Four pitfalls to avoid when building a SaaS-type business


Todd Marks is the award-winning founder and CEO of Mindgrub Technologiesthe pioneering digital experience agency.

It seems that more and more service providers are adopting a Software-as-a-Service (SaaS) component or undergoing a large-scale conversion to the SaaS business model.

This “Everything-as-a-Service” (known as “XaaS”) market is predicted to reach $1.6 trillion by 2028. Marketing-as-a-Service, Legal-as-a-Service, Accounting-as-a-Service and even Medicine-as-a-Service are just a few examples of how traditional service companies adapt their offerings to a demand, cloud-based, customer-centric solution model with subscription or pay-as-you-go pricing.

Jumping on the XaaS bandwagon might seem like a no-brainer, but through my company’s work helping SaaS brands launch their digital products, I’ve seen a lot of pitfalls. Unless aspiring XaaS founders understand and overcome the following four pitfalls that go hand-in-hand with a tech startup, they increase their chances of going bust in the first few years.

1. Getting over your head in product development

In my experience, many owners who move from a service-oriented business to an online offering have little understanding of the complexities and nuances of building software. While owners certainly understand the services offered and have an idea of ​​the target customer base, their high-level insights aren’t always as valuable when it comes to actually producing a viable user-centric product.

For example, a founder with an accounting or legal background may struggle to make informed decisions about the myriad issues that impact design and user experience, such as using standardized user interface controls versus producing a custom interaction. They may provide valuable insight into user personas, but lack the know-how to generate the epics and stories needed for agile software development. This is something that product owners produce to design the pages and user interface controls that make sense for each use case.

While some founders try to get too caught up in the weeds, others simply outsource product development to a one-time app developer. They ignore the fact that product development also involves establishing processes for continuous support and improvement. Both scenarios are pitfalls that can sink a company before it gets off the ground.

To address this, I encourage founders to seek out experts who can help them get off to a good start. You can seek internal or external experts for any of the pitfalls in which you may fall short.

2. Falling short on your marketing spend

Two of the biggest mistakes owners make when it comes to marketing tech products are not committing enough resources to determine their product’s viability in the marketplace and falling short in their customer acquisition and retention spending.

Successfully bring an XaaS product to market:

• Plan to spend at least as much on marketing as on product development. Market research prior to development to validate market demand is vital, followed by non-stop marketing throughout the life of the product.

• Understand that app stores exist so that users can download your app. They are not marketing channels.

• Schedule an average of seven touchpoints before a user downloads your technology. In my experience, most don’t consider buying your app until they’ve seen a few posts about it on social media, seen a few paid ads, and heard how their friends are raving about it.

• Use a customer relationship management system to track your touchpoints, facilitate analytics, and drive campaigns.

• Consistently elevate the user experience, nurture your customers, and continuously work on product improvements that are in sync with or even ahead of market demand. Consumers are fickle. They may be attracted to the shiny newness of your technology today, but that doesn’t mean they’ll remain loyal tomorrow.

Without creating this never-ending loop of market research, market demand validation, product improvement, UX elevation, and customer support, your technology is bound to end up on a virtual shelf collecting cyber dust.

3. Not investing in the right team

Many budding tech entrepreneurs underestimate the importance of choosing the right team from the start. You can avoid this pitfall by:

• Looking for team members who have software building experience and a proven track record of the technologies you want to work with. Start with a minimum viable product and get early feedback from customers.

• Hire an integrator to oversee the four core areas of your business: product development, marketing, human resources, and finance.

• Ensuring the right people in the right seats. Keep in mind that when team members wear multiple hats, their diluted efforts will eventually manifest as weaknesses in one or more core areas.

• Never outsource long-term functions that are critical to your business. If you start with contracted experts, plan to turn those resources into full-time. I think it’s especially important to have your intellectual property in-house.

• Create a great work environment. Benefits, flexible schedules, incentive plans, and phantom stock or stock options can help keep your team engaged long after the adrenaline rush of working for a startup starts to fade.

4. Underestimating the capital needs of an XaaS startup

Too many new XaaS founders – especially those who have been successful in the service industry – don’t understand how much capital they need to get a technology company off the ground, let alone how to find those funds.

Service providers can build a robust business by eating what they kill. They bring in customers, collect for their services, and reinvest some of that revenue back into the business. At an XaaS company, it takes several years after building the product before you start operating profitably. In the meantime, you may need to keep raising money until you reach the point where monetization takes hold and you’re operating in the black. You may want to consider working with a fundraising expert to help prevent thin capitalization. (Full disclosure: My company provides this kind of service, just like others.)

Most founders understand at least some aspects of product development, marketing, building and managing a team, or the ins and outs of capitalization. But few are well-versed in all four. To compensate for this, every successful tech entrepreneur must understand the four pitfalls, recognize their own limitations, and take the necessary steps to address them. Business Council is the leading growth and networking organization for entrepreneurs and leaders. Am I eligible?


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