There are nearly 8,000 software vendors in the United States. Each year, they generate nearly $190 billion in revenue. The SaaS industry continues to grow steadily at a rate of 3.6% and shows no signs of declining due to the pandemic.
The software industry is booming, so running a SaaS business is potentially very profitable. The question is, where to start? This article will show you the steps needed to design and execute your software development business plan and financial model.
What is a Software as a Service (SaaS) company?
A distinguishing characteristic of a SaaS company is that the company owns the servers that host its services. These companies’ products are commonly known as hosted or web-based solutions. In cases where their services are located on virtual servers, we are talking about cloud-based solutions.
Outsourcing is a common practice associated with SaaS companies. For example, to reduce expenses, most large IT companies outsource development activities to countries with cheaper 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 business. In reality, while experts are at the heart of these companies’ teams, they need a diverse team to run a business successfully.
For example, IT professionals may have difficulty navigating complex legal systems, networking in the business world, seeking funding, etc. Therefore, they need lawyers and business consultants to carry out their activities. Some companies even hire software development consulting agencies to help them bring a great business idea to fruition.
Now, without further ado, here’s what you’ll need to do to launch a SaaS business idea.
1. Think of a real problem you can solve
There is no business without a product. Therefore, before developing anything else, think about what you could do that people would want to buy.
The best thing to do is to invent something that no one has ever thought of before. Today’s biggest companies like Facebook/Meta or Amazon were founded when their creators thought of an original idea in the right place at the right time.
However, it is very difficult, especially now that 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 outside 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, emphasized that delivering real value to customers is the most important job for every startup. He said it’s so essential that it’s even more important than the amount of money a startup has or where the funding comes from.
2. Write a business plan (but stay flexible)
Whatever type of software you plan to develop, you will need an accurate business plan. The plan should cover the following:
- what you gonna do
- how you gonna do it
- How will you monetize your project
- Time limit
As you can imagine there will be many micro-activities to manage, you might want to use project management software. These tools are useful for tracking your business processes and ensuring that all team members are on the same page.
Writing a lean plan is more suitable for SaaS companies because they are much more flexible. And it’s important to stay adaptable in the SaaS business because new solutions and approaches are constantly being tested.
3. Validate your idea
Before starting your project, it is good to check if it is plausible. Your secondary market research should be supplemented with the following strategies:
- Talk to potential customers, either face-to-face or through digital surveys
- Start a Search Network Ads Campaign
- Launch a Kickstarter
Each of these actions would bring you a lot of valuable data, which you could use to evaluate and improve your idea.
In the previously mentioned interview, Eli Finkelshteyn says that staying connected with customers is necessary if a startup wants to break through crowded industries and beat fierce competition.
4. Explore Pricing Strategies
Once you are 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 comes with a dose of risk because after a while people might start unsubscribing.
A less popular but possible solution is to charge for lifetime software licenses.
As the project evolves, you’ll likely experiment with different pricing and pricing strategies until you find the one that works best for your business. To facilitate these processes, you can use different funnel models to learn more about your customer’s journey and plan sales accordingly.
5. Establish your brand
Building a brand is a long and complex process. However, in a nutshell, making a name and reputation above the competition means:
- Decide on the brand design (logo, colors, slogan, etc.)
- Define your brand message and personality
- Clarify your vision
- Determine your target audience
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6. Funding and finance
There are several ways to finance your Saas startup.
One of the most common solutions is to introduce investors to a startup fair, forum or similar event. Then, with any luck, a so-called angel investor or venture capitalist will invest in your idea.
Otherwise, you could take out a loan from a bank. Or you can just borrow money from family and friends and do most of the hard work yourself.
Getting started means you’ll likely be limited in terms of money, but it also means you’ll have a lot more freedom and control over your business.
7. Manage your projects effectively
The company is not the same as its projects. Startups require multi-level management. The business hasn’t grown yet and you may need to take on additional management overhead. Juggling customers and their needs with your employees and their ever-changing tasks can get quite difficult.
The pandemic hasn’t made that easy over the past year, having driven people out of home offices. Fortunately, the solutions to the growing problem already existed. There are many reliable, efficient and easy to use project management tools and software out there. Whatever your needs, rest assured that there is a suitable tool to help you keep track of your projects and coordinate everyone.
8. Develop your product
Developing a SaaS product is a complex process that cannot be discussed in depth here. However, the software development process basically consists of 6 phases:
- Planning
- Analysis
- Design
- Development and implementation
- Test
- Maintenance
It is nearly impossible to successfully close all of these phases without careful project management. A project manager will use certain management tools to help each team member stay on track so that all tasks and sprints are completed on time.
9. Start selling your product
Finally, you’ll be ready to start working on your product and bringing it to market. Again, it’s best to start small. Later, if all goes well, you can start working on a larger scale.
Once the software is complete, your next task is to develop a sales strategy. Working together, your sales and marketing teams will reach customers through various tools, such as paid advertising, affiliate and influencer marketing.
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Final Thoughts
Now that you know the basic steps of starting a software development business, you need to start building your business plan in more detail. Don’t forget to constantly track your KPIs to know where you stand and avoid major breakdowns in time.
