In this post, I’m going to share with you the simple seven steps to build a SaaS startup, even if you’re just starting out. I fell in love with SaaS because of the recurring nature of the business model. Every month people keep paying you as long as they’re getting value over and over and over. It’s a beautiful way to build a business.
In This Article:
Step #1. Start with the problem
The first step is kind of obvious, but it’s to start with the problem. Back in the day, I was trying to figure out the idea, what do I build? You know, I want to make money in the software world, but I don’t want to build something that nobody’s going to use. And what happened is I just started consulting. It’s actually a really cool strategy. The more I was helping people build things for their businesses, I would learn what was broken and where there was a gap in the software world.
So in many ways, learning how to build custom software for other people showed me where the opportunities are. So this is the big hack. See, most people try to come out with the big idea.
I’d rather find out what the customer’s already dealing with. So if you know what industry you want to solve a problem for, go talk to the technology companies already consulting in that industry and ask them, what do customers in that industry, in the law firms, or AI, what are you building over and over and over for them. Many of the biggest companies out there, like Shopify, like Freshbooks, like Facebook, they all started by being consultants.
First, building a tool either for themselves or for their clients, and then productivity.
The biggest challenge in building a software business is avoiding building something nobody wants. It’s the most expensive thing you could do. The best way to do this is to get really familiar with people’s frustrations, even in your home. I would encourage you to just go around and add to what I call your frustration list. Make a list of all the things in your home that frustrates you, even if it’s not software focused. Because what it’ll teach you is how to identify problems in the world, pain that you’re having, or listen to the words other people say to you so that you can find those opportunities to solve their problems.
One of my favorite things to do is to ask people to show me their spreadsheets. The head of marketing, the head of finance, the head of operations, they all have these crazy spreadsheets they’ve created to make their job easier. And those are perfect places to look to find software solutions to build.
The other strategy that I look at is where is there already a tailwind in the market, understanding what are some of the up and coming technologies, the industry trends that are growing in nature, things like AI, 3D printing, find these markets that on their own are growing and see if there’s a software solution to be made to help those markets expand. There might be inventory management challenges, billing challenges, logistic issues, manufacturing issues.
There’s all these new problems that are going to occur as something grows really quick. And finding those technologies that are already growing 30%-40% year over year compounded, that’s going to get you biggest bang for your buck in regards to solving a real problem that doesn’t have a solution for it. The cool part about getting involved in a market that’s growing is that even if you’re good, you’ll be great because high tides rise all boats.
If you’re not doing good, you’ll do decent because the whole market’s growing.
Think about Facebook ads in 2013 versus the newspaper ads of today. There are literally tailwinds in the current market that you can jump into and grow and build your software into, versus getting into something that’s a headwind like the newspaper ads of yesterday. So don’t tell me your business idea, tell me what problem it solves. I don’t think you find a huge problem in the market.
You find a customer that has a huge pain point. Oftentimes software starts off as almost like a feature, but it gets a toehold into the market for you then to build a complete solution. But you just want to find that one place where there’s a gap. It might be for somebody copy and paste something from a spreadsheet and paste it into some other tool. So it could be a connection solution, it could be some kind of configuration tool, a translation tool. But you just want to find something that’s got an acute pain that’s frustrating enough for the user to want to pay to solve it so they never have to do it again.
Once you’re in, then you can expand the feature set to create a complete solution. And that’s where people get it wrong. They’re like, what’s a big enough problem to build a billion dollar company? No, billion dollar company started when it started as a billion dollar solution, It started as a $50 a month tool.
Step #2. Build a prototype
One of my favorite things to create is a clickable prototype, a wireframe of the solution that you want to build. Why do we do this? So that you don’t end up building the solution in a way that the user would never use. See, most people think, well, there’s a problem here, and I’ll just build it this way. It’s not, can it be solved? It should it be solved.
My youngest brother, he had a property management software idea, and he was like, I think people need software to manage the properties.
And we had tenants using it, and they interacted with their landlords. It’d be a great solution. I’m like, cool, wire frame it, sharpies. And we just wireframe it. And then we went to the mall and we said, hey, do you rent or do you own? They’re like, I rent. Cool.
Here’s the solution we’re thinking of creating where the tenant gets to interact with the landlord through the solution. And it was cool. A lot of questions came up about like, well, does this work on my phone? And can I text message? And it was fascinating to see him want to build a solution that the end user actually didn’t want it solved that way.
They wanted to be able to just text their landlord the way they do it today. Now, as a landlord, I want to be able to organize and route all these different job orders and manage the relationship with my tenants in a more efficient way. But the tenant themselves, they didn’t want the solution.
Learning that when it was in a paper stage saved him tens of thousands of dollars in building a solution that nobody was going to ever use. That’s why clickable prototype is so important. Having the example of how the screens are going to work and how the information is going to be requested. And can I remove as much information requests from the user and literally make it click, click value? Can they connect this system? Connect that system? Two button clicks, boom. And then get value from my software. The faster I can go from sign up to receiving value, the faster I’m going to activate them.
And that’s why we want to design those flows using the clickable prototype, prototyping the solution before we ever go and pay an engineer to build it, because that’s the most expensive thing. Having somebody change code is way more expensive than just deleting a line on an interface or removing a screen in a software.
There’s two parts, though, that you need to understand to be able to build a clickable prototype.
Number one is the function
Are there APIs, application program interfaces, data sources that allow you to actually make the solution work? That’s just functionality speaking. Can you actually technically solve the problem the way you envision? So those are the APIs you’re going to integrate with a Facebook or a salesforce or a CRM solution. Like a go high level go. Look at their documentation, see if they expose that data or that information or that function so that you can actually build it. That’s the first part.
Second part is the flow, the user experience, the UX, it’s called
How would that solution be presented to a user, even if the function exists? But if I’m confusing in how I prompt it or explain to people how the software works, I’m not going to get them to use it. Those are both areas you want to solve upfront before you ever pay somebody to code anything. So there’s different ways to prototype software.
You can start with pen and paper. That’s an easy one. Every piece of paper is a flow, a screen, and you just kind of put them out and lay them out in a sequence of how somebody would sign up for the software and enter the information and use it.
And what kind of report would they get? If you want to be more advanced than paper and pen, although I would encourage you start there, then you can go to a product like a balsamic, which kind of simulates a digital version of a paper and pen, and kind of like wire frames.
The next step above from there would be like a figma, whereas very close to like simulation, where it’s got like flows and you click around and it’s got potentially even fake data to make it look like it’s working. The next level above that, the highest level, which is almost like pixel perfect software, but it’s still kind of a simulation, is an InVision app.
It all depends on how realistic you want to make the software so that you could show it to a user to be able to get feedback. And some of them are like you install the app on your phone and it looks like working software, but again, it’s a simulation. A lot cheaper to change that than to change a code from software developers that you’ve paid, which brings us to number three, which is to validate your product.
Step #3. Validate your product
One of my favorite things to do is to validate if there’s a need for my solution based on if people are gonna pay me money. See, the crowdfunding industry, when people say this, nobody’s gonna pay me for my software until I build it and give it to them. And I go, that’s not true. There’s an industry called crowdfunding. It’s a $18B a year industry where people show examples of what they’re gonna build once you give them the money and they crowd fund the development.
To me, this is no different. You want to validate it by getting somebody to pay you for your software. I mean, the other day, I was actually working with a bunch of teenagers.
I run a program called KingsClub, which is for youth. And we were talking about the idea of when is a business birth. The consensus was, is the moment somebody pays you for the solution or product that you offered, most people don’t want to go validate because they don’t want to find out that nobody wants their thing. That is actually the highest risk, building something for somebody they never wanted to buy in the first place. The truth is, they’ll be nice to you. They’ll tell you, great idea. Go build it. So you go borrow $100K from your parents, you quit your job, you go all in, and then when you circle back and say, you told me it was a good idea, I’ve got the software done. Do you want to buy it? They’re like, ah, not really.
We’re kind of busy. And then you go, what the heck? Like, you said that this was a good idea. It’s like, yeah, it’s a great idea.
Good luck with it. What happened? You didn’t ask for money. Nothing survives first contact with the customer. And the best way to validate is to get them to pay you dollars.
So here’s the strategy. I call it creating an early adopter program where you show people the prototype to get feedback, and then at the end, when they tell you how great it is, then you ask them to get involved in your early adopter program, which is you get them to invest in buying a license of your software.
Typically, it’s whatever you’re gonna charge for the year. Give them 50% off for that year, but get them to pay upfront for the whole year so that you can collect some money. Many people do this on the back end of a webinar where they’ll invite a bunch of people and they’ll teach, and then they’ll say, you know, when I teach this thing, most people get stuck here. Cause we know they get stuck here. We’ve got this vision of creating this software. If you wanna be part of the early adopter program.
Here’s how we’re doing it for those people. We’re calling it the inner circle. And you can invest by buying a year license upfront for 50% off.
And then there’s benefits of that. You might have your name on the website, you might allow them to be part of the product roadmap feedback system so they can give you feedback on what you build. Some people even give equity, depending if the person has a large audience where they can promote your product into their customer base, you might do that as well.
I mean, this is literally something that’s been going on for decades, where people crowdfund ideas to validate the idea, then build it.
The way we validated this idea to give you social data on top of your email addresses is we created three fake landing pages. And on the last page, when we collected the credit card to actually verify you were willing to pay. On the thank you page, we didn’t charge a credit card and we just said, oh, sorry, our servers were over capacity. Let us circle back once we get things fixed, just to test if they would put a credit card in and pay.
So there’s many ways to crowdfund or to validate your idea, but getting people to pay is mandatory, because if they don’t pay, they won’t pay attention, they don’t pay, they won’t invest, and when you go to launch, they’re just going to tell you it’s nice, but they’re not going to actually use the product.
Most people think they validated because they got three people that paid the money, when all they did is they were just really good at selling. What I would do is whatever the person has an objection, I would just say, yeah, we were going to put that into the product and then get their money. So if you do that, what you end up is even if you pre sold ten people, you’re essentially a very low cost custom development shop, because every person had a different request for a feature. And you said, yeah, we’re gonna build that. Give me your money. Yeah, we’re gonna build that.
And then you’ve got ten different specs of your product to get those customers, which actually doesn’t make for great business. So you gotta make sure that when you pre sell and validate your prototype, you stick and stay to the same thing that you’re gonna build for all ten people.
You cannot deviate each conversation, which brings us to number four, which is to build your MVP or a minimum viable product.
Step #4. Build your MVP
The key there is to constrain your features. I remember a long time ago, me and my co-founder were arguing with each other around the future strategy for growing the business. And we had two different ideas for this product. And the way we resolved it is we each took the prototypes and went to the market, pre-sold them, and figured out who could sell it the best.
Now, the constraint we put on ourselves was that they had to be things that we could build in the next three months max. So right off the bat, when you go to build this, make sure that the features are things you could put together with the development team within three months.
So whatever amount of money you raise by validating it, that’s your budget to hire contractors or team to build it, just constrain it to three months to launch the first version. If not, you will go months and months and months.
I had a friend of mine reach out to me. They were $5M, 3 years into the prototype, and they had yet to launch, and they asked me for advice. My advice is, you should have called me three years ago.
My advice is you should have create some constraints around how much time you spend on the software. $5M is way too much money. I mean, most people that I work with, they can get a working prototype in the market with paying customers for less than $100K, sometimes $50K.
It all depends on how much you can kind of connect into other software to do some of the heavy lifting, so you don’t have to write that code yourself.
So the key is, if you’re trying to hire a dev team, do this, go on Upwork, find developers that are good reviews, that are relatively inexpensive for their experience. Give them all a test project, which could be one feature in the software that you want to build, and see how they all code it. You want to pay them for it, but the key is, is you want to give them the wireframes that you created to pre sell your software. That’s why it’s important to do that work up front. That way you don’t have developers designing your software. That’s very bad. Developer design software usually sucks.
It’s ugly. It’s weird. You can tell when a developer designs software versus a professional designer, or even better yourself using the right tools.
So don’t let a developer create the design, give them the product specs. You could also use a no code solution like Bubble, make.com, Rapid API and these are great.
The only challenges is that if you prototype something that’s actually working software with it, it’s not built on your own stack. So if you do have an aspiration to exit the business someday you might have to rewrite the software in your own code so that an acquirer could actually maintain and modify the software that you being held prisoner or hostage to a platform.
The reason you never want to build on somebody else’s platform is that at any point they could get bought, they could change their pricing, and all of a sudden make your whole business model not work anymore. All of a sudden they changed things and made our whole product stop working. When we could made that decision earlier and upfront before we had 50,000 customers on our platform. So understanding that there’s trade offs on speed, you could go a lot faster using a no code solution.
But you might butt up around feature constraints where you can’t build certain things and or somebody changing their pricing or their API, making your whole solution not viable anymore. Which brings us to number five, which is to collect customer feedback.
Step #5. Collect customer feedback
Now here’s the deal. I want you to be maniacal about getting feedback from customers, not just looking if they’re using it. Too many people want to lie to themselves and they’re like, oh yeah, people are using it. They’re loving it.
I’m hearing all about it. I’ve had people say to my face, lie to me, say, oh man, I love that tool, I love that product. And then I go look behind the scenes and they haven’t even signed up for it or used it.
People are weird. So you could take these as false positives that you’ve built something that’s great. Instead, what they want you to do is actually talk to customers, get on the phone.
I used to call this smile and dial. Every Friday, i would sit down for 90 minutes and I would call new customers that signed up, figure out what they thought, how they heard about me, what we could do to improve it, to really understand where the opportunity is to improve the product.
Most people building software will hide behind the scenes, looking at the data and the reports and the analytics. That’s like having a retail store and hiding in the back room, looking at everybody shop in your store through the closed circuit television, instead of getting out of that back room and just talking to them in person. They’re literally in your store and they’re not buying.
You might as well find out why do you not have the size? Is it the colors not working for them? Were they looking for something completely different that you didn’t carry? Understanding why people that don’t use your software are not using it doesn’t mean you got to fix anything, but it’s at least going to tell you where the opportunities are to improve your activation, how quickly people get value from your product and your retention, how often people stick around and keep paying you month over month.
So one of the key areas is to always work backwards from the customer, understand what they’re trying to accomplish and where they got stuck, or it wasn’t easy for them to complete. Often I’ll ask the customer, what do you do three minutes before you use our product and three minutes after you use our product? Because that is also a huge opportunity to figure out where your solution could expand and create more value for them. Because if they’re getting ready to use your product or going somewhere else with the information that you produce for them, that could be an opportunity for you to expand the value that they’re going to get from your solution.
Most people confuse a customer by not asking them the right question. And it’s an art form, because the wrong question will get you the wrong solution, which could cost you tens of thousands of dollars building a feature that they didn’t actually want because you didn’t ask the question right.
Most people get stuck building software for a customer or two customers, or the most paying customer, or the loudest customer they don’t actually look at. It is like my job is to be an investigator, to look at all my users and figure out what are they all facing and where can I innovate based on what exists in the market? There’s actually an opportunity to differentiate, to create something sticky, to look at features that are gonna have high retention. If you just keep doing what people tell you to build, you’re gonna run into being a low cost customer development shop.
You want to be an innovator, and to do that, you need to ask the right questions and come up with the best solutions to solve the problem that they’re telling you about. So the three steps is, once you’re getting feedback. Step one is to collect all the feedback from all the customers.
Then you want to analyze it and put them into like grouping of problems and how they’re giving you that feedback and what they think you could do. Fix the product and then deploy the rollout. So those three steps, collect, analyze and deploy the rollouts, is how you iterate on the product.
Here’s where most people mess it up. Most people ask customers that aren’t even using the product for feedback on how they can make it better. What I want to find out is who’s kind of using the software but not like a power user. And figure out from those users what’s the one or two features, if I added, would make them all power users because it’s a lot easier to have somebody that’s kind of a yellow usage and turn them into a green than to go from a red not using it to a green. Most people spend too much time on the reds. They were never going to use your solution in the first place because they probably didn’t have your problem as big as these customers in the middle. Because a loud minority, if you solve for them, you solve for a very small group of customers compared to the rest.
If you have 100 customers and there’s only two people that are being loud about a specific area of your product that isn’t working for them, and you spend any time on those two customers, you’re ignoring 98 of the other ones where you could get 40% of the people really using your product to retain 40%, not just the 2% of people that are being loud in the support emails. If you actually want my list of questions for problem identification and solution identification and innovation, I actually have a Google Doc where I’ve collected my favorite hundred questions to ask customers.
Step #6. Generate demand
There’s only four ways to create demand for your software product.
- The first one is published content
- Second one is paid through paid acquisition, so ads.
- Third is partners, people that have the existing customers and trying to get in front of their groups.
- Fourth is through press, having people write about you so that it drives attention and eventually people might sign up for your solution.
The one that most startups use when they’re building their software is partnerships. And the reason why is it’s so fast for me to get in front of an audience of perfect fit customers that I know have the problem and present my solution to all the mattress once hey, the partner.
An affiliate fee, 20%, 30%, 40% of monthly lifetime value of the customer for the perfect partner. I might give that much 40% of the monthly fee that I get, they get as a promotional partner. And that way I just have to find one partner that gets me in front of thousands of potential customers and trying to go one after one after one for a $50 a month subscription.
Events, webinars, emails, Facebook groups, all these are examples of places where your potential customers are aggregating and whoever owns those will allow you, if you pay them to get in front of them.
You could do a lot of stuff around paid acquisition. The problem is, is that you got to put your money out first, eventually get a customer. You could publish like SEO challenge there is.
You got to spend a lot of time trying to create that traffic, social media, et cetera, before you ever get a customer. And then you could do the outreach to press, which can work. It worked a lot better back in the day for the right types of press.
Think about podcasts. Those are great potential channels for you to get the awareness out there in your market for your solution. I mean, at the end of the day, do the thing you’re going to keep doing for a long period of time.
If you’re good at blogging, do that. If you’re good at short form content, do that. If you’re good at building your personal brand, do that.
You can even partner with somebody that has a massive personal brand that already has an audience of people that you want to sell to. Here’s where most people mess it up. You got a cool software solution and you’ve got this person that tells you they’re going to bring you thousands of customers if you give them 10% equity, 40% equity in your business, and then they don’t do the thing.
I would just rather not give them equity at first. Have them promote your product to their customer, see how many people buy and if they want they can convert the amount of money you gave them every month for the amount of customers that pay, because they could send you a thousand customers. But if they only stay for a month and then cancel, then that’s not going to help you. You want to pay them when you get paid, and then if they make enough doing that, you can always give them the opportunity to convert that dollar amount into equity, into your business, into shares, into your business. They’re like, hey man, I could sell a lot of your product to my audience. You should give me equity.
I’ll do some shout outs in my content. It’s like, how about we just make you an affiliate? I’ll give you 40% every month of what people from your audience sign up for and pay me. And then if that’s a large amount of money, let’s say 50,000 a month, they could always convert that royalty into equity in your business as an agreed upon valuation.
Equity is the most valuable thing you have in your software business. It’s not about the 10%, it’s about what does that 10% mean in the future? If you sell your business for 100 million, and some guy helped you get 100 customers at the beginning, ten years later you sell for 100 million, are you gonna be happy giving him a check for $10 million when all he got you is the first hundred customers?
Most of those people didn’t even stick around very long, like, you better off just pay him the affiliate fee, the dollar amount of what that was worth, and keep your equity to yourself, because you want to use that for top employees, potential investors, and honestly, maybe to sell some shares for yourself down the road so you can get some money early and not have to go and exit right away and just create some options for yourself. Which brings us to number seven, which is to find a growth hack.
Step #7. Find a growth hack
Most people think growth hacks are marketing. They’re not. A growth hack is a unique channel for you to acquire customers that most people don’t know about.
For example, there’s this crazy story of a Canadian airline called WestJet when they were starting off and they were trying to figure out what are the new routes that they open up between which cities. They actually had internal data through an old employee that had their number one competitor, Air Canada, where they could log in as this employee scrape the information from their internal portal and figure out where there was the most demand for certain flights. And that was the sequence when they got new jets added to the fleet that they would open up new routes to help finance their growth.
Now, this is completely illegal. They got sued for it and they settled. So don’t do that.
But the concept is brilliant. Where does your customer spend time? Is there a way to get in front of them? When I was starting clarity, we were trying to get experts on our platform, people that were willing to take phone calls. And it occurred to me that most experts, speakers, creators, folks that were out there, thought leaders, they spent a lot of time creating slides that they would share on a side called Slideshare.
So what we did is we actually took all the demand for people seeking advice and then had people that would manually go through Slideshare, find the top three experts based on the popularity of their slides, go to the last slide on Slideshare, which was their contact information, and then email them, asking them if they’re willing to take a phone call for a price to help the person looking for advice. Now, we did that manually at first and eventually automated through some software. We called that feature Bonjour, which is french for hello, because it created liquidity in our market marketplace for experts to get paid for their advice.
These are examples of growth hacks. Uber did this. They’d enter in a new city, they would partner with all the event organizers at an event venue and give gift cards for Uber to put in the eternity’s gift bag, so that when they would show up and they got their gift bag, they would have a credit for an Uber drive. They never used Uber. They had to install the app, they’d use the $20 gift certificate, and then they would go like, oh, I need to use this to get back to the airport at the end of this event. And that’s how they would activate new cities, amongst many other things.
And many of them got them in trouble. But that’s the big idea. A growth hack is only a growth hack if nobody else knows about it and gives you an unfair and unique advantage in your market.
So think about who has your data. So real growth hacks require creativity. The question I like to ask is this, who’s got my list? Who’s got my data? Who’s got my customers, who’s already done all the heavy lifting to identify the perfect fit customer for me, the more I understand who buys my software, who has the biggest budgets, quickest to buy, has the highest need.
If I can look in the market and identify those people, get in front of them, reach out to them, just make them aware that I exist, that’s a great opportunity.
It’s called a growth hack because it is a hack. Most people mess this up because they’re just doing marketing instead of trying to figure out a unique opportunity. Either it’s cheaper traffic, it’s cheaper attention, a really hard thing to scale, but you’ve built a system and process around scaling it. Or you can create a playbook that nobody else would do because it just seems so complicated. They would just rather do something that costs more to do it. And by building these growth hacks, you create unique demand marketing channels for your software that nobody else has.
Conclusion
Launching a SaaS startup without initial capital may seem daunting, but it’s entirely possible with the right approach. By following these seven steps - from validating your idea to leveraging free tools and focusing on customer acquisition - you can build a solid foundation for your SaaS business.
Remember, many successful companies started with limited resources. What truly matters is your dedication, creativity, and willingness to adapt. So, take that first step today, and begin your journey towards building a thriving SaaS business, even with $0 in hand. Your entrepreneurial dream is within reach - it’s time to make it a reality.