During my hunt for a business to buy I’ve been fascinated by the area of SaaS businesses. For those that don’t know, SaaS stands for Software as a Service. SaaS is generally a software solution offered to businesses/consumers that they can access when needed as opposed to acquiring a full-time license.
A software rental system, for example being able to use Microsoft Office (Office 365) when required, as opposed to purchasing a full license. Other examples include accounting services like Freshbooks or Xero, or even simple streaming services like Netflix or Spotify.
A SaaS business then is the entire company, not just merely the SaaS product that they’re offering. What’s the benefit of a SaaS business as opposed to a traditional brick-and-mortar business?
Next we evaluation the Pros and Cons of a SaaS Business
Pros and Cons of a SaaS Business
Pros:
- Software requires no physical sales – so no limitations on geography on who you can sell to. The world is your potential market.
- No physical store required and an online store results in quicker sales as people can buy online directly, don’t need to come to you or find your store.
- Government cannot shut you down due to lockdown. Not a concern I would have previously considered, but it just reinforces my concern of being tied to any one country’s economic situation.
- Scale and high margins: software and SaaS in particular can serve more customers at little to no cost as it grows. The ultimate reward for a good product.
Cons:
- global competition – the global opportunity cuts both ways. If you can enter a market, so can anyone else. Competitors also have extremely deep pockets.
- cost of development/ constant innovation/ downtime – you need to be able to deal with customer issues quickly and fix things. If you have extended down time your market will let you know about it. Since your product is online, expect your customers to be online and vocal. Viral complaints are a terror of the modern age. Fixing things quickly is expensive.
Due to a technology history, I’m looking at both developing my own SaaS business as well as acquisitions.
Next Steps
There are three pillars here that I’m delving into during the business search:
- What kind of businesses are for sale, at what multiples, and how much competition do these products have. There are great resources and brokerages available for in depth information. Microacquire has been my go to brokerage for this. The biggest problem is understanding whether the seller is selling a product or an actual business. Most are just products as the sellers were the developers.
- Getting back into software development, but for Web and Apps. I don’t have as much experience as I’d like with newer software in these areas. Again, a large number of SaaS businesses have technical involvement. I need to be confident to do the due diligence on the software side, to understand the gaps in the product and be able to hire new developers to continue the product. Learning through a combination of building my own software and tutorials.
- Market understanding and marketing – How do you grow a SaaS business focusing on a particular niche and customers. I’d like to combine SEO and online marketing into the search in order to quickly grow an acquired product. I’m certain that many of the SaaS businesses that are sold are due to being run by technical founders that haven’t been able to sell as well as they’d like. I need to ensure that the chosen niche is profitable, deep enough and how to reach them.
Key Question: Barrier to entry – Do I want a local business with it’s geographic protections, or a business that can access a global market? I’m willing to look at anything at a good price point, SaaS is interesting due to my background in finance and technology.
