saas tech startup

Intro

Cloud-based software (Cloud Apps / SaaS / Web Based Apps) has been among the most transformative parts of the software industry in recent years. This trend is made available through the Internet which allows access to the service through any device. While the traditional Software Licensing Business Models are still common, they tend to be limited in scope. In this article, we discuss the advantages of the SaaS business model. In addition, we argue why focusing on SaaS alone might not be a viable strategy for tech companies that are just starting up.

What is SaaS?

SaaS can be defined as a software that is owned, delivered and managed remotely by one or more providers. The basic idea of Cloud Apps or SaaS apps is that they are typically accessed through a web browser or through mobile app, and that they store their data on a server. The provider delivers the service based on one set of common code and data definitions that is consumed in a one-to-many model by all contracted customers at anytime on a pay-for-use basis or as a subscription based on use metrics. Gartner predicts that SaaS will continue to dominate the market of public cloud.

What enabled SaaS popularity?

Simply put, the infrastructure that is required for SaaS to be profitable and practical is increasingly available. Few years ago, internet installation was expensive and access to high speed internet was not as widely spread as today. In addition, data centers required for the cloud to operate (where SaaS is hosted) used to be constrained to certain regions. Nowadays, access to high speed internet is considered a utility. In addition, the cloud is becoming available in many regions, which encourages tech companies to utilize it and depend on it.

SaaS from user perspective

Let us first discuss the advantages and disadvantages of SaaS from end-user perspective.

Advantages

Easy to access and use

Web based SaaS is easy to access and provides freedom for the user to pick any Operating System to use. The web browser enables this universal access as it acts as the gateway into the world wide web. In addition, from B2B perspective, businesses don’t want to deal with installing software across their systems. This eliminates administration, installation, hardware, technical support and security hassle.

Device specs usually are non-factor

Since the heavy lifting is done by the cloud (the server hosted in the data center), the user does not need a powerful device to access the services.

Pay as you go / pay for use

The subscription model provides convenience for the user in term of upfront cost. No need to purchase the full software if only a portion of its features is required for a certain period of time. This is why SaaS usually provides tiers (subscription levels) and different reoccurrences (Monthly / Annually) to cater for all segments.

Future proof

With SaaS the user gets updates, new features and security patches almost instantly. As the the software itself is hosted and managed by the provider, this elevates those responsibilities from the user’s shoulder to the provider.

Disadvantages

You don’t own the software

Unlike Software Products, users don’t have access to the software itself nor do they own a copy of it.

Subscriptions can pile up

SaaS subscriptions tend to be less costly upfront in comparison to software products (think of purchasing a copy of Microsoft Office 2021 vs Subscribing monthly to Microsoft 365). However, on the long run the cost of SaaS will most likely pile up. This concern will deter users from subscribing to yet another service to keep their finances in check.

Requires internet access to work

Without a reliable and fast internet access, the user will lose access to the service.

Data privacy concerns

Users are now more aware than ever of the value of their data. Therefore, some users will be hesitant to provide their personal details to yet another service provider, especially if the vendor is a new startup.

SaaS from provider perspective

SaaS is not a silver bullet even from the provider perspective. There are advantages and disadvantages to this business model.

Advantages

Scalable

The scalability of SaaS comes from the many innovations achieved by cloud providers, where compute resources are easy to procure and scale horizontally and vertically. In addition, Platform as a Service is becoming increasingly popular, which means more technical complexities are managed by the cloud provider, enabling access to powerful scaling and security features.

Compatibility

Even though not all SaaS products are completely web based, most of them are. The advantage of web-based SaaS is clear, providers don’t have to worry about supporting different Operating Systems and different environments. The web browser becomes the environment, so as long as the user have access to modern web browser and a reliable internet then they should be good to go.

Future income is predictable

With subscription based SaaS, the vendor can better predict the monthly income (Recurring Revenue) that will be generated by the service based on the number of active subscriptions. This cash inflow metric is a common financial indicator that companies need to pay attention to.

SaaS sells itself

If customers subscribed, the churn is low, the product provides value, then that product will keep making money with low upkeep.

Additional Advantages of Web based SaaS

Web based SaaS provides additional advantages:

  • Increased accessability as you are not bound to certain OS
  • User data is kept in a central location (the cloud) which centralizes backups and security
  • Since there are no different copies and versions for each user (think of office 2016 vs office 2021), the service becomes future proof:
    • Upgrades are easier to rollout to all users.
    • Providing support becomes less of a chore as it can be done completely online.
    • New features are can become instantaneously accessible to all users.

Disadvantages

It is not easy to run a SaaS

The ability to make software and the ability to make software business are completely separate. SaaS while having high multiplier, it requires exceptional skills when it comes to marketing and operation.

Competitors will want a piece

No matter how unique the idea is, it will have competition and in the tech industry overall not only in SaaS, first mover advantage don’t last that long. Therefore, market selection and execution are far more important when it comes to launching a successful SaaS.

What makes a viable saas business?

So based on the advantages and disadvantages, we can say that a viable SaaS needs to have the following:

  • It needs to solve a real problem. Minor inconvenience is not a viable business. Scratching your own itch is not the best approach. You need to scratch other peoples itch.
  • SaaS needs to solve a problem is recurring.
  • It needs to solve a problem without creating new problems. For example, productivity tracker apps create problems of learning how to use them and to remember to use them in the first place.
  • The problem involves scale, because this is where technology shines. It can provide an enormous value to many users without much additional cost. Back to our productivity idea, if we alternate it a little by providing “team productivity” then suddenly the idea becomes more lucrative.
  • People need to be willing to invest resources to solve the problem. You need to meet with customers and collect feedback, preferably face to face. Having conversations with customers and drawing conclusions based on qualitative data.
  • Usually, b2b solutions work best.

Additional tips

  • Learning by doing instead of getting trapped in analysis paralysis is probably one of the best approaches to getting started with SaaS.
  • You need to asses if you are the right person to build a solution for this problem. What you know, your expertise, your background and education will play a huge role in your success and giving you an edge over the competition.
  • Spend time learning about some niche businesses, better still be involved in one.
  • Identify the problems people already paying to solve which will save you a lot of effort when it comes to marketing.
  • Learn what issues the current solutions have and try to provide a fix.
  • Build an mvp and market it using channels where people in that niche are already making purchasing decisions.

Examples of successful SaaS business ideas

  • Shopify app that helps business recover sales from abandoned carts
  • Monitoring software that helps businesses quickly respond to and resolve critical bugs (sentry)
  • Bookkeeping software that help businesses track spending, streamlines tax reporting, and produce financial forecast
  • Social media management tool that help business grow their presence on multiple channels
  • Firewall that allow businesses to prevent being DDOs’d

Conclusion

When it comes to SaaS, there are many considerations to keep in mind for service providers and customers. As provider, the future possibilities and ROI of SaaS are very tempting reasons to build a SaaS solution. However, these benefits do not come without a cost. It is important to remember that as a business owner who is looking to venture into the SaaS world, doing enough market research and testing your ideas go hand in hand with your SaaS success. Choosing the right technology to enable your SaaS to scale also plays an important role when it comes to maintaining your user-base and providing a satisfactory service for all your users.

References