Over the last ten years, the Software as a Service (SaaS) business model has become very popular. SaaS companies typically market their cloud-based services via a subscription model. Clients worldwide, ranging from individuals to multinational corporations, can conveniently use it on any device while reducing their expenses.
The model is beneficial for software developers because they are likely to attract many customers with affordable up-front fees and gain a stable revenue source for years to come. The demand for SaaS tools has been growing steadily, and the current pandemic has further increased the need for remote collaboration software.
If you have an idea for a SaaS application, it seems like a perfect time to turn it into a successful startup. It will take hard work, dedication, learning, money, and a bit of luck, but having a blueprint always makes things easier. Hundreds of necessary actions described by startup gurus may be boiled down to five high-level steps within this short article.
1. Do your market and customer research
B2B model, i.e. selling your software as a service to other businesses, may be the most promising. Your SaaS product should be able to solve one or several of their problems in a better and cheaper way than it’s possible now. Conduct market research and interview potential users to get answers to questions such as:
- Are there any existing solutions? If so, what are their drawbacks?
- What are your potential customers’ requirements for the solution?
- Will they be willing to pay for it through subscriptions?
2. Start with an MVP
The modern approach to building SaaS startups usually includes an early minimum viable product (MVP) stage. You can make a basic application within a few weeks at minimal cost and prove your concept and have something to experiment with and show to potential investors.
An MVP’s feature set may cover just a couple of user stories or include as many features as you need to validate your idea, but all those features should meet the customers’ needs in the simplest and fastest way. To understand whether the MVP works for you and the customers, you need to identify your essential startup metrics and benchmarks early on, e.g., how many registrations within a certain period you will consider a success. Based on the results and customer feedback, you may either abandon the concept, pivot, or proceed to secure funding and further build up your SaaS product.
It’s also recommended to engage experienced SaaS developers at this point. They will help you make some crucial decisions regarding the MVP features, refine the product, choose the most suitable technologies and solutions, estimate the project budget, plan the app development process, and more.
3. Secure funding for your SaaS startup
The bulk of money for startup companies comes out of the entrepreneurs’ pockets, and most businesses fail due to cash-flow problems. You may be able to get off the ground using your savings or with the help of family and friends, but you will more likely need capital once your MVP is on the market.
A business plan increases a startup’s chances to obtain a loan and receive investment capital by 18-20%. In your business plan, you will need to explain what you are going to do as a SaaS company, how you plan to do it, and outline your business strategy for the next 3-5 years.
To find out how much investment you need to get started, you will have to research and predict realistic financials. For a small startup that opts for outsourcing the development, without equipment, office, employee salaries, and overhead, the cost of an MVP with 1-2 core functions may range between USD 15K and 100K. Much depends on the project complexity and where the web designers and software developers are located. Don’t forget about subsequent maintenance expenses, the personnel to help run your company, customer acquisition costs, and so on.
Include into your startup’s financial plan a sales forecast, balance sheet, cash-flow statement, and a profit and loss statement.
It is a challenging task to determine the optimal service price and conditions and even to choose from multiple models, e.g., usage-based pricing, pricing per feature or per active user, “freemium,” monthly, quarterly, semiannual, or yearly fees for using the entire product or feature sets. It takes thorough marketing research to calculate a service cost, compile the packages and subscription plans, etc.
Banks are reluctant to give large amounts to new companies without income or assets to default on, so it’s reasonable to look for investors in your family, among friends, or consider angel investors, and venture capitalists. Get ready to pitch your idea quickly and effectively. Memorize your financial numbers and business plan milestones, formulate compelling reasons for supporting your endeavor, and present a proper management summary.
4. Build your product, professional team, and identity
Before doing anything, you need to register your startup’s business name, receive your tax ID number, and complete other paperwork in compliance with your local and state requirements.
Suppose initially you didn’t have the necessary expertise within your startup team to help with the project documentation, planning, budgeting, and MVP design and development. In that case, you might have hired some people already. After you’ve secured funding for your SaaS company, you may form a full-time team of specialists.
For example, simultaneously with app development, you need to set up the marketing and sales processes. Your product needs a landing page or website (with appropriate branding) offering a tour, SaaS features and pricing, QA and legal pages, and sign-up/login. It’s also desirable to expand your digital presence by utilizing social media. Email marketing, SEO, Internet display, and keyword ads bring in the highest return on investment.
Having a customer make a purchase is a win, but SaaS companies need to retain their customers for as long as possible. Upselling is more effective than cross-selling, and the key to getting repeat customers is good customer service.
You may also seek accounting, legal, and other professional assistance.
The vast majority of startups are small teams, and they are increasingly opting for a remote team model. You may also engage freelancers or outsource your SaaS application development and other tasks fully or partially to save money.
An outsourcing software development agency with a significant track record will provide valuable advice regarding industry standards and programming languages, tools, and platforms most suitable for your unique SaaS product and business strategy. Experienced UX/UI designers will help ensure seamless navigation and a great look-and-feel to facilitate frequent and extended use of your SaaS product. Professional A/B testing will help you ensure that, and it’s better to let experts perform tasks related to your product’s success.
5. Measure success and improve the SaaS product and business processes incessantly
After getting your startup off the ground, you need to work even harder to keep it going on steadily, growing, and generating revenue.
Active marketing and sales efforts, monitoring of relevant startup metrics, rapid changes implementation and user testing, flexibility with subscription fees and complex SaaS packages, and quick validation of new business hypotheses are essential.
For example, your customers’ direct feedback will help you understand their needs and requirements and suggest new features or the entire further development strategy.
Your software developers have to refresh, update, and optimize the service frequently while ensuring uninterrupted availability of up-to-date software to the whole user base.
The marketers need to experiment with and enhance their digital marketing techniques, correctly allocate the marketing budget, and maximize their ROI for each campaign.
It’s good to have a plan, but it’s almost impossible to predict all of the possible hurdles along the way. Don’t get discouraged when something doesn’t go as you planned. Setbacks may happen, team members may come and go, and you may have to make tough decisions and learn from mistakes. The best advice is to stay optimistic, monitor your competitors, gather insights from the right startup metrics, act on them, and move forward.