From on-premise software to software as a service (SaaS) — software delivery has witnessed a significant transition. With the introduction of SaaS-based CRM software by Salesforce in 1999, the cloud computing model came to the forefront.
Businesses need not buy, install, and upgrade software the traditional way. This software modernization has led many businesses to drive efforts towards creating meaningful SaaS products that solve the everyday problems of their target audience.
Almost half of IT industry leaders are planning to make SaaS the go-to option to build a digital ecosystem — 49.2% of organizations are planning to invest in SaaS as part of their digital transformation initiative. — Digital Transformation 2020 Report, Net Solutions
Other software as a service examples include Slack, ClickUp, Trello, Hubspot, etc. If you too are planning to invest in a SaaS-based product development initiative, here’s a guide to help you through.
What is Software as a Service (SaaS)?
Software as a service (SaaS) is a cloud computing service model that allows a business to rent out software that resides on the cloud. It is built on a multi-tenant architecture, i.e., a single instance of the software can be used simultaneously by many SaaS customers.
SaaS is available on a subscription basis, which can be monthly, bi-yearly, or annual payable. Also, everything needs to be managed by the vendor (you) as opposed to the bespoke software that businesses invest in.
One of the greatest benefits of SaaS is that it unloads the burden of installation and maintenance from the customer’s shoulder. However, the vendor’s responsibility to maintain software upgrades and offer continuous stream of value increases.
What are Essential SaaS Characteristics?
The most essential characteristics of the SaaS model include:
- Multitenant Architecture: a single instance of the software is shared by many customers simultaneously
- Customization: the customers can individually personalize the look and the feel of the software by selecting/deselecting front-end features and functionality options
- Remote Accessibility: a customer can typically access the software from anywhere across the globe, given they have a working internet connection
- Scalability: SaaS products are easily scalable based on customer requirements
- Easy Maintenance: SaaS products can be easily upgraded using the DevOps model where automation testing and continuous integration, delivery, and deployment take precedence.
On Premise vs SaaS vs IaaS vs PaaS
Before investing in building a SaaS business application, it is essential to build awareness around the difference between on-premise, IaaS, PaaS, and SaaS. So, here it is:
- On-Premise Software: This is bespoke software that is customized and built in-house. It is a traditional form of software that needs to be connected to the organization’s virtual or on-premise mainframe server system.
- IaaS: This is an Infrastructure as a Service model where an organization rents a small amount of hardware and software to host the application’s virtual machine. Here the organization’s virtual machine is simply moved to the cloud.
- PaaS: This is a platform as a service model that offers a platform for developers to build scalable applications. In this case, the cloud provider manages the system software, thus helping mitigate the IT department’s burden. The organization only has to take care of the application code and its deployment.
- SaaS: In the case of SaaS, organizations simply rent an application that the provider manages completely. An organization’s IT department only has to ensure that an integrated sign-in process is facilitated across the organization.
How to Start Software as a Service Company: A Step-by-Step Process.
Here are the steps that you need to follow that revolves around how to build software as a service business:
1. Idea Generation
With the increase in SaaS churn rates, it can get taxing to make an impression and gain early adopters. According to a McKinsey report, SaaS vendors must show an annual growth rate of more than 20% to survive. The only key to match that level of growth is to come up with an innovative, out-of-the-box idea for your SaaS product.
To start with — your idea should be well thought off, should have a validated proof of concept, and should solve a real problem. Here are some idea-generating tips to keep in mind:
Here are some methods enlisted by Tom Zaragoza, founder at Vocalmatic, that can help you come up with an idea people would pay for.
1. The Job Search Method
Enter the URL for a popular job search website on the web browser such as Indeed and enter an industry name in the search box. For example, if you are interested in the automobile industry, enter the keyword “automobiles” in the search bar.
This is one of the results that appear under the job search for automobiles for Mexico region – Auto Parts Delivery Driver.
Now when you click further, you can see the job description. Here’s one of the responsibilities that the above job demands.
Here you need to emphasize on the relevance of keywords. Create long term keywords that combine the “job industry” with “job description that can be automated.”
For instance, if you focus on the job description above, and combine “Automobile” and “Delivery Documentation,” and add a suffix “software” to it, you get a long-tail keyword, i.e., “Automobile Delivery Documentation software.”
Google it to find the relevance of this long-tail keyword. If there are SaaS products based on the idea, repeat the process until you find a never-tried-before idea.
2. The App Store Method
This is a simple method to find what other SaaS service providers lack that you can fix and improve on. Visit an app store. For instance, you are interested in building an eCommerce SaaS solution — Magento App Store could be a good starting point for research.
Likewise, you can also research through Apple and Google apps stores to look for relevant apps related to industries that interest you.
Look out for popular apps as well as apps with one-star reviews.
Popular apps will help you see what people are liking and what is currently working in the market.
“One Star” review apps will help you analyze what other market players lack that your SaaS product could address. These types of reviews are mostly long sentences where people enlist the problems they are facing.
3. The What-They’re-Using-Excel-For Method
This process starts with interviewing people working across industries and your workplace. Engage in conversations across social media channels, create surveys that can be spread across your organization, and can be sent over email.
The questions should be framed around — “What do you use spreadsheets for?”
If they mention the tasks that are managed through spreadsheets, you are in for luck. You can build a SaaS solution for them that automates and eliminates the burden to manage spreadsheets. This could be your innovative idea.
As an add-on, here are the top trends that should inspire your SaaS application development idea.
- E-learning and remote work tools
- Artificial Intelligence and machine learning
- Focus on creating vertical-specific SaaS Products
- Developing and creating Micro-SaaS products
- Embedding chatbots for on the go support
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Choose from Among the Best Development Companies
For a startup that is in a bootstrapping stage, outsourcing is a good practice to consider over in-house development. This saves costs and brings the best development practices to the table such as Agile (for flexibility and fast deliveries).
- Creating a PoC: this involves creating a proof of concept (PoC) that helps validate the technical feasibility of the new idea
- Prototype: This is a blueprint of your product to validate its UX/UI flow. The prototype also helps in attracting seed funding for your product as it gives an idea about the visual appeal and functionality of the product
- MVP Development: this is the basic, launchable version of the SaaS product that includes the should-have features. After you build an MVP and launch it in the market, further development can be planned — based on feedback from the users.
- Full-Scale Development: This process involves creating a fully-fledged SaaS product based on early user feedback and the must-have features.
The standard SaaS product development process is similar to any software development process, which comprises of:
- Requirements Gathering: this includes an insight into your idea and the corresponding feature set you aspire to build
- Design: This includes finalization of how the design of the product will look. All the best and latest design practices will be followed to create a SaaS application people will love to use.
- Development: The Agile product development team will move ahead with the coding and bringing your idea to life
- Testing: The Agile testing team will test the source code for errors and bugs using manual and automated tests. The code will be sent back to the development team if a bug appears
- Deployment: The CI/CD process will be followed to streamline the DevOps (development and operations) process. At this stage, the product will be rolled out to a live environment through enabling automation.
- Maintenance: New features, upgrades, bug fixtures, and performance issues will be looked after throughout the life of the product.
3. Choose a Cloud Provider
Choosing a cloud provider for hosting your SaaS product is another essential part of the process. Look for a reliable and secure cloud provider that can manage your product now and in the future.
The top cloud providers according to Gartner’s Magic Quadrant include — Amazon AWS, Microsoft Azure, and Google Cloud Platform.
Run a comparison among the three based on computing power, pricing, features, technical support, etc. For your convenience, here’s our blog to help you find the right fit among AWS vs Azure vs Google Cloud.
4. Plan Pricing and SLA
Planning the pricing for your SaaS product is another essential part of setting up a SaaS business. The various pricing models that are relevant to the SaaS industry include:
- Free-Trial: You offer the product for free for a week or 14 days with limited accessibility
Freemium: The subscription is free but the functionality access is restricted.
- Flat Rate: There is universal pricing for everyone irrespective of users and business size
- Pay-as-you-go Basis: The price depends on business scalability, i.e., the customer pays for only what they use and can change their plan as and when they need to add/remove features
- Per User: The price depends on the number of users of the SaaS product. More the users, more the pricing, and vice-versa.
- Feature-based: Pricing depends on the features that the customer opts for. The more features one gains access to, the more is the pricing
- Business Size: Pricing differs based on business size. For instance, the plan for a startup, a mid-sized company, and an enterprise will be segmented into different groups.
Drafting an SLA (Service-level Agreement) is also an essential part of setting up a SaaS business. An SLA is a formal document that highlights the vendor’s offerings and the level of service that a customer should expect.
5. Market the Product
Creating a product is not enough, you need to build awareness around it too. Invest in marketing campaigns to create hype around your product. Twitter, Instagram, Facebook, and LinkedIn are good platforms to start with.
You can leverage the following digital marketing tactics to gain early adopters:
Software as a Service — Challenges and Solutions
The demand for SaaS is high, which means that many small-scale and large-scale businesses are investing in building SaaS applications. However, most of them are failing to create a lasting impression.
An estimated 92% of SaaS companies fail within 3 years despite growth and funding. — Lighter Capital
Several bricks go into building a robust wall. The same is the case with a SaaS product. If you do not work cautiously on building the foundation, the wall is likely to fall.
Here are some reasons why SaaS products fail and the corresponding solutions to overcome the challenges at hand.
1. Missing Product-Market Fit
A product-market fit is achieved when you create a product that solves the problems of your target audience. If there is a need and you manage to address it, you have achieved a product-market fit. In such a case, your customers become your marketers, who endorse your product through word of mouth.
But, if you fail to address the problems, and develop a SaaS solution that is not pragmatic, failure is evident.
- Market Research. Before coming up with a SaaS idea, understand the needs and problems of your target audience. Brainstorm around ideas and create a list that seems promising.
- Analyze existing SaaS businesses in the market to see if they already have a product based on your shortlisted ideas. Also, analyze where the existing solutions lack so that you can offer a better experience.
- For new ideas, create a proof of concept to check the technical feasibility of the idea.
- Create discussion groups, a combination of development teams, stakeholders, and limited test users to validate the need for a specific SaaS product in the market.
Finalize the idea that would make a difference after running a vote across the discussion groups.
2. Great Product, No Marketing
An approach that most of the SaaS businesses follow — Develop a product, agile test it and launch the product in the market, announce it on Twitter or a few other social media channels, and wait for it to be the next big thing in the market.
It does not work that way. Instead, the idea should be to adopt the product mindset over a project mindset. Marketing is equally important because, without effective marketing initiatives, even a great product is likely to go unnoticed.
- Create a SaaS marketing plan by looping in marketing, sales, customer service reps.
- Focus on SEO wherever you are using content. The better you rank on Google, the better the chances of conversions. You can also spend on Google AdWords for gathering a better reach.
- Publicize your SaaS offering through social media posts, email campaigns, blog posts, guest posts, etc. You can also try influencer marketing, which works wonders nowadays.
- To gather eyeballs on your product, offer free trials to your customers. Urge them to try the product and receive valuable results. Your pitch should be talking about how your product will make a difference in the user’s life.
- Stick to low-price, low-complexity rule. These are the two parameters that customers will judge you for.
- Maintain a healthy relationship with the early adopters. If they stick to your product initially, send them a gift, something that Freshbooks does. This SaaS company sends a cake to its loyal customers to maintain an ongoing relationship.
3. Inability to Respond to Change
The inability to showcase agility skills when responding to change leads to product failures. For instance, your SaaS product was launched a month ago, and you receive feedback that you fail to respond and iterate through, failure is the result.
If you respond to feedback but spend a lot of time to iterate through the changes, failure is evident again. In short, you need to showcase agility skills to stay relevant and valuable.
- Build an MVP before moving to the full-scale product. The minimal viable product that focuses on core functionalities should be the focus. This can be a good starting point for gathering loyal customers and honest feedback to start revisions.
- Emphasize on developing your SaaS application by following the microservices architecture, i.e., smaller modules of the bigger application that are loosely coupled. It makes it easier to iterate through the suggested changes as the change to a particular module does not affect the other modules’ functionality. Thus, fewer downtimes.
- Maintain a lower amount of cruft in the code, i.e., the unwanted parts of the code. The lower the cruft, the quicker it is to identify and fix bugs.
Most importantly, give it time. Overnight success is a myth; do not fall for it. Instead, drive constant efforts towards — Launch. Market. Gather Feedback. Iterate.
11 Point Checklist to Ensure SaaS Success
To succeed in your SaaS triggered digital transformation initiative, there are a few best practices that align well with the changing times and needs.
Here is a glimpse into some of them:
- The focus should be to create a proof of concept followed by a prototype and then an MVP.
- Create interactive advisory videos for your customers to help them understand the working of the UI and other noteworthy software as a service benefits.
- Offer distinctive and affordable pricing models that are better than your competitors. These offerings should be easy to understand, as complex pricing models can put off your potential customers.
- Work on enhancing the customer experience across touchpoints to eliminate churn rate. These days the end-to-end customer experience of most of the SaaS products seems disconnected. You can make a difference here by offering seamless sign-ups and intuitive and responsive UX.
- Deploy data analytics to analyze the reasons behind churn rates. These results can also help to identify SaaS product shortcomings so that you can improve on them.
- Offer valuable and on-time customer support as it acts as a key ingredient to SaaS vendor success.
- Offer regular and timely updates and bug fixtures to stay one step ahead of the competition.
- Ensure that the SaaS product can operate efficiently with lower bandwidths so that it can run uninterruptedly with low-speed internet connectivity.
- Look for strategic partnerships to expand your user base and reach across the globe. This can help gain scaling advantages for your SaaS product, which can act as a cash cow.
- Analyze your product portfolio from time to time. Make informed decisions by filtering out product offerings and services that offer little to no value and are showing no signs of growth. According to McKinsey, SaaS vendors that manage their portfolios achieve enterprise-value-to-revenue multiples twice those of passive portfolio managers.
- Offer integration capability for your SaaS product as it can help you offer an omnichannel experience to your target customers.
SaaS is a software as a service, public cloud model that delivers software through the internet on a subscription basis. The evolution of SaaS through the years is noteworthy. The subscription-based SaaS model is gaining traction, and the current crisis just brings the tailwinds for the software industry.
A report by Gartner predicts that SaaS revenue will grow to nearly $143.7 billion by 2022. This brings the opportunity to rely on SaaS business models to source revenue streams when most industries are going the SaaS way.
This write-up covers is a comprehensive guide on SaaS that answers everything you should know before venturing into this as a service business.
In the words of Drew Houston, Co-founder, Dropbox — Learn Early, learn Often!