Why SaaS Startups FAIL?

Over the past few years, I have seen so many brilliant SaaS startups come in the market, absolutely like they are the next big thing but then they disappear in the void.

Why does this happens? Why do most SaaS startups fail?

This is a question that happens to come in my mind just a few days ago.

It may seem like a simple question, but if you try to think a little harder (I always think a little harder by the way), then you’ll find out that there’s a lot of complexity around this question.

You may start thinking like, is it a:

• market problem?

• product problem?

• competition problem?

• user experience problem?

These can be valid reasons for a SaaS startup to fail, but most of the time, it’s more than one reason that tends to fail a startup.

But what do I mean by “fail”?

According to a McKinsey & Company study, only 20% of SaaS companies survive their first five years in business.

When referring to the phrase “failed SaaS startup”, I am trying to refer to a SaaS startup that has failed to generate profits, or even sometimes has failed to generate revenue.

Let’s get straight to the reasons:

1 - No-Market Need

A study by CB Insights found that 42% of SaaS startups fail due to "no market need" for their product.

This high failure rate can be attributed to a number of factors, including poor product adoption, poor scalability, lack of funding, lack of a unique value proposition, and inadequate marketing and sales efforts.

And that’s why this is one of the most significant reasons why SaaS startups fail.

Many startups believe that their product is innovative and will be widely adopted, but in reality, it may not meet the needs of their target market.

This could result from the lack of market and user research and because of the company not figuring out what customers need or want.

Without proper market research, a SaaS startup will not be able to generate revenue and will eventually fail.

2 - Poor Scalability

Another reason that a lot of startups fail is because they fail to scale their infrastructure for more and more users.

To keep it simple, here’s what that actually happens:

Many startups create a product that works well for a small number of users, but when they try to scale it to acquire more users, it falls apart.

3 - Lack Of Funding Or Cash

We all have limited time and money, so spending them wisely is important. A big reason many startups fail (almost a third!) is because they couldn't figure out how to spend their money well.

As we tend to see indie hackers and solopreneurs grow, more and more bootstrapped startups are coming into the market.

And because most of the solopreneurs and indie hackers either have a full-time job or they have some savings that they are trying to put into their SaaS product.

But, unfortunately, for most of them, this doesn’t work out and they fail!

4 - No Clear Value Proposition

Another reason why do SaaS startups fail is a lack of a unique value proposition.

Many startups create a product that is similar to existing products on the market. Without a unique value proposition, it will be difficult for them to stand out and generate revenue.

You don’t always have to have a unique product, you can just target a unique set of customers.

A great example for this is Loops and Resend. Both startups are backed by Y Combinator.

Both are basically the same product, a platform to send transactional and marketing emails.

But they both target different set of customers, Loops target software companies while on the other hand, Resend targets developers.

And we can notice this in the product everywhere, their landing page, their user experience, their design, their features.

5 - Lack Of Marketing And Sales Efforts

The last reason here on this list is the lack of proper marketing and sales strategies.

Many startups believe that their product will sell itself, but in reality, it takes significant effort to generate leads and convert them into customers.

This can be due to a lack of resources or a failure to understand the customer's pain points.

Most SaaS founders underestimate the power of simple marketing strategies such as SEO, paid advertising, or email marketing.

They are a must! You should at least be running one marketing funnel to attract customers.

As a SaaS marketer and a SaaS growth agency-owner myself, I tend to recommend most SaaS founders to start with paid advertising if they are ready to spend money.

Otherwise, I recommend them to go with cold outreach, social media marketing, and SEO. Yeah, all three of them, you can choose between SEO and social media, but I recommend all of them!

So that’s all for this issue, I would just say:

If you want to open a software company online or already building one, knowing these problems can help you avoid them and succeed!

Now, for you to be reading till this point, I have something special for you:

I am giving away my free SaaS consultation to 5 startups.

This will include:

• Landing page audit

• Marketing strategy breakdown

• Actionable advice

• A talk with me 😉

Secure your spot by booking a call with us