According to Gartner, the global SaaS market will grow by 20.1 percent in 2017, topping $46 billion. It’s no wonder there are so many articles related to building a SaaS business floating around the Internet these days!
The question remains: how can you start a SaaS business and thrive in the competitive Cloud market?
Why SaaS?
The term Software-as-a-Service (SaaS) refers to the distribution of Cloud-based applications by a third-party company. Both businesses and individual consumers like SaaS for several reasons.
- The approach enables companies to reduce software maintenance costs;
- Instead of investing in custom enterprise application development, a company can choose a convenient SaaS pricing model (usually “pay-as-you-go”, monthly fees) and only pay for the storage and features they use;
- A user can always terminate his SaaS license or upgrade to the next level, thus expanding software feature set and storage space;
- Software updates and security patches are solely handled by a SaaS provider;
- A company’s employees and customers can access Cloud-based apps from any device connected to the Internet.
5 Tips for Building a SaaS Business
Validate Your Idea
No matter what type of a software product you want to create, it all starts with an idea. Being original is always a plus; however, the future of your SaaS business largely depends on the quality of your software system and market need for the idea in question – after all, the lack of consumer interest for a product is the direct reason why 42 percent of startups fail.
Suppose you consider launching a beacon proximity marketing platform for small- and medium-sized retail companies; what’s your plan? First, you should think of a feature set that would help you stand out from the competition (which includes several high-profile vendors including Google, Moca, Swirl and Beaconstack) and create multiple use cases for your product. Second, you should find out how many companies actually use beacons and identify their pain points (the high price of developing a dedicated mobile app, large amounts of sensor data, inability to measure customer engagement and satisfaction, etc.).
Also, you should address shoppers’ concerns: 64 percent of consumers do not opt into in-store tracking due to possible message overload and infringement of privacy. At this point you’ll probably realize that getting hung up on proximity marketing only is a dead end. Can your product address such needs as smart asset management and monetization of beacon-generated data? Does it make sense to create a dedicated shopping app supporting your analytics platform (and challenge behemoths like RetailMeNot)? Finally, you should build an MVP, collect customer feedback and make changes to the scope (if needed).
Develop a Monetization Strategy
While most SaaS companies prefer to give away their product for free in order to establish a solid user base, forward-thinking SaaS entrepreneurs like Tom Kuzler (Aweber) and Chris Savage (Wistia) recommend that you start with a paid plan, study customer behavior, polish your product and proceed to freemium without running the risk of underpricing your SaaS solution. Having a few paying customers (and a plenty of time to spend on customer service!) is a great way to keep your business going, tailor the product to meet your customers’ needs and retain users;
Build a Strong Tech Team
Let’s go back to our beacon analytics platform: Similar SaaS offerings (i.e., Swirl and Mist’s joint project) incorporate Cloud-based business intelligence apps, mobile SDKs enabling customers to connect existing mobile applications to the system, GPS tracking solutions, machine learning algorithms which analyze sensor data and purely innovative tech like virtual beacons.
In other words, you should employ a strong in-house team (six to eight middle and senior developers) to handle software development and ongoing maintenance for months in a row – and it might take you years to convert trials into paying customers. In order to eliminate office space and insurance costs and access new talent pools, US and EU SaaS entrepreneurs often hire software developers oversees (with Eastern Europe, Latin America and Asia topping the list of most popular outsourcing destinations). Going offshore is also a great way to reduce software development expenses (which might be an issue for startups operating on a shoestring). That being said, there must be a CTO on your team – otherwise you might have a hard time raising VC capital.
Create High-Performance Software With UX in Mind
Beware of Fixed Price contracts. You’re bound to make changes to the scope; choosing the Time & Material pricing model is the only way to ensure flexibility and cost-effectiveness.
Second, you should partner with a top mobile/IoT/WordPress/Drupal development services company with a stunning portfolio and then remain hands-on with the project. Do not underestimate the power of UI design: a couple of years ago three qualified nurses failed to figure out how to set up a medication reminder app and dehydrated a patient to death. Your customers are non-tech guys who expect contextual menus, clear call to action, short registration forms and user-training videos. As long as your clients can solve a setup-related issue without talking to a customer support specialist, you’ve done a good job;
Market Your Product Right
In fact, you should start marketing your SaaS solution long before the product goes live. Create a nice landing page and explainer video. Launch a Google AdWords/Facebook campaign to drive traffic to your website. You should also publish several informative articles highlighting the benefits of your product on your corporate blog and reliable third-party websites. It wouldn’t hurt you to get some press coverage from major IT portals or participate in startup events. Spread the word – and success will follow!
I know what you’re thinking: “It will cost me an arm and a leg to put up a decent SaaS product – and years to recover software development and marketing costs.”
Before you give up on your SaaS business, read this amazing Kissmetrics post by Ryan Shank who managed to build a SaaS business (call tracking and analytics software) for less than $40 thousand. In particular, I’d like to compliment Mr. Shank’s decision to contract a developer employed by a company (as opposed to freelance software engineers who do not always possess the required expertise and PM skills to ensure smooth project delivery).
There’s also Dropbox, a multi-billion company that took a non-standard approach to MVP development; their inexpensive (yet creative and highly informative!) explainer video helped the company grow the beta waiting list from five thousand to 75 thousand users overnight!
Provided you come up with a fresh idea, write software project requirements based on customer feedback and contract a reliable vendor to create an MVP, you’ll be able to raise money through Kickstarter or get angel funding. And then…follow the tips given above!
Read more tips on building a SaaS Business at TechCo