Why are you doing this?
In my experience, there are only a handful of reasons why someone builds a new SaaS product. These are:
- 1.I am building a tool that I want for myself or need for my company
- 2.It’s a good idea and people need it.
- 3.I want to make money
- 4.I have access to knowledge that others do not and I can make money selling it
- 5.I already have a system built or someone is paying me to build a system that I will own rights to use or own completely and think people will buy it.
- 6.There is a similar system on the market and I think I can do it cheaper or better or there is room for competition.
- 7.I have a market already that needs this tool and can sell it as soon as it is done.
- 8.I was hired to build it.
All of these reasons are good, but some require more research than others. If you have access to knowledge or information that other people are seeking and can sell it to a market you know, then you’re in a great position. But if you’re building a tool that you need for yourself, then there is a good chance that A) someone has already done this and B) someone has done this better already. Neither of these reasons take you out of the market, but it poses certain complications for you.
Let’s start our validation journey with understanding why you’re thinking about investing a substantial amount of time and money and your chances of success for each scenario.
So often I speak to new SaaS entrepreneurs that say that they built their product because they needed it at their company and couldn't find anything else that did the job in the way they needed it done. The catch here is that if you're building a product for your company, which is built around your processes. This means that you are not often building a broad tool, you are building a specific tool around a specific set of processes. The odds that everyone else is going to adopt your process is not good, even if your way is actually better.
Additionally, building a specific tool means you are not building a broad tool. This can sometimes work in your favor if you are building a very specific tool, not a platform, that does just one main thing. But often if a company is building a tool for themselves it is to manage their processes, not just to fulfill one function.
The next issue you will encounter is that if you are building a process management tool that is specific to your process you will often end up competing against tools that are very broad and robust, such as Excel or Slack. If those are your competitors, then you need to have a very specific niche and an overwhelming reason why buyers need your project not those projects.
I am not suggesting that you can’t get traction with a niche tool, people do it all the time. But you need to do a substantial amount of competitor research before going any further.
Uber is a good idea, and people needed it. In fact, it was a great idea and people all over the world needed it badly. Having a great idea that solves a problem that people need to be solved is great. If you're going into an industry or an area that you're not familiar with, you're going to have to learn an entirely new career. So you're going to make a lot of mistakes and it's going to take a long time.
If you already have experience in the industry, you know the idea is good, and you know people need the system, then all you have to do is query them to make sure you're correct and they're willing to pay the amount you need them to pay to support the system.
If your only reason for doing this is to make money, and you are a leader in the business, then I would recommend no doing this and investing in more tested businesses. There is nothing wrong with wanting to make money at all, and it’s a completely legitimate reason for going into business. But this path is going to be hard and it’s probably going to take a long time to make money. So my recommendation is to invest in real estate or the stock market.
Since you’re selling knowledge, your SaaS falls into the “filling a knowledge gap” SaaS and is usually something that may take a substantial effort to take from your mind into the system. Since you have special knowledge, you probably also know people in the industry and or have some influence on the market.
This happens A LOT with developers and development teams. This has happened to me a number of times. Here’s the deal with this, you must go through the process of validation and especially the process of fully understanding your costs. Very often a SaaS will have ongoing operational costs as well as hard costs, that can wrack up fast. You’ll have developers, integrations that change regularly that you have to keep up with, compliance to laws, insurance, the cost of support, legal fees, and much more. Even if you have the system built, you need to remember that you have costs that you will incur on a monthly basis just to keep things moving, so you’re going to need sales. So you still need to do a full validation process.
This is one of my favorite reasons. If there is already a competitor and it is is not a monster business like Google or Facebook, you know the market, and you know that the current system has major failings that could be done better, then you have a unique selling proposition, a market that you can approach that probably already has issues with the current system, and you know they are buying it. You have everything you need to get started validating your business!
If you have a market, built the market, and understand what goes into selling to this market, then you are already well on your way to success. In so many SaaS businesses what people are missing is an audience, not a tool. People build tools thinking that people will come, when the reality is that you often build an audience, then the tool will sell. This is a great reason to build or buy a tool to sell to your audience.
This is probably the worst reason on the list to build a SaaS business. If you have money to blow and your primary reason for doing this is that you want to start a business, my advice is to invest in real estate. It is a lot more secure, has a substantially higher chance of returning a profit, and is one of the most secure investments you can make. Building and running a successful SaaS takes a tremendous amount of time and money, and very often a good bit of luck. If you just like businesses and think this could be fun, my question is “Why don’t you start a shipping company?” Probably because you don’t know much about shipping and the barrier to entry seems pretty high. If you’re not already in this industry or the industry you’re selling to, the same things apply.
I added this item for all those investors out there that are wondering if they should invest in a SaaS or if they are considering taking over an investment they’ve already made. The same thing applies here as above. Not to be redundant, but remember that the number one indicator of success in a SaaS business is the number of times the person starting the system has done it in the past.
If the system is already in place and you’re stepping in to manage the business side of things, make sure you have a competent CTO already in place. If you don’t and aren’t familiar with the systems, technology, or acumen used in this industry and you think it’s going to be the same as running any other business, to some extent you’re right, but my experience is that you have a lower chance of success in this kind of venture than more traditional ventures.
Good for you! I am so impressed that you are reading this book! I wish so much I had taken the time when I started to be more forward thinking and read books like this. If you’ve been hired to build a SaaS or PaaS my highest recommendation is that you ensure that your client has gone through a thorough validation process. Without taking your client through the validation process thoroughly, you are going to get blamed for the failure of the product. If you’re being paid to do this, then skipping this step is almost certainly going to lead you down a path that you will regret.
If you’ve already started on the system, that’s fine. Tell your client that you think this is a good next step. If you’re pretty far along already, then taking this step now rather than later will help save on any future losses. It will also help your client understand what they need to do next.
The truth about validation is that you’re going to do it one way or another. It’s now or later, but either way your validation will come in the way of upfront planning, mid-build pain, or go to market failure. Either way, it will come to you, so do the right thing and make sure it happens sooner than later.