SaaS is the future of software and while the future is already here for most Saas startups its existence is short-lived. Saas-based pricing can be cheap to start, it scales easily and you can find a SaaS solution to almost any problem in just a few minutes. But despite its advantages, many SaaS companies fail because they didn't plan ahead or execute their product correctly. Here are some common reasons why Saas businesses fail:
Lack of market validation at the idea stage
Market validation is an important part of the SaaS startup lifecycle. It can be easy to get carried away with your ideas, but it is crucial that you take time at the beginning of your project to understand what your customers really want and need.
- Understand the market: To validate a market, you have to fully understand it from every angle—not just from a consumer standpoint, but also from an industry standpoint. You should know where companies are getting their revenues from, which industries are growing fastest and why they’re growing faster than others (if they are), who is buying their products or services and how much they’re paying for them today—the list goes on! This type of research will help you better understand who will buy your product in the future so that you can make sure it meets demand once released into beta mode or full production release.
- Understand size: One of the biggest mistakes I see startups make during this initial stage is not understanding how big their potential market actually is before investing in expensive software development processes such as UI/UX design workflows or backend coding requirements (e.,g., database queries). If there isn't enough demand for what we're offering then all our hard work may go down the drain!
Lack of funding in the early days
As we discussed earlier, it is important to start with a small amount of funding and then raise additional funding as you grow. How much funding should you start with? It depends on your business model, your industry and your team. Your goal is to build a company that is highly profitable without raising too much money at the beginning. If you raise too much capital in the early days, then there will be pressure from investors (who are generally impatient) for growth that might not be realistic for your business model or competitive market conditions.
If you have no idea how much money to raise when starting out, ask yourself these questions:
- What’s my strategy? Are we building a distribution channel or product? Do we need marketing or sales teams? How will they work together? What kind of customer support will our customers expect from us? Can we afford all those things right now?
- Who are my competitors already serving this market — what do they look like financially and operationally; how big is their headcount; do they have any patents or intellectual property (IP); where do they get their revenue from; where do they make their profit; why are they still around after so many years in business — what does this tell us about how competitive this market actually is before deciding how much money we should take!
No early sales strategy
When starting a SaaS company, it's easy to get caught up in the excitement of developing your product and getting it out there. However, before you launch your product into the world, there are several important things that you must do beforehand.
One such thing is creating an early sales strategy. Having a successful sales strategy will ensure that your business has enough revenue coming in to make it through its early stages of development and growth; this way, you won't have to worry about being able to fund operations because they'll be paid for by client payments.
In order to create an effective early sales strategy, we recommend following these steps:
- Identify your target market(s). Where do most people use our product? Who needs what we're offering? What type of person would benefit most from using our service/product? These are all questions that need answering before moving forward with any other plans.
- Determine how often these target markets need new features or upgrades (if applicable). Do they need them every month or every six months? If so, then hold off on marketing until then so as not waste any money on advertising when nothing relevant will be available at those times anyway! It's better just waiting than having wasted cash spent on marketing materials which may not even reach potential customers anyway!
Poor product-market fit
When you're building a SaaS company and have identified the right market, product, price and promotion for your business, it's often tempting to simply say: "this is what we're going to do". You might be tempted to skip the distribution stage or think that customer support can be outsourced without much thought. But doing so will likely lead to failure.
If one of these areas is not aligned with the others, then it's not just an issue of poor fit—it's a problem that goes deeper than that. If you haven't fully considered how all these elements interact with each other, then you'll struggle with making any real progress in growing your business (which means it will die).
Too many features
Instead of adding more features, focus on improving the core feature set. The more you add, the more complicated it becomes to update and maintain your product. Focus on the most important features first, and then build out from there.
You can use this exercise to help you decide which features are essential for your business and which ones aren't as important:
- List all of the features that you have in mind for your product or service—no matter how far-fetched they may seem at this stage.
- Then create another column listing all of the features that you absolutely need to add in order for customers to be able to use it at all (e.g., basic functionality like "search"). Then list all of the other features that would make it easier for users but are not required for basic functionality (e.g., being able to sort results by relevance). Finally, create a third column where you can write down any additional ideas that come up later—but only after completing steps 1-2 above!
Not solving a real problem
- How do you know if your company solves a real problem?
- How do you validate that your company solves a real problem?
- How can you tell if you have solved the problem or not?
Failing to scale fast enough
When you're building a SaaS business, there are many factors to consider. You need to have a clear idea of what your business model is and how you will scale your business. You also need to know what resources you'll be using and how they will contribute to the overall success of your SaaS company. And finally, it's important to be aware of who your customer base is and what their needs are so that you can provide them with exactly what they want.
If any one or more of these things isn't in place when launching a SaaS company, then it could lead to failure down the road as well as lost revenue opportunities for both yourself and others involved in this industry such as investors or even customers themselves!
Poor customer support
Customer support is one of the most important aspects of any SaaS company, and it's also one that can be particularly tricky to get right. After all, if you have an unhappy customer, then you've lost a sale—and if you have an unhappy customer who can't get a hold of anyone at your company to help them solve their problem in the first place? Then they're probably going to tell all their friends not to use your product either.
So how do you ensure that your customers are getting great service every time? There are a number of different things you can do:
- Make sure that everyone on your team understands exactly how important customer support is—not just for sales or marketing but also for operations (e.g., making sure new clients get onboarded as quickly and easily as possible) and even research & development (e.g., if someone wants a feature added).
Poor pricing strategy.
Poor pricing strategy is a leading cause of SaaS failure. Here's why:
- Price too high. What causes this? Maybe your product is overpriced or redundant, or you aren't offering value-added services (like training).
- Price too low. As with the other end of the spectrum, this could be caused by a lack of quality and service, which will cause churn before customers realize they're not getting what they paid for.
- Not flexible enough to handle changes in market conditions or customer needs. This is especially true when you're trying to capture new markets or target different kinds of customers at once—for example, if you offer both small business and enterprise versions of your software but don't change your pricing model accordingly.
- Uncompetitively priced compared to competitors who offer similar products at different levels of quality and service without changing their pricing structure accordingly; likewise failing to change prices as market conditions shift over time while still charging fees based on outdated information rather than current costs associated with operating their business successfully under current circumstances such as increased regulatory compliance requirements imposed by governments around the world because they have been exposed publicly through social media outlets like Twitter/Facebook etcetera which means that all businesses need some form online presence nowadays so people will come back again next time when they need something else done right away without having wait days even weeks before someone comes back from vacationing abroad somewhere beautiful like Greece where there are lots hotels everywhere!
The list of reasons why SaaS companies fail is long, but it's not impossible to avoid. Don't fail by:
- Not finding product market fit.
- Not finding funding.
- Not having a sales strategy.
- Not having a clear value proposition.
- Creating a good product that people want to buy and that solves their problem better than anything else out there (the most important).
These are just some of the common mistakes that can lead to failure. If you avoid them, though, there’s no reason why your SaaS business shouldn't be a success! We help Saas Founders get their first few thousand customers in a sustainable way. Unfortunately, there are many platforms which will get you, early adopters, at a throwaway price which has proven to be unsustainable and is a futile long-term strategy. Join our SaasTribe Community!