Why Do Most Saas Companies Fail? – Chargebee’s SaaS Dispatch

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Continued growth in our Charming Biz is a challenge, SO I read this:

1. Lack of a Market

Yes. You probably expected the first reason to be related to technology but no, it’s related to the market. Most SaaS businesses fail because they are simply not solving any existing problem. Others may be solving a problem that users do not want solved.

The barriers to developing an app are at an all-time low. With sites like Guru, Elance and Freelancer, anyone can assemble a team from overseas and get an app coded for less than $1000. However, most founders find themselves in limbo after product development when they realize nobody seems to care about their app.

One of the ways you can avoid this problem is to adopt Lean Startup approaches and be customer-centric. In a nutshell, you simply create a small solution and see if there is market for it. From there, you can tweak the solution and scale it based on user requirements and feedback.

2. A Failing Business Model

With the adoption of lean startup model and many success stories of SaaS companies bootstrapped to profitability, most entrepreneurs assume that it is easy to acquire customers. They assume that after building their product, customers will simply show and sign up. This may be true for the first few customers but in most cases, acquiring customers is an expensive task.

Moreover, if metrics like the

lifetime value (LTV) of the customer are not defined, the cost of acquiring customer (CAC), may be higher than the LTV, which essentially means more money is being spent than revenues generated.

With the SaaS business model, entrepreneurs should answer these two questions:

  • Can we find a scalable way to acquire users?
  • Can we monetize these users at a higher level than our CAC?

To have a working business model, SaaS startups need to find ways to increase the LTV while keeping the CAC down. Strategies like inbound marketing can help to improve customer acquisition without necessarily spending a lot on them.

inbound marketing

Source: Why Do Most Saas Companies Fail? – Chargebee’s SaaS Dispatch

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