Every day we hear some news about a SaaS company raising millions of dollars in capital. We see them celebrating with their bright and smiling faces, but we completely forget that most of the hard work is still yet to come. There is a dirty little SaaS secret not many of us know: 92% of SaaS companies fail within 3 years.
Once the honeymoon phase is over, the cracks begin to show. Poor strategy and leadership, running out of money, and employee turnover are just a few typical SaaS startups’ problems. Even though they were “the next big thing” a couple of months earlier, suddenly the money, energy, and opportunity are all gone.
Deluded by their early achievements, founders are usually blind to the mistakes they make and overlook the basics of growing successfully. Knowing these key mistakes and issues can prepare you to face them or avoid them.
Below is list of possible problems plus what to do and not to do when starting a SaaS business:
Poor Market Research
One of the first big mistakes a SaaS founder can make is not doing a little digging into the market and finding their audience. You might want to create an accounting, cloud storage, or blockchain-related service, but prior research is super important when starting any type of business. Failure is just around the corner if you jump the gun without getting educated on the market first.
How can you develop something if you don’t know your clients’ needs? How will you help them succeed if you don’t remember their distinct industry pain points? You won’t know the answer to these questions unless you know your audience.
To avoid this, find out the type of customer, specific interests, and software trends you would like to focus on. Additional tip: check your competitors out. If the field is too crowded, you’re going to waste a lot of time and money for nothing.
Lack of Strategy
Another important thing is to determine the costs of running, marketing, and acquiring clients for your business while, at the same time, not letting the project sink in its early stages.
It’s important to mention that SaaS businesses are different from those selling physical products. In the case of SaaS, it’s not just about attracting clients to buy something but also keeping them paying monthly. In addition, in a world of monthly subscriptions, getting new clients is usually more demanding in the early stages of this business model when compared to other types of industries.
If you ignore strategy and don’t have a strong game plan, you may find yourself in a difficult situation where your financial capacity hampers your growth.
Not Being Original
When looking at a zebra, you may think that it’s an exotic animal, but when you are looking at a whole herd of them, the uniqueness is lost. This may happen to your products too. When you are starting out, no one knows how great your product is and why they should buy it or use it in the first place.
It is smart to check your competitors offerings, but you should differentiate yourself from the competition immediately as an owner of a SaaS startup.
Here are a few things to think about:
- What should people know about your business?
- Why is your product great?
- Why should people use your service?
Avoid blending in. Avoid common buzzwords like “groundbreaking” or “innovative.” Instead, focus on the actual value-driven facts surrounding your product.
Ignoring Customer Feedback
This one is a significant blunder that many SaaS companies make. Accepting customer feedback demonstrates that you value the opinions of the customers. It also improves goods and services, boosts customer satisfaction, and increases retention.
You should certainly use consumer feedback to improve your SaaS product if it isn’t meeting their expectations. You may be focused on launching a new feature when all your customers want are enhancements and new characteristics added to your current service. Or they may be contemplating accessibility improvements when all you want is greater security. Get on the same page as your users!
Your purpose is to assist clients in achieving their objectives, so knowing their feedback is critical to your success. It’s crucial to listen to and act on criticism frequently. Asking for input on a monthly or quarterly basis, developing a customer-centric firm, and connecting with customers are fundamental steps to achieving this. Also, using and monitoring different communication channels will make room for feedback requests.
Here we can also add customer service in general. If you’re trying to market a software-based solution, and a problem arises, whether due to a software malfunction or a user error, your clients will probably have limited options in resolving the issue.
In this case, your customers rely entirely on you to provide remedial customer service. This is especially true if you’re pitching your product to companies that might waste time addressing a problem that affects the entire team’s operation.
Not Tracking the Metrics
The devil is in the details. Many SaaS companies only keep track of recurring revenue every month and assume everything is great. Lifetime value, conversion rates, client acquisition costs, customer satisfaction scores, and other vital metrics are essential and require tracking.
However, don’t put too much effort into tracking metrics that don’t provide you with any helpful information. Instead, pick a few key performance indicators (KPIs) that help you achieve your objectives.
Here’s a quick rundown of metrics typically regarded as success indicators in the SaaS business model:
- Monthly and annual recurring revenue, or MRR and ARR, are two types of recurring revenue.
- The churn rate is one of the most critical indicators for SaaS companies because it tells you how many users are leaving your product and can guide you in the right direction to prevent it.
- The customer acquisition cost, or CAC, is crucial because it doesn’t matter how many clients you get if the expense of getting them eats up your profits.
- CLV, or LTV, stands for customer lifetime value. Keep in mind that long-term clients are more important than new consumers in terms of revenue. Strong numbers involve keeping the lifetime value as high as possible.
Final Thoughts
Starting a SaaS company is exciting, but bringing it to fruition and ensuring its success is challenging. You’ll need the correct combination of information resources, technology, and tools to do so. The idea is to keep experimenting and putting systems in place to determine what works and why. Take consumer and product input seriously, listen to others, adapt to changing circumstances, and stay accountable.
