The software as a service (SaaS) business model has sky-rocketed in popularity over the past few years.
Highly successful SaaS services like Dropbox, Salesforce, and Slack are dominating the market, especially with the recent shift towards remote work.
Even businesses that have been in the tech industry for years have begun to experiment with SaaS models due to their high propensity for long-term success. However, these models are not without their challenges.
SaaS startups can face choppy waters for months—or even years—before they become established in the sector.
The Most Common Challenges that SaaS Startups Face
When talking about tough times as a SaaS startup, it’s important to delve deeper into exactly what this means. SaaS startups experience a handful of unique challenges in the industry, including:
- Difficulties establishing a target market. Startups differ from traditional businesses. Instead of addressing a specific target market, they usually seek to establish their own markets by identifying problems that nobody else has considered solving before.
Unfortunately, this can pose a disadvantage if a startup miscalculates its market and tries to address a problem that nobody is interested in solving.
- Attracting new users. Many SaaS startups have trouble onboarding enough new users to avoid product abandonment during churn and trial periods. Many overcome this by onboarding users manually, although this can create significant sums of extra work for their teams.
- Reaching the right audience. Marketing a SaaS service can be tricky in an era where most customers would rather do their own research and look for their own solutions to pressing problems.
The most successful SaaS startups get around this by using intelligent inbound marketing strategies like SEO-optimized landing pages, blog posts, and video content to attract, retain and convert leads.
- Choosing a viable business model. Plenty of SaaS founders are certain that once their services are introduced to the world, people will automatically sign up in their thousands. This may be true initially, but attracting customers after that point can be costly.
SaaS startups who succeed need to get around this obstacle by paying attention to metrics like customer acquisition cost (CAC) and customer lifetime value (LTV).
Startups whose CAC is equal or higher to LTV will be spending more on acquiring customers than their businesses earn. Inbound marketing can keep CAC lower as these companies search for ways to improve their LTV.
How to Weather the Storm in 5 Key Steps
It’s evident from the many challenges that SaaS startups face in their infancy that this industry is not an easy one to break into. Factors like the economic turmoil created by the Covid-19 pandemic have only amplified these effects.
In light of these turbulent times, here are 5 key steps to take to weather the storm and give your SaaS business a healthy chance at success.
#1: Listen to Your Customers
You can have what you believe is the world’s next breakthrough SaaS product to offer. But if it doesn’t solve the real-world problems of your target audience, it probably won’t sell to the degree you are hoping it will.
This is why it’s so crucial to listen to your potential buyers and do extra due diligence to truly understand their pain points.
Every cent of your budget counts more than ever before in these tight economic times. Understanding your customers’ needs will ensure that none of that budget is spent in vain.
#2: Streamline Deployment
Many SaaS entrepreneurs are in money-saving mode in the early days of their operations. But it’s important to invest ample resources into certain aspects of your business, including seamless deployment of your services.
This could come at the expense of other in-demand roadmap features. But if you want to push through and attract new business, you have to make it as easy and beneficial as possible for each potential customer to sign up.
If your implementation is too complicated, your customers may need to rope in other professionals to help, which will instantly put them off.
Considering that 85% of small businesses surveyed had invested in SaaS solutions by 2020, keeping deployment simple could certainly assist you in gaining your fair share of the growing market.
#3: Automation is King
It’s not always easy to sell automation features that can erase jobs. Yet at the end of the day, automation is precisely what the market needs at the moment.
If you can help your customers to streamline their workforces and free up time and resources, you’ll provide them with the productivity boost that they desperately need right now.
Find ways to show off these capabilities clearly and provide a demo to show your potential customers exactly how your automation features work. The more you can reduce the time to value, the more people will be willing to invest in what you offer.
#4: Deliver More than Expected
Any customer who supports a tech startup is taking a risk on their part. It’s essential to show them that you’re worth the bet by doing whatever you can to build trust between your business and potential clients.
Once you close a deal, over-deliver on your promises to ensure that you’re providing more value than your closest competitors. Plus, ensure that your service is always available to offer timely solutions when your clients need them.
This is a great way to build loyal and reference-able customers for years to come, which is exactly what you need to weather out economic storms.
#5: Communicate Clearly with Your Team
It’s more important than ever to ensure that your team completely understands your startup’s mission and industry position. Setting employee goals clearly defines what you want to achieve, and how to go about it.
Make sure that your managers are communicating the essential role that each team member plays in achieving these objectives. Treat your staff (and their concerns) with respect and empathy to reduce worker turnover during times of pressure.
Survive and Thrive
While the SaaS business model has swung into exceptional demand in recent years, there’s no denying that this is no easy time to establish a successful startup. However, motivated leaders will always find a way to scale their young enterprises during times of economic and market strain and to set themselves apart from their rivals.
With careful budget management, attentiveness to the needs and pain points of your customers, and a willingness to over-deliver on your promises, you can weather virtually any storm and set your startup up for success.