Can You Buy a SaaS if You’re Not a Developer?
What You Need to Know About Buying a SaaS Business
When considering acquiring a SaaS business, you may be on the fence.
On the one hand, the SaaS business model is built for customer loyalty; when it is integrated into a business, it acts as the root for some or all of the business’ operations.
SaaS has become such an integral part of an online business that business owners in online communities frequently share their experiences with them.
The deep-rooted nature of SaaS is also why good software has a remarkably high customer retention rate.
Think about all the data a business has stored in software used for customer management (e.g., communications, customer information, and tracking data). Now imagine transferring all of that to another software. Doesn’t sound like a one-day task, does it?
This barrier to entry is why SaaS businesses usually have the longest customer retention rate out of all online business models and why their earnings can proliferate very quickly.
Regarding earnings, SaaS businesses are also pretty unique in that the pricing for this type of service is perfectly suited for a membership pricing model. This means that the business generates monthly recurring revenue. This is the gold standard in online business — it offers more consistent and reliable earnings than other businesses like ecommerce or affiliate that rely on a high number of one-time purchases.
While this business model is desirable for a lot of reasons, you might be getting held back mentally by some barriers to entry.
Since SaaS businesses are built on software, they can be very complex and require specialist coding knowledge that you can’t pick up overnight.
You might have questions like “What if a customer has a problem with the software and I can’t help them?” or “What if the software shuts down?”
These are good questions to ask, and there are answers.
Do You Need Technical Knowledge to Acquire a SaaS Business?
Unlike creating a website using a website builder, cloud-based software can’t be created without knowledge of coding.
Coding is the use of programming language to communicate actions you want a computer to perform. For example, if you want a pop-up box to show up every time a user lands on your website, you create a line of code that tells the website to perform this action during this event.
It isn’t a set and forget operation, however. Software needs consistent maintenance to work as bugs and functionality errors can arise. It’s almost impossible to test every single action a user can perform on your website, so, naturally, the more users are interacting with your software, the more bugs arise.
That said, you as the business owner don’t necessarily need to understand coding to run the business.
You can outsource maintenance of your SaaS to freelance or in-house developers. Though developers are costly, especially if the software is particularly complex and requires a high level of coding knowledge to maintain.
Not every SaaS requires high-level coding, though. Some are simple but effective.
Now that you know that you don’t necessarily need technical knowledge and skills to run a SaaS business, let’s take a look at the areas of a SaaS you should consider when purchasing.
What to Look for in a SaaS Business as a Non-Developer
The trade-off with acquiring a SaaS business is that while you’ll be paying a high price to maintain the business with the hiring of developers, it will be more hands-off for you than a developer running and maintaining it themselves.
If it’s a viable option for you, then these are the factors you should consider.
Branding
Software is arguably one of the most difficult products to market because of its depth.
Usually, the software consists of a number of features that get the user the desired result. Software is more difficult to explain to potential customers than say a toothbrush.
It’s important to understand what problem the software solves and whether you think there is a need for that solution in the market.
If it does solve a common problem, is the current business owner communicating that to their audience effectively?
SaaS owners tend to be developers who don’t have a lot of experience with marketing, so they aren’t able to market the business as effectively as someone with experience in paid advertising or content marketing.
Poor branding and marketing are both opportunities for you to scale the business if you have skills in those areas.
Numbers
The SaaS business’ strength is its weakness.
While software that solves a common problem is arguably more desirable than any other product out there, when it’s new, it’s difficult to price the service as there are no points of reference to guide the pricing.
If the pricing isn’t right, then a SaaS business could be losing a lot of money without the owner even realizing. This is why it’s important to test pricing models and see which ones generate the biggest ROI.
It’s difficult to track finances for a subscription model. Customers stay with the business for different lengths of time; a percentage of them will leave after the first month, and some SaaS owners bake this into their profit and loss statements (P&Ls). They shouldn’t because it doesn’t consider the costs associated with the customer leaving the business.
Also, with multiple pricing packages, it’s difficult to track how much customers are bringing in, as some are paying a premium price while others are paying for a basic package at a lower rate.
These are all reasons why you should check the P&Ls and make sure the business is healthy financially.
Pricing Models
As mentioned previously, SaaS owners often struggle with pricing their software.
There are many pricing models a SaaS can offer, including freemium, flat rate, tiered, and per user.
The best pricing model depends on the type of service the business offers and can only be determined by understanding how the software works and how the customers use the software.
If you’re able to identify a more effective way to price a SaaS, then doing so can be a quick win for you that can have a big impact on revenue.
Source Code Access
As we previously discussed, a software business is built on code.
When the developer creates that code, they own the intellectual rights of the code. That means they have control over the code and have the power to reclaim it.
When acquiring a SaaS business, you need to make sure that the intellectual property rights of the software code are included in the sale so ownership is transferred over to you.
Competition
With the vast amount of developers out there all creating new ideas as well as the amount of money a successful SaaS business generates, market competition for SaaS is hot.
Even if the software is new to the market, it won’t be long before copycats start to arise.
When assessing the competition for a SaaS business, look at their pricing structure, how they market their service, and what features they have in their software.
Carrying out this due diligence is crucial to understanding where the software service fits in the market. Is it unique enough or of a high enough quality to be able to stand out? How big of a piece of the market does the business currently have?
If there are competitors who own the lion share of the market, it will be very difficult to get subscribers through organic lead generation and even harder to take a share of their audience as the software will be fully integrated into their customers’ businesses.
After acquiring the business, you should conduct some customer research to better understand how you can maintain the following and grow the business to the next level.
Get feedback on how the software functions, the pricing, and customer service, and find out why the customer uses the service and how it helps their business.
This will help you improve the service and build the brand.
SaaS Investing Can Be Smart Investing
If you are thorough with your due diligence and understand what it takes to successfully acquire and grow or maintain a SaaS business, then acquiring a SaaS business can be a fantastic wealth-building opportunity for you.
A SaaS that is lacking in certain areas might just have the potential to rapidly scale, and if you have skills in those areas, then you can be the one to take it to the next level.
If you’re curious as to what SaaS businesses usually sell for, you can check out some SaaS businesses for sale on our marketplace.
