What is a SaaS
By: Alexander Lim
Tags: Startup, Startup Lessons, Founders, Founder Advice, SaaS

What is a SaaS

Photo by PhotoMIX Company from Pexels

SaaS (Software-as-a-Service) is a business model where a software product is licensed on a subscription basis and hosted on the cloud. This way customers have access to features of the product as long as they are paying for it. The business model is mostly used in the tech sector.

It’s a relatively new approach that has existed since the late 1990’s, but only became popular in 2000’s. In this case, you don’t have to worry about hosting infrastructure — it is taken care of by the IT provider, so you can focus more on developing great product. This model also allows for easier scaling, because you don’t have to devote time and money to hardware maintenance or upgrades.

The obvious disadvantage is that you need to pay for your hosting even if your SaaS has no users at all and you’ve just started your business. However, there are several ways to mitigate this issue: free trial period, which can be combined with freemium model; fixed price per seat; bundled pricing where the customer pays less than they would if they ordered each component separately; or simply offering great service and adding value through other means besides selling subscriptions.

Why Build a SaaS?

Low initial capital requirements — it’s easy to start a web app without significant investment;

Low operational costs — no equipment maintenance required;

No need for dedicated IT staff — you can outsource both development and support tasks;

Easy scalability — growth doesn’t require additional hardware or physical space (which might prove expensive);​

Easy to combine with freemium business model — you can offer a limited version of your product for free and then upsell the premium features;

Option to sell to large companies — SaaS can be offered as an enterprise solution;

Easy to sell — SaaS is a convenient way for customers to purchase software. It’s easier for both sides because you don’t have to deal with any paperwork. It also allows you to add other services like hosting, taking care of updates, etc., which might help you increase the price.

Your product should have a clear value proposition, which means it should provide some kind of measurable benefit (enhance your workflow, save time or money, and so on) and bring tangible ROI (return on investment).

If you’re not sure if your idea is worth implementing as a SaaS application, think about how it might solve problems of other people.

What would they pay for?

Then make sure that your product will meet their expectations. You can also try out your idea using MVP (minimal viable product) approach.

A Minimum Viable Product

Build just enough functionality so that users can test it out and get an idea of what kind of benefits they will get from using it. MVP should help you understand whether your idea has potential or not and if there’s a need for such a solution in the market. If people are excited about it, then maybe there’s something in that idea after all!

Even if there isn’t enough demand for your app at this particular moment, look at it as an opportunity to discover new possibilities and brainstorm ways how you could improve the concept or change its focus in order to create something even better than original MVP. This way you could find out that users want something very different from what they were asking initially.

Here are some things that founders should think about when starting their SaaS:​

Is my value proposition clear? What problem does my app solve? Do I know who my users are? Is there any competition? Can I differentiate myself from others? What is my pricing strategy? How much do I charge per customer/seat/month/year? How many seats do I plan on selling in 1st year? How much money do I need to cover costs and grow my business? Do I really need payment provider or do I have another option where I don’t have to pay fees (for example Stripe)? Do I have tools which will help me manage customers and invoices?

Remember that SaaS business model is not the only option available to you. It has some advantages, but it also has several drawbacks!

For example, the fact that you need to pay for hosting even if your product is not used by anyone yet means that you need to raise more capital (than if you were, for example, selling a software product that requires no hosting).

But if this is an issue for your startup, then maybe it’s better to wait until your business model becomes profitable and then switch to SaaS.

In other cases, SaaS might be the right choice. For example, if you want to start a B2B company that provides software for other businesses, then SaaS business model is a great choice.

You can even offer your product for free and monetize it by selling other services: integration, consulting, support and so on.

That is one of the reasons why we decided to launch Cudy LMS, our own SaaS product for education and training. I believe that we can make it better than any of our competitors.

We don’t have to pay for hardware, we can focus on development of the product, and we can also provide integration and consulting services.

All in all, SaaS business model is a great option if you want to start a tech company that provides software for other businesses. If you’re not sure what business model to choose, try starting with freemium and then take another approach. You will be able to see what works best for your startup. If your solution solves a problem for many people and they are willing to pay for it, then maybe SaaS business model is the right choice!

About the Author

I am the Founder of Cudy Technologies (www.cudy.co), a full-stack EdTech startup helping teachers and students teach and learn better. I am also a mentor and angel investor in other Startups of my other interests (Proptech, Fintech, HRtech, Ride-hailing, C2C marketplaces and SaaS). You can also find me on Cudy for early-stage Startup Founder mentorship and advice.

You can connect with me on Linkedin (https://www.linkedin.com/in/alexanderlhk) and let me know that you are a reader of my Medium posts in your invitation message.