A guide to building a profitable SAAS company (1/3)

Only first principles notes — no gyan.

Happy, paying, renewing, and growing customers is the marker of a successful SAAS company. Here is a mindmap on the features of a SAAS company that matter.

SAAS Strategy, Structure and Operational Metrics

Strategy

1. Competitive Market Study

The reason for having the business in the first place should be absolutely clear. Some questions need to have clear and succinct answers -

1. What problem is being solved?
2. Who cares for that to be solved and what value it brings to them?
3. What is the possible LTV of such a customer?
4. What is the Total Addressable Market(TAM) ?
5. How is the problem being solved at present? Who are the competitions and how are their solutions doing?
6. Are there alternatives? What are those?
7. How long will the problem survive? What are possible future alternatives?

Think through the 4Ps —

1. Product(Problem, Solution, Perceived value of the solution by the customer, Clear value metrics, roadmap),
2. Price(Ideal customer profile, wallet size, pereived value vs wallet share, LTV),
3. Place(Ideal markets(B2B, Geography, B2G, etc), Tiers, TAM) and
4. Promotion- How would you reach out and to whom to sell your stuff (launch strategy)

Pay attention to the Five Forces(Competitive Rivalry, Supplier Power, Threat of Substitution, Threat of New Entry, Buyer Power) but don’t dig yourself into a rabbit hole. Don’t get overly obsessed and uninspired. Strategy has both static and dynamic components. Static is everyone’s game; Dynamic is where you inspiration and competitive-advantage lies. If you can figure out half the way, are inspired about the other half and are nimble in making decisions, you will succeed. Many a times, the five forces are rather oppertunities to optimize or disrupt. Be in the challenger’s shoes and don’t settle.

2. Financial Modeling for 5 years

Make reasonable assumptions and build a financial model to determine the expenses and growth needs for the next 5 years. It should fuel your month to month Profit and Loss Statement/Income statement, Balance Sheet and Cash Flow statements. This will be the guiding light for many future decisions and funding. It should project expenses, booking, cash flows and all financial activities monthly, yearly, accomodating the changes needed every year or timeframe.

3. Investment and Equity Structure

This is all about investment needs and cofounder equity division. It has to be very thoroughly thought through based in initial investments, efforts, future contributions and investment needs. The financial model will be a good reference for cash flow runway and investment needs.