SaaS is a volumes business
“Your SaaS business is a volumes business…”
SaaS products are successful when they have lots of clients. Simply said, “it’s a volume’s business.” Ideas that work well on a SaaS model need to meet a fairly generic need (albeit with customizable options) and there should be a high number of potential clients.
So…
1. The need your product fulfills must be compelling
Regardless of how ineffective or inefficient it is, your prospective clients are likely already meeting the system need they currently have in some way – be it through paper, spreadsheets or legacy systems.
It is a serious effort to search for, sign up for, free trial, evaluate and decide to purchase software. The needs driving your prospective clients to go through this process must be compelling. Your product solution has to solve real world problems that already exist new or better ways.
Abstract or not particularly useful but rather nice-to-have products seldom make a big success on the SaaS model.
2. Prospective clients must be able to afford your product (and see value)
Even though typically, paid, on-demand software is charged at a relatively low monthly fee (considering that is a “volume’s business”) it is important to test the affordability of the fees you plan to charge. Even once you are comfortable that the fees you will charge are reasonable and affordable, you must test that the prospective clients will see value when paying those fees.
A helpful simple question is “will the client save or make more money in using this product than they are going to pay me to use it?”
3. Your product/solution must feasibly be “self-supporting” (“self-everything?”)
Knowing that this is going to be a volumes business and a competitive space, it is vital that, as a business, you are able to focus on the core capabilities of maintaining and improving the product.
Your product will thus need to be “self-supporting.” By this, I actually mean “self-everything.” It must be self-marketing, enable client to self-sign-up, self-provision, self-train, and self trial. It must automatically remind the client of the trial end and automatically end the trial or begin the paid agreement. It must automatically invoice, automatically follow up on non-payment and automatically terminate non-paying client agreements. It must self-support through help, FAQ’s and community forums.
If your product idea is too complicated and can’t feasibly do the above, you need to consider how all these business needs are going to be fulfilled and how those costs are going to be built into your pricing model.
If the are too many of these costs, it is quite possible that either your business/product idea must be reviewed or it is wrong for the SaaS model.
4. Your prospective clients must be frequent web users
The client interface of your SaaS product will most likely be through a web browser (or at least use web app conventions as an offline app) and thus many standard web navigation conventions will be immediately implied by that fact. Those of us who use the internet on a daily basis lose touch with the reality of how difficult it is for an infrequent or non-web user make sense of these implied conventions. They can do it, it just takes much longer and much more explanation/training.
Often infrequent-web-users will trial a web based app and comment that it “doesn’t work” but with further probing and training one discovers that the fact of the matter is that they didn’t understand how it works.
Knowing that your SaaS business is a volumes business, you don’t have time to educate all of these people. This means that being a frequent web user will be an entrance requirement to using your SaaS product.
If your prospective/target market are no frequent web users, you need to seriously question the feasibility of using the SaaS model.
Forecasts…
The enterprise wide needs (ERP systems, CRM, Accounts) are already fairly well covered by SaaS brands. I wouldn’t compete in these areas without a BIG appetite to spend both on product development and marketing.
Areas of opportunity as I see it are business to business. Anything that can enable a mobile workforce and centralized reporting remotely accessible is a good play. Systems that can enable franchises to rapidly expand are a good play.
In the current global economic climate, companies are looking for ways to cut costs and increase efficiencies. If your product can reliably achieve that for the client, you are on a winning wicket.
A disproportionate amount of the B2B SaaS products currently being built are for agencies (software and design). This is understandable because these clients are early adopters and frequent users of the web. I however would avoid building a product for this industry/market unless you have something revolutionary.
One last important thought: Before you start, do your research! Who else is doing something similar to you? How far are they? Can you beat them? How?
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Next time teaser:
Next time I will continue with the “Starting Out” series and look at “Examples of great SaaS businesses?” I will look at some of my favourites in a bit of detail..
Full Book Chapter Plan:
The full list is available on the Upcoming Topics page.
Glossary of Terms:
Please comment if I have used any term that you are unfamiliar with or feel should be added to the Glossary page.
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