How SaaS Founders Escape Feature Wars With Level 3 Plays
For SaaS founders · Based on Alex Smith Levels of Competition Framework
// TL;DR
SaaS founders stuck in feature-parity and pricing wars can use the Levels of Competition framework to break out of clustering. Instead of shipping more features (Level 1) or repositioning for a tighter ICP (Level 2), you identify a sacred cow in your software category — the pricing model, the target buyer, the delivery format — and break it to create structural lock-in. The most durable SaaS moats come from conditions plays that force incumbents to cannibalize their own revenue to follow, while unlocking dormant users who never bought software in your category before.
Why do SaaS products keep converging on the same features?
Because every founder is competing at Level 2 — responding to observable customer demand. When a rival ships a Kanban view, an integration, or an AI assistant, everyone copies it within a quarter. This is clustering: by trying to beat each other, SaaS products match each other step for step until buyers can't tell them apart. Trying harder at the roadmap accelerates the convergence, it doesn't escape it. If your win/loss reports say 'they went with a competitor for basically the same reasons they'd have picked us,' you're clustered.
What does a Level 3 move look like in SaaS?
A Level 3 conditions play breaks a sacred cow that your entire category treats as fixed. Consider the pricing model: seat-based SaaS pricing is a near-universal sacred cow. A challenger who abandons per-seat pricing entirely — flat-rate, usage-based, or free-with-a-different-monetization — detonates the incumbent's revenue math. Slack's channel-based model, Loom's async-video format, and free-to-play tools that monetize elsewhere all reshaped category conditions rather than competing within them. The test isn't whether the move sounds disruptive; it's whether following it would force competitors to dismantle their own P&L.
Which sacred cows should SaaS founders target first?
Map the conventions every player treats as wallpaper across four dimensions:
- Pricing model — per-seat, tiered, annual contracts, sales-led motion
- Target buyer — the enterprise admin, the IT department, the VP everyone chases
- Delivery format — the dashboard, the desktop app, the onboarding-heavy setup
- Feature set — the 'table stakes' modules everyone bundles
Then filter for the intersection of two things: which conventions the biggest incumbents' business models depend on most, and which you're least committed to. A seat-based, sales-led incumbent is structurally locked into that motion. If you can walk away from it cheaply, that's your highest-leverage target — breaking it creates structural lock-in they can't follow without cannibalizing their sales org and revenue recognition.
How do I make sure I'm not just repositioning?
SaaS founders constantly relabel positioning as strategy — 'we're the developer-first alternative,' 'we're the tool for modern teams.' That's Level 2. Run the three tests: Does the move create new demand rather than answer existing demand? Does it trigger a dormant market — teams or individuals who never bought software in your category because the old conditions excluded them? Does it create structural lock-in? A genuine conditions play unlocks users who weren't shopping at all, not just a sharper slice of the existing buyer pool.
Crucially, run the sequence in the right order: industry conditions first, customer second, company third. Define how you want to change your category's rules, then discover which users those new conditions create value for, then figure out what your product and pricing must become. Most founders run it backwards — building for a known ICP and never reaching the conditions layer.
What should SaaS founders do next?
Block two hours and run steps 1-6 of the workflow: honestly diagnose your current level, map 8-12 sacred cows in your category, filter for the ones incumbents depend on and you don't, ask 'does it have to be this way?' for each, test candidates against the three tests, and write your conditions play as one declarative sentence that names the sacred cow you're breaking. If your sentence sounds comfortable, you're still at Level 2 — push until it makes you nervous.
// FREQUENTLY ASKED QUESTIONS
Isn't breaking the pricing model risky for early-stage SaaS?
It's less risky than clustering into indistinguishability. Small SaaS players actually have more room to reshape pricing than incumbents, because you have no legacy revenue to protect. The malleability of an industry is inversely proportional to player size. Breaking a pricing sacred cow that incumbents depend on creates structural lock-in — they can't match you without cannibalizing existing revenue and disrupting their sales compensation.
How do I find the dormant market for my SaaS product?
Work backwards from your conditions play. Once you've broken a sacred cow — say, abandoning enterprise sales for self-serve, or seat pricing for free access — ask who was previously locked out by the old convention. The teams that couldn't afford it, the individuals who never had budget authority, the non-buyers triggered into desire by the new terms. That's your choice-first market.
Won't a big incumbent just copy my Level 3 move once it works?
Only if it doesn't create structural lock-in. The whole point of choosing sacred cows the incumbent's business model depends on is that copying you would require them to dismantle their P&L, sales org, or revenue recognition. If a well-funded incumbent could copy your move cheaply, it wasn't a true Level 3 play — return to your sacred cow list and filter harder for lock-in.