Building a SaaS Business – You Love it… and You Hate it
The market for Software as a Service (SaaS) applications is one of the fastest growing markets. According to Gartner, the worldwide SaaS application market is growing from $59 billion in 2017 to $113 billion in 2021. Not only are big enterprises like Microsoft, Salesforce, and Adobe transitioning to the recurring revenue model, delivering their applications via the Cloud, many startups are now emerging to deliver Cloud applications embedded with the latest technologies like Machine Learning, Deep Learning, and Remote Sensors.
You love SaaS business for a multiple of reasons. These include:
1. Low barriers to entry. Pay-as-you-go hosting services from Amazon, Microsoft, and Google make it easy and inexpensive for startups to enter the business.
2. Low cost. It doesn’t cost that much to build a new application. Many low-cost offshore resources are available to build your applications.
3. Hot market. The increasing adoption of SaaS applications by large enterprises is making SaaS business mainstream. Everyone is moving to Cloud!
4. Fast ROI. Because of its relatively low cost and ease of deployment, an application doesn’t have to be very robust, as long as it solves a nagging problem for a specific segment of users. It can be profitable within in a short period of time.
5. Fundable. Investors love the recurring revenue model, so it’s easier to raise money.
Ironically, you hate a SaaS business for many of the same reasons. While the low barriers to entry and low cost make it easy for you to start a SaaS business, they also make it easy for your competition to do so as well. This makes it a big challenge for you to gain market share and grow your business.
As entrepreneurs and existing enterprises develop new SaaS solutions, every SaaS application is facing increased competition. According to some surveys published on PriceIntelligently.com:
· In 2017, there were over 8,500marketing software products, while just 10 years prior to that, there were only 500 marketing software products.
· In a 2017 survey of SaaS founders, companies that started five years ago faced an average of 2.6 competitors in their first year of business, while those founded a year ago were up against an average of 9.7 competitors!
So the million dollar question becomes, in a very crowded market, how do you differentiate your business?
There are really only two ways to differentiate:
1. You need to have better technology embedded in your application than the others. You could have proprietary technology, protected by patents or approved by regulatory agencies. Or, you could have accumulated a vast amount of user data because you are an early mover. For applications that leverage Artificial Intelligence, for example, the more data you have, the better your application can become. That’s why Tesla commands a competitive advantage in autonomous driving. They were the first mover and they continue to use the data to improve their applications.
2. You need to build deeper connections with your customers. Your customers have many SaaS applications to choose from. Why would they choose yours and stay with yours? To keep your customers, you need to acquire a solid understanding of their daily workflows and pain points and teach them how to use your application to ease their pains, track their use of the application, and measure the results. It’s a never-ending cycle of understanding, delivering, improving, and measuring.
Building these competitive differentiations is critical to win in a SaaS business. At TCV Partners, we help SaaS companies, at all stages of growth, to identify the attractive markets for their applications and technologies, and to build efficient sales, marketing, and customer success processes to grow their business. If you would like to discuss your challenges, please email Jackie@techcomventures.com
Jackie Luo, TCV Partner