Musings on books, technology, entrepreneurship, nonprofits and umm.. everything else …

Recently we had several students stop by our office to learn about our work and opportunities for internships and full-time roles post graduation. It was cool to be one of the small guys in an itinerary that was otherwise filled with popular names such as Google, Apple and Square. We had several sessions about the company itself, what we do, what it is to work here and and where we see the future. I spent a few minutes talking about six steps to building a good SaaS product. Thought I might post it here as well for what its worth. As we are reminded often in our quantitative classes, these are not mutually exclusive, nor are they collectively exhaustive.


1. The customer is king

The first piece of the puzzle is to build what your customers want. While the greats like Steve Jobs might claim that market research is not worth it, for us mere mortals this is a must. In a small startup it is a lot of fun to talk to your early customers to understand exactly how they use your product and what features they look for to improve the experience. Focus on those and deliver them to keep the customers happy.

2. Know your costs

Offering a SaaS product means that you have to model your traffic pretty well and understand what your peak usage, average usage and usage patterns will be. It would be a good idea to run these through some basic scenarios and model your worst case capacity requirements. These need to be built accounted into your operating costs and accounted for during pricing. For example if you plan to run a video or audio conferencing service, it might be useful to know your peak usage days and times and run at least some basic Poisson process models, or mixture Poisson models to know your worst case capacity needs.

3. Don’t be shy to price it right

In the B2B SaaS world, pricing is critical to success. Price too low and you bleed money as your user base grows. Price too high and you get great margins but not much top-line growth. The key is to price high enough that you account for healthy margins to fuel your growth, but low enough that traditional on-premise solutions or other competing solutions look much less attractive from a total cost of ownership analysis.

4. Know your enemy

There is no free lunch. You will have to clearly identify the landscape that you fit into and who your competitors and complementors are. Especially if you are building a sales team that can pitch to businesses and convince them to purchase your product, you need to be very clear on what your value proposition is compared to the hundred other solutions out there. SaaS is a recurring revenue business. If there is no happiness, there is no recurrence, so snake oil techniques may not work out that well here.

5. Find out who’s on your bus

You might have assumed that a certain type of customers will be your early adopters and viral propagators of your technology. But it would be good to do periodic checks to validate your assumptions. SaaS products offer you the ability to learn more about your customer as they use your product, so detailed usage analysis, demographic segmentation, K-means clustering and other statistical techniques will provide you surprising insights on who ended up using your system the most and why. Who knows, you might even end up building our a separate sub-brand just for those identified segments if they turn out to be a lot more profitable than the market you were targeting at the beginning.

6. Build, test, rinse, repeat

Unlike a hardware product that is out of sight, out of mind, once sold, a SaaS product is well suited for frequent updates. You might have assumed that a certain layout for your website works best or maximizes usage or conversion. But unless you test, you never know. You are as good as the last set of tests you ran. While many sites make it easier to do A/B testing on your websites, it might be worth it to start building sites with the capability to run multivariate tests so you can run your experiments without impacting your top-line too badly. From a product features perspective as well, being situated in the cloud makes it a lot more hassle-free to rollout latest product updates and bug fixes within a few hours.

So is this all it takes? Of course not. But this is a good place to start.

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