Changing Tide of SaaS and Why VCs and Serial Entrepreneurs Will Love it
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The Software as a Service (SaaS) industry is about 20 years old. It has gone through a major transformation a decade ago and it’s probably going through one more now. From a technology-intensive industry during the early days, it has transformed earlier this decade into a space driven by product innovation. And now, it may be converting into a brand-driven an industry that favours seasoned entrepreneurs.
2000 - The Decade of Technology
In the year 1999, Salesforce was founded with a disruptive delivery model and the SaaS industry was born. For a full decade after that, anything SaaS was inherently a huge hit.
But building a SaaS business then wasn’t easy, even if one had the domain knowledge and vision. A major challenge back then was technology. Cloud technology platforms like Amazon Web Services (AWS) didn't exist. Founders needed to master and put in place infrastructure that is highly-available, centrally managed, and hosts multi-tenant business applications.
A lot of companies that we're able to do that back then, became category leaders and went public - Zendesk, HubSpot, Marketo for example.
All that changed with the advent of cloud platforms in the next decade.
2010 - The Decade of Innovators
By 2010, there were SaaS products in every major category. Still, SaaS was a very hot industry since SaaS/cloud adoption was just picking up.
On the technology front, there are a lot of advancements in cloud computing platforms and application development framework. Launching a SaaS product was no longer a big challenge.
The market wasn’t very crowded, and businesses could easily differentiate themselves. One could identify a niche segment, add a feature or two that's different, or just have a better UI/UX for that matter, and claim it as a differentiator.
Innovation in some form or the other was enough to build a $100M company. And hence, even a mediocre innovator could win this SaaS game.
From a funding perspective, entrepreneurs didn't need a lot of money, particularly in the early stages. They could start lean, work towards product-market fit and raise money later if needed for accelerating growth.
As the new decade dawns, all this seems to be changing.
2020 - The Decade of Fast Executors?
Come 2020, the game may be changing again. SaaS is the only delivery model today, and it's a jungle out there. For every micro need one can think of, there are 10s of products available.
In such a crowded space, the scope for innovation or niche play will be very limited. Of course, there’s always scope for disruptive innovation, but they are few and far between.
In today's world, even if you are a disruptive innovator, there is no guarantee that you would be the leader in the category.
Since technology isn’t a challenge, and innovation opportunities are scarce, any disruptive innovation will be replicated almost instantly by new entrants, as well as existing players.
A good example of this is the recent Chat Bots category. In just over a year’s time, there are tons of new vendors. Even the existing players in marketing/sales added Chat Bot capabilities pretty soon. Today there is no clear front-runner, let alone market leader in that space.
Then how would one succeed in this SaaS space today?
Fast Execution & Brand Building Could be the Key!
SaaS industry could be turning into a darling of Brand-savvy and fast-paced serial entrepreneurs. Since product innovation can’t be a differentiator, in the long run, the key is how quickly you can create a buzz around your innovation and establish a brand/leadership for yourself.
This means squeezing the time it takes to create awareness/generate demand, get the product right, take it to market, achieve a market fit, hire the right VPs and accelerate. Each of these is critical for success and getting them all right in a quick time is extremely challenging. The odds are heavily in favour of serial entrepreneurs with a track record.
From a funding perspective, such fast-paced execution and brand building require significant capital right from the early days to the later series rounds. Continuing the brand momentum is equally important to ensure customers choose your offering and pay you a brand premium compared to other copycat products.
This change in the opportunity landscape perhaps applies to most of the tech industries - not just SaaS. A breakthrough in technology paves the way for a new industry that favours tech entrepreneurs early on. Later, when technology becomes a commodity and products proliferate, creating a brand becomes more important.