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

Thinking of launching a SaaS business? While the opportunities are exciting, the challenges can be daunting. Did you know that many promising startups don’t make it past the three-year mark? The culprit often boils down to the same critical missteps. In this episode, Omar unpacks the top 5 mistakes that sabotage SaaS startups and shares how to avoid them. With practical insights and lessons from real experience, this is your chance to arm yourself with the knowledge to build smarter and avoid the traps that catch so many founders off guard. Curious about what these five game-changing mistakes are? Hit the play button at the top of the page and set yourself up for success from day one. The P&L Spreadsheet Template is available for free at 100mba.net/templates. Watch the episodes on YouTube: https://lm.fm/GgRPPHiSUBSCRIBEYouTube | Apple Podcast | Spotify | Podcast Feed

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• 1:00Speaker 03

  Over 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. And let me dive in so you don't make the same mistakes.

• 1:27Speaker 03

  Welcome back to the $100 MBA Show. I'm your host, Omar Zenhome, where I deliver practical business lessons three times a week, Monday, Wednesday, and Friday, to help you start, grow, and scale your business.

• 1:40Speaker 03

  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, that'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.

• 2:25Speaker 03

  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. I knew that now my software has legs. People are willing to put down a deposit on something 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 pre-sale, that I'm

• 3:08Speaker 03

  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. Sell 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 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

• 3:51Speaker 03

  willing to give their name and email address for free, they're not going to be willing to buy. Mistake 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 mail chimps, you know, all these SaaS products that we know as household names. But that's a version like 1,000 for them. Okay, you want to start with an MVP, A 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."

• 4:35Speaker 03

  That means you want to start simple, learn fast, and iterate smarter. 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. Start simple, and then from there, build out based on need.

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• 6:42Speaker 03

  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. I 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.

• 7:25Speaker 03

  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. Show 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 [email protected]. And that's just an alias for your email.

• 8:09Speaker 03

  If you want to 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. It 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

• 8:50Speaker 03

  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. We 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 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 gotta keep a hold of in SaaS. You might be growing,

• 9:31Speaker 03

  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. They just can't outpace their churn. No matter how many customers they bring, because of that leaky bucket, they just never grow because they keep leaving at a certain point. So you gotta 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,

• 10:13Speaker 03

  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. Full 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.

• 10:54Speaker 03

  Like our churn went down 300%. It was insane because we learned from our customers and then we went to our team. 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. So for example, we were okay if 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,

• 11:38Speaker 03

  you 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 stopgap 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.

• 12:21Speaker 03

  Mistake 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 their runway, understanding how much money they have left before they run out of money. You don't run out of ideas, you run out of cash. That's really what the problem is in SaaS,

• 13:03Speaker 03

  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. If you need help with this and you need a simple spreadsheet, we've created one that's absolutely free.

• 13:48Speaker 03

  It's our P and L sheet. You can go ahead to 100mba.net/templates and download it. It's among all the templates that we give out for free. It's one of the most used templates that we give out to all our members. You should definitely tap into this. They say revenue is vanity and cash flow sanity is 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. Because if you have money, if you are profitable, if your cash flow is amazing,

• 14:34Speaker 03

  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 SaaS 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.

• 15:19Speaker 03

  I believe that SaaS is a powerful business model. It's why I built one for 10 years and got acquired by ProProfs. 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.

• 15:40Speaker 03

  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. Just 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 Zenem, and I'll check you in the next one. Keep building. You're closer than you think.

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