I am running inBoundio for over a year now and it is doing pretty well with its share of ups and down. There were some hard times but overall it has grown steadily. We have also launched inBoundio PRO which is a white label marketing software for small businesses and agencies as lot of people were asking for this.
There are very few blog posts which cover internals of SaaS businesses written by people who are actually running the business so I thought I should share my experience and learning so others who are looking to start SaaS businesses can learn internals of SaaS business.
Here are my 10 learning while running a SaaS business
1. SaaS Businesses grow slowly – I am little surprised by the slow growth of SaaS businesses. I mean growing by 10%-20% month on month is really good by any standard (for SaaS, this is really big) but I have never seen any SaaS business grow exponentially (github/basecamp can be exceptions but there are specific reasons why they grew and why others won’t). One reason being most of the SaaS business are B2B, so the target market is often small to start with. Do not set goals and projections looking at that hockey stick curve for your SaaS company.
2. The market is not as big as you think – This is another thing which I have noticed. People often think I am in billion dollar market so if I can capture 10% in 3 years, we are a 100M revenue company but in reality, there are very few companies who are able to get into that range. In fact there are very few SaaS companies who are even making 10M USD in revenue every year. Most of the successful once hover around 1M to 10M but this is how SaaS is supposed to work anyway.
3. SaaS businesses can be run by 2-3 people – If you are looking to hire more people, think again as most likely you don’t need them. Most often 2-3 people can run the whole business. In fact the founder(s) alone can run the whole show. You will only need people for inorganic marketing and support. SaaS businesses are all about optimization so focus on that.
4. Marketing is the difficult part, building is not – This happens all the time. People build some awesome app, gets covered in few blogs, generate some buzz and then hit the wall. I think 9 out of 10 web saas startups end up like this and in 12-24 months shut down. The problem is, building is the easy and exciting part, marketing is the time consuming, tough and boring part and this is where all SaaS startups struggle.
5. Almost everything that can be build, has been built – SaaS industry is very saturated, almost everything that can be built has been built. It is almost impossible to build disruptive products. Also since building is easy, there are 4-5 really good products in every vertical making it difficult for any one of them to own the market.
6. SaaS businesses are Top heavy, 1% businesses are making 99% of the money – The top 100 SaaS companies make 95+% of the money. You can look at this image to see the top 10 companies makes more than 50% of of the 18 billion dollar SaaS business as predicted by Gartner. Do not get fooled by the big numbers of SaaS, the reality is very different and can only be seen once you run a business.
7. It is winners take it all business – SaaS is often a winner takes it all business. Mailchimp has killed the email marketing, you can’t top it. Basecamp has killed project management for SMB and individuals, you can’t make it better. They owns the market and you can’t do anything. As said in #4, since almost every vertical has some players this makes it very difficult for new players to come in.
8. Customer stickiness will make it or break it – I have noticed that almost every successful SaaS busienss has customers who vouch for it. They will stick with the company and defend it. They are also the cheerleaders and promoters of the product. Those who don’t have it, do all the marketing which becomes a huge burden.
9. Undercutting the market is not a smart strategy – If you are thinking launching a product in a vertical and offering the price at 25% of what the other competitors are offering, it will not work. SaaS is not as price sensitive as people think. Those products which are being sold at X price are being sold for a reason, because people are paying for it. If no one is paying X, your competitor will also sell it for 0.25X price. Also there are people who do think cheaper product means less features or not good enough. Not to mention, the cost of marketing and overheads will reaming same whether you are selling a product for X or 0.25X so better sell it for X.
10. You can make good money by selling addons including services – I have seen this with many SaaS companies, specially in marketing like HubSpot and infusionsoft, they make lot of money selling addon products and services. It works for them due to the nature of the business but I do feels other businesses should also try this since this secondary source of revenue often add up fast. IF you are selling a product for $29/month, even with 1000 paying customers (which is a big number of paying customers), you will still only make 29k per month, most likely the company won’t be even profitable so you can add some custom products/services or addons, not to mention always offer a premium option of your product.