What Research Tells Us About Building a Successful SaaS Startup
Technology is truly an amazing thing. We can order our coffee via our smartphones and have it waiting for us at the store, bypassing the drive-thru lines; we can reach anyone anywhere through live streaming applications, connecting us to family members, friends, even business acquaintances all over the world; we can manage every aspect of our financial lives online by simply opening up a browser and with a few clicks of a mouse.
Technology has given rise to numerous startup companies whose sole focus is to develop software applications that improve or fill a void in our daily realities. Success stories abound of companies that have capitalized on this model: Salesforce, Zenefits, etc. There have been plenty of failures too. And then there are those “overnight” success stories of applications that yield big impact and are quickly absorbed by a larger corporation, usually for a sizeable payoff. These contrasting tales often create distorted perceptions of what it really takes to build a sustainable business, on account of what Anshu Sharma describes as the stack fallacy - or the “false confidence that they can easily build, compete and win in this new market.”
Ultimately what I am driving at is the ever-changing concept of software-as-a-service (or SaaS) and the questions surrounding it. What is the definition of success for SaaS companies? What are the best practices for developing a successful SaaS-related business? Is there a one-size-fits-all-SaaS model for entrepreneurs to follow? After sifting through several online sources, the answers are even less clear. There are certainly needs that were commonly cited: a good team and/or executive leadership, a focus on customer service and success, a solid pricing structure. But of those, nothing jumped immediately off the screen as “definitive.” There was, however, one truth that emerged across the board:
There is no “traditional” model or best practice for SaaS - the CUSTOMER must drive the direction of your business.
The customer should be the core of the business. Okay, okay...not a huge revelation there. But it’s just so damn important that you cannot emphasize it enough, and the research supports that. After all, your customers help determine what the market will bear in terms of pricing, even if your initial pricing structure is based on stereotypical SaaS modeling. Lincoln Murphy shares his thoughts:
“Most companies will attempt to go live with (at least) 3 retail pricing tiers, an Enterprise plan or two, annual discounts, and, for some odd reason, an overall strategy that LIMITS use. Generally speaking, the reason for this is based on:
- Pretty much just making stuff up, or…
- Copying what other – usually unrelated – companies that sell to unrelated customers are doing without knowing if that’s even working for them let alone why it might work for you and your customers.”
He goes on to add that your pricing is fluid and ever changing based on the input and buying patterns of your customers. You must constantly test to find the right balance, and even then, know that it will change.
Your customers are the ones that validate their need and the ability of your solution to meet it. In a great white paper 7 Secrets of SaaS Startup Success, the message is clear:
“Listen to your customers. Create feedback mechanisms that let you keep taking the user’s pulse so you can give them more of what they love—and fix what they don’t. Strategies for getting subjective user feedback include user acceptance testing (which is critical before you ever release a product), surveys, preview programs, focus groups, user groups...”
Your customers help build long-term, sustainable revenue streams if you are able to establish a culture of customer service and delight. One of Ron Pagides’ 7 Habits of Successful SaaS Startups highlights this important concept:
“In the SaaS realm, a ‘sale’ is just the beginning of a long-term relationship with the customer. SaaS providers should be attuned to the needs of their customers; if their service doesn’t provide value, the customer won’t renew (much less expand) the lease.”
We see a lot of entrepreneurs try and skirt this rule and build a tool or product without involving the customer at every possible turn. They don’t validate the product or the model, they don’t devote themselves to consumer delight, they don’t understand the powerful resource that is the user (or potential user). And guess what happens? The company usually fails. Save yourself the heartache and headache and listen to your SaaS startup’s most valuable asset: your customer.