Four Tips on How You Can Start a SaaS Business in 2022
September 22, 2021
SaaS companies are a unique phenomenon in today’s business landscape. Among other things, the recipe for building a successful SaaS business from the ground up is much different from most other industries.
Therefore, traditional approaches to entrepreneurship may not bring SaaS founders the success they’re pursuing.
This article will outline the basic steps you can take to build a successful SaaS business the right way. From market research to getting early adopters, these insider tips and tricks will ensure you stay on the right track toward creating a unicorn instead of a zombie company.
We’ll start at the point where your company is no more than an idea trying to find its place in a vast market and go from there.
Table of Contents
Learn how to Connect Your Idea to the Market with Proper Research
Every successful enterprise in history began with a modest idea, a possible solution to a shared problem.
If you’ve already found your idea, congratulations. You've already completed a massive step toward building a successful SaaS business.
The next phase of your efforts to build a SaaS business is to see if that idea has a place on the market. Your goal is to figure out if there is a real need for the solution you want to offer.
Market research can help you find answers to essential questions, such as:
- Who are your future customers?
- What pains are they experiencing?
- Can your solution fix these problems?
- Do any other similar solutions already exist?
Market research is essential. If you come to realize there’s no market need for your solution, it’s probably best to go back to the drawing board and test out another idea.
Otherwise, you’re setting yourself up for a tough battle, as 42% of startups fail because they misjudge the market’s needs.
Market research can be considered from three different perspectives:
- Industry Overview
- Target Market Research
- Competitor Analysis
Once you’ve carefully inspected each aspect, you’ll have a much better understanding of how your idea fits into the current landscape. So let’s take a look at each element individually.
Getting an industry overview is all about researching your niche: how big it is, what the hottest trends are, what direction it’s currently taking.
You can research your industry by diving into fresh content like books, magazines, articles, podcasts, and video channels.
An even better approach is to connect with Facebook groups, forums, and industry experts or visit fairs and conferences to engage in real conversations about your industry.
Moving on, researching your target market means discovering how many people or businesses experience a problem you want to solve and finding out as much as you can about them.
Your research should provide insights such as:
- What type of business would benefit the most from using your product (if you’re developing a B2B solution)
- Who your ideal customers are in terms of demographic and geographic features
- How big your potential market is
You can use a variety of tools to help you with target market research, such as Similarweb.
Just enter a website that offers a similar product to yours and discover lots of useful information about the people and organizations it serves.
Doing this can also help you with competitor analysis, an equally important part of your research that involves analyzing your competitors’ products, seeing how they achieved success and what mistakes they made on the way.
Another good practice for competitor analysis is to subscribe to and test competitor’s products and get out and talk to your competitor’s customers to see how the product is serving their needs.
You can list the differences in a table, like in the example below.
That should give you a good overview of where your strengths and weaknesses lie and point to what can be improved.
In conclusion, it’s worth reiterating that having a good SaaS idea isn’t enough to guarantee success.
Doing diligent market research will help you determine if your company has a future. That’s why it’s our first step toward building a SaaS business from scratch.
Find out if You're on the Right Track with A Killer MVP
When you’re ready to enter the validation phase, you’re no longer thinking in terms of ideas and solutions that solve problems. You’re framing your software as a product meant for the marketplace.
Therefore, the question you’re asking yourself is: will people actually buy this thing?
To validate your idea and test it with a limited number of users while keeping costs low, you would build an MVP (Minimum viable product).
An MVP is the basic version of your product. It only contains the key functions, without the sugar glaze and sprinkles of perfect design and additional features that come later in the development phase.
Even so, your MVP gives your first users something tangible they can “sink their teeth into.”
Imagine investing massive amounts of time and money into a finished product that’s perfect in your eyes, only to discover that the market doesn’t need it or that users hate it.
Building an MVP is one of the cheapest ways to confirm that your idea is valuable, or perhaps discover that you’ve made a mistake.
Let’s look at an example of a famous MVP to see how this process works.
Back in 2006, two Swedish entrepreneurs, Daniel Ek and Martin Lorentzon had a simple idea. They wanted to create the perfect music streaming service to deliver uninterrupted, highly personalized tunes to every user. They called it Spotify.
Their MVP contained just their core feature. It was a desktop app that streamed music from the internet.
Not much to look at, right? Well, their early adopters loved the app, which signaled to the founders that they were on the right track. They also discovered people were more than ready to pay the monthly subscription they proposed to access the service.
Having proven their hypothesis, they continued to work on it. They improved the interface, added music recommendation algorithms, and developed in-browser and mobile software versions.
Today’s interface looks much different, but the core idea and the main feature of Spotify are still there.
To build your MVP, sit down with a piece of paper and make a note of every feature and functionality you want it to have. When you’ve completed the list, start crossing things out. Find the features your product can’t exist without.
Once you’re left with just one or two features, you’ve found your MVP and can start building it. Create this product in as little time as possible, using as few resources as you can, and then test it on a limited audience.
Working on your MVP is your chance to get down and dirty, so get creative. Like Brian Chesky and Joe Gebbia did when launching their app for short-term apartment rental.
The Airbnb we know and love would not be complete without the photos of the spaces that help users decide on where they want to stay. The photos are a vital part of the user experience.
However, in the early days, Chesky and Gebbia had a hard time finding users because the photos that appeared on apartment listings were of low quality.
So they went out and took high-quality pictures of the spaces themselves to publish on their app. This helped them test the concept and as we know, it was successful because Airbnb eventually became a unicorn.
The point here is to keep testing, learning from feedback data, and changing the core product until you’ve perfected it.
In the end, you should have a product that incorporates both your idea and users’ needs. This validated product has a much better chance of surviving in the marketplace.
Only then should you move on to the next phase of building your SaaS business.
Find the Best Funding Sources to Reach the Finish Line
Securing reliable financing for your SaaS company is vital because you don’t want to run out of cash in the middle of developing your product.
Remember when we talked about the reasons why startups fail? Well, running out of cash is number two on that list.
Let’s discuss the primary sources of SaaS startup financing to provide a list of options available to you as a SaaS founder.
In an ideal scenario, you would finance your startup using your own funds.
This approach is called bootstrapping. It’s the riskiest financing method, but it makes a lot of sense. Almost no other financing source will allow you to keep complete control of your company, as other methods often involve giving up equity in exchange for funds.
Therefore, it comes as no surprise that bootstrapping is still king among early-stage startup financing methods, despite the personal financial risks it entails.
The biggest funding source in this graph can be defined as bootstrapping. However, we should point out that this includes all startups, not just the most successful ones. In most cases, startups do need external investments to reach self-sufficiency.
Therefore, at some point, you might want to involve investors. These come in two notable kinds.
The first kind is angel investors. These are usually wealthy entrepreneurs or tech experts who can contribute their experience, mentorship, and contacts, in addition to funds.
Angels usually fund projects in their early stages, and the average size of a single investment is somewhere between $25,000 and $100,000. In return, they will expect the equity in your firm.
Have a look at what the typical company structure might look like after angel investor involvement.
Getting Angel investors on board is usually a good idea, but you may run into some trouble finding them because they usually keep a low profile. Fortunately, you can use platforms like The Angel Capital Association to connect with investors and pitch your ideas.
Then, there are venture capitalists. Those are firms that invest in riskier endeavors with a potential for large growth. Their investments are usually much larger than what you would see from an angel investor.
However, venture capital is not easy to obtain. It’s notoriously difficult even to get a chance to pitch your project. In most cases, you’d already have to be in the MVP phase and have early adopters to be considered.
Therefore, if your product is still at its inception stage, it’s probably best to wait until you can get some traction before seeking out venture capital investors.
All in all, there is more than one way to fund your SaaS company. The tried-and-true recipe for success is to combine multiple sources of financing to help your company grow at every stage.
Discover Your Optimal Pricing Model to Drive Growth
SaaS business takes an innovative approach to pricing. There are many factors involved and figuring out the right pricing for your product can be quite challenging.
Nevertheless, how you price your product will play a major role in the buyer’s decision-making process.
In fact, research has shown that pricing is the most sought-after piece of information for buyers considering SaaS products.
Setting your price too high may alienate your customer base, resulting in low sales. On the other hand, undervaluing your product could have you operating at a loss because the cost of acquiring your customers will exceed the lifetime value they bring you.
Deciding on the price of your product and choosing the right pricing model is definitely tricky, so let’s consider some of the pricing models available to you.
This is the most straightforward model. It features just one set price for access to your product.
A good example of this is Basecamp.
Their service costs the same for all customers, regardless of their real needs.
The pricing model that bills the customer for the exact amount of service they used, and not a cent more.
You’ve experienced this pricing model if you’ve ever used Uber or Airbnb. It’s also commonly used by cloud storage companies like Amazon’s AWS.
This method is used when your customers can be segmented into multiple tiers, according to how they use your product.
In the above example, the pricing takes into account that users have different storage space needs. Individuals need less storage space than professionals and entire companies. To accommodate each type of user, customers are segmented based on their storage needs.
With this model, customers hand-pick the software features they need and pay for those features only.
This can be seen in Baremetrics’ pricing. Customers can select the feature of the software they want and get billed accordingly.
It’s important to know that all of these models are equally valuable, and the best pricing model for your company will depend on the type of product you offer, your target audience, as well as your measure for success and growth.
However, while it’s true that different pricing models suit different products, some good pricing practices do apply to all companies.
For one, SaaS products are constantly developing and changing, so your pricing model should reflect that. Don’t be afraid to experiment with your pricing and adjust it as your software grows. Other companies do this all the time.
In fact, according to Invesp, nearly four in five companies change their pricing regularly, sometimes even multiple times within one year.
Secondly, remember that your product is a part of a larger ecosystem of software products. Therefore, it’s a good idea to keep a close eye on your competitor’s prices to make sure you’re not under- or overvaluing your product.
Finally, stay involved and learn everything you can about your industry, your company, and your customers so you can stay on top of the needs of all three.
In conclusion, you and your team work hard on your software product, and you deserve to be compensated fairly. Devote enough time and effort to this aspect of your SaaS company to make sure your product is valued correctly.
Learn the Most Effective Ways to Get Early Adopters
Early adopters are the first two hundred or so people who will use your product. They’re an incredibly useful source of information and data that can help you make massive improvements to your product before presenting it to the general public.
Let’s enumerate some of the benefits of sharing your product with early adopters.
For one, early adopters can help you achieve the perfect product-market fit.
Early adopters are the people you can offer an early version of your product to. Your product is not yet perfected, but it doesn’t have to be.
Your first customers will use your product to solve their pain points and provide you with feedback and data you can use to improve your product and adapt it to the needs of real users. That will help you attain the three elements of a true product-market fit, as outlined above.
Secondly, early adopters can help you find your growth channel. In the beginning, it’s a good idea to cast a wide net to attract your first customers.
If you look closely, you may notice that you’re getting more customers from one or two channels than other sources.
For example, like many other companies, HubSpot uses a short survey to find out where their customers come from.
The channels with a larger output of new customers are your growth channels, sources you can focus your marketing efforts on to grow your customer base.
Finally, early adopters offer a means to cross the chasm between your idea and the general public.
Let’s take a moment to explain that last point. The chasm is a phenomenon that appears in the technology adoption cycle, illustrated in the figure below. It represents a gap in the adoption cycle that happens when a new technology tries to “jump” from being relatively unknown into mainstream culture.
Early adopters are people eager to try new technologies who don’t mind if your product is not perfected. That distinguishes them from the mainstream public, which exhibits skepticism toward new things and expects your product to be perfect before they buy it.
If early adopters like your product, their approval will reach the ears of a wider audience, which means you’ll have advocates for your product. When these visionaries confirm your product is worth trying out, the market is much more likely to follow suit.
So how do you find these early adopters and get them onboard? Let’s go over some options.
Well, your first and best option is to reach out to communities of people who share interests and problems you’re tackling with your product. These can be Facebook groups, subreddits, online forums, etc.
For example, say you’re developing an app that tracks your exercise routine and suggests new workouts and meal plans. A perfect place to look for early adopters would be the Fitness subreddit.
Alternatively, you could use specialized resources dedicated to connecting new products to early adopters. For example, you can deliver your pitch on ProductHunt and try to attract people interested in trying out new tech in their interest area.
Finally, blogging about your product is an excellent way to put the word out about your product and attract early adopters.
In addition to posting on your own blog, try guest blogging for sites that cover topics related to the pain points solved by your software. That’s a great way to get exposure and earn some valuable backlinks to your site.
For example, OutBrain welcomes guest posters, and so do many other popular blogs.
Remember, early adopters are how you turn your innovative idea into a household name. So do your best to seek them out and make them power users of your software.
The road from a brilliant software idea to a successful SaaS business is long and often difficult. You’ll need to find where exactly your idea fits in the market, go through several stages of early development, find adequate financing and formulate the right pricing strategy. Finally, you’ll have to get people to actually start using your product.
Don’t worry, though. Every step of this journey is filled with learning and networking opportunities and at the end of it, you may find it’s not only your company that’s grown, but yourself with it.
This article has given you a good place to start, but the trick is to never stop learning. So, get out there and find out if there is a unicorn hidden in your idea.