Software-as-a-Service, often built by SaaS startup founders, has been a massive trend for the last 20 years or so. As more services move online and become automated and traditional tech products move from one-time payments to subscription models, this momentum is expected to remain steady.
What this means is, often, tech startup founders will find themselves building and launching SaaS products compared to traditional tech products. But, as we discuss in this article, SaaS startups, while seemingly easy to create and start, they are much harder to run and grow.
Mark Thompson is the founder and CEO of PayKickstart, a SaaS payments platform that helps businesses accept credit card payments, offer subscription payments, among other services. Having also founded or co-founded numerous other SaaS businesses, Mark knows SaaS businesses inside out.
Mark recently took some time off his busy schedule to share some insights on what SaaS startup founders should look out for as they build their businesses. Here are his thoughts broken down into six tips.
Do the Research
SaaS businesses are easy to build, especially for technical founders, Mark says. If you have the coding skills, you can make a SaaS product in six months and launch it on Product Hunt. However, lack of enough market research leads most SaaS founders down a path of watching their startup die over the next six to twelve months.
One of the main reasons for this is that the founders never discovered whether there was a market for their product or not. They came up with an idea, fell in love with it, and decided to build and launch.
In such situations, the term used is the business lacked a product/market fit. In other words, there wasn’t a large enough group of people willing to pay a reasonable price for the product. According to Mark, intelligence gathering is the best way to avoid this fate.
Before a single line of code has been written, perform in-depth market research by asking people about their challenges in Facebook Groups, reverse engineering competitor business models to see what makes them successful, and do all you can to find your competitive advantage. In this way, he says, you can make data-driven decisions devoid of emotional attachments to your idea and product.
Get your SaaS Startup to MVP Fast, then Prioritize
The next challenge many SaaS startup founders face is trying to add too many features too quickly. As mentioned earlier, SaaS products are easy to build for technical founders, but what becomes a challenge is where to draw the line between must-have features and nice-to-have features.
Mark suggests the best way to address this is by defining a minimum viable product or MVP of your solution. An MVP is a version of your product that solves one problem exceptionally well.
Next, Mark says you should work towards solving this problem for your customers as quickly as possible. Instead of focusing on your internal feature roadmap, listen to feedback and suggestions from users, and adapt and pivot as needed.
From this feedback, prioritize feature requests that have the most significant impact on your users’ ability to solve that core problem your product addresses. When doing this, always keep in mind that you are trying to solve a user’s problem, not just build a technically advanced product.
Ignore New Traffic Until You Nail Down Churn
Post-launch, most founders find themselves obsessing over driving new traffic to their new app. While this is understandable, new traffic is not the metric you should be obsessing over, says Mark. He recommends you focus on understanding and lowering your churn rate instead.
Churn is the number of users who either cancel their subscription after a free trial, abandon their account or close it down altogether. Churn can be described as the bounce rate for SaaS businesses. If your churn rate is high, your ship is taking in water and could be sinking. So, how do you lower churn?
While there are many ways to address churn (including analyzing your product/market fit), Mark recommends you focus on streamlining your in-app onboarding processes, so your users find value as quickly as possible as soon as they sign up.
Localytics have done an excellent onboarding post that explains why onboarding matters and how you can create a better onboarding experience for your customers. Once you nail down churn and your onboarding process, you’ll be on your way to gaining sticky customers, the holy grail for anyone trying to grow a SaaS business.
Run Quick Tests on Traffic Sources and Focus on the Best
As you focus on churn, traffic sources are another important metric you should prioritize. Mark advises that you approach traffic as more of an exercise in understanding ROI than trying to get as many people to come to your website as possible. The best approach to this is to look at 2 to 4 traffic sources and then run small ROI tests to identify which one offers the best opportunity to maximize ROI.
Once you get some results, pick only one traffic source and focus on optimizing for even higher ROI. This may sound odd, especially if the traffic source with the highest ROI is not the one with the highest raw traffic. But there is a point to this.
For any SaaS business to succeed, you need signups and subscriptions. If you have a traffic source (e.g., Facebook ads) that brings you a ton of traffic but has a sub-1-percent conversion/ROI ratio, it’s a poor traffic source.
On the other hand, if your Google ads are yielding +3% in conversions and ROI, then this is the traffic source you should focus on. A great rule of thumb is if the traffic is not paying for itself, then it isn’t worth the money you are paying to acquire it.
Documentation is every SaaS startup founder’s nightmare. While building an app is rewarding and even exciting, documentation is downright dull and tedious. But, as the Mandalorian would say, “This is the way.”
Without documentation, you have no way of creating an information map of what your app does, how it does it, and what rules and guidelines should be followed. Mark, therefore, recommends you start creating documentation as soon as you start coding your app.
What type of information should you create? Everything, he says. Knowledgebase articles, tutorial videos, internal documents, employee SOPs, the whole nine yards. Why is this important? Because it helps create a foundation on which to build further functionality and value into your product.
If you lack documentation for your simplest MVP, imagine how difficult it will be to create documentation for a mature product with dozens of features, tens of thousands of users and possibly, tens of employees.
Mark’s last tip for SaaS founders is to track everything, and by tracking everything, he means every single trackable thing about your app and business. Peter Drucker once famously said, “if you can’t measure it, you cannot manage it.”
Extrapolated to SaaS products, this could be said this way, “If you don’t track it, you cannot measure it, and if you cannot measure it, you cannot improve it.” In a way, this is the master tip for any SaaS founder as it underpins all the other tips covered above.
One trackable thing you should measure is your startup’s KPIs. Considering one of your KPIs must be customer acquisition, you need to understand this metric thoroughly. Where are your customers coming from, what is their conversion ratio, what is the churn rate, what is their CLTV (customer lifetime value) and CSAT score (customer satisfaction score), and so on?
The deeper you dig into metrics, the more insights you will uncover that help you create a baseline from which to make smart business decisions as your product evolves and as you scale.
Dan Macharia is an experienced copywriter with over ten years of experience writing for both large and small companies all across the United States. When he is not writing, find him reading a book or outdoors playing lawn tennis, running or just walking and soaking in life.