How to Overcome the 6 Biggest Challenges of a SaaS Founder

Being a SaaS founder isn’t easy. As well as spinning plates to keep your business growing, you have to adapt to the ever-changing SaaS industry. So let’s get the bad news out of the way first: Startups in the technology industry have the highest failure rate in the United States

But don’t get discouraged! Knowing what you’re up against increases your startup’s chance of survival. Here are the six biggest challenges that SaaS founders face – and how you can overcome them.

1. How to Find the Perfect Cofounder for Your SaaS Startup

If you lack the skills to run a business alone (and there’s no shame in that), you’ll probably look for a cofounder to share your responsibilities. As a technical founder, that means finding somebody with marketing, sales, and operations knowledge to help get your product to market. If you’re a non-technical founder, that means partnering with someone who can develop the product and lead an engineering team while you focus on growing the business. 

You might be tempted to turn to your nearest friends or colleagues who also want to start a SaaS business. But you shouldn’t partner with someone out of convenience. It’s about choosing a cofounder who will complement your skills and who you can see yourself working with daily, for years to come. Finding the right fit is crucial to your business’s success because 65 percent of high-potential startups fail due to cofounder conflict.

Where do you find the right cofounder for your startup if not in your close circle? After combing through your expanded personal network (using LinkedIn or Twitter), you can also check online startup communities. 

IndieHackers, for example, is a popular community for entrepreneurs with a dedicated group called Looking to Partner Up. Share a post describing your startup and what type of cofounder you’re looking for. The same goes for FoundersList, where you can create a profile on their cofounder’s page. 

Besides these online communities, you can also use matchmaking sites like Startup School, CoFoundersLab, and StartHawk. These startup founder networks make it easy to connect with potential cofounders based on skill set, personality, and goals – just like a dating app would. 

While a larger founding team might mean you can scale quicker, it’s important to remember that you don’t need a cofounder. If you can’t find the right person, it’s better to build your business on your own than settle for less. Not only can you learn the skills you need, but also outsource work to contractors, hire your first employee, or get an advisor to fill knowledge gaps. Making someone a cofounder is permanent, so don’t give that role away to solve a short-term need or insecurity.

2. How to Grow Your SaaS With Limited Funds

One of the biggest challenges facing startup founders is not having sufficient capital to grow their businesses. SaaS startups need money to develop their software, scale operations, and build a team. The average cost of launching a startup is $3,000. Besides money coming into the business, as a founder, you also need to be able to support yourself. 

On average, credit card debt, business loans, and lines of credit amount to 75 percent of new business financing. The other two routes you can take as a SaaS founder is completely bootstrapping your startup or raising outside capital. 

When you bootstrap your startup, you keep all of the equity and decision-making power. But you must be able to sell your product to customers to keep the business going. In other words, your startup needs to make money right off the bat if you want it to survive. And with a limited budget, you’ll be relying on free or inexpensive ways to market your SaaS product. 

On the other hand, raising capital brings an immediate influx of money you can use to expand your product, build your team, and market your SaaS product to the world. But you’ll need a plan for spending the money and regularly report back to investors. Instead of figuring out your strategy slowly, it’s sink or swim. 

Whichever route you choose, establish targets that help unlock your SaaS startup’s next revenue milestone. 

3. How to Choose the Right SaaS Pricing Model

The SaaS business model (selling software as a subscription service) is extremely popular, with the SaaS market expected to hit $716 billion by 2028. But choosing the right pricing model for your SaaS is not as straightforward as it might seem. Did you know that the average SaaS founder spends just six hours defining the company’s pricing model? Despite it being one of the main drivers of revenue. 

So how do you know which monetization model to use for your SaaS business? Choose a pricing strategy that reflects your product’s market fit. Start by delving into how customers use your product and how you compare to the competition. 

Each SaaS pricing strategy has pros and cons, but in the end, it comes down to which one best serves your customers and increases your startup’s recurring revenue. Here’s a quick overview of the most common pricing strategies:

  • Freemium pricing: This model gives people a taste of your product for free. Customers try basic features and then upgrade to the paid version. 
  • Usage-based pricing: The usage-based pricing model allows your customers to start using your product at a low cost and increase their commitment as their needs grow.
  • Per-user pricing: The per-user pricing model allows customers to pay for each person that uses the software. 
  • Flat-rate pricing: This one-size-fits-all pricing model eliminates any billing confusion, as you charge all customers the same amount regardless of usage, users, or features.
  • Tiered pricing: With the tiered pricing model, each tier or plan comes at a fixed monthly price, allowing customers to level up as needed. 
  • Feature-based: Feature-based pricing allows you to price your services and products based on varying levels of functionality. 

You don’t have to pick just one of the above pricing strategies. SaaS companies often blend pricing models to ensure sustainable recurring revenue. But most importantly, run experiments. Take proactive steps to iterate and optimize your pricing strategy regularly – it’s not a set-it-and-forget-it strategy. 

4. How to Build Your SaaS Startup Team

When do you hire your first employee? What role do you hire for first? How much money should you allocate to salaries? Growing your tech startup team is a huge (and daunting) step for any founder. Especially because payroll is one the most expensive startup costs, averaging around $300,000 for five employees across the US.

Start by concentrating on the management team as it’s the backbone of your business. Your management team needs the knowledge and experience to handle the daily operations of the business, make sound decisions, and execute planned strategies. 

But finding the right people is easier said than done when the competition for top talent is fierce. In search of better work-life balance, greater agency over their lives, and higher compensation, more than half of US workers are considering switching jobs now that the threat of the pandemic has subsided.

If you’ve reached the point where you need to hire an employee, it might be enticing to hire the first talented individual who’s willing to join your team. However, you shouldn’t hire fast and risk bringing on the wrong person. Companies lose anywhere from $17,000 to $24,000 for bad hires

Be intentional with the positions you create and hire for, ensuring it matches your company’s needs. Hotjar said it best: “See it as a case of ‘hiring for a business problem’ instead of ‘hiring person X before someone else does because they are great.’” 

Take your time finding the right person for the job – and don’t forget about culture fit. Focus on people whose goals align with your startup and who can work well with your existing team.

5. How to Set Up a Strong Foundation for Your SaaS Startup

Do you have the best SaaS product in your niche? Do you want to shout it from the rooftops? If so, great, but amazing features aren’t enough to keep customers satisfied forever. Remember that SaaS is both a product and a service (it’s right there in the name: software as a service).

Early-stage founders often fall into the trap of focusing on software alone, leaving the service side of their SaaS neglected. But your business’s operational systems, including customer support, onboarding, and billing, are just as important. 

If customers suffer a bad experience with your startup, they likely won’t return. After more than one bad experience, 80 percent of consumers would rather do business with a competitor. And 78 percent of customers have backed out of a purchase due to a poor customer experience. 

Spend as much time on your startup’s supporting systems as you do on perfecting your SaaS product. If it’s between a company with the best product but a bad customer experience or an adequate product with stellar customer support, consumers will almost always go for the latter.

6. How to Understand Your SaaS Market

Globally, there are about 30,000 SaaS companies with new ones being launched every day. With the SaaS industry in constant flux, first-time founders often don’t have enough understanding of their niche and struggle to reach more customers. 

At the heart of your market is your customer. Understanding your customers’ evolving wants and needs is the key to succeeding in your niche. In fact, 66 percent of customers expect companies to understand their needs. But don’t just assume you know what they want. Instead, collect customer data, glean insights from it, and use your findings to inform business decisions, keeping a pulse on your customers at all times.

While you need to be laser-focused on your product and customers, it’s equally important to come up for air and see what’s going on around you. You never want to be blindsided by a sudden shift in the market or a competitor’s move. By taking note of what’s happening in your space, you’ll be able to adapt your startup before it’s too late. 

Here’s how you can spot the winds of change in your market: 

  • An existing company launches a feature that competes with your product.
  • A new competitor enters your niche.
  • Consumer behavior changes in your market. 
  • New technologies and tools threaten to make your features obsolete.

Which Challenge Should You Tackle First as a SaaS Founder?

You now understand the biggest challenges that SaaS companies struggle with. However, choosing the order in which to tackle these obstacles is a challenge in itself. When you’re running a SaaS startup, it can be hard to know where to spend your time, money, and resources. So, how do you prioritize which business challenge to address first?

Your to-do list as a SaaS founder is endless, so start by figuring out what is a distraction, a future project, and a priority. The latter, and most important category, is about identifying what would dramatically move your business toward achieving its goals. Work on the projects that matter the most so that your resources produce the best results. 

What Are The Challenges of SaaS Founders?

These are the six biggest challenges of a SaaS founder:

  1. Finding the perfect cofounder

If you lack the skills to run a business alone, you’ll probably look for a cofounder to share your responsibilities. Don’t partner with someone out of convenience. Instead, choose a cofounder who will complement your skills and who you can see yourself working with daily, for years to come.

  1. Growing your company with limited funds

One of the biggest challenges SaaS founders face is not having sufficient capital to grow their companies. Credit card debt, business loans, and lines of credit amount to 75 percent of new business financing. But you can also completely bootstrap your startup or raise outside capital.

  1. Choosing the right SaaS pricing model

Your SaaS company’s pricing model is one of the main drivers of revenue, so don’t take this decision lightly. Start by delving into how customers use your product and how you compare to the competition. Then choose a pricing strategy that reflects your product’s market fit.

  1. Building your startup team 

Start by concentrating on the management team as it’s the backbone of your business. Your management team needs the knowledge and experience to handle the daily operations of the business, make sound decisions, and execute planned strategies. 

  1. Setting up a strong business foundation

No matter how great your product features are, if customers suffer a bad experience with your company, they likely won’t return. Spend as much time on your supporting systems, such as customer support, onboarding, and billing, as you do on perfecting your SaaS product. 

  1. Understanding your SaaS market

At the heart of your market is your customer. Understanding your customers’ evolving wants and needs is the key to succeeding in your niche. Collect customer data, glean insights from it, and use your findings to inform business decisions.

Why Do Most SaaS Startups Fail?

The most common reasons why SaaS startups fail include bad product-market fit, ineffective marketing strategies, cofounder conflict or team problems, lack of research, and cash flow shortage. 

What Are The Top 3 Most Important Aspects of SaaS?

While there are many different types of SaaS solutions out there, here are the three most important features of successful SaaS products:

  1. Ease of use

Your SaaS product needs to user friendly so that customers can get up and running as soon as seamlessly as possible. Allow customers to experience all aspects of your SaaS offering in a painless and unobtrusive way.

  1. Subscription-based billing

A key feature of SaaS applications is subscription-based billing. Subscriptions enable customers to sign up for your software when they need it, paying monthly or annually, and cancel it when they don’t anymore. Without a big upfront cost, customers are more open to trying out your SaaS product.

  1. Scalability

SaaS platforms are highly scalable, allowing customers to access more features as they grow. Your SaaS needs to be able to handle high traffic without any problems and support growing amounts of data.