5 Critical Mistakes That Could Sink Your SaaS Business

By Ashish Srimal Ashish Srimal has been verified by Muck Rack's editorial team
Published on October 4, 2022

Are you setting your SaaS business up for failure?

Every SaaS founder starts out with a great idea they’re convinced is going to change the world, redefine their sector, and make the world a better place. Turning that dream into a reality, though, is easier said than done.

Building a winning SaaS business requires more than just a bright idea — it requires a willingness to do your homework, dig into the details, and constantly course-correct in order to avoid key pitfalls.

Here are 5 problems that SaaS founders face as they grow their brand — and the strategies they can use to stay on course.

Problem 1: A poor product

This one’s hard to escape: if your product doesn’t dazzle your customers, it’ll be hard to succeed in today’s crowded SaaS marketplace. 

Building a great product doesn’t just mean identifying a problem and solving it effectively. It’s easy for SaaS buyers to switch from one vendor to another, so you need to continuously invest in your product to make sure you’re staying ahead of the competition. 

  • Takeaway: It isn’t enough to build a good product. You need to orient your entire company around making your product the best it can be. Focus R&D on both refining existing features and adding new ones in order to win new business.

Problem 2: Poor product market fit

A great product only matters if there’s a market for it. If you’re solving for a problem that only a few people or businesses have, then your company will struggle to grow beyond its initial user-base.

Figuring out market fit starts early: identify your ideal customer profile and the likely demand for your product before you build it. But keep circling back to reassess market fit over time, too: your product usage data, reviews, and competitor profiles can all help you continuously realign your product to the market you’re serving

  • Takeaway: The best SaaS companies are perfectly aligned to the market they serve. That means targeting the right market to begin with, and being mindful about how you add or improve features and offerings as you expand into new market niches.

Problem 3: Too little runway

Building a great SaaS business requires capital: you can’t win a foothold or expand your reach if you don’t invest in your company. But it’s easy to run out of cash along the way: pay attention to your burn rate, your reserves, and the amount of runway you have left to work with in order to keep your company on track.

Handwave the financials and it’s easy to get caught in a death spiral. With too short a runway, you’ll have to slash spending — but cut back too deeply, and you’ll struggle to win new customers or retain existing ones, leaving you with no viable path forward.

  • Takeaway: The key is to get serious about your runway from Day One. Even if you’re feeling flush, stay focused on managing your burn rate, growth capital, and other key metrics to ensure you don’t wind up struggling later.

Problem 4: Overlooking retention

Many SaaS founders think growth is all about customer acquisition. Of course, bringing new customers into the fold is vitally important — but the real determinant of SaaS success is your ability to nurture relationships, and retain and upsell your existing customers over time.

If you’re spending too heavily to bring new customers through your acquisition funnel, you could wind up underinvesting in existing customers. That could cost you money in the long run: it’s been shown that a 5% increase in retention drives a 25% or more increase in profits.

  • Takeaway: Make retention a key part of your growth strategy. To drive up Net Revenue Retention, the goal should be to build loyalty and lock customers into longer contracts — and to upsell, not discount, when it’s time to renew the deal.

Problem 5: Loss of control

You can get all of the above right and still fail — if you aren’t careful to keep control of your company as it grows.

We’ve all heard of founders who got diluted out over time, or who got muscled aside so investors could put “a grownup” in charge of the company they built. Keep your equity funding rounds to a minimum, and pay close attention to the small print in any debt funding you take on. 

  • Takeaway: SaaS founders should seek out non-dilutive sources of capital when possible — and ensure that any loans or other funding sources they explore aren’t wrapped up in complex covenants or other red tape that could bind their hands down the line.

Look to the future

Running a SaaS startup is tough, and it’s easy for what appear to be trivial errors to balloon into existential threats to your business.

Using finance as a strategic weapon, you can avoid these mistakes. Having the right financial backing at the right time will allow you to amplify your revenue. Gaining that backing with non-dilutive funding optimizes your capital structure and sets you up for growth.

By Ashish Srimal Ashish Srimal has been verified by Muck Rack's editorial team

Ashish Srimal is a columnist at Grit Daily. Based in San Mateo, he is the founder and CEO of Ratio, a new kind of fintech platform that combines payments, predictive pricing, financing, and a frictionless quote- to-close process into one platform for SaaS and technology companies. Before Ratio, Srimal held executive positions at SAP and Medallia. He was also previously the founder and CEO of SmarterMe, the world’s first intelligent mobile assistant for sales, and has advised numerous SaaS, venture, and private equity firms.

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