      SaaStr · 2022-07-21
      · 1414d
    

The Strategic Advantages of Being Market #2 in SaaS

Jason Lemkin argues that being the #2 player in a SaaS market offers distinct competitive advantages despite power law dynamics favoring market leaders. While #1 typically captures 80-90% of category value, #2 can win through better technology, innovation, superior partnerships, and customer focus, potentially achieving $200M-$2B+ acquisitions with disciplined fundraising.

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Metrics in this report

Favorable #2 Acquisition Outcome

200-2000$M

typical range

acquisition value for disciplined #2 players

Market Share Concentration

80-90%

typical

captured by #1 player in established SaaS category

Product Superiority Threshold for #2

30%

minimum

better than #1 for #2 to win among existing market leaders

Product Superiority Threshold for Disruption

10xmultiple

minimum

required to disrupt entrenched #1 from outside position

ROI Payoff Timeline

18-24months

expected

for customer-focused #2 strategy to generate returns