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How To Build A SaaS Business

To build a SaaS Business you need to predict product market fit for 1000 people paying at least $83.33 per month which will validate both the idea and the market.

We are about to release our 8th and 9th Startup and we have one goal. 1000 customers paying $83.33 per month. This simple framework creates 5 laws that Pavel Kirillov and I will use to validate the startup ideas when we pitch

1. APRU = $83.33

Forcing your average customer price at $83.33 means that the product you intend to sell must be worth AT LEAST $83.33 to the customer every month. We will not waste our time on building a $5.00 / month product because the return on investment is just not high enough.

Look at the math required for a $5 product. You would need 16,666 customers which means you need to attract 333,333 people to your product to try it for free. Don't forget that customers will churn which means about every 12 months or so you are on the search for another 333,333 free trials.

In contrary, if you sell an $83 product WITHOUT a free trial you are only on the hunt for 1000 people every year. Even with the same churn rate in the example above - it is much more fathomable to have a relationship with 1000 people then 333,333.

2. 1000 Customers is a Niche

Have you ever heard the pitch "If we could capture 1% of the X industry we would have 100,000 customers." Has a non-venture backed company every achieved 1% of an industry? I'll wait...

Aiming for 1000 customers forces you to think small and big. Can the proposed product capture 1000 people in a market and is that market in need of a product that can serve 1000 people.

The statement above is circular and important to understand. Let's say you are building a CRM tool for doggy daycares. How do you reach 1000 Daycares that have the same problem your CRM tool fixes? More importantly, how will 1000 Daycares find you?

If the product you are building cannot reach 1000 customers without additional funds (eg VC Money) then you have fallen on your sword. A VC will not back a company that cannot at least reach 1000 people. You should not start that company.

But if you can predict that 1000 people NEED your product and you know how to serve them from day 1 the path from idea to $1M is just time.

When we pitch ideas to each other at NineTwoThree this simple truth is where most product fail to leave the starting line. The path needs to be clear and concise - and 1000 people makes it reasonable to argue for both the positive and negative outcome.

3. Free Trials Will Kill You

Every food court in America has the same restaurant passing out free samples. We all know what it is and yet, not one other fast food chain has copied this model. Why?

Free trials suck the lifeblood from your product. Freeloaders will complain, ask for your time, give you bad reviews and make you want to quit. If you want to scale your product and focus on solving real world problems - do not offer free trials.

What is nice about this rule is it dovetails with the $83.33 / month rule. If you offer a product that has value - you do not need free trials because the value will be instinctual to both you and the customer.

More importantly, providing customer service to a paying customer pays dividends. Building features for paying customers is way more rewarding.

4. Getting To Know Your Customers

1000 customers every year are friends. You can remember their names, their faces, their product requests and their needs. 333,333 customers are users. They are people you despise because they are freeloading your software without paying and using competitors products in your face.

Hiring a customer success manager is also the first natural hire because the product is solving 1000 customer needs meaning that their use of the product is a marriage to their business. If your product market fit exists - then their reliance on you and your uptime is critical. A customer success manager will be able to satisfy their requests 20 hours a day.

5. You do not have to worry about Venture Money

In 2021 the abundance of resources available to a founder should allow the product to achieve mass scale without the need for venture backing. Through grit, determination and time - an entrepreneur should be able to achieve financial freedom - 1 customer at a time.

The stories in TechCrunch idolize funding to an "idea" without a product. But dig deeper and find that it is not the founders first Rodeo. This "idea" is the second or third startup with at least one successful exit. The idea can even be shit - but the VC is backing the founder and nuanced out of the article because the story is about the money.

For the first 1000 customers 100% focus should be on the product market fit and the customers. Not raising money. This could take a year or two or five. But if you are commited to solving the problem and not chasing money you are compounding your success. VC's will come to you when you achieve success, I promise.

Are you interested in building a mobile or web app digital venture?

If so, follow @andrewamann on Twitter or subscribe below.

I am writing about 20 ways to build your digital venture the right way in 90 days.

TL; DR

Startup Goal

1000 customers paying $83.33 / month.

Achieve Goal By:

  1. $83.33 / month product
  2. Find a 1000 Person Niche
  3. No Free Trials
  4. KYC 20 hours a day
  5. Don't Chase VC's