While most entrepreneurs are reporting increasing growth, there are unique challenges that are afflicting the industry
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Running a SaaS business in the contemporary marketplace can be both exciting and challenging. While most entrepreneurs are reporting increasing growth, there are unique challenges that are afflicting the industry. Software as a service (SaaS) might not be only 2 decades old, but it has sharply risen in prominence on the backdrop of more digitization in all aspects of life.
The growth and opportunities in the industry are clear with major players, such as Salesforce, LinkedIn, Netsuite, Athena health and Workday paving the way for start-ups and smaller businesses to come up. There is a positive outlook for the industry with reports in 2016 indicating 72% of all SaaS are well funded. This comes in the light of growing investment in Cloud services market with Gartner projecting the market will hit $206 billion in 2016.
The SaaS industry is expected to grow by 20% through to 2020 according to the Gartner Report, which is good news for investors. CRMs, which are the biggest SaaS products are expected to shoot beyond $9 billion in 2017. This means more opportunities for service providers.
Challenges/ Weaknesses Facing the SaaS Industry
While the numbers paint a rosy outlook for the SaaS industry, it is important to appreciate that there are challenges that you should prepare for. Revenues in the software industry are hitting $17 billion but SaaS accounts only for 6% of the overall software market. The median revenue growth rate for SaaS in 2016 was 48% again highlighting the potential available.
While the industry is growing, the key takeaway from all the numbers is that your business needs to grow faster than the competition. This means overcoming the emerging challenges more creatively and cost-effectively in order to stay ahead of the pack. What emerges from the number trail is that the largest SaaS companies tend to keep growing while smaller ones struggle.
According to an industry review by McKinsey, a software company that grows 20% annually has a 92% chance of ceasing to collapse within a few years. As if that is not worrying enough, a software company that is growing at 60% annually still has little chance of ever becoming a multibillion dollar giant according to the same report. However, the same report has good news in that high-growth SaaS companies are 8X more likely to reach $1 billion in revenues compared to those growing less than 20% annually.
Clearly, the onus is on the business owner to accelerate their company’s growth through a different strategy. Increase in revenue growth rates according to McKinsey drive double market-capitalization gain compared to SaaS companies with less than $4 billion in revenues.
Other challenges you have to contend with include problems breaking into the enterprise market, distribution issues, challenges identifying the right target audience, failure to save resources, lack of experienced staff, failing to structure prices according to business model, relying on the product to sell itself in the belief that SaaS products are in high demand, poor launch time, differentiation and branding, failure to leverage analytics among others.
There are some weaknesses that are prominent in the SaaS industry and which are bringing many providers down due to cash flow issues. These include:
- Increasing marketing churn
- Decreasing customer acquisition
- Increasing accounts receivables
- Rising costs
- Poor credit terms that are not in favour of your business.
Foolproof Ideas to Drive Your SaaS Business
As the software as a service industry continues growing, it is crucial for you to reposition your company in order to harness opportunities available. Whether you are a start-up or your business is struggling to make a breakthrough in the enterprise market, the following tips will come in handy for you:
Measure Churn And Product Usage
These are two metrics that a SaaS provider must focus on if at all they are to remain ahead of the pack. While gaining customers is the dream of every company, if they are not using your product actively, then you are on your way to failure in the SaaS industry. If customers are not using your product much, they will eventually cancel subscription, which is the reason you need to continually focus on customer workflow and continually educate them.
Avoid The Credit Trap
You have probably heard about the myth that SaaS start-ups are supposed to freely offer their products in order to build a customer base. Well, you can only give away products for too long before you finally fold up as many big brands have done. You can only talk about a business if you have are venue model that actually supports the business. The value exchange becomes clear when a customer is willing to pay. At least you know the product is valuable.
Keep Engaging and Keep Selling
A SaaS business is unique in that it has to be proactive throughout to stop the customer from hitting the cancel button. To do this, you don’t bombard customers with mail lists but instead provide impeccable customer service, provide quick deployment and rapid configuration, your products should be scalable to allow customers to expand their business and make upgrades easier.
There are many other SaaS hacks you should try including improving product features that matter, enhancing customer experience, random discounts, working on retention optimization as opposed to conversion, calculating and reducing churn, optimizing your email campaign, providing demos among others.
If you are facing financial constraints in your efforts to break into the SaaS industry, this is understandable considering even the largest SaaS companies such as Dropbox and Netflix had similar challenges. For startup, it could be that your initial efforts have already plunged you into debt. Whether you have credit debt, business loans or any other forms of credit, it is important to deal with this first by enrolling for debt relief. You will find financial experts to help you rebuild your business finances through a tailored debt relief program that suits your financial needs. These programs are aimed at providing an alternative to bankruptcy and credit counseling through debt settlement.
Still worried about how to optimize your SaaS business in the contemporary business landscape? SaaS is potentially one of the most profitable niches today probably due to its scalability, which allows businesses to grow. However, as a SaaS provider, you have to conquer the challenges that characterize the industry today. It is hard to get noticed, sell to new customers and retain customers and building a scalable marketing strategy. These tips will help you with differentiation, branding, overcome competition, target the right audience and much more.
Featured Image Credit: shaihalud / 123RF Stock Photo
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