5 Secrets Of Successful SaaS Startups Today
Did you know that 90% of SaaS startups go bankrupt in just a few years after launching? A study by McKinsey and Company shows that SaaS companies need more than 20% growth each year just to survive.
In fact, in the SaaS industry, we have something called a T2D3 framework. This framework follows that SaaS startups should triple their annual recurring revenue (ARR) for two straight years, then double in the next three.
This is to ensure they are growing enough to be sustainable in the long term. If you do it right, you can go from $0 to $100 million in ARR in just six years.
But then again, T2D3 is so much easier said than done.
So let’s learn from some of the SaaS startups that did make it.
Here are some lessons we can get from them:
Secret #1: Establishing A Solid Product-Market Fit
Product-market fit is basically the idea that you have found a legitimate need in the market, and then created a product to serve that need.
It comes from a “market first, product second” mindset. You have to validate that there’s a market for your product before building it.
This is how many SaaS startups fail to succeed. They start off with this “let’s just code” mindset, which leads to having an unfinished product that no one wants.
Having Product-Market Fit Before The Product Launch
To have an idea of your product-market fit before you launch your product, you can try talking to potential clients to get feedback.
One of the ways you can get information from your prospects is to look at your potential competitors. What are their current customers saying about their products?
You can visit review sites like G2 and Capterra. Here, you can see what your competitors’ customers like and don’t like about their product. Some user reviews even mention what features they wish they had access to.
This can be a starting point as you research what your target market needs.
Another more direct way to gather information from your potential customers is by conducting surveys and polls.
If you do, you may need to provide incentives to your respondents. You can give discounts, gift cards, or cash rewards.
Here are some questions that you can ask them:
How much would you pay for this SaaS product?
What is the biggest problem with your current solution?
What features do you need in a new SaaS solution?
Refining Your Product-Market Fit After The Product Launch
The thing about product-market fit is that it is a continuous effort. Sure, you need a certain degree of it before you can safely launch your product. But you still need to keep improving that fit even after you have started.
Once you’ve launched your product, you need to validate your initial assumptions about your target market.
You want to make sure that there’s a demand for your SaaS solution. You can do so by watching website traffic numbers and seeing how many people are signing up.
The idea is if no one uses it or signs up, then there’s probably no demand for it right now. If lots of people use it and sign up, then you may have something good on your hands.
By using Google Analytics and other tools, you can see where most of your traffic comes from. Are they organic search results or referrals? And if they’re coming in through paid ads or content marketing, what keywords are they using?
When you see that people came in through certain keywords related to your product, then there’s probably demand that you can tap into.
You can also ask your customers directly about how well your product is satisfying their needs. You can use the following metrics:
40% Rule: You can do this metric by conducting surveys with your existing customers. If at least 40% of your customers express that they would be very disappointed if they could no longer access your product, it indicates a good product-market fit.
Net Promoter Score (NPS): You can also do this using a survey or a simple questionnaire in your SaaS platform’s interface. You would ask your customers to rate their likelihood of recommending your product to others.
The Net Promoter Score is calculated by subtracting the percentage of high ratings from the percentage of low ratings. The resulting score can range from -100 to 100.
Returning Visitors: This is simply monitoring your website traffic.
With the help of Google Analytics, you can track if visitors go to your website more than once. Having a lot of returning visitors may indicate a good product-market fit since you can attract and maintain your prospects’ attention.
How Monday.com Establishes Product-Market Fit
Monday.com is a software that helps businesses organize their work better by tracking what’s on their plate.
This SaaS company establishes product-market fit so well that its customers can themselves build the solution around their specific needs.
You see, Monday.com offers many different tools that its users can mix and match.
If they need to track their projects, they can add a project management solution. If they need to keep track of their contacts, they can add the customer relationship management (CRM) tool.
I’m not saying that your SaaS solution always has to be tailor-fit to each of your customers. But Monday.com’s story shows that customizability goes a long way in making sure that it satisfies a legitimate need in your market.
Secret #2: Having A Killer Go-To-Market Strategy
A go-to-market strategy is your approach to launching your product to your target market. It’s like a blueprint of how you are going to sell your product, from marketing up to customer support.
As a startup, it’s crucial that you have an effective go-to-market strategy if you want your growth to be efficient.
As you build one, these things need to be clear:
Your company mission statement: This refers to your SaaS business’ ultimate goal. Every product, update, and decision will be in line with this mission statement.
Your target audience: This is the specific group of people you are selling your SaaS product to. You can identify your target audience by narrowing down your target market into groups. You segment them based on location, age, or even gender.
Your product’s value proposition: This is the promise that you are making to your target audience. It clearly communicates the benefit and value that your customers will get from your product.
Your SaaS product’s value proposition will dictate all of the content used in your marketing and sales efforts.
Pricing model and strategy: You need to find the right pricing range and structure that would best fit your SaaS platform.
Value-based pricing is the most recommended strategy for SaaS products. It may take a bit of research, effort, and resources. But it can give your product a price point that isn’t too high or too low for your target audience.
Distribution model: You can go with either a direct or indirect distribution model.
Direct distribution in SaaS is simply selling your SaaS product through your website or sales team. Indirect distribution includes third-party entities like affiliate marketing partners and SaaS listing sites.
To widen your reach as you bring your product to market, you can maximize both types of distribution models.
One interesting go-to-market strategy is the one that TaxJar had. Long before they launched their SaaS product, they already built their authority on their niche: sales tax.
TaxJar leveraged content marketing in its go-to-market strategy. They provided valuable content on their website to attract and educate potential customers.
During that time, there wasn’t much content about sales tax. So they saw that as an opportunity and further boosted their online presence through search engine optimization (SEO).
In the process, businesses started to see TaxJar as an authority in the world of sales tax.
So once they launched their SaaS product, their potential customers already trusted them. It was much easier to turn their readers into paying customers.
Don’t get me wrong. I’m not saying you should copy this go-to-market strategy and start a blog before launching your product.
After all, each business is different. What works for others may not necessarily work for you. It would take your own go-to-market strategy to effectively bring your product to the market.
But what you can learn from TaxJar is the power of leveraging your strengths and the opportunities around you. That’s how you can craft a killer go-to-market strategy.
Secret #3: Securing Resources For Growth
The growth VS profit debate has been a long-standing issue for startups. As a fledgling SaaS business, it is really hard to balance the two because your growth depends on your spending more resources on marketing and sales efforts.
While these activities are important in order to get more customers, they don’t always bring in immediate revenue. Yet this is where your growth comes from—new customers that you get from marketing and sales.
Don’t forget the pressure on SaaS startups to grow fast. Remember that you need more than 20% growth in order to at least survive.
But in the ever-competitive SaaS market, it’s not enough to just survive. You have to thrive.
If you’re going to grow fast enough to catch up to your competitors, you will need to get more money that you can invest for growth. Here are a couple of ways you can do that:
Venture Capitalist Funding
Well, if you want to get big fast, venture capitalists (VCs) simply love to throw money at any young SaaS company that they think has potential.
But they don’t always act on a whim. Most of the time, they use the rule of 40.
The rule of 40 is the idea that a SaaS business must have a total growth rate and profit margin of more than 40% to be considered successful. A lot of investors use this rule to decide whether or not a business is worth funding.
So now, the bar is raised from 20% growth to 40%.
While VC funding may be a boon for most SaaS startups that meet their standards, it can also come with a downside: high expectations.
This means that your business needs to hit its milestones and deadlines so you can keep getting funding from VCs. If you fail to meet these expectations, you risk losses when they pull out of their investment.
Bootstrapping is the practice of funding your startup with the money you made from doing business without any outside investments.
It is the complete opposite of getting funded by venture capitalists.
Bootstrapping also means that you need to find other ways to cut costs. You won’t have much office space. And your salaries will be much less than what you’d get with VC funding.
The alternative? Get a big surge in revenue.
But how do you earn considerable revenue if you’re just starting out as a SaaS business?
One of the ways you can do that is to launch your product on a SaaS lifetime deal (LTD) platform.
Offering perpetual licenses of your SaaS product can help you raise considerable revenue. Instead of the usual small recurring revenues that SaaS products get, you would have a large one-time revenue.
But don’t forget that selling lifetime licenses also means providing lifetime customer service. They would pay once, but the costs for retaining these customers would be continuous.
That’s why offering LTDs is only a means to an end. Yes, you have a sudden influx of revenue. But you have to use your newly gained resources to grow and secure subscription-based customers.
Let’s look at one example.
How HeySummit Raised $140K Upon Product Launch
HeySummit is a SaaS platform that enables its users to run online events.
About six months after their first product launch, they offered an LTD through AppSumo.
Now the good thing about AppSumo is that it has an established group of avid SaaS users, called Sumo-lings, who are looking for good deals.
What’s more, they have a very thorough process in evaluating the SaaS solutions that they list on their website. This assures the Sumo-lings that the products they offer on the website are of high quality.
In just two weeks after posting its listing in AppSumo, HeySummit netted $140,000 in revenue. This resulted in an additional $100,000 in ARR.
Secret #4: Aiming For A Product-Led Growth
Product-led growth is a strategy where the product is the main factor for customer acquisition and retention. SaaS businesses that have this strategy usually don’t even have a sales team in place.
It’s really just the product selling itself.
But how do you achieve this?
Delivering Value To The End-User
Product-led growth is only possible because end-users today play a more active role in SaaS buying decisions. What’s more, if they like your product enough, they would share it with others even without you asking them to.
Product-led growth, at its peak, looks a lot like virality. Your product is so good that your target customers are already talking about it. Customers just come to you even if you don’t have a sales team.
The key to that is delivering your product’s value to the end-user as quickly as possible.
That means designing your product around your user’s needs and letting them experience your SaaS solution easily.
Most SaaS startups do it through a free trial or a freemium model.
The trials or free plans don’t have to give everything you have. But they need to be good enough that the end-users would see the value of your product.
Make Your Customers Want To Pay
Still, it’s not enough to deliver value through free trials and free plans. After all, you’re running a business here.
That’s why you need to make your customers want to pay for your product.
For free trials, it’s just a matter of delivering undeniable value in the fourteen days or however long your trial lasts. If your end-user sees your SaaS product’s value in that span of time, they will want to pay for it when the trial expires.
For freemium models, you can take a few different strategies. First, you can limit the features they can access through the free plan. Or if you have storage allocation-based tiers, you can limit the GBs they can use.
How Zoom Had A Product-Led Growth
In an attempt to make a point, I’ll say that I probably don’t need to explain what Zoom is. But in the off-chance that you don’t, it’s one of the most popular video conferencing platforms today.
One of the factors in its popularity is its user-friendly interface and easy sharing. You don’t need to create a virtual group with people, just a meeting room. You simply send a link, and anyone who clicks it gets into your meeting.
This easy sharing is also responsible for its virality. You share a link to invite people to your meeting. In the process, not only does Zoom deliver its value to you. It also delivers value to your participants.
But it doesn’t stop there.
To encourage paid plans, it limits meetings hosted by free accounts to only 40 minutes and up to 100 participants.
Businesses and large organizations that need to exceed these limits must subscribe to a paid plan.
And because they already see the value of the product, they are willing to pay for it.
Secret #5: Ease Of Use And Aesthetics
We’ve already touched a bit on the importance of a user-friendly interface. It’s crucial if you want product-led growth.
But I want to emphasize these two as important factors to the success of a SaaS startup.
Let’s talk about each of them.
Ease Of Use
Your product may address the most excruciating pain points in the world. But if your users have a hard time navigating it, they won’t see the value in it. All they would see is a clunky piece of software that’s too complicated for anyone to use.
That would result in the most unwanted word in any SaaS business: churn.
One of the ways you can design a user-friendly interface is by placing common UI elements where they usually are.
Search bars are usually on the top part of the page. The hamburger button is often on the top left corner. Make sure to include visible sliders on the sides as well.
Moreover, be mindful of your fonts. Use different font sizes to convey hierarchy within the text content of your interface.
Don’t use too many different kinds of typefaces either. Two or three should be fine. You can still mix and match them, but avoid adding so many that your interface becomes unreadable.
Aesthetically pleasing design doesn’t mean you should go for flashiness and extreme features.
In fact, minimalist design is becoming the trend nowadays.
Keep in mind that aesthetics isn’t just for beauty’s sake. It’s also about making the SaaS user interface clean and attractive. That’s why it contributes greatly to the overall usability of your product.
Let’s talk about a SaaS company that does this so well.
How Notion Attracted Users With Clean Aesthetics
Notion is an all-in-one virtual workspace that streamlines your workflow and your team’s.
Right off the bat, you will notice that it looks sleek. It has a very clean user interface with beautiful typography for its text content. And it doesn’t overwhelm you with too many features in its dashboard.
This interface design is also something like a “go against the flow” move. Most SaaS products today saturate their interfaces with bright colors.
And there’s nothing wrong with that. It works really well for a lot of SaaS startups. Just take a look at Slack and Canva.
But Notion gives its users a breath of fresh air by keeping colors to a minimum, giving it sort of a “nerdy” look.
And its users love it.
Making Your Own Success SaaS Startup Story
As a SaaS startup, you need to do everything you can to grow and rise above your many competitors.
The SaaS industry has existed for a few decades now. And there are a lot of success stories to learn from. The growth secrets discussed in this article are just some of them.
Use these principles. But when you gain your footing, craft your own strategies for sustainable growth. Write your own successful SaaS startup story.
For more tips and guides on growing your SaaS business, check out our blog here.