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The Four Catalysts for SaaS Business Ideas
How do founders come up with SaaS business ideas and which are the best?
Over the years, between me and my co-founders, we must have come up with about 20 ideas, built maybe 10 of them and sold 5, with our last one (ScreenCloud) being the standout success as it flies past the $20m ARR mark. I’ve also spoken to probably 100s of founders in that time and to my mind, you can boil the catalysts to these ideas down to 4 key themes. But they aren’t equal in terms of their potential for success.
Every business idea starts with trying to satisfy a need. B2B tends to frame that as solving a problem. How we identify that problem and whether we are qualified to solve it is the big question. I’m going to make some sweeping generalisations here with the caveat that there will always be the exception to the rule. Here we go.
Catalyst Theme #1 - Industry-insider Frustration
This is where someone (or some people) work in an industry and spot something that’s broken. They try to fix it and realise that there isn’t a satisfactory way available for them to do it. So they decide to fix it themselves.
Tracy Young was working as a Project Engineer at a construction company and was frustrated with the industry’s largely paper-based processes. She co-founded PlanGrid in 2011 and sold it to Autodesk in 2018 for $875m.
Investors love it if someone has deep industry experience in the area that they are trying to disrupt. It means they understand the problem first-hand and have contacts that they can use to both validate the product and sell to. Co-founders with technical and commercial SaaS experience are important to making this a success. Tracy Young’s co-founder, Ralph Gootee was a Software Engineer at Pixar prior to co-founding PlanGrid.
Catalyst Theme #2 - SaaSifying Existing Services
Most businesses have a way of doing things. In some instances they may have productized their processes or services. A management consultancy, for example, might have a tried and tested Change Management Process that they can roll out to clients across different verticals and geographies. A small advertising agency may have a tool that they produced to help their clients manage their ad spend budget. At some point, they may see an opportunity for this to be a stand alone product that could be sold via subscription.
Ben Chestnut started a web design business and built a tool for his clients to send email, but it was pretty manual and required someone from Ben’s team to operate and send the emails on the clients’ behalf. He decided to create a self-serve tool and finally span out Mailchimp 5 years after he founded his agency. In 2021, Mailchimp was acquired by Intuit for $12.5bn in cash and stock.
Spinning something out and then making it fly is hard if your main business is the consultancy. At some point you have to decide whether this is a side project or the main thing. Investors won’t invest in a side project. Having said that, Ben Chestnut bootstrapped Mailchimp so that wasn’t a problem for him.
Catalyst Theme #3 - The Adjacent Opportunity
This is what we did with ScreenCloud. We had no business starting a Digital Signage business: none of us had worked in the industry and we hadn’t provided a digital signage service to any of our existing clients. Instead we saw an opportunity based on ‘scratching our own itch’, but perhaps more importantly, applying the technology expertise that we had developed in our agency to solve a problem that we saw.
The itch we had was that we wanted to put KPIs up on the screen in our office and couldn’t see a way to do this without paying $$$$s for something that was a sledgehammer to crack a nut. Meanwhile, we’d been working on ideas to show Instagram feeds on iPads that could be displayed in retail stores. The two things collided and the rest is history.
You have a bit of catching up to do to really understand what people need. Yes, we had a personal insight but we were a sample of one. Spending time really walking in the shoes of the end users is immensely important if you want to find Product Market Fit. It won’t come by chance.
Catalyst Theme #4 - MBA Market Analysis
I could probably have come up with a better name for this theme, but what I mean is when people with no direct experience of either the technology or the industry do some analysis and discover that ‘X Industry’ is ripe for disruption (they don’t necessarily need to have completed an MBA first). While there have been SaaS B2B successes that were founded straight out of university (companies such as Dropbox and Canva), they had relevant expertise in terms of what they’d been studying.
I think this is potentially the hardest because your only asset is your idea and your brains. Not saying it’s impossible, but we all know ideas are two a penny and count for nothing without the execution. A unique idea is no guarantee of success and in fact, building a better version of an existing idea is more likely to succeed (think what Zoom did to Microsoft’s Skype and Cisco’s Webex).
Nowadays you could probably identify underserved markets just by using ChatGPT. The point is, that being clever and doing some desk research doesn’t provide much of an advantage in B2B SaaS. It takes at the very least an ability to be able to solve a problem using skills, experience and expertise you have that others don’t.
Thinking about which one you fall into may give you some ideas about the gaps you might have to plug to give you the best chance of success.