SaaS business stages
As we’ll see shortly, highly successful SaaS businesses can boast valuations in the $100 millions, serve a huge number of customers, and completely change the way in which entire industries think about aspects of their business. That, however, is the final and most successful stage of the SaaS business model. Broadly speaking, a SaaS business’s life can be broken down into three stages:
In the early stage of your SaaS business, you as the business owner or entrepreneur are still operating at the bare-bones level. You’re unlikely to have many customers, and your product will still be in its early developmental stages. You may be seeking your first round of pre-seed funding, or you may have decided to go for the bootstrapping approach to maintain better control of your operations.
In the early stage, your staff roster will still be small, you will more than likely still have only one product you’re focusing your attention on, and you may not have started to turn real profit yet.
At this stage, you should be asking yourself these main questions: Am I tracking metrics, bringing in new users, and looking to optimize pricing? Have I begun developing my own personal business model that will enable me to seek the right kind of funding and use it well?
2. Growth stage
The growth stage is where things start to get exciting. You’ve built something that’s growing fast, your product is gaining subscribers, and you’re beginning to bring in MRR and possibly positive cash flow.
To kick off your growth stage and to continue powering through it, you will need to begin raising serious funds that will allow your company to grow its team, invest in product development and iteration, and scale. There are a number of funding types that serve the SaaS business model, including:
- Venture Capital: The glamour means of procuring funds for your startup, venture capital is provided by firms or funds that see high growth potential or a strong track record of recent growth in a SaaS company, enough to merit substantial financial assistance.
- Angel Investors: An angel investor is a single operator with substantial financial means who is prepared to make an investment in your company. They can be ideal for startups looking for their first big investment, although, more recently, so-called “super” angels have begun to play a decisive part in later funding rounds too.
Venture capitalists and angel investors are not the only routes to growing your business. Some companies go through incubators in their very early days; other, slightly more established SaaS companies find startup accelerators that meet their needs and use them for a different kind of funding experience. Some companies continue to bootstrap for a much longer time, and others are so adept at raising revenue from the start that they find they don’t need external funding until much later.
Now, you should be asking yourself these questions: Have I established key performance indicators (KPIs) to ensure I’m primed for further scaling? Do I have a strong monetization strategy in hand for when I do decide to seek some form of investment?