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Ultimate Guide On Why Most SaaS Startups Failed
Why have startups failed, and why have most SaaS startups failed, is one of the most dreaded issues in the business world these days…
Why have startups failed, and why have most SaaS startups failed, is one of the most dreaded issues in the business world these days. The truth is that most people underestimate the difficulty of starting a business. It’s unusual to come across a corporation that is so attuned to its field that it can float along with.
Because of its cost-effectiveness and low barrier to entry, the SaaS industry is booming today. As a result, an increasing number of entrepreneurs are attempting to build their own cloud firms.
However, only a small percentage of SaaS firms go on to become successful SaaS businesses. According to statistics, 92 per cent of them, regardless of funding, shut down their activities within three years.
What is SaaS (Software as a Service)?
Software as a service (SaaS) is a pay-as-you-go cloud-based software delivery model in which a cloud provider develops and maintains cloud application software, provides automated software upgrades, and makes software available to consumers via the internet.
The public cloud provider manages all hardware and traditional software, including middleware, application software, and security.
As a result, SaaS customers may save money, deploy, grow, and upgrade business solutions more quickly than they can with on-premises systems and software, and anticipate the total cost of ownership more accurately. Netflix, Zoom, BigCommerce, Google Apps, Salesforce, Dropbox, MailChimp, ZenDesk, DocuSign, Slack, and HubSpot are examples of SaaS companies.
The original wave of SaaS solutions in the early 2000s was compartmentalized, rigid, and built to handle a specific business problem. However, SaaS has changed tremendously since then.
Modern cloud apps may now integrate and span everything from financials, human resources, procurement, and supply-chain activities to commerce, marketing, sales, and service solutions. The real issue here is why have most SaaS startups failed:
5 Major Reasons Why Most SaaS Startups Failed
1. Wrong Market
Most SaaS firms fail because they don’t solve an issue that already exists. Others can be resolving a problem that users don’t want to resolve.
Developing an app has never been more affordable. Using sites like Guru, Elance, and Freelancer, anyone can assemble a team from abroad and have an app developed for less than $1000. Most creators, however, find themselves in limbo after completing their product since no one seems to care about their program. According to CBI Insights, around 42% of cloud firms shut down owing to this reason. As a result, you must be assured that clients require your product.
2. Inadequate Financial Resources
The absence of capital resources is another major reason for this failure. Follow-up financing is frequently inadequate throughout the growth phase.
Lack of funding is the second most common reason for SaaS businesses failing. As a result, the likelihood of a startup failure due to this factor rises by 29%. It usually means that the founders underestimated the amount of cash flow required as the cloud company evolved.
3. Wrong/ Poor Team
Problems and inconsistencies inside the team are another sure-fire way to ruin a startup. If the team members’ collaboration fails, the startup will fail as well.
There are instances when crucial skills are lacking for the technical implementation of a business plan, and a CTO who acts as a liaison between management and technical departments is required.
4. Problems with the Product
A product issue is another common reason why most SaaS startups failed. According to CB Insights, the rate of out-competition-related startup failure is as high as 19 per cent. If your product isn’t as user-friendly as others in your field, this is the most likely scenario.
As a result, you should endeavour to produce a well-designed service, among other things, especially if your product concept is unique. When competitors are able to take advantage of your uniqueness and present it in more intuitive and convenient ways than you, it’s a common occurrence.
According to Investopedia, a startup’s first product will almost always fail to meet market demand. A few tweaks will be necessary for the best-case scenario to achieve the ideal product/market fit.
5. Failed Business Plan
Most entrepreneurs assume that gaining clients is simple, thanks to the adoption of the lean startup approach and numerous success stories of SaaS businesses that were bootstrapped to profitability. They believe that once their product is finished, customers will just show up and sign up. This may be true for the first few customers, but acquiring customers is always an expensive proposition.
Furthermore, while scaling their cloud startups, entrepreneurs frequently adopt the incorrect price structure. As a result, an ineffective business plan is another reason why most SaaS companies failed.
To avoid falling into that trap, you should base your project modelling on the two main criteria for SaaS firms. They are as follows:
- Customer acquisition cost (CAC);
- Lifetime value (LTV) (customer lifetime value).
New SaaS startups should just try to realise from the start that numbers like these were meant to motivate them to work smarter and harder, not to discourage them.