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What is a SaaS Startup? Demonizing Software as a Service

by Vitaliy Podoba
Vitaliy Podoba avatar

Many years ago, the only way for you to benefit from some technical product was to install it directly on your computer. Right?

But these days, you have your operating system (iOS or Windows, macOS) built into your laptop or mobile device and a web browser like Chrome or Internet Explorer. And that’s all you need.

Everything else you can access without any local installation.

You launch your browser (and I never close it), open a new tab in your browser, enter the URL of that Service or software you want to use, and log in.

This is what a SaaS product means.

SaaS stands for Software as a Service.

The software part means that this product has some technology that provides core value to you as a user of this product.

And Service means that you kind of rent it out. You don’t own it. As long as you pay for it (usually monthly), you can access and use it.

So these are critical criteria for any SaaS startup or SaaS product:

  • It is hosted in the cloud and not installed locally in most cases. At least, not the central server.
  • It can be accessed via a browser over an internet connection or a mobile app.
  • A SaaS product is licensed on a subscription basis—usually monthly or annually.
  • And finally, any SaaS product’s core value is provided to you via some technology, some code, and some software.

Good examples of SaaS products you might use or your employees might use within your business are:

  • Freshbooks for bookkeepers

  • Mint.com for personal finance management

  • Pipedrive CRM for sales reps

  • Clickfunnels for digital marketers

  • BambooHR for recruiters

  • Jira or Basecamp for project managment

  • Canva, Photoshop or Figma for your designers

  • Slack, Dropbox, Gmail and Zoom for everybody

Most of these products you can use via web interface using your web browser or as a mobile app.

In the description below this video, I’ll drop you a link to our google document with an advanced list of existing SaaS products for business in every category you can imagine.

Now, what is not a SaaS?

As I already mentioned One-time purchased software that you need to install locally. You don’t rent it, you buy it once and own it after that. Also, there is no Service part in it. You just bought the product, one-time and use it.

What other types of online services and software products are not SaaS?

Since 2011 in our agency we built about 200 software products. All of them I can put into 3 buckets:

  • Social Networks
  • Online Marketplaces
  • And SaaS products.

For example, Facebook and Instagram are not SaaS. They are social networks.

Shopify and Amazon are not SaaS. They are Online Marketplaces.

Why online marketplaces and social networks are not SaaS?

There are 2 reasons:

  1. You don’t pay there any kind of subscription. You pay transaction fees or you don’t pay at all. Unless you’re using paid ads on Facebook.
  2. Second, there is no specific software component that is useful for you in your business. These services provide connections between you and other people which makes that software useful for you. But not the software itself. You’d never use a social network or the marketplace alone without other people sitting there too. Right?

How SaaS is different?

Now, there are a couple of things about how the SaaS model and SaaS products are different from all previous types of tech startups and products.

There are a few benefits for the end-user and a few advantages for the SaaS founder.

Let me start with the end-user:

  • SaaS user doesn’t need to install anything and that’s a big-time saver.
  • Also, there are no huge requirements as to resources on local computers. All resources are on the server and you can access most SaaS apps online even from a pretty old weak laptop. So that’s a money saver
  • And finally, users don’t have to buy full software licenses, like a one-time lifetime. You pay as you go. Just month by month. And this month you can pay 10$ for 2 employees, and next month 50$ for 10 employees if your business is growing. So again, that’s a money saver.

Now, if you want to build and launch your own software. What SaaS model will do for you, and what kind of benefits you’ll get?

1. First of all, with the SaaS approach, you just need one server where you host a database with all your user’s data and business logic. You don’t have to do local user installs and resource-consuming version upgrades. Every time you release a new feature, you just need to update one server – your central server, and no need to go and visit each client business on-site to update all their computers. Right? So SaaS is much easier and cheaper to build and maintain.

2. Second big reason SaaS is great for the founder: you can scale your SaaS business worldwide w/o changing anything in your infrastructure and w/o a need to visit other countries. The same server will be able to serve users from different cities and countries. 

3. Also, because of easiness to set up and maintenance and scale, business costs are pretty low with the SaaS model. Margin sometimes can be up to 50-70% of your revenue. So SaaS products are a pretty marginal business.

4. Finally, unlike social networks or online marketplace, it’s much easier to grow SaaS products into a sustainable business.

When it comes to releasing your SaaS product to production, you can get the first paying user even on day one. If your software does the math, provides some user stats, or allows drawing, painting, bookkeeping, selling, etc… you’ll keep that user forever.

But if you’re launching a social network or online marketplace, you’ll always have a complex challenge to overcome. We call it the chicken-egg problem: your app is not helpful before you have hundreds or thousands of users on it simultaneously.

How you can benefit from the SaaS startup trend?

SaaS is growing mainly due to overall technology adoption growth in the world by big and small businesses.

73% of organizations are either switching or planning to switch all their systems to SaaS platforms.

Gartner predicts that by the end of 2022, end-user spending on SaaS products will reach $489 billion.

So we’ll have more robots and more software and hardware products replacing jobs and human labor.

That’s why it’s an excellent spot to be in.

And when I’m saying this, I don’t just mean buying and integrating existing SaaS products within your business to make it more productive.

I’m encouraging you to think about building and launching your own SaaS products.

It’s easy like never before, and it’ll provide you with a nice residual recurring income within your existing business.

And if you’d like to explore further an option to launch your own SaaS product, I’ve got another video for you here where I’m teaching three methods of how small business owners can leverage software in their business.

After that, if you’ve got an idea and are unsure if it will fly and whether people need it, I’ve got one more video for you. How to generate and validate your SaaS idea?

You’ll get a three-step framework that will guarantee that you build something that people want to buy.

Let’s Summarize

So, let’s summarise:

As you see in our agency, my team and I try to generate a lot of free content for our audience and clients.

Apart from this youtube channel, we also publish a new article on our blog at softformance.com every Wednesday. It’s for small biz owners willing to launch their SaaS products.

And you know, until a year ago, we’ve been hiring 3rd party editing agency for our blog posts. But then we discovered SaaS named Grammarly, which provides automated proofreading and text editing tools powered by some unique Artificial Intelligence algorithm.

And now, instead of paying hundreds of dollars to that agency, we spend less than 10$/month on Grammarly monthly subscription, and the quality is almost the same.

And this is just a straightforward example of how you can benefit your business by using SaaS and launching your own SaaS-es.

You can build it once, set it up on the server, and scale it worldwide. And you need 2-3 people on board to provide excellent customer support to serve thousands of paying users and earn tens of thousands in monthly recurring profit.

The formula is pretty simple. Margin is pretty high for SaaS products.

Most of the products we build for our clients and our products are SaaS products. And  I love it.

Now, If you run a business and would love to launch your own software, SaaS Product, or mobile app, and if you would love to get my personal help with it, then leave an application in the link below this video, and we’ll get back to you within one working day.

Otherwise, join my Facebook group, Software Founders, and prepare yourself for the tech startup in the best possible way. The link is also below this video.

Please hit the thumbs-up button and subscribe to my channel to get notifications about my new videos if you liked this video.

See you in the next video…

And remember, people need your software…

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