are understood today when making product, design, sales, and marketing decisions.
Your audience is always changing and evolving.
If you stick to using personas, you will be slow to implement important changes that your product – and your company – need to survive.
By looking into and trying to understand your adjacent users – those who, by definition, live at the very edges of your base user groups – you can provide your product, design, sales, and marketing teams with actionable insights on what’s stopping the next wave of users from using your product, and you can proactively make the changes that need to be made before it is too late.
Finding, Defining, and Acquiring Adjacent Users
Here is where we are now: (let’s take a deep breath)
Your users are groups of people who tend to be similar in many ways, and they are all surrounded by adjacent users who share many of the same similarities, differences, likes, and dislikes, but the only thing that makes them different from your current users is that they face obstacles of some sort in joining your platform or using your service.
This is true for all of the user levels and groups you have, such as power users, your core base of active users, casual users, those who simply signed up but have not really engaged with you, and visitors who are at the beginning or are very early in the acquisition pipeline.
Every one of these groups has adjacent users next to them who could potentially be converted to an actual user. What you need to do is understand why they struggle to adopt or join your platform or use your service.
As you do that, you grow the set of each group of users until the adjacent users just outside each group are automatically subsumed into the group closest to them.
It’s as simple as that.
Why Companies Fail to Focus On Adjacent Users
Common reasons that companies do not – or fail – to use adjacent user theory are because:
- they only focus on high-end power users or those who have the highest likelihood of being upsold,
- the personas they use are incorrect,
- they try to get everything right all the time,
- or they focus too intently on a specific segment of users and fail to see the bigger picture.
If you only focus on power users or high-end users, you will never design a product that is easy to onboard because such a product will be designed to fit the needs and will work based on the preexisting knowledge that advanced users have.
How can new users possibly pick up your product and hit the floor running if they need a lot of prior knowledge to use it?
As for trying to get everything right every time, this can be thought of as the dilemma between developing an MVP or developing a perfect product.
You can spend forever developing the perfect product with the right features and functionalities that your target market wants, but the smarter thing for fast, agile, and adaptive companies to do is develop a minimum viable product, release it, and grow from there.
You do not have to score a perfect 100 on each release; just doing well enough to keep your growth momentum and meaningfully improving your offering in each iteration is enough.
Do I Have Adjacent Users?
While you may agree with some or all of the discussion above, a logical question is to ask is this:
How do I know I even have adjacent users to target in the first place?
The best way to answer this question is to look at cohort decay.
How many users fall out of the pipeline from one group to the next as they pass from visiting your site all the way to becoming a paid user is a measure of cohort decay.
Different marketing channels will bring in different types of users, but many would-be users who fall out of the pipeline along the way – all of those are your adjacent users.
They are – or were – for whatever reason, interested in your product but did not make it to the end of the pipeline. By measuring the rate at which your cohorts decay, you can identify the size of your adjacent user groups from one stage of the user onboarding or acquisition process to the next.
Who Are My Adjacent Users?
One way to answer this question is to see who your successful users are and see who in your customer pipeline has the same attributes as those users but are not users themselves.
For example, if all of your users are urban men with a certain income and have multiple kids, and are not price-sensitive, then any users in your target market who meet this definition but are not yet users can potentially be adjacent users.
You can define additional vectors, factors, and category definitions, and the more you have, the better. You can also micro-target based on the information you have, so you can, for example, change your target demographic salary range or price sensitivity and hyper-target users based on that.
You can also extrapolate to other demographics in other cities, to other genders, and to other languages, for example, as long as the template of who your successful users are and who matches them most closely remains unchanged.
IMPORTANT: Don’t Misinterpret Primary Information
While you do this, it is very important to understand why your successful users are successful.
Is it simply because they are male or female or have a certain income?
You need to connect the needs of your users with the product or service you provide.
For example, online shopping has grown exponentially over the last few years because so many people prefer to shop from the comfort of their home instead of driving to the market. This meant that online shopping UIs, product discoverability, and related features needed to be developed.
From there, the importance of reviews, price comparisons, finding sales and deals, and having the right product options available were enhanced, creating a slew of successful products and companies that got it just right – not just for their target markets but everyone who shared similar goals and needs but just needed a tweak or a push to get them to become active users.
These companies, in effect, tapped into their adjacent users to enjoy the growth we’ve seen these companies enjoy over the last decade or more.
Reeling In Your Adjacent Users
The best way to reel in your adjacent users is to talk to them, visit them, see how they behave, and try to see the world as they do.
Your product team should spend time being the adjacent user and seeing your UI and login or sign up flow as they would. Try to simulate their experience and use your features as they might.
Where and when do you start to see some benefit or utility and where or when do you run into obstacles or frustrations?
Usability testing can provide insight into how adjacent users interact with and experience your product, and surveys can be used to elicit personal stories about what your users liked or disliked or what they thought when they visited your site versus what they felt when they closed their browser.
Get the Sequence Right
Don’t just target all potential adjacent users irrespective of where they are in or near your customer pipeline.
You need to get the sequence right.
Here are a few key points to keep in mind when targeting different adjacent user groups.
- Make sure that different adjacent user groups are different along with only one or two key attributes.
- Remember that not all adjacent users necessarily provide a growth opportunity.
- You don’t need to serve every segment. There can be hundreds of different groups, all different in minor ways, each with its own set of obstacles that it faces in bringing you active users.
- You can target those users who have the highest upside in terms of revenue or those whose needs align best with what you already have in terms of product features or functions.
You may choose to target in-house users, those already in or closest to your existing user funnels instead of targeting well-matching adjacent users who have not yet entered your user funnel.
However, whatever sequence you choose, make sure your sequencing:
- targets current adjacent users who can power new revenue.
- targets those users who can drive value in other ways, such as those who can add a viral element to your product or give you additional mileage in other measures of success or growth, such as a new demographic in a hard-to-crack market that you have not yet onboarded.
- targets the new set of adjacent users you create after addressing the issues faced by the adjacent users you started with.
Adjacent Users can and WILL change over time
We said above that your adjacent users will evolve over time.
And it is your job to identify adjacent users, determine which groups of users to target, and then identify new adjacent user groups that develop and evolve – not just in response to changes that you control and make but in response to macro, market-wide changes that occur, such as long-term changes in user tastes, new technologies, and similar developments.
New information via new tests, unexpected test or trial results, and new research can all give new insights into who your potential users are.
New users can show up in or adjacent to the various sales and outreach channels you use.
A customer you may never have reached may hear about your product from a friend, or users who move from, say, college to working jobs, and now have money to spend on products they’ve used for a long time can also change from adjacent users to actual users.
Other cross-synergies between, for example, social channels can help you reach new groups of users who were not formally included in any persona or target group for your product. This is common with users who use one social platform such as YouTube but not another such as Twitter but can benefit from interactions with different users on platforms they typically do not use.
New value propositions can drive adjacent users into the set of active users or formal sign-ups.
New uses for your product and new features can drive adoption as well and can prove to be the turning point for many users who were on the fence about using your service but are finally convinced of doing so due to benefits they now perceive they can enjoy by using your service.
To maximize the benefit you can extract from new users and adjacent users, you want to onboard these users and make sure to understand why you see the metrics or results that you do.
Also, make sure to constantly and consistently get the basics right.
This means streamlining and refining your onboarding, registration, and activation processes, and meaningfully engaging and then monetizing your users. Yes, when targeting adjacent users, you want to bring new customers to your product, but don’t let that lead to a lowering of the bar elsewhere when it comes to designing, producing, and delivering an exceptional experience for everyone else.
You can only maintain high-level growth for so long.
At some point, your growth rates will taper off as you completely and successfully acquire all of the users you set out to acquire.
Eventually, the only viable solution to maintain growth is to branch out to your adjacent users. This is actually a good problem to have, and the best and most ambitious and resourceful companies are able to extract value from their adjacent users to propel continued growth.
Every growth spurt should be followed by a reassessment of who your users are, what’s working and what is not, and who your marginal and adjacent users are so that you can focus on solving the problems and addressing the issues of the people who are closest to your user segments.
Over time, you will hopefully get better at identifying your current adjacent users, making adjustments as needed to address their needs and concerns, and identifying new adjacent user groups to continue your growth in the acquisition of groups comprised of adjacent users.