How to tell if your SaaS business idea has market potential
SaaS (Software as a Service) businesses are not just hot right now but in some areas are considered indispensable. If you are starting an online only business or any kind of business or solution that delivers a significant part of its value online, then you pretty much have to consider SaaS as a model. Fair enough. But once you’ve decided on the SaaS model, you still have to decide if you have a viable business. This is a critical point in the development of your idea. Lots of business ideas fail simply because entrepreneurs fall in love with a business idea without finding out if anyone was ready to pay.
Step one: Set up your value proposition
Before you can properly determine if your idea is a good one you have to make a good case for it – lay out the value proposition. This basically consists of documenting the answers to the following questions properly and thoroughly so that you can make the case for your business idea clearly to anyone who might be interested.
- What is your solution?
- What problem does it solve?
- How does your solution solve the problem?
- Why would someone buy it?
- What makes it better than competing products?
- Who is the target market?
- When will it be available?
The following articles have more advice and detail on the right way to go about this. The goal is to make a strong business case for your idea because that’s going to set you up to succeed.
Step two: Market Research
Next up, you have to do some basic market research. Find a segment of your target market (reach out to friends, colleagues, online groups, events, anyone else you can) and collect a set of people who are willing to listen to you and answer some questions. A popular way to do this is to build a following around your area of interest online and then ask them to take a survey.
Give them the highlights of your value proposition and make the pitch for your business idea. Then ask them some simple questions. The ones suggested by Tim Hampson in this Quora answer are a good example.
- Would you buy this product or solution?
- Would you switch from an existing product?
- What is the best part of this proposed solution?
- What would prevent you from choosing this product?
The following articles also have some good suggestions on doing basic market research.
Step three: Get serious about market size and opportunity
You should have some idea if your idea will be well received or not at this point but you have to go farther and get some quantitative data. It’s not going to help you much if everyone loves your idea but nobody will pay for it! The following steps will help you determine if the market opportunity is large enough.
- Estimate market size from industry and other data
- Estimate revenue opportunity per customer
- Calculate total addressable market.
- Is it big enough for you to succeed?
By now you should have some inkling if your business idea is worthwhile or not. If your value proposition resonated and the total addressable market is good then you have a shot at converting some of that market to your product and making a real go of it. But if one of those two factors isn’t looking good you probably still have some work to do.
Finally, here are a couple of alternative viewpoints on the process. The first argues strongly that market fit is more important than product and the second that product-market fit is an illusion and that rapid iteration is the secret to success. It is standard business practice away from the tech/startup space to focus on the market fit foremost and move the product/solution to match. But the tech/startup space often tends to prefer to ‘fail fast’ and pivot – in other words, start with a product/solution that you know is in the right region to be successful and then iterate your way to a product-market fit. Neither approach is necessarily right or wrong but a common mistake in the ‘fail fast’ methodology is to make the mistake of not iterating fast enough and sticking with a preferred but failing solution for too long. Whichever method you choose, make sure to get to that fit as fast as you can.