April 29, 2022 | 8-minute read (1462 words)
SaaS, which is shorthand for software-as-a-service, has become the most popular software delivery model in the world and shows no indication of slowing down. The widespread adoption of cloud computing, along with the rise of remote work, have catapulted growth in the global SaaS market.
According to Gartner, worldwide end-user spending on SaaS will reach $176.6 billion in 2022, up from $152 billion in 2021. By 2023, that figure will hit $208 billion, the consultancy predicts.
Why a SaaS-based startup?
The appeal of launching a startup that focuses on SaaS begins with the fact that the software is hosted on your own server. Users access it through either a web-based app or through an internet browser, which explains why they are sometimes also referred to as a “cloud-based solution” or a “hosted solution.”
This makes SaaS apps vastly different from the desktop-based model, where software is installed on the users’ computers and runs on their servers. Because SaaS software is much easier for users to access, it can give smaller upstarts the opportunity to disrupt an existing market.
In addition to accessibility, factors that make SaaS an attractive business model for startups are their scalability, simplified maintenance and lower costs. At the core of the business model, however, is the idea of a recurring revenue stream in the form of subscription fees. Typically, the user is allowed to use the software for the period of time they are paying for the license.
Tips for launching a SaaS startup
The SaaS market is extremely competitive. To succeed, you will need to solve a specific problem for a specific customer base — it’s all about the value that you can deliver to your customers overall. Follow the eight tips below to get on the right path.
1. Find a niche – Entrepreneurs seeking to launch a SaaS startup should start by creating a solution to a real, painful problem. What can you make smarter or better? You need to create a solution for a must, not a want. The way to capture consumers’ attention is by solving their needs.
Choose to solve a problem that you are passionate about or with which you can identify. By solving a problem you have struggled with yourself, you will be able to fix it in the best possible way. This will also help provide the drive you need to succeed. You want to solve an important problem that matters to you. Solve a real problem people actually have to maximize your chances of success.
If you have an idea for a SaaS business but lack the technical ability, you can hire someone to build an app. Just keep in mind that the code will be part of your intellectual property and you need to protect it accordingly.
2. Identify product/market fit – Finding a good market fit, meaning the extent to which your product fulfills strong market demand, will generate more revenue, higher retention levels and a better cost per acquisition.
So how do you find this? Finding out what customers want may require multiple iterations. Expect to undertake ample research and testing to discern what customers genuinely want. To do this, you may wish to ask existing customers directly about their needs, or send them a survey that inquires what they like about your product and what they wish it featured. Their answers should help you assess what demand looks like in your current market.
If you don’t have customers yet, you could still conduct surveys, or consider looking at user feedback from your competitors’ clients. Getapp, Capterra and G2 are among sites that offer user reviews, which you can mine to get a grasp of frequent problems for target customers.
3. Adopt the “blue ocean strategy” – The SaaS market is growing briskly, and competition is fierce. More SaaS startups are launching to seize a share of the market, akin to sharks all hunting the same prey.
According to blue ocean strategy, a term coined by authors and INSEAD professors W. Chan Kim and Renee Mauborgne in their best-seller “Blue Ocean Strategy,” you need to identify a target market that has minimal competition – aka the blue part of the ocean -- and work accordingly. You want to avoid the parts of the sea where predators are fighting over prey to the extent the water is red with blood.
Be careful not to choose ocean that is blue only because there is no demand there. You still need to be sure there is a real demand for a SaaS product there.
4. Execute a user-focused design – When it comes to design, your goal is to develop a product that essentially can sell itself. This is made possible by thoroughly understanding the needs of your market. If you’ve done this right, your end users will find instant value in your product.
5. Deliver value ASAP – As previously stated, your product will sell only if end users recognize its value. That means users need to experience the value themselves. To deliver value quickly, consider offering customers a free trial or a “freemium” version in which they get basic or limited features at no cost but pay a premium to access advanced features. If you go with a free trial, give them ample time to delve into your SaaS product and understand its benefits. If you offer a freemium product, include enough free features to address the pain point you aim to solve.
6. Investigate pricing and customer acquisition models – Typically, a SaaS product relies on a subscription-based pricing model. Rather than paying once to use a product for life, the customer pays on a continual basis, typically either monthly or yearly, akin to a software license.
The benefit of the subscription model is it boosts the potential lifetime value per customer. Rather than charging a single value for the sole sales opportunity you have with a customer, you receive recurring revenue for as long as the customer uses your service. That means the longer they are a customer, the higher that customer’s lifetime value is.
Check various subscription-based sales forecast plans to home in on a pricing model, paying careful attention to how variables such as churn could affect profitability. If you are uncertain where to begin with pricing, look into what competitors are charging to determine a reasonable starting point. Keep in mind that a growing SaaS firm is continually evaluating its pricing models to adjust to what customers are willing to pay, especially in a packed market.
7. Build your brand – Think of branding as a means to establish a relationship with customers. Your brand’s tone of voice should prompt people to want to learn more about your businesses, establish who you are and why someone should buy your service.
Because the SaaS space is crowded, you will need to:
• Differentiate your brand. You need to build a tone of voice that resonate and makes you stand out from competitors.
• Clarify your vision. Your brand should clearly communicate your vision in terms of who you are and who you serve. Ensure consistent messaging; avoid mixed messages.
• Find a strong domain name. To establish your brand, find a .com domain name that is short, memorable and easy to spell. If your desired domain name is unavailable, think about purchasing a domain on a domain marketplace. It may cost a few thousand dollar, but a good domain name conveys credibility and makes it easier for customers to find you.
8. Offer lifetime deals – While many SaaS startups use venture capital funding for growth, others rely on bootstrapping. To garner significant revenue in the absence of external funding, consider offering a lifetime deal. This entails selling lifetime access to your SaaS product for a one-time fee.
The benefit of the lifetime deal is it attracts potential customers who prefer to pay once rather than monthly or annually. But because your customer lifetime value ends with a single-payment customer, you should reinvest that revenue toward building subscription-based customers. You may also be able to convert your lifetime deal customer into a subscriber down the line.
To offer a lifetime deal, list the perpetual license on a site that offers digital products and that already has an established audience, such as AppSumo. While such sites may charge a commission, it could be well worth it given the potential revenue.
Launching your own SaaS startup requires a lot of time to assess and refine. Your primary goal is to first get your product on the market, and then be ready to iterate. To quickly build credibility, which is vital to any SaaS startup, capitalize on testimonials, create a social media presence, get customer feedback and consider providing free or discounted products for individuals who leave a positive review.