Tilting the Odds with SaaS
Building a successful tech startup is very, very hard.
There’s no way to make it easy. But staying lean and building tight feedback loops with (rational) users can make it a little less insanely difficult. Here are some strategies that can help increase your odds of success.
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Sell Software
Not every software startup will scale well, but the problem won’t be the business model. Selling 1’s and 0’s is a great business. It’s capital efficient and enables the fastest iteration.
Make It B2B SaaS
The SaaS model has a number of major benefits - zero COGS & a zero cost distribution channel.1 Not to mention accessing a global market without rolling out of bed in the morning.
The most unappreciated benefit of SaaS is that the customers are rational. The job to be done for SaaS is simple: help business users do their job better. You can rely on your target user to give you helpful feedback on the value of your product. Consumer is much harder - user preferences can change overnight and there is often a gap between their stated preferences and revealed preferences.
Building For Yourself
Making a great product requires inhabiting the headspace of your product’s target user. It’s about a zillion times easier to occupy your own headspace than someone else’s. Paul Graham helps make the case:
Why is it so important to work on a problem you have? Among other things, it ensures the problem really exists.
Building for yourself also creates much faster feedback loops. You can use your gut for feedback instead of a focus group.
Stay Lean Before Achieving Product-Market Fit
The path to achieving PMF can be grueling. A lean team will enable maximum flexibility to quickly react to the inevitable slings and arrows of a competitive market. A lean team also extends runway, which in today’s market is self-recommending.
Wait For Strong Word-of-Mouth Before Scaling Go-To-Market
Founders often don’t realize it, but they are sales rainmakers. Among their potent weapons:
A deep belief in their product & intimate understanding of its strengths
Intense motivation (born from desperation)
A willingness to work for peanuts & sell with minimal enablement
Founder selling is a wonderful way to kickstart early growth. But it is deceptively hard to scale. Hired sales resources will almost inevitably be much less efficient:
Sales people will have neither the missionary zeal nor the encyclopedic knowledge of customer problems that founders have
Sales people need to be paid $$$ and will need leads, marketing collateral, enablement, etc. - and this costs even more $$$
Building a product that’s so good it drives word-of-mouth means you can scale sales by hiring order-takers, not rainmakers. That’s a heckuvalot easier.
In marketing, every channel will perform better when there’s strong word-of-mouth. That’s not just because inbounds drive down costs, but because you’ll be able to have great case studies & social proof to boost the efficiency of every marketing campaign.
Last, a steady stream of inbounds to your website further tightens the feedback loop between your product and target users.
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There will be great companies built that don’t involve SaaS and don’t involve word-of-mouth distribution. But every path to startup success runs through Not Running Out of Money and Building Products Customers Love - and the strategies outlined above can make it a little bit easier for founders to find these destinations.
Sure, in practice COGS and distribution costs are greater than zero but SaaS still has the most efficient (legal) business model in this universe.