DOs and DON'Ts for SaaS entrepreneurs – #1

I've been thinking about a "DOs and DON'Ts" article geared towards early-stage SaaS founders and upcoming SaaS founders for a little while now. I thought it would be a good idea to summarize what I've learned about SaaS in the last few years and put it into a format like this. Problem is, it's a very large topic, and if I try to make it as broad, deep and well-written as I'd like it to be I'll never do it. I don't have sixkidsandafulltimejob.blogspot.de like Benchmark's Michael Eisenberg, but three little kids, about 25 angel investments and Point Nine keep me pretty busy too.

So what I'm going to do now, I'll apply Eric Ries to blogging, and in the spirit of release-early-and-iterate-fast I'll just get started with something. It's an experiment and I don't know yet what the result will be – how many DOs I'll end up with and if I have enough time to work on the series in a timely manner at all. But Reid Hoffman said that if you're not embarrassed by the first version of your product you've launched too late, and hey, no one is forcing you to read this crap. :-)

So...my first MVP are some thoughts on what I'll call...

The 1st DO for SaaS startups

Choose the right market

Some entrepreneurs will find this statement awkward because they don't feel like they've chosen a market. Some founders use a very systematic and analytical approach and evaluate a number of ideas first, but others just have an idea (or just happen to have domain expertise in a specific area) and get started without too much analysis and without ranking the idea against other ideas. There's nothing wrong with pursuing the first idea if you're really convinced of it and I'm sure that some of the biggest success stories began that way. But I do think that generally it makes sense for founders to do some due diligence on their idea, at least before committing the next years of your life and maybe your savings to it.

So how does an attractive SaaS market look like? Simply put, an attractive market allows you to provide:

• a painkiller solution
• to a large number of companies
• whose needs aren't adequately served by the incumbents

Additional aspects which make your market even more attractive:

• Plenty of opportunities to increase your TAM (total addressable market) by broadening the product offering, moving upstream or going into adjacent markets.
• Chance to realize network effects, to become a platform or to create a data asset.
• Most of your target customers are still using old-school desktop solutions or make do with a combination of generic applications like Outlook, Word and Excel.

A great example are web-based accounting apps: Every company must do their accounts and desktop solutions suck. Voilà, a painkiller solution for a large number of companies whose needs aren't adequately served by existing products. The category also scores well on the bonus points above:

• Let's say you start with an invoicing app for small businesses. That alone is a sizable market, but it's also a great starting point to move into accounting and payroll, as well as to gradually target bigger customers over time.
• There's also potential for network effects (think e-invoicing between your customers), to become a platform (for a variety of adjacent apps) and to create a data asset (e.g. benchmarking data), which all helps to make your position more defensible and gives you pricing power in the long-term.

To be continued!