Last few months I have been talking to many founders across Europe. Most of them were working on new software products. The predominant theme is SaaS. In most cases a product aimed at a specific vertical or even niche market.
Today you can find a SaaS product for every business process imaginable. Accounting, Marketing, HR, Sales, Customer Support. You name it, you got it. When you look at sources like Angel.co or Getapp.com, the number of software vendors is well in the thousands. On Angel List there are more than 7 000 companies listed in the SaaS category.
What does this mean for you as a founder of a SaaS company?
No matter what your product is doing you probably have at least a couple of competitors. As an example we can use the email marketing software category. There are well over 50 different vendors who offer a SaaS solution in this area. Most of these products have a hard time differentiating against their competition. Who really needs a choice of 50 different email marketing products? What can you do differently to stand out from the crowd? The simple answer is not a lot.
One of the topics often discussed with founders of early stage SaaS companies is traction. In simpler words — how many people or companies use your product regularly. This one simple question can crash even the best of founders. Usually when your product goes live you get some signups. Maybe some of those signups convert to a paying customer. Finally a percantage of those paying customers will engage with the product and become loyal customers. The rest will cancel their subscription and leave.
There might be hundreds of reason why your customers leave but one of them is the one to obsess about. Does your customer really need your software? I often write about this — there are close to 300 000 000 business in the world. I don’t think even one of them failed because it didn’t have the right software. Does a local hairdresser need a fancy booking and customer management app? Will she go out of business without it? If you are the third of fourth vendor in this category how do you imagine to close sales? All these questions come down to one very simple thing — what will be the net value of your product to your customer.
To illustrate the importance of value I will use the example of infakt.pl — accounting software aimed at small businesses. Infakt is used by close to 400 000 businesses in Poland. Those business rely on Infakt for the invocing. Without infakt it would be hard for them to operate. They could use workarounds like Excel templates but Infakt offers so much more. Besides being a tool it is also a knowledge base. It helps businesses deal with taxes in a proper way. This cannot be achieved with an Excel template. Infakt started out as a very simple invocing tool. Now it has grown into a system of record for small business accounting. Accounting is a job that business don’t want to do, especially manually. This was the key “growth hack” for Infakt.
By now you should be asking this questions — how can I test and find out if businesses or people would need my software?
Although it is a valid question, it is the wrong one to ask. What you should be asking is how can I test and find out which “jobs” businesses and people are not keen on doing. If there are such “jobs”, than there might be a need for some sort of software to do those jobs. To me a great example of this is the Marketing Automation category. Businesses want to react to actions their customers take. They don’t really want to do it manually. Software which acts as a “marketing brain” is the perfect solution. This might be the reason why Marketing Automation is a growing market.
One of the problems with testing if businesses or people need software to do a job for them is a low barrier of entry. Most SaaS products start with a free plan or a trial period to get signups. If there is a paid version, the price point is set pretty low, so that users convert into paying customers. The common truth is that a SaaS product needs to have at least three tiers in its pricing. All of this leads to people signing up to use your product but does it really test their need for the value that the product offers?
I often like to be contrarian to what everyone else thinks. That is why I advise founders to think different. What if your first challenge is to only serve “10” customers who are really in desperate need of software which will do a certain job for them. If this is the case, than you don’t really need a fancy “pricing” page. You don’t really need a free version nor a trial period. All you need is a product that does the job and a price tag. Think about how simpler your life as an early stage SaaS founder would be. With such an approach all your efforst would go into finding those 10 first customers who accept the way your software works and how much it costs.
If the job at hand is to find 10 paying customers — how difficult can it be?
Well, from my experience it is damn hard. Most founders will never get there. Most software out there will never experience full use by 10 paying and satisfied customers. This is the price for innovation and progress. Before one founder gets it right, thousands will fail. In order to maximize your chance for success you can follow this simple advice:
- find “jobs” business or people hate doing manually,
- set the bar high, so that you only work with customers in desparate need of software,
- use the simplest pricing tactics, optimize for now not the future
- focus on the first 10 paying customers,
- don’t waste time on business and people who are just “window shopping”,
- try to think different than every other founder,