As we enter 2020, cloud-based services continue to increase in popularity, with total SaaS revenue topping $100 billion in 2019. However, much of this gain remains with the top-tier companies, with industry leaders Microsoft, Salesforce, and Adobe enjoying 39% of the total market share.
Outside of the industry elite, SaaS startups are continuing to rise in popularity as well, with new companies determined to solve previously unidentified consumer problems. However, because SaaS companies take a few years to become profitable, only around 20% of them will reach the Series A investor round, with only 10% of those advancing further.
While these numbers may make a SaaS product success seem near-impossible, there are several factors that can help result in a successful launch and adoption by business customers. Here are the three most important questions to ask in order to determine whether or not a SaaS product has what it takes to succeed.
1. How narrow is the problem that it’s trying to solve?
Every startup thinks they can change the world with the release of their product. It’s good to set aspirations high, but the fact of the matter is that having a much narrower scope is a far better indicator of a product’s future success. Even the biggest companies of the world are unable to solve everything – as hard as they may try.
Everyone thinks they’re going to be the next Salesforce, but even that great SaaS pioneer began by solving something small before eventually moving on to tackling the world. While having a wider scope will allow SaaS companies to theoretically access a larger group of people, this larger scope also means that there are more SaaS companies to compete with -- most of which will be able to solve their specific problem much more effectively. It makes sense upon closer examination: A product that does one thing perfectly is much better than a product with 10 average features.
Of course, narrowing the problem is a task easier said than done. The most important thing to do is to understand just exactly what the clients’ needs are -- what pain do they feel and how can it be solved? Varying levels of research are necessary in order to find an ultra-specific niche that the product will aim to fit.
For example, if someone aims to provide a software solution to assist online retail stores, it would be beneficial to do in-person research on the trials and tribulations of the modern online store owner. Reach out to business owners, ask what they’d like to see improved, and adapt the SaaS product around what information can be attained. Understand the pain of the customer and the product will follow.
2. Are they willing to adapt to different situations as they arise?
If there’s one thing that’s commonplace for nearly every young business, it’s unpredictability. You never know what’s going to surprise you next. Good companies are able -- willing, even -- to change on a whim in order to take advantage of something that comes up.
In the startup world, keeping the blinders on and refusing to adapt a product when new variables make themselves known leads to failure. For example, Slack, the now-ubiquitous workplace communication tool, owes much of its success to adaptation. Originally designed as an in-house messenger application for a video game, the developers eventually realized the messenger app itself was more popular than their game. They decided to pivot, and the rest is history.
3. How savvy is the founder?
Perhaps the most important indicator is the presence of a highly motivated and experienced founder to lead the development team through the entire process. Quality leaders inspire from the top, giving their startups a unique advantage over their peers.
So, what makes a good leader? Experience is one thing: Simply put, first time founders are much less likely to be successful due to their relative lack of knowledge, compared to previous startup founders. Knowledge of the specific product is another major indicator of a savvy founder. Expertise matters, and the founder will need to have a clear and thorough understanding of the industry in order to be successful. Experience in SaaS will almost always equate with future success in SaaS.
Another component of a successful founder is their ability to effectively build a team. A quality leader will be able to construct a team that knows exactly how to turn their vision into reality. One bad hire can cripple early-stage startups; good leaders will be able to avoid these pitfalls.
Lastly, and perhaps most importantly, a good leader needs to know how to raise capital. Some founders just have that special something that allows them to wow investors and earn money with ease -- it’s no surprise that these founders are often most successful. SaaS products will almost always lose money in the first two years, so being able to gain a solid base of capital could be a matter of life or death.
The sad truth is that most startups will fail: It’s a simple numbers game. But as the adage goes: Knowledge is power. For SaaS products to be successful, the cultivation of knowledge is essential -- now and into 2020.
Phil Alves is the CEO of DevSquad, a software development firm that helps entrepreneurs launch new SaaS products and growing companies plug in a ready-to-go dev team. In 12 years, he has led the build of more than 75 SaaS products.