9 ms·

You can’t build a SaaS company in 2018 without significant funding

43 points by jcassee 9y ago

exolymph 9y ago
Upvoted because it's an interesting topic, but the statement in the title is straight-up inaccurate and reflects the author's biases regarding what meets the criteria for "SaaS company." In the blog post itself he wrote, "As of 2018, I believe it is now impossible to start and scale a SaaS business without significant capital. [...] Bootstrapping SaaS to sustainable revenues and profitability is so hard in 2018 because of the time it takes to grow organically. [...] That said, it is still possible to gradually build up a profitable small software business in a niche area that can grow over time." Yeah, that last example? No reason why a niche software business wouldn't be considered a SaaS company. Really I'm annoyed by the phrasing / terminology here. He should have specified that he's talking about a large SaaS company... but at that point it's banal to say that you can't do it without raising capital.
- zebraflask 9y ago
  That will be terrible news for most of the YC classes recently.
- lazarko 9y ago
  I am also curious to hear what is 'significant' amount? Is it something which a couple of guys can't finance by themselves in a garage? For a month or for a year? We've built one SaaS business without, what I would consider, significant funding.
adventured 9y ago
"Regardless of whether you actually need all the features on offer, it comes down to how many features a vendor has." I have to disagree with that. Essentially all of recent economic history says there are at least three ways to compete at any given time for all services and products: superior price, superior product, superior marketing/sales/brand, and various combinations of those. For my own reference, I aggressively shop on price + quality. I'll take 85% equal product quality with a required baseline of features at a lower price point. Generally speaking, there will never be a time that you can't compete by lowering price, while maintaining a certain minimum ~85% good enough quality level.
- koolba 9y ago
  Your baseline features aren’t necessarily the same as the next customer. That’s we’re the breadth comes into play.
  - adventured 9y ago
    The baseline features concept for a SaaS company trying to compete, is a formula of hitting enough of the market. Generic example: 85% quality, lower price point, baseline of features that covers 65% of the market's needs. Each additional feature beyond a certain core, broadly speaking, will tend to have a diminishing return in regards to how much of the market needs/wants it.
    - tanilama 9y ago
      For customer what does 65% of features mean? You either have it or not have it.
      - adventured 9y ago
        I didn't say 65% of features. I said that you hit 65% of the market's needs. That is, that your features cover the required needs of 65% of all customers. It's a mistake to build a SaaS product and try to include so many features that you cover more than ~3/4 of all customer feature demands in the early years. You're likely to either go broke or never finish, trying it; and if by a small miracle you build that wildly bloated product, you'll likely be unable to support & maintain it properly. Generic example: the total market for a SaaS product has 30 distinct features across 20 competing companies. 8 of those features get you to 65% of the market's needs (few customers will need all 30, some small % will need ~15 features, the majority will need a modest base set of features, eg ~8). The whole market does not need all 30 of those features. As a highly functional rule, every SaaS product will have a core of minimally required features, beyond that each feature will have a diminishing appeal versus what % of all customers require it. You have to hit a certain threshold of minimum features vs max customers - that formula is a bit different for each product or service, you have to figure that out by experimenting and researching. Do a select few things, do them well, and at a lower price. It has been a winning formula for the last 200 years of industrial history across an incredible variety of products & services. Or do a few things extraordinarily well, at a higher price; that also works just the same. There are of course exceptions to the rules, you're not going to beat Google in search with a slightly better product most likely, or a slightly faster product (you'd likely need a 10x product to dislodge their overpowering brand, financial position, monopoly).
rmason 9y ago
If you're building a unicorn yes you will need serious capital but otherwise not necessarily. It is still possible in 2018 to bootstrap a SAAS startup.
technics256 9y ago
This is too generic, and hard to apply to one market space or industry. Beware of broad brushes like this.
clamprecht 9y ago
I started Searchify in 2012 bootstrapped (Search as a service). My goal is not to "beat" my better-funded competitors, but to simply outlast them. So far, one down, a few more to go.
deleted 9y ago
[deleted]
filvdg 9y ago
We are currently bootstrapping formlets.com. in a very competitive Form building market. When you use remote talent you can bring your costs down to compete with players with big pockets.
gamedna 9y ago
Lets put this out there. Building any successful business is difficult. The trick with SaaS is overcoming the inflection point where your business transitions from bootstrapping to growing as a viable business. The juxtaposition of supporting early adopters against growing the user-base is always a pitfall but not impossible to overcome with a bit of patience and planning (or luck).
chx 9y ago
> Sales teams are expensive, Then don't have one. Find something that people / businesses around you need, build it, and then let others come to it too. Classic way to a slow burning successful small business. An entire sales team? To start with? Nah.
Bjorkbat 9y ago
I had a bit of a knee jerk cringe reaction to that. I think I understand why after thinking about it. He’s mostly right. Mostly. Very few SaaS products are designed to be exciting products. They solve problems, maybe even major business problems, but if we’re being honest here they rarely make a meaningful impact in someone’s life. You use them and move on. Most people who have to use these products are paid to endure them until the day is over and they can go home and go back to what they really care about. So yeah, the company with the resources necessary to drop it’s prices and aggressively sell something that no one really cares about will win. It’s a race to the bottom. If that’s upsetting, too bad. Unless... Unless you build something that individuals, not companies, care about. I think that’s why Slack is doing so well. Most of the add-ons for it have no real legitimate business need. Your company doesn’t need GIPHY, or party parrot emojis. People sure love that sort of thing though. It makes work a little more fun. I think they’re created value in a way that is very hard for competitors to replicate.

43 points by jcassee 9y ago

Upvoted because it's an interesting topic, but the statement in the title is straight-up inaccurate and reflects the author's biases regarding what meets the criteria for "SaaS company." In the blog post itself he wrote, "As of 2018, I believe it is now impossible to start and scale a SaaS business without significant capital. [...] Bootstrapping SaaS to sustainable revenues and profitability is so hard in 2018 because of the time it takes to grow organically. [...] That said, it is still possible to gradually build up a profitable small software business in a niche area that can grow over time." Yeah, that last example? No reason why a niche software business wouldn't be considered a SaaS company. Really I'm annoyed by the phrasing / terminology here. He should have specified that he's talking about a large SaaS company... but at that point it's banal to say that you can't do it without raising capital.

zebraflask 9y ago
That will be terrible news for most of the YC classes recently.
lazarko 9y ago
I am also curious to hear what is 'significant' amount? Is it something which a couple of guys can't finance by themselves in a garage? For a month or for a year? We've built one SaaS business without, what I would consider, significant funding.

adventured 9y ago

"Regardless of whether you actually need all the features on offer, it comes down to how many features a vendor has." I have to disagree with that. Essentially all of recent economic history says there are at least three ways to compete at any given time for all services and products: superior price, superior product, superior marketing/sales/brand, and various combinations of those. For my own reference, I aggressively shop on price + quality. I'll take 85% equal product quality with a required baseline of features at a lower price point. Generally speaking, there will never be a time that you can't compete by lowering price, while maintaining a certain minimum ~85% good enough quality level.

koolba 9y ago
Your baseline features aren’t necessarily the same as the next customer. That’s we’re the breadth comes into play.
- adventured 9y ago
  The baseline features concept for a SaaS company trying to compete, is a formula of hitting enough of the market. Generic example: 85% quality, lower price point, baseline of features that covers 65% of the market's needs. Each additional feature beyond a certain core, broadly speaking, will tend to have a diminishing return in regards to how much of the market needs/wants it.
  - tanilama 9y ago
    For customer what does 65% of features mean? You either have it or not have it.
    - adventured 9y ago
      I didn't say 65% of features. I said that you hit 65% of the market's needs. That is, that your features cover the required needs of 65% of all customers. It's a mistake to build a SaaS product and try to include so many features that you cover more than ~3/4 of all customer feature demands in the early years. You're likely to either go broke or never finish, trying it; and if by a small miracle you build that wildly bloated product, you'll likely be unable to support & maintain it properly. Generic example: the total market for a SaaS product has 30 distinct features across 20 competing companies. 8 of those features get you to 65% of the market's needs (few customers will need all 30, some small % will need ~15 features, the majority will need a modest base set of features, eg ~8). The whole market does not need all 30 of those features. As a highly functional rule, every SaaS product will have a core of minimally required features, beyond that each feature will have a diminishing appeal versus what % of all customers require it. You have to hit a certain threshold of minimum features vs max customers - that formula is a bit different for each product or service, you have to figure that out by experimenting and researching. Do a select few things, do them well, and at a lower price. It has been a winning formula for the last 200 years of industrial history across an incredible variety of products & services. Or do a few things extraordinarily well, at a higher price; that also works just the same. There are of course exceptions to the rules, you're not going to beat Google in search with a slightly better product most likely, or a slightly faster product (you'd likely need a 10x product to dislodge their overpowering brand, financial position, monopoly).

rmason 9y ago

If you're building a unicorn yes you will need serious capital but otherwise not necessarily. It is still possible in 2018 to bootstrap a SAAS startup.

technics256 9y ago

This is too generic, and hard to apply to one market space or industry. Beware of broad brushes like this.

clamprecht 9y ago

I started Searchify in 2012 bootstrapped (Search as a service). My goal is not to "beat" my better-funded competitors, but to simply outlast them. So far, one down, a few more to go.

deleted 9y ago

[deleted]

filvdg 9y ago

We are currently bootstrapping formlets.com. in a very competitive Form building market. When you use remote talent you can bring your costs down to compete with players with big pockets.

gamedna 9y ago

Lets put this out there. Building any successful business is difficult. The trick with SaaS is overcoming the inflection point where your business transitions from bootstrapping to growing as a viable business. The juxtaposition of supporting early adopters against growing the user-base is always a pitfall but not impossible to overcome with a bit of patience and planning (or luck).

chx 9y ago

> Sales teams are expensive, Then don't have one. Find something that people / businesses around you need, build it, and then let others come to it too. Classic way to a slow burning successful small business. An entire sales team? To start with? Nah.

Bjorkbat 9y ago

I had a bit of a knee jerk cringe reaction to that. I think I understand why after thinking about it. He’s mostly right. Mostly. Very few SaaS products are designed to be exciting products. They solve problems, maybe even major business problems, but if we’re being honest here they rarely make a meaningful impact in someone’s life. You use them and move on. Most people who have to use these products are paid to endure them until the day is over and they can go home and go back to what they really care about. So yeah, the company with the resources necessary to drop it’s prices and aggressively sell something that no one really cares about will win. It’s a race to the bottom. If that’s upsetting, too bad. Unless... Unless you build something that individuals, not companies, care about. I think that’s why Slack is doing so well. Most of the add-ons for it have no real legitimate business need. Your company doesn’t need GIPHY, or party parrot emojis. People sure love that sort of thing though. It makes work a little more fun. I think they’re created value in a way that is very hard for competitors to replicate.