What started as a snapshot of the market

has now become a full-year view of how the ecosystem is evolving—which countries are accelerating, which ones are stagnating, and where AI-native SaaS is emerging fastest.

Late last year we observed something surprising: Europe had overtaken the United States in the number of SaaS companies.

The latest quarterly data helps answer a more profound question: is Europe actually growing faster, and where is it growing?

A Year of 1,750 New Companies

Across Europe, the number of SaaS companies continued to grow throughout the year. The net growth for the region was 1 750 companies from March 2025 up to now.

Major ecosystems such as the UK, France, Germany, and the Netherlands added 794 companies. But arguably more significant is the growth in markets that historically lacked strong tech ecosystems—Italy, Sweden, Poland, and Turkey—suggesting that SaaS formation is no longer concentrated in traditional hubs.

Small Countries, Outsized Ecosystems

When adjusted for population, visualising ecosystem density reveals a different picture.

Smaller technology ecosystems in Northern Europe continue to dominate SaaS density, with Estonia and Sweden ranking among the highest in SaaS companies per capita. I have highlighted Estonia as a key growth hub and the reasons behind it earlier in this posting. This pattern reinforces a consistent finding: ecosystem density correlates more strongly with digital infrastructure and policy environment than with population size or GDP.

The AI layer is no longer optional

One of the most compelling trends across the ecosystem is the rise of AI-native SaaS companies. In many European markets, AI startups already represent 20–35% of the total SaaS ecosystem — a share that would have seemed improbable just two years ago.

What makes the regional distribution particularly intriguing is where AI density is highest. Italy, Ireland, and the UK lead in AI-native share relative to their total SaaS base. The reasons differ by market. The UK benefits from deep capital markets and a mature talent pool centred around London’s AI research hubs. Ireland’s disproportionate AI focus reflects its role as the European headquarters for US tech giants — a proximity effect that spills talent and know-how into local startups. Italy’s position is perhaps the most surprising: a wave of applied AI companies in manufacturing, logistics, and design suggests that AI adoption correlates not just with technological maturity but also with the complexity of the industries a country needs to digitise.

The data reveals a structural shift. AI is no longer a product category — it is becoming infrastructure, much like databases or cloud hosting before it. The European SaaS companies founded today are not choosing whether to integrate AI. They are choosing how to create customer value using AI.

The Transatlantic Scoreboard

The past year suggests that Europe’s SaaS ecosystem is entering a new phase. After a slow first half of the year, Europe’s growth accelerated and is now leading the US in the number of SaaS companies, over 11,000 to 9,600.

While the United States still dominates in global software giants and capital markets, Europe now has a broader and increasingly distributed base of SaaS companies across the continent. The next question is whether this expanding ecosystem can produce the next generation of global SaaS leaders.

What Comes Next

The question isn't whether Europe can build more SaaS companies — the data shows it already does. The real question is whether this distributed ecosystem can produce global category leaders or if the gap between company counts and market capitalisation remains Europe's defining weakness.

Subscribe to see quarterly updates and analyses of the European SaaS Ecosystems.

Subscribe now

This piece addresses what comes next: managing the segments you’re leaving behind.

Introduction: The Decision Is Made. Now what?

In the previous article in this Leaky Bucket series, Focus decision every founder is afraid of, I explained how to choose which sides of the bucket to focus on. But you'll still have customers, features, and revenue in the non-focus segments. As pointed out, those segments keep leaking.

The framework’s answer is radical: those segments shouldn’t exist in your product anymore. But you can’t just flip a switch and make them disappear. Your transition needs a strategy.

The Three Types of Non-Focus Segments

1. The Revenue Trap

The first type is the most difficult one: high-value customers that fit the old positioning. These pay well but pull the company in the wrong directions. It is a revenue trap; it is hard to give up the revenue even though the strategy says you should. For example, enterprise deals that require custom development that is outside the new focus.

2. The Legacy Anchor

If you've been in business for a while, you'll have legacy customers, who remember the early days when you said yes to everything. They're loyal to a version of your product you're no longer building, but they are also hanging on to a product that you are no longer developing.

3. The Accidental Win

Some customer segments have become customers by accident, not by design. The product just happens to fit a certain need well. They're low maintenance and generate revenue with minimal effort. The temptation is obvious: why not just keep them?

Four Transition Strategies (Choose One Per Segment)

Strategy 1: The Controlled Sunset

This strategy works for segments that you definitely don’t want to serve any longer, and you would rather lose the revenue than continue the service. Typically these are low-value customers with high maintenance.

This segment's transition is clear, but it requires strong conviction. You announce the end of life and stop developing features for them. Refer customers to competitors. Offer partial refunds if contracts allow. Document the migration path so that customers understand you aren't abandoning them and are assisting them in finding a better fit.

Strategy 2: The Feature Freeze

The second strategy is suitable for profitable segments that generate revenue but don’t require active development. Price the service to account for the maintenance costs.

With careful management it is possible to milk this “cow” segment almost indefinitely and collect revenue that supports the development of other, more strategic segments.

Example: Intercom still sells their legacy live chat to SMBs while focusing product development entirely on their customer platform for the mid-market. The SMB product works and generates cash but receives zero new features.

Strategy 3: The Premium Exit

Some high-value customers cannot be lost right away, even if they are not strategic in the long run. Raising your prices is a good indication that your focus has shifted, but you must accept that some will remain even at the higher price. For the rest, you may need to provide white-glove migration to competitors. Introduce them to your former competitor. Offer to port their data. Make the exit graceful; they'll remember how you treated them.

Strategy 4: The Product Split

This option should be used only in rare cases where there are two (or more) viable focus segments, each of which is large enough to sustain a product. It necessitates separate code bases and product lines, as well as an acknowledgement of the increased workload. This is rarely the right answer. If you think you need it, revisit your segment selection.

The Sales Problem: Saying No to Revenue

Immediately after making the strategic choice, a non-focus deal worth €50k walks in the door. Sales definitely wants to close it, as the money is “for us to take”. How do you maintain the discipline?

The Three-Question Filter

Use this three-step thought process to determine how to proceed:

1. Does this customer fit our “only” statement as described in The Focus Decision Every Founder Avoids? Because this is a non-focus transaction, it is likely that the customer does not meet our ideal customer profile. Then ask

2. Will serving them improve our performance in our focus segment? Even if the customer is not in the focus segment, their use cases may benefit us with the focus customers. If this also fails, consider what the opportunity cost is.

3. If we say yes, what focus-segment work will die? Are we winning or losing in the long run if we take the non-focus customer?

What Actually Happens (The Uncomfortable Part)

Some customers will churn immediately, which was expected and part of the plan. Revenue will dip. The question is whether you've chosen a focus segment with enough depth to more than recover that loss within 12-24 months.

Internally, you will experience resistance from all functions. They have successfully built a product and a customer base which you are now breaking apart. The logic remains: shallow coverage everywhere loses to deep coverage somewhere. Repeat it until it sticks.

It's a good test for the leadership team to see if you can walk away from non-focus deals with confidence.

Won’t the Bucket Still Leak Empty?

The metaphor has a flaw: in reality, a bucket with holes anywhere will empty eventually. But the framework isn’t about accepting permanent leakage; it’s about removing those sides of the bucket entirely. Over 12-24 months, the non-focus segments disappear. What remains isn’t a circular bucket with some holes patched. It will be a fundamentally different shape, built for depth instead of breadth. The filling rate (new customer acquisition in your focus segment) must be greater than the remaining leakage, or you have chosen the incorrect segment.

The Holes Will Leak. That’s the Strategy

The leakage in the non-focus segments is not a failure but by design. Focus requires sacrifice. The non-focus segments must churn. That's not a bug; it's the strategy working. Over 12-24 months you will be in a stronger position with focus, depth and defensibility of your core segments.

Next in this series: How to prioritise which patches to apply first within your chosen segment.

After the euphoric peaks of 2021 and 2022, when record funding poured into startups, the European venture capital market entered a painful correction. While the headlines focus on shrinking annual funding totals, a deeper look at the data reveals three critical structural shifts that define the curent environment.

1. Capital is Concentrating in Fewer, Better Companies

The current state of the market clearly indicates that capital has not vanished, but has instead become more selective.

The insight: Deal volume has fallen dramatically since 2022, confirming a broad retreat from early-stage and high-risk investments. Yet average deal size has returned to near-peak 2021 levels at €9.2 million.

This means that while the majority of companies are struggling to raise funds, the best companies are still attracting large, significant rounds. Europe is not losing capital; instead, it is concentrating it into a smaller portfolio of highly vetted winners.

2. A Looming Exit Bottleneck for Early-Stage Companies

The discrepancies between the deal-making funnel and the exit market have created a significant liquidity challenge.

• The Funding Funnel is Early-Stage Heavy: Despite the downturn, Early-Stage deals consistently make up 70% to 76% of all transactions in the European market. The pipeline of new ventures remains robust.

• The Exit Ramp is Broken: The public market for venture-backed exits has essentially collapsed. IPO and SPAC activity has fallen from hundreds in 2021 to a handful in 2025.

• The Only Escape Route: Mergers and Acquisitions (M&A) remains the only stable exit path, maintaining over 4,000 transactions annually.

The insight: The significant number of early-stage companies receiving funding today is rapidly approaching an exit bottleneck. Startups of today will not enjoy the luxury of a 2021-style IPO. Instead, they should adopt a mergers and acquisitions mindset, with a focus on strategic value, market share, and profitability to increase their appeal as potential acquisition targets for corporate buyers.

3. How We Got Here: The Crash, Recovery, and Return of Discipline

The quarterly average deal size data reveals the painful journey from boom to maturity.

• The Quarterly Average Deal Size plummeted from a peak of €11.0 million in 2021/Q2 to a low of just €3.7 million in 2023/Q1. The 66% drop erased the boom's inflated valuations.

• The Recovery is Rational: Since the 2023 low, the deal size climbed back toward the €9.6 million mark by the end of 2025.

The insight: This trajectory tells the story of market maturation. The crash of 2022–2023 forced a painful reset, wiping out inflated valuations and speculative capital. The subsequent recovery has not been a return to frenzy; instead, capital is now being deployed to a narrow set of companies that survived the correction, proved their resilience, and demonstrated strong fundamentals. Investors are no longer paying a premium for pure growth potential but for proven, de-risked businesses.

Conclusion: A More Mature Market

Europe’s venture capital market has transitioned from its previous phase of high-growth volatility to a more stable and sustainable trajectory. The market increasingly exhibits the following characteristics:

• Selectivity: Only a few companies receive big cheques.

• M&A Reliance: Acquisitions are the primary path to liquidity.

• Discipline: Valuations are tied to performance, not hype.

For founders, the mandate is clear: focus on profitability, capital efficiency, and a clear path to M&A. For investors, the risk is lower, and the potential returns from the small, successful portfolio of quality companies are poised to be higher.

The question is not whether Europe's venture market can recover to 2021 levels. The question is whether this new discipline will lay a more sustainable foundation for the next generation of European tech leaders.

You’re staring at a bucket full of holes. Your users are leaking out. Sales wants enterprise features. Support is drowning in small business complaints. Your fastest-growing segment keeps hitting walls with your product limitations. Customer support is in a crisis. Everything feels urgent.

After watching teams chase enterprise deals, appease churn risks, and ship "urgent" fixes in parallel, I’ve learnt that the right focus is less about prioritising and more about choosing constraints.

To avoid drowning, you must make a decision, as outlined in the first section of The Leaky Bucket Product Framework. In practical terms, this entails selecting one or a limited number of segments that you excel at while allowing the remaining segments to deteriorate over time.

So which side of the bucket do you make watertight first?

This is the defining decision for product strategy, and most teams get it wrong. They try to plug a hole here, patch something there, and end up with a bucket that leaks everywhere instead of one that holds water anywhere.

The Three Traps: How Founders Usually Choose Wrong

Following the Money (Usually)

The enterprise deal is worth $500K. The small business customer is worth $5K. Easy choice, right? Except that enterprise deal requires 18 months of custom development, pulls your team in twelve directions, and creates technical debt that makes every future hole harder to plug.

Following the Squeakiest Wheel

The loudest customers aren't always the right ones. Occasionally they’re loud because your product was never meant for them in the first place. Sometimes they are loud because your contact is more vocal than others.

Following Your Gut

“We’re passionate about serving creative agencies” sounds excellent until you realise you have no special insight into their world and three well-funded competitors already own that space.

The Five Questions That Make the Decision Obvious

1. Where Do You Have an Unfair Advantage?

It's not just about having a competitive advantage but also about having an unfair advantage. Or as Philip Kotler defined it, to have a competitive advantage is a company’s ability to perform in one or more ways that competitors cannot or will not match. What do you know about a segment that would take competitors years to learn?

• Do you come from this industry?

• Do you have unique data or access?

• Have you previously addressed similar challenges for this segment?

• Do you have existing relationships or trust?

Example: Stripe focused on developers first because the founders were developers. They understood the holes that mattered—documentation, API design, error handling—better than anyone else could.

2. Which Segment Has the Highest Hole Density?

Some segments have three critical holes. Others have thirty. You want a segment where:

• The holes are defined and understood.

• Users can articulate what’s missing.

• The holes are concentrated, not scattered.

• Fixing one hole increases the value of fixing the next.

Red flag: If you can’t list the top 5 holes for a segment without research, you don’t understand them well enough yet.

3. What’s the Pain-to-Sophistication Ratio?

The ideal segment has acute pain but isn’t yet sophisticated about solutions. The ideal segment understands that they are experiencing significant issues, but they have not yet developed complex solutions or committed to competing products.

High pain + low solution sophistication = willingness to tolerate your early product while you plug holes.

Warning: Avoid segments that have already solved their problems with duct tape and prayers. They’ll expect you to replicate their Frankenstein setup, and that is not something you want to repeat to the next customer.

4. Can You Reach Them Efficiently?

The best segment in the world doesn’t matter if you can’t find it. Consider:

• Do they congregate anywhere? (Communities, conferences, subreddits, Slack groups)

• Do they have identifiable characteristics? (Job titles, company size, tech stack)

• Can you afford the customer acquisition cost?

• Will they talk to each other and create word-of-mouth?

Case study: Figma focused on product designers at tech companies—a segment that’s extremely vocal on Twitter, attends specific conferences, and influences each other heavily.

5. Will They Pay for Holes to Be Plugged?

Not all holes have economic value. Some segments will love your fixes but never convert to paid plans. Others will throw money at you for solving their specific pain.

Ask: When you plug these holes, does it directly impact their revenue, reduce their costs, eliminate existential risks, or otherwise improve your customers’ business? If not, reconsider.

The “Only” Statement: Your Focus in One Sentence

Once you’ve chosen your side, try completing this sentence:

“We are the only product built specifically for [SEGMENT]
who need to [CORE JOB]
because we [UNFAIR ADVANTAGE].”

If you can’t complete it confidently, you haven’t chosen your side yet—you’ve just identified a target audience.

Good example: “We are the only accounting software built specifically for creative agencies who need to track project profitability because we built our product architecture around billable hours and project-based work from day one.”

Bad example: “We are the only CRM built specifically for small businesses who need to manage customers because we care about small businesses.”

How to Identify If You Made the Wrong Choice (Early Warning Signs)

The Feature Request Chaos Test

Your decision was incorrect if your feature requests remain scattered across dozens of unrelated use cases after six months. One side of the bucket generates increasingly specific, interconnected requests.

The Competition Confusion Test

If you can’t clearly articulate why a competitor can’t easily serve your segment, you’ve chosen a side that’s too broad or too obvious.

The Sales Cycle Test

If every sale requires a custom explanation of how your product works for that specific customer, you haven’t focused enough. The right segments should immediately recognise what you built for them.

If You’re Already Serving Everyone: Two Ways Out

What if you’ve already got customers across multiple segments and you’re trying to plug holes everywhere?

You have two options:

Option 1: The Graceful Pivot Pick your side and slowly shift your positioning, feature development, and marketing. Some customers will churn; many will not. That’s the cost of focus. Better to lose 30% of customers and serve 70% brilliantly than keep 100% mediocrely. If your product is already suitable for the non-focus segments, you can often continue to sell to and milk them.

Option 2: The Honest Split Acknowledge you’re serving multiple distinct segments and create separate product experiences, pricing, or even brands for each. But recognise that this multiplies your hole-plugging burden.

Closing: Make One Side Watertight (and let the rest leak on purpose)

Choosing your side is not a one-time decision; it is a daily practice. Every feature request, every sales opportunity, every “quick win” will tempt you to plug holes on other sides of the bucket.

Resist.

The compounding returns of depth beat the fleeting wins of breadth. Make one side of your bucket completely watertight. The other sides can wait.

Or better yet, they can leak forever. That’s called positioning.

If you want a second brain on this decision: I work with founders and operators to pick the segment, define the “only” positioning, and translate it into a roadmap that sales and support can actually rally around. If you’re in the “everything is urgent” phase, this is usually the highest-leverage product work you can do.

Try this: List three potential segments for your product. For each, score them 1-10 on the five questions above. The winner might surprise you.

The number of European SaaS businesses crossed 10,000 in Q4 2025, growing 4.5% to reach 10,311 companies. Yet beneath this headline growth lies a revealing tension: while France and the UK—which both grew throughout 2025 (6% and 4.5%, respectively)—saw Q4 declines of 1-2%, smaller markets accelerated.

What’s driving this divergence? A combination of market saturation in legacy hubs and accelerating growth in tier-two ecosystems.

Europe Overtakes the USA—But the Real Story Is Regional

Total European SaaS companies grew 4.5% quarter-over-quarter to 10,311—surpassing the USA’s 8,200 (down from 8,700 in September). This marks a symbolic milestone, but the more revealing pattern is where this growth is concentrated.

AI adoption climbed from 24.4% to 25.9% across Europe, while the USA reached 35%. The UK now hosts 648 AI-focused SaaS companies—more than any single European nation. Yet adoption varies widely: Ireland and Italy lead Europe at 34-35%, while other markets lag below 20%.

What does this reveal? Europe’s growth isn’t monolithic—it’s a story of emerging ecosystems (Turkey, Serbia) compensating for possible saturation in mature markets (France, UK).

Estonia continues as the density leader

Estonia maintains its position as Europe’s density leader with 88 SaaS companies per million people—nearly double Ireland’s 325 total companies spread across 5 million people. Tallinn’s density (105 per million) rivals only the Paris metro area (141 per million) and Helsinki (108 per million).

Three structural advantages explain Tallinn’s outperformance: a founder-friendly regulatory environment that minimises bureaucratic friction, accessible early-stage capital from recycled exits (Skype, Bolt, Wise), and a ‘build global from day one’ mentality born from a domestic market of 1.3 million. Read more about Estonia's success in the Estonian Formula.

The 2025 Growth Map: Emerging Hubs and Saturating Markets

Year-over-year data reveals three distinct growth tiers:

• High-growth emerging markets: Turkey (+77 companies to 283 total), Serbia (+71 companies), and Portugal (+30) led absolute growth. Turkey’s acceleration is particularly notable—its SaaS count grew 37% in 2025, signalling Istanbul’s emergence as a credible tier-two hub.

• Stable mature markets: Nordic and Benelux regions showed steady, low-single-digit growth—the pattern of established ecosystems with healthy churn and replacement dynamics.

• Saturation or consolidation? France and the UK grew modestly for the year (6% and 4.5%) but declined in Q4. Whether this reflects market saturation, elevated failure rates, or increased M&A activity remains to be seen.

The Q2 contraction—visible across multiple regions—suggests that 2025’s growth wasn’t linear. Capital availability and founder sentiment appear to have recovered in H2, particularly in emerging markets.

What the 10,000-Company Milestone Reveals

Crossing 10,000 European SaaS companies is a symbolic milestone, but the composition of that growth matters more than the headline number.

Three patterns define the current European SaaS landscape:

1. Density over volume. Estonia’s 88 companies per million people generate more ecosystem value than Germany’s 988 companies spread across 84 million. The lesson: concentrated, policy-driven ecosystems create disproportionate returns.

2. The great reshuffle. Legacy hubs (UK, France, Germany) are consolidating—whether through failures, acquisitions, or natural churn—while tier-two markets (Turkey, Serbia, Portugal) accelerate. Europe’s next wave of breakout companies may not come from London or Paris.

3. AI as the new table stakes. With one in four European SaaS companies now AI-focused—and that ratio climbing quarterly—AI tooling is no longer a category. It’s infrastructure. The question for non-AI SaaS companies isn’t whether to adopt AI features, but how quickly they can do so before their product feels dated.

The broader question remains: Can Europe’s systematic, density-first approach to ecosystem building—proven in Estonia, replicated in Ireland—scale to tier-two markets like Turkey, Poland, and Romania before they plateau? Or will these markets hit the same saturation ceiling that now constrains London and Paris?

The data suggests we’ll know by mid-2026.

The EU INC Proposal

EU INC is a grassroots movement advocating for a ‘28th Regime’—a unified company structure that operates across all EU member states. Since launching in October 2024, the proposal has attracted over 18,000 supporters and formal Commission attention. The goal is to create a favourable operating environment for new growth companies based in Europe that aim to serve a larger market than their home country.

The proposal includes:

• Standardised company structure: an EU-wide company type with harmonised corporate governance, capital and share capital maintenance rules.

• Digital-first approach: A fully digital registry, a dashboard, and standardised investment documents.

• EU-FAST investment: A new, standard, open-source investment instrument inspired by convertible instruments such as SAFEs and BSA AIRs

• EU-ESOP: an EU-wide employee share option scheme with standardised rules.

The focus of this post is not on the proposal itself, but rather on the current significance of this initiative.

Three Forces Driving Urgency

Three converging forces make this moment critical for European tech:

• Capital fragmentation blocks scale. European startups navigate 27 different legal systems to raise Series B funding. Consider a Berlin-based startup raising €20M from investors across France, Sweden, and the UK: it must establish legal entities in multiple jurisdictions, navigate different securities regulations, and manage varying tax treatments for employee equity. Legal costs alone can exceed €100K—capital that could fund product development.

• The AI window is closing. Europe missed the internet platform era (Google, Facebook), the mobile revolution (iOS, Android ecosystems), and cloud infrastructure buildout (AWS, Azure). The AI disruption represents the first major technology shift where European startups have simultaneous access to the same tools as Silicon Valley. But that window won’t stay open for very long. Capital velocity determines who captures market share.

• Political momentum exists. Commission President Ursula von der Leyen’s October commitment to ‘one single and simple set of rules all over our EU’ signals genuine institutional appetite for change. The startup sector now represents 15% of EU GDP—too significant to ignore during economic restructuring

This alignment became clear during Slush week in Helsinki, where European competitiveness dominated every conversation. At Atomico’s State of European Tech 2025 launch event in the city’s ‘Unicorn Block’, Andreas Klinger—the angel investor behind EU INC—made the case that Europe cannot afford to miss another technology wave. EVP Henna Virkkunen reinforced this at Slush, promising the Commission would prioritize better access to capital and streamlined regulations

The Path Forward

The Commission’s spring 2026 proposal will reveal whether Europe has the political will to match its entrepreneurial ambition with institutional reform. EU INC won’t solve all of Europe’s scaling challenges, as language barriers and cultural fragmentation remain. But it addresses the foundational friction that prevents European startups from competing on equal terms.

Individual action matters. The movement has 18,000 supporters because founders, investors, and operators across Europe recognise the stakes. You can contribute by:

1. Signing the petition.

2. Spreading the word through these resources.

3. Supporting the movement by buying a t-shirt.

4. Tracking the Commission’s progress toward the spring 2026 deadline.

The question isn’t whether a single regulatory reform can transform European tech. March 2026 will show whether Europe can move from ambition to action.

The Leaky Bucket

You fill your bucket with customers using a giant funnel that collects anyone from all over the world. You and the marketing team make a big effort to guide as many as possible to the funnel. Once in the funnel, the objective is to ensure that they remain contained and proceed smoothly into the bucket. In the bucket, many users churn during onboarding and never reach activation. This occurs because the bucket attempts to cater to a broad audience, ultimately failing to connect with any specific group.

But then you notice another problem. The bucket is leaking. Bugs and feature gaps have created holes in the bucket that result in losing customers and revenue. Your daily work involves patching holes in the leaky bucket. You and your team cannot do it quickly enough, resulting in an increasing churn rate. The cycle accelerates.

When patches won’t work: the technical debt spiral

Some of the holes are getting bigger due to corrosion. This is due to technical debt. You can apply patches on top of these, but the holes are too big for patching. As customer volume increases, the internal pressure rises exponentially. A hole that leaked 2% MRR at 100 customers now bleeds 8% at 400.

The strategy of patching the holes does not work. What is the alternative?

Redesigning the bucket, not the patches

The bucket is circular by design. Each side of the bucket represents a part of your market: segmented by an industry, customer size, use case, or something else. The problem? You’re trying to hold water in all directions simultaneously.

Each market has unique needs, and the circular bucket aims to provide a universal solution. You are literally draining your resources and creating shallow solutions by trying to fit too many market segments.

To stabilise your product strategy, you need to limit the markets you reach. Consider setting aside some aspects of the bucket and selecting those that align perfectly. When you reduce from, say, six market segments to two, each feature becomes reinforcement, not compromise. You’re no longer patching—you’re fortifying.

The Strategic Choice: Depth Over Breadth

The insight isn’t revolutionary, but the discipline is rare: reducing the addressable market increases product strength. The question isn’t whether your team can identify the right segments to serve, as jumping to new markets is fun and tempting. The question is whether you have the conviction to abandon the others.

In upcoming posts, i will write about:

• How to choose which sides of the bucket to focus on.

• How to prioritise which patches to apply first?

• When should you consider expanding into new areas?

  Subscribe to receive new posts and learn how to stop the leakage.

About the Author
👋 I’m Arttu Huhtiniemi, fractional CPO at R2 Growth. I help Finnish and European growth companies:
- Develop winning product strategies
- Build and lead high-performing product teams
- Scale through product-led growth
- Navigate market expansion

Need fractional or interim CPO services? Visit r2growth.com or connect with me on LinkedIn.

Subscribe now

Q3 Recovery: 675 New SaaS Companies Replace Q2 Losses

In Q2 we observed that nearly 100 SaaS companies, or 1% of the total, were lost. With more than 675 new SaaS businesses launched in Q3 2025, I'm happy to see that the industry has bounced back. The total number of SaaS businesses in Europe is now 9,974.

Every nation in the area experienced growth, except Iceland, which saw a decline of one SaaS company. Montenegro, on the other hand, experienced the most significant relative change with the introduction of two new businesses, but sample size is small (growth from 4 to 6 companies). Of the larger countries, France saw the biggest growth, adding 218 new businesses, or 13% more, bringing the total number of SaaS companies in the country to 1,818. Government incentives, especially the "France 2030" plan investing €56 billion in deep tech, are clearly fuelling French SaaS ambitions.

Europe vs USA: The Battle for SaaS Dominance Intensifies

Comparing the global competition, the growth is now happening in all regions, and continues to be strong in the USA. In Europe, we can see a clear trend of new businesses started in Q3, with 5.6% growth in small, bootstrapped businesses. The growth in other size buckets is still weak, except in the company size 200 to 500 employees. This category has 13 additional businesses, 244 in total.

New companies have been established in all regions and the market is once again expanding globally. While European companies remain smaller, the comparison of absolute numbers indicates that Europe and the USA have nearly equal number of businesses. It should be noted that the global figures include both the USA and Europe.

The European AI Paradox: Why France Lags Despite Mistral and Hugging Face

Last quarter, I started following the SaaS AI adoption regionally and comparing to the USA. In the last three months, the percentage of "SaaS AI" in the USA has increased from 26.9% to 28.7%. 24.4% is the average for all European nations.

The European race continues and Italy and Ireland continue to hold top positions, 35% and 34% this quarter. Some countries have even higher adoption rates, like Kosovo, and Macedonia, but the sample size is small for both countries.

What is interesting is the small adoption in France, only 15%, even though France is famous for some cutting edge AI companies, like Mistral AI and Hugging Face. Although the French government is making significant investments in AI, the private sector has yet to adopt it.

What Q3 Tells Us About European SaaS Resilience

Q3's 675 new SaaS companies prove European entrepreneurship remains robust despite global economic headwinds. The 5.6% growth in small, bootstrapped businesses signals healthy bottom-up innovation—exactly what Europe needs to compete with well-funded US counterparts.

The real story isn't just the numbers—it's the geographic spread. France's 218 new companies show that large European markets are finally awakening to SaaS opportunities. Meanwhile, the AI adoption paradox reveals Europe's challenge: having world-class AI companies like Mistral doesn't automatically translate to widespread adoption across the ecosystem.

Implications for product managers:

• There are signs now that the market is finally warming up, especially in the early stage companies.

• PLG is more important than ever and the most cost-effective way to get to the market with limited funding available.

Three trends to watch:

• Bootstrapped resilience: Small European SaaS companies are proving they can grow without massive VC funding

• Market maturation: The 200-500 employee category's 13% growth suggests European SaaS is scaling up, although beyond 500 employees growth is weak.

• AI integration gap: Despite having leading AI companies, European SaaS adoption remains uneven

Looking ahead to Q4: Will the recovery momentum continue? Will French AI adoption catch up with the rest of the continent? Subscribe to make sure you will hear it first!

About the Author
👋 I’m Arttu Huhtiniemi, fractional CPO at R2 Growth. I help Finnish and European growth companies:
- Develop winning product strategies
- Build and lead high-performing product teams
- Scale through product-led growth
- Navigate market expansion

Need fractional or interim CPO services? Visit r2growth.com or connect with me on LinkedIn.

While Silicon Valley dominates tech headlines, a surprising leader has emerged in SaaS density. It is known that most SaaS businesses originate on the West Coast of the United States. Do you know that Skype, Pipedrive, Bolt, Wise and Veriff are all Estonian unicorns? And are you aware that the density of SaaS startups is higher in Estonia than in California? With 1.3 million people, Estonia has 88 SaaS businesses per million, 50% more than California (which has 2000 SaaS companies and 39 million people).

Also, from my earlier stacks (The State of Euro SaaS and European SaaS Q2), you will find that Estonia has the highest SaaS density of all European countries.

What led to this, and why does Estonia lead? I will unpack why this happened and what it means for other European markets

Subscribe now

From Skype to SaaS: Estonia's 20-Year Journey

According to my latest count in June 2025, Estonia had 115 SaaS startups. With a population of 1.3M, the SaaS density is the highest in the world. Additionally, Estonians have been actively building AI-native startups, with 33 SaaS companies saying that their offering makes use of AI. These startups are embedding AI capabilities into the core, and not as an add-on, and will likely be more competitive going forward.

In 2005, the sale of Skype to eBay started the Estonian startup ecosystem. The exit generated significant capital and expertise that were reinvested into the local startup scene, leading to the creation of several new ventures, incubators, and investment funds. The notable first SaaS company Pipedrive started in 2010 and redefined CRM usability. Pipedrive is an early exception, as most SaaS startups were born in the latter half of the 2010s and surged during the COVID-era similarly to the rest of the world.

The size distribution is also impressive, with at least 10 SaaS unicorns so far, eight above $100m million valuation, and seven with a valuation between $50m and $100m to date. Notable successes and unicorns are Pipedrive (partly exited), Wise (a global money transfer, independent) and Veriff (an identity platform, independent). The total valuation of Estonian startups has reached an impressive €47 billion in 2025 to date, growing annually by 20%.

The Estonian SaaS Formula: Four Key Ingredients

The Estonian SaaS ecosystem didn’t happen by accident or overnight. How did all this get started?

1. The Skype Effect and Global Mindset

Skype's legacy has certainly been a major influence. Skype contributed funds to the ecosystem, plus fostered experience unteachable in business and tech schools.

Additionally, their country's small size makes Estonians naturally inclined to globalize business from inception. Skype emerged as a digital industry model. Take Bolt's journey as a good example: they actively pursued and achieved global expansion (listen to 20VC podcast with the founder of Bolt, Markus Villig).

2. Building Tomorrow's Founders in Preschool

Estonia has a strong focus on incorporating technology and programming into its education system, particularly through the ProgeTiger programme. This programme was started in 2012 and has taught over 50,000 children, starting from pre-school, skills to understand how computers think.

Another key skill important for startups that are born global is language skills. Estonian students need to learn at least two foreign languages, and many learn English fluently in schools.

There are also strong technical universities in Tartu and Tallinn for higher education. Tartu University is ranked in the top 1% globally.

3. Strategic Location, Lower Costs

Estonia, or Europe, is not Silicon Valley, which makes it difficult to network and follow the latest developments in tech. But the location also has significant advantages. Talent costs are significantly lower in Estonia compared to North America or Nordic neighbours.

Geographically, Estonia is naturally part of the European Union with a market of 450 million. Asia is also within reasonable distance and only a few time zones away, which is an advantage compared to the west coast of the United States.

4. Government as Digital Pioneer

Through the removal of red tape and the construction of digital infrastructure, the Estonian government has been actively promoting the startup ecosystem. The e-residency program gives non-Estonians remote access to Estonian services like banking, taxation, company formation, and payment processing. Digital signatures and a robust digital identity infrastructure speed up transactions and lower friction. Furthermore, by funding national systems like e-health and being an early adopter of several SaaS systems, the Estonian government has been eating its own dog food.

What Other European Countries Can Learn

Governments:

• Streamline digital company formation processes. There is much talk about cutting bureaucracy, but Estonians show an example of how it is done.

• Invest in the technical education pipeline to ensure talent is available.

• Create government-as-customer programmes for local SaaS.

For Entrepreneurs:

• Think global from day one. Your domestic market might be small; accept that and think globally.

• Focus on product-led growth over sales-led. This is the only way to grow truly globally with limited resources. Estonian companies have shown how the limits in resources has become a strength.

• Build compliance into the product core early. Compliance does require investments which will pay off with your growth.

For Ecosystems:

• Create concentrated geographic hubs, like in Tallinn or Silicon Valley. This is the model many regions are copying and developing.

• Foster experienced entrepreneur mentorship programmes.

• Develop local customer acquisition channels that scale internationally

The Reality Check: What Estonia Still Faces

Not everything has been that easy, and there are one-off lucky strikes in the path. For example, the Skype breakthrough could have happened in many other regions as well. Also, the SaaS metric comparison changes Estonia’s position when comparing to tighter regions like the Silicon Valley, London or Amsterdam area. But what is remarkable is that Estonian’s have been greatly successful in comparison to the small population and age as an independent nation.

The Replicable Estonian Model

Estonia's SaaS dominance isn't just a statistical curiosity—it's a blueprint for systematic ecosystem building. The country's success stems from four replicable factors: leveraging anchor successes like Skype to build experience and capital, thinking global from day one out of necessity, government-led digitization that removes friction, and long-term investment in technical education.

What makes Estonia's model particularly compelling is its scalability. Unlike Silicon Valley's venture capital concentration or London's financial services ecosystem, Estonia's advantages can be replicated by any region willing to commit to digital infrastructure, education reform, and bureaucracy reduction.

The €47 billion in startup valuations from a population smaller than many European cities proves that ecosystem density matters more than ecosystem size. Other European regions have the population, capital, and talent—what they often lack is the systematic approach Estonia has perfected.

The question isn't whether your region can replicate Estonia's success, but whether it has the political will and long-term vision to do so.

Related frameworks:

• The Leaky Bucket Product Framework

• Why European SaaS Companies Struggle to Reach $100M ARR

• The Estonian SaaS Formula

Meanwhile, 3,000 miles west, Salesforce, a platform that many sales professionals openly complain about using, commands a market cap of over $200 billion. Pipedrive, despite its superior user experience and impressive growth trajectory, was valued at only $1.5 billion when Vista Equity Partners acquired it in 2020.

This isn't just a story about two CRM companies. It's a perfect illustration of the European SaaS paradox: we're building products that users genuinely love and prefer, yet somehow missing the unicorn valuations that seem to flow effortlessly to the Silicon Valley counterparts. The question isn't whether European SaaS companies can build world-class products—Pipedrive, Linear, and Loveable, along with dozens of other European success stories, prove we can. The question is why the market doesn't seem to care.

To understand this paradox, we need to examine both the reality of European SaaS competitiveness and the structural forces that create this valuation gap.

The Evidence: European SaaS Quality vs. Market Reality

In March of this year, I conducted a comparison between SaaS companies in the US and Europe and discovered that, for instance, the payback period of customer acquisition, revenue per employee, and median efficiency are comparable. Given the lower valuation, it should also be a sign that the businesses' quality is inferior to that of the US, but that research told a different story.

The other factor is the customer preference. The European products, like Pipedrive, Linear and Loveable, are commonly praised for their clean usability compared to the market leaders in their categories. The usability and ease of implementation are valued by the smaller and midsize companies, which Europe is full of. The enterprise segment is frequently the focus of US companies from the start, which makes products often more difficult to use and implement but does, when implemented properly, produce more value.

Even though European companies are competitive, particularly in the SMB market, US unicorns make up 75% of the global unicorn value, while European unicorns only make 1% (see the image below from PwC Research).

The 75x Gap: Four Reasons Europe Lags Behind

We can all probably agree that the volume of tech companies in the US is much higher, so their combined valuation should be higher. However, why is the valuation seventy-five times higher? I believe there are four reasons behind this: market, growth, capital and talent.

• Market Size: Europeans target first their home market, which is significantly smaller than the US home market of 330 million. Starting to export requires always adapting to language and cultural differences, which are time- and resource-consuming.

• Growth philosophy: Founders in Europe often aim for sustainable growth, while US founders have the growth-at-all-costs mentality. Compared to Americans, Europeans are therefore more risk averse and strive to avoid failure. A failure is viewed more negatively over here, and successful business in Europe starts at a much lower level than in the US.

• Access to capital: Although the European venture capital ecosystem has seen positive developments, it still was only $51 billion in 2024, or 25% of the total amount of VC money invested in the US. An interesting side fact is that the rate of return in Europe is higher than in the US (20.8% vs 18.9%, Invest Europe).

• Talent availability: Last but not least, building requires top talent. American businesses pay more, and taxes are simpler and less complicated in the US, particularly when it comes to options and equity. When hiring the best talent in the world, this is a definite advantage.

Europe's Hidden Competitive Advantages

Should we simply accept Europe's 1% share of global unicorn value and concede defeat? Or does Europe have hidden advantages that would make it a good place for unicorns to live? Undoubtedly, it does. Consider, for example:

• Regulatory Readiness: European companies build privacy-first from the start. While this is a burden, it is also an advantage, as privacy standards and regulations have spread globally.

• Efficient Capital Usage: Lower cost of talent also means lower burn rates, longer runways, and more sustainable unit economics. They help you get farther with the same investments if you find good talent.

• Global Market Understanding: Better positioned for international expansion due to multicultural experience. Since the home market is small, starting to export is a must, and the knowledge of the nuances of different cultures is a strong advantage.

• Clean Design. When done correctly, we do have an advantage when we concentrate on designing for great usability. The catch is that you need to be 10x better than the established competitors.

Linear exemplifies this approach perfectly—they combined European design excellence with global ambition, building a product development tool so intuitive it converts users from Atlassian, the de facto tool for all product teams, while raising their Series C at a $1.25 billion valuation.

The Path Forward: Turning Disadvantages into Strengths

So there is hope, but it requires a fundamental shift in mindset. European founders need to stop seeing their constraints as limitations and start leveraging them as competitive advantages.

Mindset Shifts: Think Global, Build European

The most successful European SaaS companies succeed by combining European design sensibilities with global ambition. This means:

• Start with global markets in mind, not just your home country

• Use your design advantage to build products that are 10x better, not just incrementally better

• Embrace sustainable growth as a feature, not a bug—longer runways mean you can outlast venture-backed competitors during downturns

Strategic Positioning: Lead with Strengths

European companies should position themselves as the "premium, privacy-first alternative" rather than the "cheaper option". This means:

• Privacy as a product feature, not just compliance

• Efficiency as innovation—show how you deliver the same results with less complexity

• Quality over quantity—target customers who value craftsmanship over feature bloat

Capital Strategy: Beyond Traditional VC

The European funding gap isn't just a problem—it's an opportunity to build more sustainable businesses:

• Revenue-based financing for profitable, growing companies

• Strategic partnerships with established European enterprises

• Government grants and EU funding for deep-tech innovation

• Customer-funded growth through premium pricing strategies

The companies that master these alternative approaches won't just survive—they'll be antifragile when the next funding winter hits.

The European Advantage is Real

What if the European approach isn't the problem but the preview of where the entire SaaS industry is heading? As markets mature, customers increasingly value privacy, sustainability, and user experience over growth-at-all-costs. European companies are already optimised for this future.

The question isn't whether Europe can build unicorns—it's whether we're brave enough to define success on our own terms while still thinking big enough to matter globally. The European SaaS industry stands at an inflection point. We have the talent, the advantages, and increasingly, the examples of success. What we need now is the courage to think as big as our American counterparts while staying true to the principles that make European products exceptional.

This linguistic distinction reveals why so many businesses struggle with transformation. Many companies that start as service-orientated businesses face a common dilemma: how to transition from selling custom projects to building scalable products. It’s a shift that requires more than just operational changes—it demands a complete mindset overhaul for the whole company. I'll use examples from two imaginary businesses looking to make this change to illustrate the difficulty.

Company A is a proptech IT company struggling to move beyond selling custom IT services due to firmly established habits and misaligned incentives.

Company B is a supplier of machine intelligence to manufacturers of heavy equipment. This company has embraced the challenge of productisation and is making meaningful progress by aligning their team around a clear product vision.

The Service Trap: When Success Becomes Your Prison

Company A has been successfully doing business in the building and construction sector for over 15 years. The company is currently running at a steady $5 million pace and turning a small profit, but it hasn't expanded in recent years. Despite the owners' demands for expansion through productisation, the business faces the following challenges:

• The sales team is accustomed to selling man-days and custom solutions.

• Long-term customer contracts lock deliveries to the project model.

• Leadership hesitates to commit fully to a product strategy, leaving the roadmap still mostly driven by client demands rather than strategic priorities.

• Incentives and processes are misaligned, emphasising short-term revenue that drives sales to sell projects, rather than recurring revenue.

As a consequence, company A remains stuck in a reactive ‘project mode’ and unable to scale—literally throwing solutions at problems as they arise. Custom work eats into margins and stretches resources, while the product becomes bloated with one-off features. Teams feel frustrated as they balance competing priorities and struggle to make meaningful progress.

The Product Pivot: From Reactive to Strategic

Company B is in a similar situation. There has been no significant growth in revenue, which has remained at around $5 million with a slight profit. Majority of the revenue comes from projects, and owners demand growth and more profits. In contrast to company A, company B is making the following corrections:

• The company's leadership has established a clear product vision that will disrupt an industry with a new generation of hardware.

• The company is focusing on solving a specific, scalable problem for a target market, rather than chasing every client request.

• They’ve started gathering customer insights to identify shared pain points and build a product that addresses common needs.

Operationally, company B is taking the following steps:

• Educating the sales team to shift from selling IT services and man-days to selling the product vision and licenses.

• Building a platform that can be customised at the edges to adjust to specific use cases but is fundamentally repeatable.

• Prioritising higher-volume opportunities to drive growth.

Company B has embraced the 'product mindset'—leading their market toward solutions they've deliberately crafted.

Your Productization Playbook: Six Rules for Breaking Free

This all sounds trivial and easy on paper, but it is super hard, mainly because it requires the whole company to shift in attitude and skills to succeed. Key items needed to succeed:

1. Commit to a common product vision: Leadership must articulate and stick to a clear vision. Without this, the transition will stall.

2. Align Incentives: Sales teams need to be incentivised to sell the product, not just custom projects.

3. Focus on Scalability: Build for repeatability, not one-off solutions.

4. Educate and Empower the Team: Help teams understand the value of the product model and how it benefits both the company and its customers.

5. Say No Strategically: Resist the urge to chase every client request. Instead, prioritise features that align with the product vision. The ability to say ‘no’ is critical to building something amazing for the clients that really matter.

6. Build a governance model where customer cases are objectively evaluated, for example, using the RICE framework. RICE assigns scores to cases based on effort, reach, impact, and confidence. Governance serves to assess the viability of feature requests and to support the team when deals are rejected.

The Hard Truth About Product Transformation

Here's what nobody tells you about productisation: it's not a business strategy problem—it's a psychology problem.

Company A knows exactly what they should do. They have smart people, proven experience, and sufficient resources. But knowing and doing are separated by the most powerful force in business: human nature. Their sales team's identity is built around solving unique problems. Their clients expect bespoke solutions. Their entire culture rewards firefighting over building.

Company B realised this a lot sooner. They didn't just change their strategy—they changed their story. Instead of being "the company that can build anything", they became "the company that solves this one thing better than anyone else".

The transition from service to product isn't about adding new capabilities to your business. It's about having the courage to subtract everything that doesn't serve your product vision—even when that everything has been paying your bills for years.

Most companies fail because they try to do both. They want product scalability without giving up service flexibility. They want recurring revenue without saying no to custom projects. They want to transform without actually changing.

The real question isn't whether you can productise—it's whether you're willing to become a different company altogether.

What's your answer?

About the Author
👋 I’m Arttu Huhtiniemi, fractional CPO at R2 Growth. I help Finnish and European growth companies:
- Develop winning product strategies
- Build and lead high-performing product teams
- Scale through product-led growth
- Navigate market expansion

Need fractional or interim CPO services? Visit r2growth.com or connect with me on LinkedIn.

Related frameworks:

• The Leaky Bucket Product Framework

• Why European SaaS Companies Struggle to Reach $100M ARR

• The Estonian SaaS Formula

As a bonus, I am including the SaaS AI heatmap of SaaS businesses utilising AI, but first let’s look at the number of businesses.

European SaaS Landscape Contracts: 95 Companies Lost in Q2

The first area of interest is the shift in the number of SaaS companies in the area. Regretfully, the majority of the continent is highlighted in red, suggesting a decline in businesses. There has been a 1% decline in the region overall, or a net loss of 95 SaaS-related businesses from 9,394.

Although the volume in the blue areas is comparatively low, there are encouraging signals; for instance, the UK has 100 new and Turkey has 16 new SaaS companies. Biggest losses were in France (-100), Germany (-60), and Norway (-12).

Likely reasons for many of the changes are companies that received funding in the golden years not finding product-market fit and running out of runway. Another factor is the economic conditions. Both may have led to M&A, closing the business or pivoting to something else.

How does this negative growth compare to other regions?

Europe Falls Behind: US Mid-Market SaaS Thrives While Europe Stagnates

Another area of interest is seeing how businesses are growing or shrinking in regions. The companies are grouped according to the number of employees in the graph below. The number of companies in Europe with fewer than 500 employees is growing modestly, and one new company has more than 5000 employees.

Midsized businesses are growing rapidly in the USA, while the global trend is generally negative.

The SaaS market is rapidly moving towards using AI and creating a new competitive area, “Saas AI”. This brings a new question on how AI is used with SaaS in different countries.

The AI Race: Italy, Ireland and Cyprus Lead in SaaS AI Adoption

The SaaS AI Heatmap is a new datapoint for this quarter. It monitors the proportion of SaaS companies mentioning that they utilise AI. We don't know how much artificial intelligence is truly incorporated into the product because that is obviously subjective, but it does tell us whether they have the focus from a marketing standpoint. At the same time AI, when properly used, creates unbelievable advantages for end-users compared to those not using AI.

The hotspots in this category are Italy and Ireland, both 35%, and Cyprus, 33%. For Kosovo and Macedonia, the proportion is close to 50%, which is interesting, although the sample size is small.

In comparison, 27% of US companies say that they are “SaaS AI”.

How was this research done?

The data comes from company Linkedin pages filtering for “SaaS” and “SaaS AI”. Additionally, Locations, Industries and Company size pre-set filters were used.

Conclusion: European SaaS at Crossroads

The European SaaS ecosystem is experiencing a tale of two trends. While the overall market contracts with a 1% decline in company count, this consolidation may signal a maturing market where only the strongest players survive. The post-pandemic funding boom has ended, separating companies with genuine product-market fit from those riding the wave.

More concerning is Europe's stagnation in mid-market growth compared to the US, where midsized SaaS companies are thriving. This suggests European SaaS businesses may be struggling to scale beyond the startup phase—a critical challenge for the region's competitiveness.

However, the AI adoption data reveals an interesting silver lining. With countries like Italy, Ireland, and Cyprus leading at 35% AI integration, Europe isn't falling behind in the next wave of SaaS innovation. The 27% US benchmark suggests European companies are keeping pace in this crucial area.

For European SaaS founders, the message is clear: focus on sustainable growth, prove your product-market fit, and leverage AI capabilities to differentiate. The market is becoming more selective, but opportunities remain for those who can navigate this new landscape effectively.

The next quarter will be telling—will this decline stabilise as weak players exit, or does it signal deeper structural challenges for European SaaS?

Share

About the Author
👋 I'm Arttu Huhtiniemi, fractional CPO at R2 Growth. I help Finnish and European growth companies:
- Develop winning product strategies
- Build and lead high-performing product teams
- Scale through product-led growth
- Navigate market expansion

Need fractional or interim CPO services? Visit r2growth.com or connect with me on LinkedIn.

The Annual Planning Charade

Don’t get me wrong—I believe long-term planning makes absolute sense. Getting a helicopter view and revisiting the strategy at least once a year helps in understanding how the business is doing and if there is a need for a new course. What is often the problem is the motivation for the planning, which also affects how the planning is executed.

• In growth companies, the expectations are usually set top-down by the investors. This is especially true for private equity-backed and public companies. Using the board as the proxy, the investors set the growth targets often from their subjective viewpoint, i.e., for this company in their portfolio, they need to see X% growth for next year. Market conditions are no excuse.

• To match the growth targets, the executive team goes to work and tries to fill the targets with initiatives. The executives and directors almost always have optimism bias, as they want to make the numbers look good and overestimate what’s possible, driven by ambition (and compensation).

• In addition, the long-term planning is used by the leadership to create an illusion of control. By planning multiple months in advance and adding an initiative tracking system, the board and executives build the appearance of control. Whatever happens in the coming months, we have an early detection system and can correct the course no matter what.

Now imagine if you plan a car trip through a busy city without checking the roadworks, traffic, and weather conditions. A route through the city may look like a solid plan on the map, but it doesn’t prepare you for the unexpected, which always happens. Similarly, a long-term roadmap never occurs as planned.

Subscribe now

The Hidden Costs of Planning Theater

What is the result of this theatre?

The obvious first cost is the time needed for building detailed, long-term plans. For the management team, this is part of their job description, but typically planning also involves consulting the most senior engineers and architects to do estimation. This takes away significant time from actual development work, and even when doing estimates for weeks, the estimates are usually not that accurate.

From past experience, staff know that plans inevitably fail, which erodes trust and morale within the teams. This definitely does not increase the motivation to do good estimations but rather to do something to get back to more productive work.

Lastly, the leadership often prioritises short-term initiatives to make an impact in the beginning of the year to increase the initiative’s impact for the whole year. While this does make sense for annual revenue planning, it builds a lot of stress and rushed decisions, which can be in conflict with long-term sustainability and innovation.

I recently witnessed this cycle firsthand at a corporation where annual plans failed consistently every year. By May—just five months in—it was already clear the plan wouldn't hit its targets. This created a predictable pattern: leadership scrambling to explain the gaps while staff became increasingly cynical about the entire process. The disconnect between boardroom optimism and ground-level reality eroded trust on both sides. When people know the plan will fail before summer arrives, why should they invest their best thinking in making it succeed?

When Planning Actually Works

As was stated at the outset, annual planning is not a bad process; on the contrary, it is a positive one. When done correctly, it helps the team stay focused and provides a useful framework for discussing priorities and choosing the course for the upcoming year.

Additionally, the planning process is a great way to bring alignment between different functions. The process forces teams to align on priorities and goals at least once a year. I prefer the alignment to happen on an ongoing basis, but unfortunately, in many organisations, that is not happening.

When planning is done properly, the outcome should be a document that tells a realistic vision and potential, which builds confidence with the investors.

Three Ways to Plan for Reality

How to build the better plans that tell a realistic story?

1. The first thing is to embrace uncertainty rather than hide it. For certain 12-month plans never hit the target, so how to manage this ambiguity? One common method is to adjust the plan over time with rolling forecasts or quarterly replanning. This improves meeting short-term goals but doesn't address long-term planning problems.

2. A better way to deal with uncertainty is to move away from rigid targets to milestones. For example, rather than giving a target of bringing in €1m MRR for the new feature, validate the product-market fit of the new feature with 10 successful pilots. This gives the team flexibility to adjust the approach based on what they are learning and does not drive them to deals that make no sense long-term.

3. Finally, maybe the most difficult one is to be honest towards the investors. Investors strongly prefer to see plans and returns that are predictable, but in the tech industry, uncertainty is inevitable, and everyone involved should accept that.

Preparing for Planning Season

The next planning season returns right after the summer break. In most companies, when you return to the office from the beach, you will find the 2026 planning templates in your inbox before your holiday credit card invoice. So, get ready for it now, and think of a new way of approaching it and how you and your team can actually benefit from the process. Ask yourself, are we planning to predict the future, or are we planning to navigate uncertainty?

A theatre has its place, but it’s time to stop pretending that annual plans are crystal balls. Focus on building resilient strategies that can adapt to whatever the year throws at your team against you.

Like plotting a route through a busy city, a great plan isn't one that never changes—it's one that helps you navigate whatever obstacles appear along the way.

Two weeks after launch, the finger-pointing begins when analytics reveal dismal conversion rates for the new feature.

Corporate product management is like playing broken phone with a room full of executives—except by the time "critical bug" reaches the CEO, it has somehow become "minor post-launch optimization," and you are millions of dollars poorer.

Why does this communication catastrophe happen so frequently, and more importantly, how can you fix it?

The Three Culprits Behind the Communication Breakdown

1. The Message Gets Lost in Translation

Just like in the childhood game, communication layers filter and distort the original message. Each level of management hears what they want to hear, unconsciously reshaping the information to fit their worldview or priorities.

2. Engineers and Executives Speak Different Languages

Technical teams and business leaders operate in parallel universes. While engineers discuss technical debt and API limitations, executives focus on customer churn and ARR. It's like explaining a Picasso painting to someone who only sees in black and white.

3. Misaligned Priorities Create Blind Spots

Engineering and executive priorities rarely overlap naturally. The C-suite obsesses over market impact and revenue, while engineers are measured on code quality, sprint velocity, and feature delivery. These different success metrics create inevitable tension.

The Cost of Communication Chaos

When technical and business teams don't understand each other, several predictable disasters unfold:

Critical issues get buried. Due to unclear communication of their business impact, technical issues that could derail the product are deprioritized.

Innovation gets stifled. Engineering breakthroughs never take off because executive language fails to capture their potential business value.

Frustration becomes endemic. Engineers feel unheard despite their best efforts to communicate, while executives feel blindsided by technical constraints they never saw coming.

Breaking the Broken Phone Cycle

The good news? Product teams are uniquely positioned to solve this communication crisis. Here's how to become the translator your organization desperately needs:

Build a Shared Language

• Train engineers to articulate technical issues in business terms. Help them connect code to customer outcomes.

• Educate executives to ask better technical questions. Teach them the difference between "technical debt" and "technical impossibility."

Invest in Translation Leadership

Strong product managers are professional translators. They don't just manage features—they translate between worlds, ensuring critical information flows accurately in both directions.

Create Direct Communication Channels

Eliminate unnecessary layers by establishing cross-functional meetings where engineers can voice concerns directly to business stakeholders. Sometimes the best way to prevent a broken phone is to shorten the line.

Shift from Outputs to Outcomes

Move conversations from "What are we building?" to "What problem are we solving?" This reframes technical decisions as business decisions, creating natural alignment.

Document Everything in Plain English

Create shared documentation that explains technical concepts in business language and business priorities in technical terms. Make it accessible to everyone.

The Path Forward

You don't have to accept a broken phone as an inevitable part of corporate life. The product organization can—and should—take the lead in fixing these communication failures.

Remember: Great products aren't just engineered—they're communicated.

By bridging the gap between technical reality and business strategy, product teams can prevent million-dollar miscommunications, reduce organizational frustration, and actually build products that solve real problems.

Claude became my favourite in the first round of this series after reading hundreds of documents and condensing them into a lovely summary that was excellent for market research. Close behind were Manus and Gemini, but Gemini failed with delivery, and with Manus, I ran out of credits in the middle of the research.

After the first test, I received requests to continue the test with ChatGPT Deep Research and Grok. If you think I should test anything else in addition to these six, please let me know.

Leave a comment

ChatGPT Deep Research

ChatGPT by OpenAI is, of course, the ‘grandfather’” of LLMs. For the majority of us, it was our first model, either directly or via Microsoft Copilot. Since I have conflicting opinions about ChatGPT's effectiveness and propensity for hallucinations, I skipped it from my initial round of testing. However, I decided to give Deep Research a try now that it's available, and I was advised to do so.

The research mode of ChatGPT is selected from the chat box, and the free version today includes five research tasks every 30 days. After you prompt the research question, ChatGPT asks clarifying questions about the task, which is a really good attempt to improve the user experience. You don't want to waste your research efforts, only to discover after the fact that it wasn't what you had hoped for.

How did it perform? Very well, actually really well. I requested that ChatGPT investigate a specific market from the perspectives of market entry, competition, and regulations. The result was a well-written document that can be used as input for a go-to-market strategy after some tweaking.

Score: 5 / 5

Grok

Grok is a model that X makes available. There are two research modes in the Grok 3 model: Deep Research and Deeper Research. Additionally, the "Think" option allows the model to spend more time conducting research. I used "Think" and "Deeper Research" for the test.

This test's prompt, which looks at a market from multiple angles, was the same one I used for the last one. Grok responded quickly, but the result was quite disappointing: a very short list of bullets and suggestions that were obvious, like “expand to neighbouring countries”.

Grok might be able to assist with basic read-and-summarize tasks. I asked Grok to see if some OEMs have independent products all over the world. This is not difficult, but it does require you to read and summarise thousands of pages of information. Grok researched the topic happily for almost 15 minutes but did not find anything useful. I knew from a prior test with ChatGPT that there are good answers for this prompt, but Grok couldn't find them. Result: Grok is not useful for market research.

Score 2/5

Summary

After testing six AI tools, the conclusion is that ChatGPT and Claude are suitable for the task. Given how rapidly tool capabilities and maturity evolve, this is probably going to change as models get more powerful. However, these two tools currently offer significant value and time savings for market research.

Doing market research online is a fairly straightforward task; you read everything you can find, process what you read, write it down, and then read some more. The challenge is the amount of material. Back in the day when Google was young and your reading speed was limited by your modem bandwidth, reading ‘everything’ about a certain market was not totally impossible. But today, the amount of data is enormous on any topic. Another issue is that there is a wide range in the quality of the data, and it is difficult to know the quality until you read it.

So, I went the other direction and decided to use LLMs to expedite the task and finish in a reasonable time. Here is my experience of using Claude, Gemini, Genspark, and Manus for market research. For the record, I used free versions of Claude, Manus, and Genspark. For Gemini, I used the subscription that comes with Google Workspace. Note also that this evaluation is only for the task of doing market research. No other skills were tested.

Gemini

Google’s Gemini has been winning benchmarks with its latest mode, 2.5, which made Gemini my first choice. I was also interested in how the Gemini Deep Research would handle market research. I entered my prompt first to the normal 2.5 Pro model. Although it does a decent job of answering direct questions, I felt that this was insufficient. So I moved to Deep Research.

One advantage of Deep Research is that it lists the task first and requests confirmation before starting the research. This enables you to review your request for Gemini's assistance before beginning the work itself. Given that the research will take minutes or even hours, it is worthwhile to carefully read and reevaluate the assignment.

I asked Gemini Deep Research to go find 20 companies in a certain business, find their financials, and list product features, strengths, and weaknesses. Pretty basic stuff for market research, but manually this can easily take a week or two. Gemini said thank you and started reading hundreds and hundreds of web pages, financial reports, research papers, etc. When Gemini was done after about an hour, this appeared even more hopeful. It started printing data about companies until it stopped at company “J.” This was the 10th business to evaluate for my prompt, but this was too much even for Gemini DS. I asked it to continue. Gemini tried, but it never recovered. End of research with Gemini.

The output from Gemini was thorough, and that was part of the problem. For effective market research, you want to get the data right and then summarize on a higher level. Since Gemini Deep Research digs deep and provides reports on every detail, it appears to be more appropriate for academic studies. Extra credit for reading hundreds and hundreds of documents for the research.

Score 3 out of 5 stars. (Would be 4 stars if it had finished the research.)

Genspark

The next one to try was Genspark, which is positioned as “agentive search,” which describes it pretty well. After entering your prompt, Genspark does several searches and then combines the results, but compared to Gemini, it does not do that much “thinking” but does aggregate the results in a nice summary. If you give a simple task like “What is ProductX,” the output is merely a summary of the productx.com website. But when you ask a more strategic question, Genspark does a fairly good job of collecting relevant data and then doing a nice summary; thus, it is a good tool for market research.

4 stars.

Manus

From the tested sites, Manus is the odd one in the test group, as it comes from China and is built by Chinese startup Monica. From the first experience, it felt exactly what I wanted: a true workhorse that searches every corner and condenses results on the right level. I was very impressed with Manus and able to obtain satisfactory answers to my questions until my credits ran out.

Manus has credit-based pricing, and once you run out of credits, it simply stops. This happened to me all of a sudden in the middle of research. That was the end of the honeymoon with Manus. I recognize that services must be paid for, but from the perspective of the user, the problem is that it is impossible to forecast how many credits a task will require. wrote a good piece about this problem this week at

Elena's Growth Scoop

So you want to price your AI features…

This post is written by a wonderful Anh-Tho Chuong CEO of Lago. I don’t do many guest posts in my newsletter, but I couldn't have written this better myself. Pure gold…

Read more

a year ago · 29 likes · 2 comments · Anh Tho Chuong

To give you an idea of the costs, my market study of 20 companies required about 1000 credits. The monthly fee of $39 contains a maximum of 3900 credits.

Score 3.5 stars. (4.5 or maybe even 5 stars before I ran out of credits).

Claude

At the time of writing, the most intelligent model with Claude is the 3.7 Sonnet. I tested it after I got frustrated with Gemini. Nowadays, it should not be a barrier to trying a tool because testing it is so simple. So I signed in with Claude, checked that it was using the latest model, and entered my prompt. Claude started spitting out well-thought-out bullet points that were just on the right level. I felt that I had arrived home after a frustrating experience with Gemini, and after doing more work with Claude it became my go-to tool for market research.

Score 5 / 5

Conclusion: The AI Market Research Landscape

After testing multiple AI tools for market research, the differences between them became clear. While each platform has unique strengths, Claude emerged as the standout solution for efficiently processing market data at the right level of detail.

Gemini impressed with its thoroughness and deep research capabilities, though it sometimes gets caught in the details—perfect for academic work but less ideal for concise market insights. Genspark provided well-balanced summaries and earned its place as a strong runner-up with its effective "agentive search" approach. Manus showed initial promise with excellent synthesis capabilities, though its unpredictable credit consumption creates practical barriers for ongoing research projects.

For product teams looking to streamline market research without sacrificing quality, AI tools have clearly become invaluable allies. They transform what would traditionally be weeks of work into hours, allowing teams to make informed decisions faster than ever before.

As this technology continues to evolve, the balance between depth, synthesis quality, and usability will determine which platforms ultimately become the standard tools for market research professionals. For now, choosing the right AI assistant depends on your specific needs—thoroughness, summarization quality, or cost-effectiveness—though Claude's balanced approach appears to be setting the benchmark.

The future of market research isn't about replacing human insight but rather amplifying it through thoughtfully designed AI partnerships. As Steve Jobs might say, sometimes "thinking different" means knowing which tools can help you think better.

Last-minute departures

It is likely that we are all guilty of putting things off until the last minute. We now have evidence of that as well. The chart below draws the amount of trial cancellations received per day for different trial periods. Observe the distinct increase prior to the conclusion of the 14- and 30-day trials.

Action: This is the moment when you should hit the users with your retention efforts. Getting them back will be much more difficult after the trial is over.

Peep and subscribe

The high number of first-day subscribers is the other noteworthy finding.

A similar phenomenon can be seen also with B2B services. There is undoubtedly a group of people who upgrade right away after seeing the experience and determining that it works for them; this group may account for 20–30% of all upgrades, and for less complicated services, even more.

Action: Improve the first impression for this cohort. Make sure they can take shortcuts to value and that their first impression is polished.

As I explain here, the hosting location, i.e., data residency, is actually a strategic decision that does require careful consideration, even though it may seem like a small, unimportant detail that the engineering department can decide on their own. Additionally, you must remember that undoing a poor choice is not as simple as clicking the "delete" button; rather, it will probably take a significant amount of man-hours and additional expenses, all of which take away from adding value for the customer.

More Than Just Cost & Compliance

The scope of this Substack is Europe, so I will limit the scope of the question to this continent. Keep in mind, though, that outside Europe there are regulations that you need to know and possibly take action on, especially if your data contains personally identifiable information.

The scope has now been restricted to Europe. We are lucky that this region is home to several hosting centers from all of the major cloud providers, and more are built all the time. So, should I simply choose the center that is nearest to me or with the lowest cost? Not so fast. Even though legally you can choose any country within this area for data residency, it is not as easy as it seems. For choosing the hosting location, you need to take into account at least the following country- and industry-specific preferences.

Country-specific

Some European countries strongly prefer that you host the data in the same country and not just somewhere in the EU/EEA area. Particularly:

• Germany: There is a strong preference in Germany, particularly in the public sector, finance, and healthcare, to host data within Germany. You will either have trouble gaining business from Germany, or it will be a major sales barrier that will slow you down if the data is not stored within Germany. Although hosting in Germany is not stated in the law, it is fundamental to the way Germans safeguard their privacy.

• France: The French have a strong political drive for digital sovereignty, or "souveraineté numérique.” In practice, this means a strong preference for hosting within France in a hosting center that is certified against the SecNumCloud security standard, and in sectors requiring high security and sovereignty, such as

  • Public sector & government data

  • Critical infrastructure like energy, finance, healthcare and telco

  • And in other sectors where extra protection is needed for sensitive data against foreign government actions.

• Switzerland: Even though not part of the EU/EEA, Switzerland is a major market for European SaaS businesses, so its special characters are worth considering. Switzerland has its own robust Federal Act on Data Protection (FADP) and a decision by the EU that this protection law is adequate. Due to Switzerland’s political neutrality and history with banking, storage of finance and healthcare data is strongly preferred within Swiss borders.

Industry-specific

• Public Sector Across Europe: It's a common theme across many European countries (including the Nordics like Finland, the Netherlands, Austria, etc.) that data handled by public authorities or for core government functions is required or strongly preferred to be hosted nationally.

• Regulated Industries: Specific national regulations in sectors like banking, insurance, healthcare, and telecommunications might impose in-country data storage requirements in various European nations, even if not applied universally to all B2B data.

• Client-Specific Requirements: Beyond national regulations, individual large enterprise clients, particularly those in sensitive fields or critical infrastructure, might contractually mandate in-country data hosting as part of their risk management policy, regardless of the country's general stance.

Conclusion: Your Hosting Location is a Market Strategy

Founders and product leaders in the European B2B SaaS space must recognize that choosing where customer data resides is fundamentally a market strategy decision, not just an IT or compliance task. While EU/EEA hosting is a starting point, specific national preferences, particularly in Germany, France, and Switzerland, and requirements within the public sector and regulated industries across Europe demand closer attention. Align your hosting strategy with your target market: If pursuing sensitive sectors or clients in countries with strong data sovereignty preferences, plan for in-country hosting early to avoid sales barriers and build trust. Ignoring these nuances risks significant future costs and lost deals.

This article describes how GDPR compliance can assist companies in achieving capabilities that go beyond what is required by the regulations.

1. Map Your Data Landscape: A Crucial First Step

At the core of GDPR are the principles of

• knowing the data that is used in the business,

• documenting how the data is processed,

• ensuring the quality and security of data,

• and being transparent about use of data.

These steps create a more structured and responsible data environment. Doing this data inventory work properly will significantly benefit a B2B SaaS business in taking better control of its data and laying a foundation for more focused, ethical, and ultimately more valuable data analytics and AI initiatives.

2. Unlock a Marketing Advantage of GDPR

GDPR is a globally known standard framework for privacy and business data handling. By being a European company and demonstrating a strong commitment to data privacy through GDPR compliance, it builds trust and credibility with potential and existing B2B clients within and outside the EU. This is particularly important when handling sensitive data.

In marketing, the fact that your system is GDPR compliant should be positioned as a significant differentiator, especially when competing with businesses from regions with less stringent data protection laws. It signals a higher standard of data handling and often becomes a non-topic in the sales process.

3. Use GDPR to ease the path to SOC 2 and ISO 27001

Although GDPR is mandatory in the EU, compliance may lead to opportunities in areas where it is not a legally mandated requirement. Many larger companies and organizations favor vendors who adhere to GDPR because of their strict data privacy regulations, and in case the customers require SOC 2 or ISO 27001 compliance, having GDPR makes the road to those certifications smoother:

How GDPR helps SOC 2 certification:

• Privacy Principle: SOC 2 has five Trust Services Principles: security, availability, processing integrity, confidentiality, and privacy. If your service is GDPR compliant, you will have many of the controls and processes in place that are required for the SOC 2 Privacy principle

• Security Controls: GDPR mandates the implementation of appropriate technical and organizational measures to ensure the security of personal data. Many of these security controls (e.g., access controls, encryption, incident response) are also core requirements for the Security Trust Services Principle in SOC 2.

• Policies, Procedures, Awareness, and Training: These can often be leveraged and adapted to meet the documentation requirements of SOC 2

How GDPR helps with ISO 27001 certification:

• GDPR compliance requires a focus on the security of personal data, which is a significant component of an Information Security Management System (ISMS) as defined by ISO 27001. The controls and processes you've implemented for GDPR can form a strong foundation for your ISMS.

• GDPR requires organizations to assess and manage risks to personal data. This aligns with the core principles of ISO 27001, which emphasizes identifying, assessing, and treating information security risks.

• Similar to SOC 2, the policies and procedures you've developed for GDPR (e.g., data breach notification, access control) can be adapted and expanded to cover the broader scope of information security required by ISO 27001.

• ISO 27001 requires organizations to identify and comply with relevant legal and regulatory requirements, which explicitly includes GDPR for businesses processing EU personal data. Your GDPR compliance efforts demonstrate your commitment to meeting these obligations.

• Continuous Improvement: Both GDPR and ISO 27001 emphasize the importance of continuous improvement in data protection and information security practices.

Conclusion

This post argues that while GDPR might initially seem (and in many cases is) burdensome for European SaaS companies, it offers significant advantages that go beyond mere compliance. By focusing on understanding and leveraging these benefits, companies can improve their data environment and capabilities. This also allows them to gain a marketing edge by building trust and differentiating themselves globally. Furthermore, GDPR compliance eases the path towards achieving other important certifications like SOC 2 and ISO 27001.

Although there are many places in SaaS where you risk confusing and losing users, getting them to sign up is perhaps the most crucial step because if they don't, you will never be able to demonstrate the value of your application.

You'd be surprised how even seemingly minor adjustments to your B2B SaaS customer onboarding can have a significant impact on your conversion rates (moving users from free trial or freemium to paying customers).

Here is an example that I have personally experienced of how a small adjustment had a big impact:

An example involving a simple checkbox

Here is a true story of how a single blameless checkbox may affect your ARR. Consider a B2B SaaS that has a constant stream of inbound leads to your website, of which 5,000 end up in the signup process every month. With 4% conversion to paid subscriptions, you will convert 200 new customers a month. Assuming each pays 100€ a month, you convert 20k€ MRR or 240k€ ARR each month.

To identify partners from direct customers, marketing operations wants to add a checkbox to the sign-up process. It seems like a fair request, so you add the tiny checkbox into the registration process. The information is useful for our sales process, so this can not be bad, can it?

After two weeks, the head of sales inquires as to whether anything has changed recently because this month's new sales are lacking. Analyzing the data reveals that there has been a 15% drop in new sign-ups due to a drop in the sign-up conversion rate. You discover that the step where you added the "service provider" checkbox is the reason for the decline after going through each step in the sign-up flow. A quick calculation reveals that the small checkbox costs 3,000€ MRR each month.

Examining how the user behaves

Here is likely what happens when the users meet the checkbox. One cohort of users doesn’t know what a service provider is in this context; many of them are confused and just leave the flow here. Another group hopes that they get a discount by checking it, so they check it just in case. The result is a decrease in conversion rate and a list of "service providers" that you cannot use. Oh no, that is not really what you were aiming for.

The Key Lesson: Never Underestimate the User

This tale of the unassuming checkbox serves as a potent reminder in the often-complex world of human-machine interaction. While our intentions to gather valuable data or streamline processes are often well-placed, even the most seemingly innocuous UI elements can have profound and unintended consequences on user behavior and, ultimately, your bottom line. In the crucial journey of onboarding, where first impressions are paramount, a keen understanding of user psychology and meticulous attention to even the smallest details can be the difference between welcoming a thriving customer and losing them before they ever experience the true value you offer. As we continue to refine the digital experiences we build, let this be a lesson in the power of empathy and the critical importance of rigorously testing and understanding how our users truly interact with every facet of our SaaS applications.