With more than 80% of venture capital investments occurring in enterprise and with the general public markets disproportionately rewarding SaaS companies with huge enterprise value-to-revenue multiples (median is 7.6), it’s no surprise that interest Software-as-a-Service is booming. After assembly quite a couple of SaaS firms, I’ve compiled a list of my perfect characteristics for a SaaS business below.

Attribute 1: Product Is Core to the Operation of the Business The product is essential to the operation of a buyer’s business. For example, Zuora enables subscription billing; Expensify manages employee expenses; ZenDesk builds buyer help systems. Clients can’t function without it.

Characteristic 2: Value/Worth Proposition is Straightforward The product is either cheaper than the choice: hiring an engineering staff to build and maintain a custom implementation of the product;

Or provides network impact benefits otherwise unimaginable to find: LinkedIn’s network effects drive the adoption of LinkedIn’s applicant tracking system;

Or presents sophisticated technology that is tough to duplicate: Infer builds machine learning models on top of sales data to improve company performance. Not each firm has ML expertise.

Characteristic three: Finances Its Own Growth

The corporate benefits from negative working capital and shorter time-to-market.

Negative working capital means clients pay initially of a month or quarter or year to use the product. These prospects pay to improve the software over time by providing cash up front, reducing the cash wants of the business. Because clients are paying to improve the product, moderately than shopping for a «production-ready» enterprise product, the company can go to market a lot earlier of their development.

On the outset, the company targets the less sophisticated SMB segment which doesn’t demand the compliance, heavy security and integration options needed by enterprise customers. This additionally lowering time to market and provides revenues and product feedback within the brief term.

Characteristic four: Efficient Sales Model

The company is able to recoup its price of customer acquisition, be it on-line marketing or inside/outside sales, in less than a year. Ideally, the corporate offers 12 month contracts and the company could be profitable on a buyer before the customer has an option to churn. Hand-in-hand with this thought is strong customer retention.

Characteristic 5: Market Leadership The corporate is already a market leader, is on the trail to becoming the market leader, or is working in a segment with little viable competition. In SaaS, sales and marketing execution are critical to the success of the business. Competition increases customer acquisition costs and will increase sales complicatedity.

SaaS firms can be massively valuable and for good reason: their products are core to their customers’ companies, supply something which is unique in the market (cheaper, higher), finance their own growth by environment friendly sales models and ideally set up market leadership.

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