Entrepreneur (and Smpl chairman) Bjørn Ivar built an industry-leading SaaS company. He has made all the mistakes, so you don’t have to.
My Big Idea came after I overheard an accountant complaining about how bad their employees were at logging business travel mileage.
They were saying how much money could be saved if there was a program that could create and keep travel records.
‘Hmmmm,’ I thought…
Two months later, I’d created a prototype for something that would determine travel destinations and distances and store them in the cloud.
I tested ‘Quicklog’ on my friends, and – to my great surprise – most were really impressed with how it worked.
When we sold the company to telematics leader Abax ten years later, my little start-up had grown into the largest company of its kind in the country.
Based on my experience, I’d say building a Software as a Service (SaaS) company is challenging but hugely rewarding, and I’d recommend it to anyone.
BUT… there are certain things you need to think about if you want to create and grow a successful SaaS company.
So, here are the Five Most Important Things To Consider if you’re asking how to set up a SaaS business…
1. Do your product & market research
Before you can get going with your SaaS start-up, you need to make sure there is a market for your service. You need to know you are solving a problem… and that has to be a real problem!
For example, a robot that cleans window might make sense theroetically, but the reason no one’s rushing to market with one is it’s relatively cheap and easy to clean windows, so it’s not really needed.
You need to do your qualitative and quantitative research – get people to try it – or you won’t know if you are solving a real problem.
If you want to survive as a SaaS business you have to create something that delivers value, and keeps doing so year-after-year.
The acid test of this only really comes when it’s time for customers to renew their subscription. Is it good enough for them to pay twice…? If they do, you know you’re onto a winner.
2. Get your business model right
Once you have identified a market for your service, you need to develop a business model that will be profitable.
This includes working out:
- how you will generate revenue
- how much you will charge for your product or service
- how you will manage costs
One of the great things about SaaS is it doesn’t need much manpower – you don’t need to have 300 employees to start seeing customers heading into the funnel (and when you do it is one of the most exciting and rewarding things ever!)
You can subscribe to some webservices – almost for free – and it can just be you in your basement getting on with it.
The other big benefit is you can do something once that then generates revenue automatically (that’s why software companies become so valuable so quickly).
So, you need to be clear how you will generate Monthly Recurring Revenue (MRR) and Annual Revenue (AR).
Then you need to automate everything as much as possible, so the business is generating recurring revenue without you needing to worry about that.
Then you can focus on developing and updating your service to keep your customers surprised and delighted.
There’s a reason SaaS start-ups quickly get such high valuations… The repeat revenue opportunities.Bjørn Ivar
3. Get the tech right
Perhaps the most obvious statement ever: technology is a major factor in the success of any SaaS business.
But it’s easy to get the wrong tech or have so much of it that you drowning in complexity.
You need to identify a tech stack that will provide the features and functionality necessary to deliver your product or service.
Be ruthless in your decision-making and don’t fall into the trap of buying funky, shiny things that don’t serve a customer need or enable you to serve those needs.
4. Don’t ignore the legal side
This may sound like another obvious point, but it’s really important. There’s plenty of poor geniuses who didn’t get the structures right or protect their idea properly.
Lawyers will help you:
- choose a business structure
- register your business
- protect your intellectual property
- comply with all applicable laws and regulations
So, lawyer up and make sure they’re a good one.
5. Know what you’re going to do next
SaaS can be very lucrative and rewarding but it’s tough. You’ve got to be ahead of the game.
If someone comes up with something cheaper or better than what you’ve got then you’re dead meat.
You need to monitor the market, the needs of your customers, what your competitors are doing, and keep improving your offering.
If you do all these things your plans will grow in tandem with customer needs (and that includes the needs they don’t know they need yet!)
It’s absolutely fine to start with a basic product, but be ready and able to add new services (and to remove them as well, just like Google did with Hangouts when it realised no one was using it).
Keep monitoring your customers’ behaviour and use the data to your advantage.
Be honest: are they willing to pay for your new widget? Even if they’ve paid are they using it? (If they’re not, they won’t keep paying.)
There’s a lot more to think about, but if you get these things right then you’ll have as good a chance as anyone to create and grow a successful start-up.
Good luck! And if you want to chat more about your SaaS start-up, I’d love to help.