The best and worst of times to build a new SaaS product
Published by Alex Bugeja on July 31st, 2021 9:39am.
If you're building a new SaaS product, these are the best and worst of times.
It has never been easier than ever to build a new product. The tools ecosystem is now so vast and well developed, you will be standing on the shoulders of giants from day one. Development tools, payment tools, CRM tools, payroll tools, hosting tools, cloud tools, no-code tools... they're all out there and ready to go at extremely affordable prices. Often free to get started and the pricing scales with your growth. What more could you ask for? Technical risk is now minimal or non-existent.
So what's harder than ever? Distribution. Reaching customers is now harder than ever.
Precisely because those same customers are now being inundated by solicitations from other builders - either competing directly with you or in other unrelated spaces - who are also experiencing the same ease of building software products as you are. I'm not sure what the exact number is, but it seems to me that around 50 or so new products a day launch on Product Hunt alone, and that could be the tip of the iceberg. It is certainly easier to build now than it ever was, but it is also harder than ever to get the customer's attention once you've built something. Now you're competing for the customer's limited attention span with so many other people for whom it's also easier to build than ever.
One could argue of course that marketing is now easier than ever too, so what's the problem? After all, tools like Google and Facebook ads are extremely accessible to the multitudes these days. The problem is that everybody knows about the obvious channels like those, and everybody has bid up the auction prices there to the absolute maximum the market will bear. Make that the maximum the market will bear and then some - when it comes to software, the flood of investment dollars has in many cases distorted what you'd expect to see rational advertisers paying if achieving a cost of acquisition below customer lifetime value was actually still a consideration. In pretty much every SaaS niche, keywords on Google Ads now go for several tens of dollars a click. If you need forty or so of those to convert to one paying customer, a number that would place you at the 2.5% median conversion rate for SaaS (pretty optimistic for a brand new product), your customer lifetime value is going to have to be outstanding if you want to make up the difference and turn a profit.
Or in a nutshell, if your go-to-market channel is the obvious stuff like Google and Facebook ads, you're probably sunk before you even started. Many founders know that finding product-market fit can be hard. Of course it's never easy, but the reason for that is now more subtle and goes deeper than it may seem at first glance. If the market were there and giving you constant feedback on demand, it would actually be rather straightforward to loop around until you achieve fit. The problem is you won't ever know if you have product-market fit if you can't reach the market effectively and ask its opinion to begin with.
If you've been around long enough to remember, or interacted with those who have, this is actually all very different from the early days of the web - indeed a complete inverse. Just a couple anecdotes that come to mind...
I remember attending a pre-pandemic (and pre-hack) talk by the founder of SolarWinds where he had remarked at length on how difficult it was to build a networking product in the late 90s because pretty much everything we now take for granted had to be built from scratch. Their payment processing system took months to code for example. Today you could achieve the same result, and arguably far better, in one afternoon with Stripe. On the other hand, distribution was never a concern. They literally just put up a barebones website and orders magically started rolling in within a few hours. No SEO or PPC ads needed! Customers easily found them because the search engines of the day had very few destinations to send them to.
A decade or so later, when Grasshopper (the VOIP company) was getting started... Google Ads (AdWords at the time) was still pretty new and a fairly unexploited medium. They rode that channel to success. Keywords were still affordable back then and far from having reached what we'd regard as market prices today. If you do come across a new advertising channel like that one which the world hasn't correctly priced yet, you should keep your mouth shut, jump on it and hold on. It's basically offering you a way to ride on somebody else's audience/community if you don't have one yourself. Of course, the catch here is that such new advertising channels with sufficient scale to be useful don't come along too often. The online advertising world has basically been a Google-Facebook duopoly for years now, although you may have success with specialized channels applicable to particular niches.
In most cases I suspect the largest cohort of successful new entrants will likely be those building on an existing audience, community or contacts list to which they can market a new product. The distribution channel in those cases is well-defined and waiting to be monetized. And once the snowball is rolling, it can be kept rolling by tending to that community and fostering a stream of referrals from existing customers. Referral programs can help with the latter task.
Of course this only shifts the goalposts though. Establishing that audience or community if you don't already happen to have one is now itself the tough distribution nut that you have to crack. This can take years, and there's no guarantee of success. You might have guessed the reason at this point. Blogging tools, podcasting tools, live streaming tools... all these are readily available. That won't be your problem. Since everybody else is also using them, the problem is rising above the noise from everybody else. A distribution problem again.
Perhaps you could look at this as representing a case of a broader Law of Constant Startup Difficulty, for want of a better title. My hypothesis with that is that in many markets, the aggregate difficulty level in launching a new product - ease of building and ease of distribution - remains roughly similar over time. But at least in software it has clearly shifted from the building side of things to the distribution side. If you think about it, this is not great news if you're primarily a strong builder able to solve most technical problems even with little in the way of fancy tools, APIs and frameworks to build upon. The late 90s and first decade of this century would probably have been a better match to your skillset.
The world has changed, and not in a way that favors people with strong product development skills. Be aware of what you're getting into. Building the product, in all likelihood, won't be your problem. Finding the market and getting its attention will be.