As a seasoned CFO, numbercrunch cofounder Susan Richards frequently sees SaaS businesses slipping into common mistakes. Here’s her top-10 list of potentially fatal SaaS-holes, as well as strategies to combat them:
1. Solving a problem that customers are not willing to pay for
It’s easy to get excited about a new business idea. But before you move forward, make sure your solution is financially viable. “Test your market and validate how much customers are willing to pay for the solution you are planning to build before you start building it,” says Richards.
2. Building with no preparation for launch
Build it and they will come does not apply to SaaS. Richards recommends having a well-thought out launch plan for your product. Lead-generating activities need to begin well before launch day so that when the product is baked there is an audience eager to consume. “Ask fellow SaaS entrepreneurs what they would do differently to get some valuable and practical guidance,” says Richards.
3. Neglecting your business model
The SaaS model has distinctive financial aspects that set it apart from others. While the high gross margin and recurring revenue aspects of license fees are attractive to investors and entrepreneurs, don’t forget about process. Process management is critical for cost effectively acquiring customers.
4. Setting unrealistic timing expectations
When you commit to a financial plan and don’t achieve it, this decreases the likelihood of subsequent funding success and increase the burden of proof. “Many entrepreneurs overestimate what we can do in a year and underestimate what we can do in 10 years,” says Richards. “Be reasonable with your expectations.”
5. Not doing enough research before taking on investor dollars
Entrepreneurs are risk-takers by nature. As a result, many entrepreneurs learn the hard way that the goals of investors and founders are not always the same. For example, entrepreneurs may be open to sell their firm when they perceive a fair and attractive offer has been received but investors may not be supportive and favour gambling in hopes for a better return downstream. Richards says the key is to know your investors and understand their goals early on.
6. Assuming it’s not your responsibility to make sure your customers use your product properly
Many SaaS companies believe sales ends with closing a deal. Businesses need to not only give customers what they want, but also give them what they need to generate results. “By continuing to engage with your customers until they experiencing results from your software you will reap the referral benefits of raving fans,” says Richards.
7. Ignoring competitors
Entrepreneurs have a tendency to pay too much or too little attention to competition. “Keep an eye on your competitors but not too close,” says Richards. “Keep your friends close and your enemies closer.”
8. Fielding a team with the wrong players
SaaS businesses move through business maturity stages very quickly. The skills needed to successfully launch may not be sufficient for leadership and management. Look at your talent pool and see if there are any gaps.
9. Running out of cash
SaaS businesses generally receive little cash from customers early on and are dependent on other sources of funds for years before becoming sustainable. “To survive in SaaS, you have to obsess about cash,” says Richards. “Cash is to business what oxygen is to people.”
Running a SaaS business is especially stressful. Richards cautions CEOs of acting from a place of over or under confidence. Take a step back and ask for feedback from your team and other business partners.