So…you’ve solved a complex problem in your company with technology.Chances are your competitors are also facing the same challenges, which means you’ve probably considered the Software as a Service, or SaaS company.
Not only could this unlock new recurring revenue, but it could also increase the value of your business over time.
But before you embark on this new adventure, it is important to pay attention to these 4 pitfalls that could undermine your success when transforming your tech into a SaaS business model:
Non-technical companies are used to selling time and material. The pressure on cash flow is linear and easy to predict. But in a subscription model, what you are shooting for is the long tail. This means that it takes longer to recuperate the cost of customer acquisition based on recurring revenue. We usually recommend to our clients that they define a strategy for running 12 months without MRR contribution.
Failing to build a team
In the startup phase, a team of 1 to 3 people is sufficient to help the solution reach product market fit. However, in the growth phase you will need to grow a team. We could write a whole article on this topic, but the bottom line is that in growth mode, the leadership team needs to work on evolving things like cash, strategy, execution and people. A SaaS solution in growth mode is going to generate a lot of noise. Leadership teams that get sucked into this noise will struggle with moving the business forward.
Misunderstanding SaaS metrics
SaaS obeys its own laws of physics. The main learning curve for business leaders is SaaS metrics. Taking the time to understand these will be a game changer in your ability to create business success. CAC, MRR, LTV, CAC to LTV ratios etc.. These acronyms should become intimate and familiar and you should plan for exactly how you will measure them before hitting the growth phase.
Getting lost in the possibilities
Many projects start with way too many ideas. Visionary-type founders are especially susceptible to falling into this trap, and often we will need to work with them to tighten the vision. Our favorite strategies are scoping an MVP (what is the smallest thing we can build so that we can learn faster) and identifying the NorthStar metric (if there was a single metric to track other than revenue, what would it be).