With the adoption rate of SaaS on a steady increase, its global market size is estimated to hit $307.3 billion by 2026, and is expected to keep rising as more and more companies troop in. However, despite the profitability of the SaaS industry, the global spike in failure rate has broken all resistance levels. Barely 50% of startups make it to the second year, and a much greater percentage plunge downhill in the preceding years regardless of funding.
Let us take a look at the most common reasons why even the most promising startups fail.
1. Poor Management
No organization thrives without a strong management team. A good management team must accurately define the general direction of an organization and must effectively report on core areas such as marketing, sales, engineering, and the product itself. When the right strategies are in place, and the most skilled workers are accountable to manage each core area, your organization will receive instant visibility on the metrics most vital to your long-term growth and profitability.
2. High Churn Rate
How high is too high? A low customer turnover rate and a high retention rate is a reliable indicator of customer satisfaction, but a high turnover rate and a corresponding decrease in customer retention might indicate an organization's underperformance and an inability to satisfy customers.
Of course, customer churn rate cannot be completely eliminated, owing to a number of external factors such as the dynamicism of customer needs, among others, but some top contributors to an organizational 'churn epidemic' can be managed.
For startups, a 5% annual churn rate is a great benchmark for performance evaluation.
3. Poor Market Research
It is not uncommon to see individuals and even organizations adopt SaaS solutions without carrying out proper market research. The profitability of the SaaS industry is not enough to guarantee an organization's success, especially in the absence of market research.
So, a business owner must first identify an existing problem, create a solution to that problem, and find a market for it. At first sight, creating a product without conducting in-depth market research might seem like a sure way to cut down on expenses, but it will only be a while before getting kicked out of the market with twice as much expenses.
4. Failed Product
Sometimes, the problem might be with the product itself. Some products are easily out-competited, resulting in yet another demise of high-potential startups.
A new product must not only satisfy a need, but must also have a user-friendly interface for maximum usability and a resulting long-term profitability. Even if a product seems to be doing well, it is imperative track its viability in the marketplace. You can achieve this by contacting customers through online surveys, interviews, and even phone calls to receive feedback on your products and fix bugs.
Conclusion
Approximately 90% of startups fail in the first five years. By avoiding these aforementioned mistakes, you can be one of the 10% SaaS startups who do not just survive in a fast-paced market, but stay profitable year in, year out.
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