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The 5 Stages of a SaaS Company: Which One Are You?

by Nicolas Jacobeus, on 20 January 2021

Starting, growing, and scaling a software as a service (SaaS) company isn’t easy. They face many day-to-day challenges, but you can break these problems down into smaller, solvable pieces with the right knowledge.

There are five specific stages of a SaaS company, and by identifying which category you fall into, you’ll know what areas to focus on, the risks associated with each one, and when it’s the right time to scale.

Stage 1: Pre-Startup

The pre-startup, or the problem-solution fit, is the first stage of a SaaS company. While many activities occur during this stage, there’s one crucial question that every SaaS company needs to answer: What problem do we want to solve, and how can our service provide the solution?

The beginning stage of a SaaS company mainly involves reading, discussing, and researching to determine whether you can solve a specific problem that other businesses commonly face.

Other areas of focus for a SaaS company in the pre-startup stage include:

  • Speaking with potential customers
  • Seeking and securing financial backing
  • Establishing business relationships
  • Producing a minimum viable product (MVP)

The common risks associated with the pre-startup stage of a SaaS company are:

  • Failing to design a business strategy that enables future profitability
  • Depending on initial financing for longer than anticipated
  • Lacking funds to cover infrastructure and employment costs

Stage 2: Startup

The startup, or product-market fit, stage of a SaaS company happens when your product offers a viable solution to the problem you set out to solve. In this stage, one of the most important areas for a SaaS company to focus on is identifying and securing its first customers and serving them with a valuable product.

During the startup stage of a SaaS company, even if it seems counterintuitive, you shouldn’t be focusing too much on how to scale the business just yet.

Some common activities during this stage are:

Risks that are associated with the startup stage of a SaaS company include:

  • Failing to identify the ideal target audience
  • Overspending on customer acquisition
  • Making early hiring mistakes

Stage 3: Process improvement

Process and efficiency improvement is a pathway to the next major stage of a SaaS company. This phase aims to establish credibility by building a loyal customer base while preparing for the growth and scaling that comes next.

One of the essential aspects of this stage for a SaaS company is to refine its customer onboarding and experience to reach a wider audience.

Other activities that happen in this stage of a SaaS company are:

  • Clarifying the business’s value proposition
  • Identifying repeatable sales processes
  • Optimizing the customer life cycle funnel
  • Finding channels to scale customer acquisition

The biggest risks during this stage of a SaaS company involve:

  • Not keeping up with market changes
  • Focusing too much on accomplishments rather than stability and profitability
  • Not having a streamlined customer onboarding system

Stage 4: Growth and scaling

In the fourth stage of a SaaS company, the main focus turns to continued growth, scaling, and profitability. Companies at this stage typically have a product and market fit that works and a proven process to drive traffic, leads, and conversions.

During the growth stage of a SaaS company, the company’s focus may need to shift in two ways: pivot away from revenue growth to profitability or raise additional capital to support scaling and customer acquisition.

Once a company is in the growth stage, there are some crucial aspects to focus on:

  • Securing Series A funding
  • Scaling back-end improvements
  • Improving conversion rates
  • Acquiring new customers

The risks that a SaaS company can face during this stage are:

  • New competitors that copy your business model
  • Insufficient funds to handle the costs of growth
  • Scaling too early

Stage 5: Maturity

Once you reach the maturity stage of a SaaS company, the growth will begin to slow down—but should never stop. In this stage, your customers understand your product and services, and they know how it will help solve their problems.

During the fifth stage of a SaaS company, one of the main focuses should be on looking for ways to continue to grow globally by putting teams in place that understand the local culture and nuances.

In the maturity phase, SaaS companies should be:

  • Considering adding new products or services
  • Looking for acquisition opportunities
  • Investing in experimentation to secure additional growth and opportunities
  • Thinking about holding an initial public offering (IPO)

During the fifth stage of a SaaS company, common risks include:

  • Not monitoring the market to make necessary changes
  • Stopping the testing of new products and services
  • Losing the competitive edge

Breeze through the 5 stages of a SaaS company with Belighted

Achieving scale is the long-term goal of any SaaS company, but premature scaling is the number one reason startups fail. Understanding the stages of a SaaS company lets you identify when you can successfully expand, implement growth strategies for each phase, and know when it’s time to focus on scaling.

Want to learn more about building, growing, and scaling a successful SaaS company? Belighted’s guide will teach you everything you need to know about the SaaS model.

Topics:      SaaS development

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