A Guide for How To Start a SaaS Business

A Guide on How to Start a SaaS Business
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Starting a SaaS business that stands out

With the growing popularity of SaaS products, you may be wondering how to start a SaaS business. While every business process is a little different depending on the niche and the target audience, there are some tried and tested tips for SaaS startup success. In this guide, we’ll take a look at the booming SaaS market, how you can get in on the action with your business ideas, and some examples of successful SaaS startups. 

Although migration to cloud-based systems has been underway for years, the rapid increase in remote work during the pandemic undoubtedly sped up the process – and brought new challenges, besides. Businesses had to move operations fully online in order to survive, including data access, communications, and more. And cloud-based services had to adapt to increasing demand or risk falling short in their service reliability. 

The software-as-a-service model is ideal for remote and hybrid work because SaaS offers enhanced accessibility and reliability at scale. Such services span a wide range of industries and functions, and with the underlying flexibility of cloud infrastructure, there is almost no limit to the tools that can be created with a SaaS model. 

The growing SaaS market

SaaS is a broad term encompassing any solution that offers paid access to a service provided via centrally hosted software. Usually, users gain a license through a subscription, often only paying for what they use. The provider keeps the software up to date and secure, taking the responsibility for maintaining tools and systems out of the hands of users. 

This makes SaaS a popular alternative to building and maintaining software and storage in-house. It’s easier for companies to get the tools they need at reasonable prices without having to do the up-keep themselves. Unsurprisingly,  it’s predicted that the global market for SaaS will be over $300 billion within the next six years. 

One need not look far to see how the pandemic has allowed many SaaS companies to thrive. Slack and Zoom, for example, are two platforms that have become indispensable in countless companies’ pandemic survival toolkits. The growing number of services is great for users, as competition tends to increase product quality. But for businesses, more SaaS services means it’s harder for businesses to differentiate themselves.

Providing quality products is a must, but that alone is not enough. More and more professionals are looking for ways to learn software engineering to meet the demand for software solutions. In this booming field, quality is not sufficient to get you customers. You also must learn how to tailor and promote your SaaS business to reach the right markets. Let’s explore how to get started in building a SaaS startup that stands out.

How to start a SaaS company

Defining the steps to start any business can be challenging, particularly if you don’t have specific expertise in the area. We’re here to show you that it is possible to learn how to start a SaaS startup without software development expertise. Any successful business needs to establish product-market fit – determine the product people want, a target customer base, and plan to get that product to the right people. We’ll break down our steps into these three areas to make it easier to start your software company. 

The product

If you want to start a business, you need something to sell. In the case of SaaS, this is usually a product or service that individuals or businesses can use to make their own lives easier. 

Identify a problem

The first step in making your prospective customers’ lives easier is to identify the problem you want to fix. This might be a problem you and your colleagues have encountered in your own work. Or maybe you aren’t personally involved in the industry, but you keep hearing the same thing over and over about an issue your friends or professional contacts have. 

Make sure your ideas for solutions are as specific as possible. Remember, you are going to design the solution (or hire a developer to design it, at least), so the problem has to have an actionable way to solve it. 

Do market research

Once you have an idea of a problem you think you can solve, you need to look at what other solutions, if any, already exist. This is why it’s important to do your due diligence and know the industry players. If there are other solutions that aim to address the problem you’ve identified, you should think about either a) how you can complement existing solutions with your own offering, or b) how you can do it better. 

Certainly you want to be unique in order to stand out, but that doesn’t mean you can’t learn from others, especially if they’re more established in the industry. This competitive mindset should be applied throughout the business planning phase and beyond.

What are customers saying about existing companies? What gaps remain unfilled with these solutions? How are high-performing companies in this space positioning their businesses? 

These are the questions you want to answer about every viable competitor in the space before you move ahead with your own SaaS solution. You can ask similar questions when you get to the marketing phase, from exploring the keywords for which your competitors rank to sentiment analysis of their online presences. The takeaway here is, never stop learning from your competition. 

Create an MVP

A minimum viable product (MVP) is a low-cost version of the solution you want to market. You don’t want to spend tons of money building a product, only to find that customers aren’t keen on what you have to offer. An MVP is a good solution to this because it costs less to build but still will let you test a basic version of your idea. 

When starting a business, it’s always better to start small and work your way up. Use your MVP as a way to answer the critical questions about what you want to offer, including what the product does, how it works, who will use it, what the user interface will look like, and other product requirements. 

Hire a tech team

By this point, you should have a very specific layout of product requirements to present to a designer. The next natural step, then, is to talk to developers and designers who will help you build your SaaS product. There are plenty of platforms to help you find freelance candidates if you don’t want to hire full-time staff. Don’t hesitate to contact a lot of people so you can narrow it down based on their availability and what you think of the portfolios of their past work. 

The business model

Keep in mind that these three areas are interrelated and have some overlap. So, your SaaS business model and customers should be a consideration from day one as you are developing your product. 

Develop a pricing model

One of the first things you should think about as you are developing your product is how you are going to sell it. Subscription models are popular for SaaS businesses because flexibility and customizability are a big draw of SaaS in the first place. But even if you know you’re going with a subscription service model, there are still different types.

For example, many SaaS subscriptions are priced by tier or feature. You might consider marketing your MVP as a basic tier and then build additional services on top of it for premium tiers. Another option is a pay-as-you-go model where users only pay for as much of a service as they use (per month, for example).

An alternative to subscription-based models are freemium SaaS services. In this model, you might offer your MVP as a free service with the option to add on additional services, pay for more space or speed, etc. Think about your product and target audience and consider what users will be most likely to want in terms of their payment plans. 

Plan a marketing strategy

Once you start selling outright, your marketing strategy will evolve as your business does. Before you approach funders, you should outline what you plan to do to grow your business. But at the beginning, you still need a basic way to get your product in front of potential customers and test the waters as to how it’s received.

One way to do this is to do some low-cost paid advertising, nothing that will break the bank. Running some basic Facebook Ads or Google Ads will allow you to get your name out there and gauge interest. Then, you can reach out to anyone who submits an interest form or responds to some other call to action. 

Keep in mind that formerly paid Google Shopping Ads are now free for everyone, so it is possible to run a paid advertising campaign before you have a steady funding source. 

Find funding

We mention funding at this point because you should have most of the above steps completed, or at least outlined, before you approach funders. Thus far in the process, you may be bootstrapping your business – that is, using your own money to get it started. But if you want to grow, you will probably at some point need to acquire loans or work with investors. 

There are many ways to acquire funding as a SaaS startup. If you are looking for a business loan, you will likely need a solid business plan and proof of viability/performance before you approach the lender. Angel funders or venture capitalists are often a better choice for startups since they are more willing to invest in the idea you are presenting rather than asking for proof of income/assets. Still, you will need to prove that your idea is solid and have a product ready to ship before you are considered a serious candidate.

The customers

A final crucial consideration in starting your SaaS business is who your target audience is and how they interact with your product.

Validate your plan 

As part of any good product plan, one of your considerations should be who will use your product and how. You should have detailed use cases in mind, as well as demographics who you plan to cater to. At this point, it’s time to test that plan by interacting with your target customer base. 

Ask prospects about the problem you’ve identified and what products (if any) they currently use to solve the issue. You also want to try to determine what they would be willing to pay for your product and what marketing methods they respond best to. You can use these insights to inform your business and marketing plans as you progress.

Test your product

You also need to do product-specific user testing. You can do this by offering free trials to interested prospects or even running a study where you bring people in to use the product in front of you. Ask or observe how they engage with the user interface and what issues they encounter. Ask what features they do and don’t like and what features are missing that they would like to see.

Use the feedback

The most important part of interacting with your target audience is using their feedback to improve your product. These are the people who you will be trying to sell to, so this is your chance to get a better understanding of their needs and preferences. 

This applies to the product as well as the marketing methods. For example, you might find that your prospects have recognized the problem you are addressing and like your product when you show it to them, but the ads you were running are not an outlet they respond to. Remember, pivoting is not failure – you might need to adapt to survive. 

Stand out among the competition

Fortunately for consumers – and unfortunately, for SaaS companies – the SaaS boom means it’s an increasingly competitive market as more companies step into the arena. This is one of the greatest challenges SaaS startups encounter because in a crowded SaaS market, you can’t afford to simply let your products speak for themselves. 

Here are some actionable tips to keep in mind when building your business model and marketing strategies to set yourself apart.

Focus on a niche

It can be tempting to do it all as you try to provide your customers with everything they might need. While this will work for some “X-as-a-service” platforms (think AWS), it’s usually best not to take this approach as a smaller business. 

Instead, narrow your field and target a particular niche with your service and marketing. Research might show you that there is a particular pain point your target audience has which isn’t being addressed through existing solutions. Once you identify this and tailor your offerings, focus on reaching prospects with those pain points and proving to them how your offering will solve their problems. 

Target B2B and B2C

This applies to both your offerings and your marketing. Pertaining to the former, you might be able to reach both businesses and individuals with your products if you prioritize flexibility in your subscriptions. While you want to stick to a niche with the product itself, for some products, there is no reason you can’t offer it to multiple target demographics.

For example, if you offer an all-in-one project management software, you are probably looking to businesses as your primary customers. But there might be one feature of your software package, such as a time-tracking app, that freelancers and self-employed individuals might get a lot of use out of. These prospects likely won’t pay for the full package, but if you offer an affordable subscription to just one part, you have diversified your target market and made your service more accessible. 

What’s more, experts note a recent convergence in marketing between B2B and B2C strategies. In an increasingly digital environment, businesses don’t always want to sit through sales calls if they can access and customize your service online. This means it might be good to employ B2C tactics in your marketing, focusing on your website and your SEO, in addition to typical B2B tactics.

Collaborate with partners

As a SaaS startup, you know that you can’t go at it alone. From securing a loan and courting inventors to obtaining legal advice, you rely on your network to get the job done. Your marketing is no different, and a key way to promote yourself in a crowded industry is to leverage channel partners. 

A channel partner is another company that you work with to promote each other and sell your services. This is usually done through co-branding, so you will want to find a channel partner that meshes with your values and goals as a business. You might consider factors like sustainability and growth potential in your criteria. Communicate openly with potential partners to make sure you can develop a mutually beneficial relationship. 

Market more than just your product

As we’ve said, most of your competitors will offer a product of similarly high quality to yours. This means saying, “Our product is the best,” is not a great pitch. Instead, you should focus on building your brand and showing customers what you stand for. 

For example, you can build trust by highlighting your efforts towards security and compliance. It’s important to manage the legal side of your business and let customers know everything is above board and show the world your ethics as a business. 

Make sure your customers know you are protecting their personal information so they feel comfortable using your service in their business operations. You should also invest in a backup plan so you and your customers know your business is safe in the event of a breach or other financial failing. Consider highlighting these efforts as part of your marketing strategy and establish yourself as a business they can trust. 

Rethink customer support

We’re not simply talking about customer service when someone comes to you with a problem. While this is certainly critical for business success, support goes farther than merely solving issues and complaints. 

Support can be proactive as well as reactive. You should use data analytics to predict your customers’ needs and remind them you’re there. You can also use content marketing to your advantage, such as providing “How to” content through a blog or YouTube channel. This will help you get to the top of SERPs for relevant search queries by providing answers to your customers before they even have to ask. 

Example of Successful SaaS Companies

In closing, let’s take a look at a few examples of SaaS companies that got their start much like you. By identifying a need, forming a plan, and reaching the right customers, these SaaS businesses were able to grow into companies that are well-known in their industries.

Dropbox

Dropbox is a file hosting service company that you may have used before. What you might not know though is that the idea for Dropbox grew out of a 24-year-old’s musing about his inability to remember his USB drive.  

Dropbox is an example of a minimum viable product that hit its stride on a first attempt. The basic tier of Dropbox offers a certain amount of free storage, while businesses and users requiring more space can pay extra. They now offer cloud storage, file synchronization, and other software to millions of customers. 

BlackLine

BlackLine was founded in 2001 as a cloud accounting software, and the business was bootstrapped until 2013. While the company’s founder humbly claims she started BlackLine because she got bored, she did spend 25 years in financial accounting before she started the company which offered ample time to understand what tools were lacking in the industry. BlackLine’s funding journey provides an important look at the challenges SaaS startups face and how to overcome them, which will be useful for any aspiring startup founder to consider. 

HubSpot

HubSpot is a digital marketing resource company that offers solutions for social media marketing, customer relationship management, SEO, and more. HubSpot capitalized on a problem just like any good SaaS solution, spending their early days telling their prospects what issues their businesses were having and how HubSpot’s services could solve their problems. 

HubSpot is an interesting case study because they pivoted from consulting to software. Plus, unlike some companies that target a specific niche, HubSpot now markets itself as an all-in-one service that prioritizes ease of use for their customers. 

Conclusion

When it comes to SaaS, it’s a crowded market out there – and it will only get more crowded as demand continues to increase. People have a taste for WFH and they know that there are accessible, flexible services out there to get the job done. This means as a SaaS business, you can’t afford to simply rely on product quality to get you customers. Following these tips should help you give customers what they need and differentiate yourself as a business, even in a competitive field. 

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