There are almost 8 thousand software companies in the US. Each year, they generate nearly $190 billion in revenue. The SaaS industry is still steadily growing at a 3.6% rate and doesn’t show any signs of decline due to the pandemic.
The software industry is blossoming, so running a SaaS business is potentially very profitable. The question is, how do you get started? This article will show you the necessary steps to design and execute your software development business plan and financial model.
What Is a Software as a Service (SaaS) Company?
A distinctive characteristic of a SaaS company is that the company owns the servers that host its services. Such companies’ products are usually known as hosted or web-based solutions. In cases where their services are located on virtual servers, we’re speaking about cloud-based solutions.
Outsourcing is a common practice associated with SaaS companies. For example, to cut expenses, most big IT companies outsource development activities to countries with less expensive labor rates, such as Mexico or Eastern European countries.
It’s a common misconception that only computer scientists and engineers can start a software development company. In reality, while experts are the core of teams in such companies, they need a diverse team to run a business successfully.
For example, computer scientists might have difficulties finding their way through complex legal systems, networking in the business world, looking for funding, etc. Therefore, they need lawyers and business consultants to successfully conduct the business. Some companies even hire software development consulting agencies to help them turn a great business idea into reality.
Now, without any further delay, here is what you will need to do to launch a SaaS business idea.
1. Think of a Real-Life Problem You Can Solve
There is no business without a product. Therefore, before developing anything else, think of what you could make that people would want to buy.
The best thing you could do is invent something no one has ever thought about before. Today’s greatest companies like Facebook/Meta or Amazon were founded when their creators thought of an original idea in the right place and at the right time.
However, this is very hard, especially now when the industry is so competitive. Alternatively, even if you don’t have the most original idea, you can still solve the problem better (or cheaper) than anyone else.
Also, another powerful solution is to think out of the box. For example, instead of relying on the tech industry itself, you could find a specific niche and provide high-tech solutions in agriculture, healthcare, or travel.
In an interview for DevPro Journal, Eli Finkelshteyn, CEO and founder of Constructor, pointed out that providing real value for customers is the most important task for every startup. He said it is so essential that it is even more important than the amount of money a startup has at its disposal or where the funding comes from.
2. Write a Business Plan (But Stay Flexible)
Regardless of what kind of software you plan to develop, you will need a precise business plan. The plan should cover the following:
- What you’re going to do
- How you’re going to do it
- How will you monetize your project
As you can imagine, there will be many micro activities to handle, so you might want to use project management software. These tools are beneficial for tracking your business processes and ensuring everyone in the team is on the same page.
Writing a lean plan is more suitable for SaaS businesses because they are much more flexible. And it’s important to stay adaptable in the SaaS business because new solutions and approaches are being tested constantly.
3. Validate Your Idea
Before launching your project, it’s good to check if it’s plausible. Your secondary market research should be complemented with the following strategies:
- Talking to potential customers, either face-to-face or through digital surveys
- Launch a search ad campaign
- Launch a Kickstarter
Each of these actions would bring a lot of valuable data to you, which you could use for evaluating and improving your idea.
In the interview mentioned earlier, Eli Finkelshteyn says that staying in touch with the customers is necessary if a startup wants to break through the crowded industries and beat the fierce competition.
4. Explore Pricing Strategies
Once you’re sure your idea is plausible, the next question is: how are you going to monetize your product?
A common practice among SaaS projects is to earn through monthly or annual subscriptions. However, this type of pricing involves a dose of risk because, after some time, people might start unsubscribing.
A less popular but possible solution is to charge for life-long software licenses.
As the project evolves, you will probably experiment with different prices and pricing strategies until you discover which one suits your business best. To help with these processes, you can use different funnel templates to learn more about your customer’s journey and plan sales accordingly.
5. Establish Your Brand
Building a brand is a lengthy and complex process. However, in a nutshell, making a name and reputation that stand above the competition means:
- Deciding on the brand design (logo, colors, slogan, etc.)
- Define your brand message and personality
- Clarify your vision
- Determine your target audience
6. Funding and Finances
There are several ways you can fund your Saas startup.
One of the most common solutions is pitching before investors on a startup fair, forum, or similar event. Then, with a bit of luck, a so-called angel investor or venture capitalist will invest in your idea.
Otherwise, you could take a loan from a bank. Or you could simply borrow some money from family and friends and do most of the hard work yourself.
Bootstrapping means you will probably be limited in terms of money, but it also means you will have much more freedom and control over your business.
7. Manage Your Project(s) Efficiently
The company is not the same as its projects. Startups demand management at several levels. The business hasn’t developed yet, and you may be expected to take on an extra management load. Juggling clients and their needs and your employees and their ever-shifting tasks can become quite tasking.
The pandemic hasn’t made this easy in the past year, having chased people into home offices. Thankfully, the solutions to the rising problem already existed. There are many project management tools and software that are reliable, efficient, and easy to use. Whatever your needs are, rest assured there is a suitable tool to help you keep track of your projects and keep everyone coordinated.
8. Develop Your Product
Developing a SaaS product is a complex process that can’t be discussed in-depth here. However, in essence, the software development process has 6 phases:
- Development and implementation
It’s almost impossible to successfully close all these phases without careful project management. A project manager will use some management tools to help each team member stay on track so that all tasks and sprints are executed on time.
9. Start Selling Your Product
Finally, you will be ready to start working on your product and putting it on the market. Again, it is best to start small. Later on, if everything goes well, you will be able to start working on a larger scale.
Once the software is done, your next task is to develop a sales strategy. In collaboration, your sales and marketing teams will reach customers through various tools, such as paid advertising, affiliate and influencer marketing.
Now that you are familiar with the basic steps of starting a software development company, you need to begin elaborating your business plan in more detail. Remember to constantly track your KPIs to know where you stand and prevent major failures on time.