4 reasons why SAAS start-ups fail
Business start-ups come in all shapes and sizes, but over the last few years internet businesses have dominated the start-up world. One model in particular which has shown significant growth is the SAAS model.
It is easy to see why SASS, or Software As A Service, start-ups have become so popular with the rise of dependence on the internet and the potential it holds.
SASS start-ups can focus on a range of products and services and can meet just about any customer or business need, from CRMs, social media tools and hosting platforms.
From a start-up perspective, SAAS products have a range of advantages. They are cost-effective, particularly if your development team is strong and products can be built in-house, the subscription model ensures recurring revenue and they are easily accessible to customers in a wide range of locations due to being cloud based.
However, while SASS products have competitive advantages there are also a lot of pitfalls, many of which can lead to the failure of the product.
Common mistakes SAAS start-ups make
1. Underestimating the persistent tech support required
Unlike traditional brick and mortar businesses with opening and closing times, customers of SAAS start-ups can access the service 24/7 and also expect customer support to be on call for whenever any aspect of the product or service breaks. From a business perspective this incurs hefty staff costs and requires a staff team with significant technical knowledge to be able to jump online at any time of day — a huge ask for staff members.
2. Not spending enough time or budget on marketing activities to ensure customer attraction and retention
Running a business online holds huge potential for a wide audience, however it also means that your business needs to stand out to target and attract your ideal customer. Marketing costs can mount up quicker than subscribers. Customer retention is also an issue because signing up to a SAAS product or service can be so easy that customers can just as easily walk away, if there is anything that does not instantly attract them, especially if a free trial is offered to new customers.
3. Over-reliance on the freemium model
Linked to the point above, the freemium model is prevalent in the SAAS world, in fact many customers expect it. There is risk involved in offering a freemium model — many customers will take advantage of a free product and never sign up — this incurs the business costs without retaining a customer, especially when free users make a lot of support requests. A greater risk is the ability for the same customer to use the product time and time again by creating several free accounts.
4. Not preparing for security threats
One of a SAAS products strengths is its ability to collect and use customer data, however this makes the business susceptible to security risks. There are penalties when security is breached, such as losing customer trust, reputational impact and also financial costs (for example under GDPR legislation in Europe).
From the outside a SAAS business seems like a low risk, low investment start-up idea — if you have the right know-how from the outset. However, the aspects of SAAS that give it great potential are also closely linked with the possible demise of the business if not monitored closely.
