Software-as-a-Service Success

The Top Ten Dos and Don’ts of SaaS Business Success

The Dos: Ten Proven Strategies for Software-as-a-Service Businesses

SaaS Do #1 Choose a Large Market

There are many roadblocks that can get in the way of building a successful software-as-a-service business, but one that can kill your prospects before you even get off the starting block is the size of your available target market. In SaaS, volume is king!

In the long run, profitability is achieved only when the business delivers on the promise of lower total cost of ownership (TCO) with sufficiently large customer volume to cover high infrastructure fixed costs with low margin, cheap subscriptions.

profit = volume x (subscription price – variable costs [acquisition, support, etc] ) – fixed cost

Don’t write a single line of code before asking this question: “Is my market really big enough?” You would be surprised at the number of vendors jumping on the SaaS bandwagon without a real handle on the size of the market they hope to capture, or the impact market size will have on their ability to deliver their service profitably.

In the short run, you will need to achieve a strong growth trajectory while keeping acquisition costs in check. The best way to do this is to cherry pick your customers, focusing only on those that have the highest need and are the easiest to reach. Given that most of the Global Fortune 1000 IT departments are still trying to swallow the alphabet soup of enterprise software they have purchased over the last twenty years (ERP, CRM, BI, RDBMS, WMS, RFID, ASP, .NET, J2EE, etc.), you are unlikely to make much headway with this group as early adopters without a very compelling value proposition. For this reason, most B2B SaaS vendors have been honing in on the small to medium-sized business market (SMBs) and small, independent departments within larger companies. However, SMBs do not comprise a uniform market by any measure, as both need and requirements can vary dramatically across SMB segments.

Perhaps you aspire to launch an altogether new killer application—something really Web 2.0. Even in this case, it is critical that your target market be accessible and the unmet need be very strong to ensure rapid adoption. If your audience is too hard to reach or they are just not interested enough to take action, then your available market may be too small to achieve your growth and profitability goals even when your potential market appears gigantic.

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