The success of many SaaS companies is one of the reasons why many entrepreneurs are looking towards the business. Just like “there is a tool for that”, we are likely to soon have a scenario of “there is a SaaS product for that”.
However, behind the news on Techcruch of successful SaaS companies, VC funding rounds and acquisitions, very many SaaS businesses do not take off or simply fail miserably. And no, the problem is not too much competition.
Fundamentally, running a SaaS business requires a shift in metrics that founders concentrate on. Most people run SaaS like any other online venture and within no time, realize they are not breaking even or getting traction. Below are some of the major reasons why most SaaS businesses fail:
1. Lack of a Market
Yes. You probably expected the first reason to be related to technology but no, it’s related to the market. Most SaaS businesses fail because they are simply not solving any existing problem. Others may be solving a problem that users do not want solved.
The barriers to developing an app are at an all-time low. With sites like Guru, Elance and Freelancer, anyone can assemble a team from overseas and get an app coded for less than $1000. However, most founders find themselves in limbo after product development when they realize nobody seems to care about their app.
One of the ways you can avoid this problem is to adopt Lean Startup approaches and be customer-centric. In a nutshell, you simply create a small solution and see if there is market for it. From there, you can tweak the solution and scale it based on user requirements and feedback.
2. A Failing Business Model
With the adoption of lean startup model and many success stories of SaaS companies bootstrapped to profitability, most entrepreneurs assume that it is easy to acquire customers. They assume that after building their product, customers will simply show and sign up. This may be true for the first few customers but in most cases, acquiring customers is an expensive task.