Saas Write For Us – Failing SaaS companies continue to be a hot topic of conversation. There are websites dedicated to the subject, where the reason for failure is explored with genuine curiosity, especially when the study object is startups that at some point had valuations in the tens of millions of euros.
Startups dedicated to SaaS or Software as a Service have emerged in the world of technological solutions as one of the most attractive niches for entrepreneurs and investors due to their real potential for sustained growth and scalability.
Mistakes Failing SaaS Companies Make
Suppose it is not the saturation of the market due to an excess of SaaS proposals. What other reasons led to the failure of these initiatives that have transformed the software industry? Let’s see
They create applications that do not solve problems
A successful SaaS company develops applications that provide practical solutions to accurate and current issues. If you invest resources without knowing the needs of the potential client, you will be fertilizing the ground for failure. Without loyal consumers, there is no sustainable business.
To reduce the margin of error, it is advisable to adopt a method such as a Lean Startup aimed at testing the market with modest solutions that, if they work, can be adjusted and scaled according to the level of user acceptance. SaaS companies also fail because they create products ahead of market needs, and this lack of synchronization is deadly when there is no financial backing.
They do not define a profitable business model.
Without a properly defined business model, how much is the utility of a product worth?
It is not enough to create the application, build a website and wait for the customer to register. Strategies must consistently be implemented to make the tool profitable, and never underestimate the use of two essential metrics, such as the cost of acquiring a client, CAC, or Customer Acquisition Cost for its vocabulary in English, and the value of the income that a client will make during the relationship with him, LTV, or Lifetime Value of the Customer, also by its vocabulary in English. If the CAC is more excellent than the LTV, it means that the expense exceeds the benefit, and consequently, the business is not turning out to be profitable.
They overestimate the benefit of opening markets.
The ideal approach for SaaS companies is not to lead the way in bringing one type of product to market but to rapidly deliver digital solutions that are constantly evolving, providing valuable customer experiences, and are supported online.
Although being an early promoter has its advantages, it is not always synonymous with success. It is essential to be very careful when launching a new proposal to the market to prevent the competition from copying the idea by improving the business model. In markets as competitive as the software industry, this means building a successful product better than the original and probably a significant loss for the entrepreneur.
They neglect the management of their management team
The management of an organization sets the guidelines, establishes the strategies, chooses the work team, validates the properties of the product, supervises the marketing plans, and, in general, determines the direction of the business.
If management is weak, failure is just around the corner. That is why SaaS companies fail, especially in this type of business. The skills of the development team appear to be the determining factor in the creation of a product. However, research on the target market, customer acquisition, and implementation of techniques that favour growth and profitability always falls on the shoulders of the management team, and that is the main thing.
They run out of money for early investments.
This is one of the main details of failure for many SaaS companies. It is the accountability of the Chief Executive Officer or CEO for its acronym in English, to guide the administration of finances until the business has a positive cash flow or is in a position to request external investments.
Knowing when at the right time to act is the responsibility of the CEO. For example, most of the time, it doesn’t make sense to hire salespeople and launch marketing campaigns when the product is in development and has not been validated, as it will only lead to ruin and frustration. The idea is to enter the market with a business model capable of monetizing, where the LTV triples the CAC, and the latter’s recovery is projected in less than 12 months.
They neglect product validation.
The product under development does likely intend to satisfy consumer needs. But, some SaaS companies fail because they neglect the validation process of the solution they propose, both before and during its development. Ignoring these strategies that help predict the product’s behavior in such a dynamic scenario hinders the positive positioning of the software in the target market.
What solutions apply? In the best case, assess the failures to make the necessary adjustments, and in the worst case, assume the loss and, if feasible, conceive a new project to boost the business.
Allow increased abandonment rate.
The sustainability of a SaaS business points to active customer loyalty and the acquisition of new prospects. When churn, understood as the abandonment or cancellation of customers, exceeds the growth of your acquisition rate, the business falters.
One of the leading causes of failure for software startups is their difficulty retaining customers. There is a type of voluntary abandonment that occurs when the customer intentionally cancels and an involuntary abandonment that arises, for example, due to credit card problems or an error in the subscription system. Although it is impossible to suppress churn totally, there are mechanisms to mitigate its occurrence and consequences.
Tips to reduce churn
Although it appears last on the list above, customer churn or churn rate is one of the reasons SaaS business fails. Without clients, there is no business that simple. So, after analyzing your needs and following up on your acceptance of the product and brand, what other strategies should be implemented to help mitigate customer churn?
- Invest in a subscription analysis tool, such as RevenueStory, to have in the same panel the revenue history of the billing system and the abandonment metric, among others, facilitating access to data that allows the creation of strategies that stop customer migration from the start.
- It is easier to acquire a customer than to keep it. That is why it is essential to classify which customers are at high risk of abandonment, segment them according to the causes that have led them to be in these conditions, and encourage them with special discounts, coupons, or more flexible payment conditions.
- Identifying high-value customers is also essential to bet on success because they represent significant revenue for the business. The sustained follow-up to find out if they have any unresolved problems and discover the extent of their commitment to the brand allows them to meet their expectations and, most likely, retain these critical accounts.
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