How To Build a SaaS Startup That Wins and Lasts
SaaS model makes it easy for customers to buy from you – but it also means you need to pay attention to how you price.
Virtually all software has moved or is moving to a SaaS or at least a hosted model. When we started 25 years earlier, SaaS companies had to explain the basics of software-as-a-service (SaaS) to their prospects. Now, most customers are familiar with SaaS and cloud computing, and are generally comfortable with the issues of security and performance. While it has become much easier for startups to sell, missteps in planning your business can be catastrophic.
I have laid down the seven principles that you should consider to get off the ground and make a winning venture:
Demystify need v/s want
Users will always tell you what they want. You need to figure out what they actually need. You should not base all your product roadmap on what users tell you but also use your understanding and instincts about the market. There’s a huge value in making decisions driven by your instinct, instead of getting stuck in an analysis paralysis. This is important because in SaaS especially it is possible to iterate and fix almost every aspect of your business if you are quick.
Think strategically, act tactically
Take incremental steps which might not be purely based on data. For example, walking through the last few interactions with the customer is a better way to predict their behaviour, rather than depending on any data to know about them. A common mistake is looking at data with preconceived notions of the result, and manipulating the data to support that. I believe that it’s important to rely on instincts, analyse the data, and act with intuition.
Avoid ‘all hands-on’ approach as you grow
After the idea is seeded, you should look to continuously grow the development team to build your product line. You need to add people for marketing and selling the product to a wider base. After the customer acquisition methods are streamlined, follow it by setting up the customer support, human resources, finance and other key functions of the business.
Even while all this has been achieved, it is pertinent that as founders you provide continuous leadership and empower your senior team members with the responsibilities to create new ways of doing things and push the company towards further growth.
Trust your instincts
Many believe that in the beginning you will need to start marketing your products before you actually have it, by keeping focus on early adopters for feedback. With IDeaS, we went the other way around. We built the product, which was completely based on our instincts, and then began marketing it immediately. We had our first set of users even before we started gathering the feedback, which we used for improving the product experience. The initial users helped us get right product that fit the market requirements. This entire process prepared us to market our products to other potential users.
Stay the course taking baby steps
SaaS model makes it easy for customers to buy from you – but it also means you need to pay attention to how you price. For example, if you sell something, you only get 1/12th of the revenue each month, even though you probably spent substantially more on the initial delivery. It would be highly unusual to have all your costs neatly tied to the revenue recognition schedule. Brace yourself for a loss at the beginning, but plan well for when you break even and become profitable. While it is a great message to customers that “we must earn your business every day” —so we care more than anyone else— it also means you need to have a termination clause that protects your interests.
First try self-funding and have enough cash to get the business a long way while retaining full ownership. Rely on external funding only when there comes a point where such cash is required to fuel rapid growth. This allows you to spend 100% of your time getting your business going without having to worry about preparing decks for investors or taking bad deals just to get some cash in the bag.
Be persistent— and see it happen
Be prepared to give yourself and the company two years of time to get any results. It may take you a year just to get the product right, and another one to get any material revenues. You will have to deal with the idiosyncrasies of the early and perhaps low or non-paying or customers. In SaaS, it particularly takes a long time, until then as it’s hard to get recurring revenue engines going.
While the initial days will invariably have confusion and chaos, success will depend upon your ability to deal with it and learn how to transform this into processes that work.