MBA2619 Top 5 Mistakes SaaS Startups Make & How to Avoid Them

0:00Over 90 % of SaaS startups fail in the first three years. It's not because they didn't build a good enough software or product. Most of them fail from avoidable business mistakes, especially the last one I'm going to share with you today. Number five is the silent killer of most SaaS businesses. Let me dive in so you don't make the same mistakes.

0:26Welcome back to the$100 MBA show. I'm your host, Omar Zinhome, where I deliver practical business lessons three times a week, Monday, Wednesday, and Friday, to help you start, grow, and scale your business. Mistake number one, building before validating. Most SaaS founders get excited. They want to dive into their new project, their new idea. They start coding, but it's expensive, and building the wrong thing is even more expensive. Instead, you want to validate. You want to build a landing page first, just a simple one-page website to talk about the value you want to offer the world. You want to talk to real people, and you want to try to pre-sell your idea before you start building.

1:11That's exactly what I did with my SaaS company, Webinar Ninja. Back in 2014, I validated my software, one, by creating a bad product. I created a course, a course that shows people how to create webinars that totally flopped. That taught me that's not what people want. They want a tool to make it easier for them. And then from there, I validated with a landing page that told me that I had demand for the software. I pre-sold the software to 150 paid users that sold out in 48 hours. We then opened up for another 24 hours and got another 100 users, 250 beta users to kick things off, validated my business idea.

1:49I knew that now my software has legs. People are willing to put down a deposit on something that they haven't even touched yet. For the promise of solving a big problem, that really helped me create a business that is validated. It gave me the confidence to know that now with this capital that I created with the presale, that I'm investing in something that people actually want. They voted with their dollars. I don't need to convince anybody anymore, I know for sure that this is something that solves a real pain. My job now is to deliver that solution, get feedback from customers, and rinse and repeat.

2:25Sell again, improve the product, and grow. And that's exactly what I did for 10 years at Webinar Ninja. So don't make the mistake of flushing out a whole product without validating that people actually want to buy this thing first. Even if you don't pre-sell it like I did. Validate by finding out if people are interested in getting on a waiting list to get first access. You can even run ads to that landing page to see if people are even willing to sign up and give their name and email address. If they're not willing to give their name and email address for free, they're not going to be willing to buy.

2:56Mistake number two, too many features too soon. Founders often try to be everything to everyone at the start. Very bad idea because we often look at the companies that we Admire, the sales forces, the MailChimp's, you know, all these SaaS products that we know as household names. But that's a version like 1000 for them, okay? You want to start with an MVP, a minimal viable product that should solve one real problem really well. As Michael Sable from Y Combinator says, the MVP is not about creating a perfect product. It's about creating a product that's just good enough to test your assumptions and learn from your users.

3:34That means you want to start simple, learn fast, and iterate smarter. It doesn't mean you can't have all these features eventually. It just means that you want to make sure that you're doubling down on the features that people actually need and want so you don't waste any time or money. And you keep your software clean and simple and easy to use. I can tell you firsthand that a lot of people will switch out of a software because it just becomes too overwhelming. They go to a simpler version because they just don't know where to start. There's just too many features, too many things going on. It's better for you to build for what people actually need and want as you're growing.

4:10Start simple and then from there, build out based on need. Mistake number three, no customer support plan. This is something that a lot of businesses overlook. Yes, your SaaS needs support, even if it's just you at the start, right? You need to make sure you support your customers to make sure they're successful with your product. Remember, a SaaS business is all about making sure that they continue to renew their subscription, whether it's monthly or annuals. You have to resell it through support. Make sure they know they're getting a good, valuable product and that you're there to help them succeed with it.

4:45I found through my journey as a SaaS entrepreneur that people don't cancel just because your product is horrible or sucks, right? They cancel because they're confused and they don't get help. They need help finding out how to get the most out of your software. And you need to be proactive with this. You need to make sure that they're not canceling because they don't know how to do something. A lot of people, they cancel your software thinking that it doesn't do something when it does, right? It has that feature, it has that ability, but they just don't know how to do it. So you need to make sure you're there and you're proactive and you're letting them know, hey, we're here to help you.

5:19Show them how to get started. Show them how to get a win in the first few days of your software. Make sure that they actually get the value as quickly as possible so that yes, I'm getting something out of the software, I will continue to pay. And you don't need some fully blown customer support department to start. You can even start with an alias inbox for support, like supportatyourdomain.com. And that's just an alias for your email. If you wanna level up from that, you can use something like Help Scout. It's very, very simple. It has a shared inbox so you and somebody else can work on it or the customer support team.

5:52It also includes like a help center so people can look at support articles and find answers themselves, maybe go through some FAQs. Support is critical for retention and retention is revenue in SaaS. The more customers you keep, the more money you make because the difference between a customer that stays for three months versus six months is 100%, right? It's double your revenue. So support is your go-to move. It's your weapon for making sure your business stays strong. It also could be a huge differentiator in your market. We competed with some giants in the webinar and live video space because our support was superior to theirs.

6:35We really doubled down on making sure our support was amazing, 95 % and above customer support, satisfaction rating, responding within three minutes to any chat or email. We really gave it it all because we wanted to make sure that people knew that we had their backs and it made our business really grow. Mistake number four, ignoring churn. Now, I've just led into that with support, obviously, but churn is something you got to keep a hold of in SaaS. You might be growing, but if users are quickly slipping out the back door, you have a leaky bucket. You're in trouble. Many SaaS businesses fail because of what's called churning out.

7:15They just can't outpace their churn. They know how many customers they bring. Because of that leaky bucket, they just never grow because they keep leaving at a certain point. So you've got to have your eyes on some important numbers. Your churn rate, your lifetime value of a customer, your net revenue retention. You need to find out why people are leaving. Talk to your customers who leave. Have exit interviews. Ask them to take a simple survey before they cancel. Don't just let them go. Learn from every exit. Maybe some people will not fill out the form properly or the exit survey, or maybe they won't answer your email to agree to a call or maybe a quick chat, but some will and enough will for you to be able to fix that leak.

7:57Full transparency. We had a churn problem at Webinar Ninja during our journey, and we did exactly that. We did exit interviews. We did customer exit surveys. We figured out what was going on. Why are people leaving? What's the reason why they're canceling? is it because of cost is it because of features is it because of our support is it because they are not using it we looked at all these things we learned from our customers and we fixed some of these issues some of the major issues that allowed us to reduce churn dramatically like our turn went down 300 was insane because we learned from our customers and then we went to our team and said hey we need to fix these problems so that people don't leave us anymore so that we have less people leaving and it's okay for people to leave for valid reasons.

8:43So for example, we were okay people leaving saying it's too expensive because we knew we weren't too expensive. We're highly competitive in price. But if we're too expensive for you, we can't help you because we can't lower the price. We knew our numbers well. We knew that we needed to keep our prices, if anything, raise them at some point. So if people left for that reason, no problem. We're not going to fix that. That's just something that we have as a data point. But if it was a feature request, something that we didn't do that they wanted us to do and was the reason why they were leaving majority of our target audience.

9:12You better believe first thing in the morning in my daily stand up with my tech team, with my developers, I said, hey, we need to fix this. We need to develop this feature, even if it's a minimal viable version of that feature. And we build it out and we learn from our customers. But we need to stop gap that hole. We need to make sure that people are not leaving for that reason anymore. And we do that over and over and over in different areas of our business. If your churn is high and out of control, every market's different. But if you're in the double digits, meaning like 10 % or more in churn, you need to get a handle of it because at some point, no matter how many customers you bring in, you're not going to make money because you're just going to have that leaky bucket like I talked about.

9:55Mistake number five, and this one is huge. This is the biggest reason why most SaaS businesses fail and it's running out of money, or aka cash flow mismanagement. This is the one that kills most SaaS companies, and I want to spend a few minutes really drilling home why. Cash flow in any business, but especially a SaaS business, is oxygen. Without oxygen, you die. It's just that simple. A lot of businesses in SaaS are not charging enough, are not tracking expenses. They're not projecting the runway, understanding how much money they have left before they run out of money. You don't run out of ideas.

10:34You run out of cash. That's really what the problem is in SaaS, is that you just don't make enough for you to keep going. What you need to do is track your monthly burn rate, meaning how much money you spend to run your business. Next, you need to monitor your runway, how many months you have left at this burn rate. If you're profitable, great, but how profitable are you? Do you have six months of burn rate, 12 months of burn rate? or are you just a month or two away from being in the negative? You need to review your cash flow forecast as much as possible, at least monthly. You need to be on top of this because it's going to kill you without you knowing it if you don't keep an eye on it.

11:17If you need help with this and you need a simple spreadsheet, we've created one. It's absolutely free. It's our P &L sheet. You can go ahead to 100mba.net slash templates and download it. It's among all the templates that we give out for free. it's one of the most used template that we give out to all our members you should definitely tap into this they say revenue is vanity and cash flow sanity it's very cliche but what i want to drill home is that business is money business is all about the numbers okay and you can avoid it you can ignore it but that's how you get killed by it okay if you just bury your head in the sand You need to be all over your numbers because that's what's going to keep you alive and keep you growing and keep you profitable.

12:03Because if you have money, if you are profitable, if your cash flow is amazing, you can hire great talent. You can come up with great ideas. You can come up with great features. You can explore different markets and different audiences. It could solve a lot of problems. But if you don't have good cash flow, if you don't have the numbers right, it's the death of everything. okay so you need to be all over this and i don't want you to be one of these statistics i don't want you to be one of the 90 that fails in three years okay i want you to be the other 10 that heeded my advice listened to it implemented it and said yes i got this i'm not going to be one of those people that just ignores these things every sass founder makes mistakes that's just par for the course the trick is not to avoid them completely it's to catch them early and learn fast That's what I learned.

12:52I believe that SaaS is a powerful business model. It's why I built one for 10 years and got acquired by ProProft. It's a valuable business. It changed my life, but only after learning these lessons the hard way. And you don't have to learn the hard way. I'm giving it to you on a silver platter. Now go ahead and make it happen. If you want more help from me on a regular basis, you could subscribe to my Three Things newsletter over at 100mba.net. Every week I send you something to think about, to change your mindset, something to do so that you're moving forward every week, and something to learn so that you're building new skills.

13:31Just go to 100mba.net, sign up for any of our freebies, and you get enrolled in our newsletter automatically. It's absolutely free. I'm Omar Zanom, and I'll check you in the next one. Keep building. You're closer than you think.