Do you remember how we used to buy software? You’d go to a retail shop and buy a nicely packaged box, inside of which were some installation CDs. You’d then spend the best part of your morning installing the software on your computer. If you ever wanted to update your software, it was back to the shop to buy the newer version.
But then the subscription model became mainstream for software products (it’s been around for a long time, but cloud technology made it suddenly very accessible). More and more software companies turned to the software as a service (SaaS) model – the market is likely to be worth in the region of $150 billion in 2020. Together with platform as a service (PaaS) and infrastructure as a service (IaaS), SaaS is one of the three main categories of cloud computing.
The benefits of ‘as a service’ solutions
Because they don’t require upfront investment or substantial on-premise infrastructure, SaaS products are usually the best option for a growing business. There is a seemingly infinite choice of SaaS solutions, fulfilling every kind of need you might have – whether personal or business – and offering solutions for every sector, industry, and interest out there. If you’re anything like me, you’ve probably used a few dozen in the past year.
There are excellent products on the market with a long list of capabilities for just a few euros per month. They are off the shelf products with probably a few different pricing tiers and maybe a free version. In a typical company, you’ll need tools for different areas of the business – billing, sales, marketing, customer service, and stock control to name just a few. When using off the shelf software, you’ll probably end up with a lot of redundancies because of feature overlap.
The niche model for SaaS companies
But as the SaaS market matures, there’s been an increase in vertical SaaS – products that are completely customisable and target specific industries or roles. As they are experts in their niche, these providers are able to adapt features according to demand and effectively address customer needs. I see the niche SaaS model working very well for some companies, with greater flexibility and upselling opportunities, and lower customer acquisition costs.
Specialisation and differentiation – in terms of utility, features, audiences, or verticals – allow these niche providers to clearly define their value proposition. According to SaaSX, a SaaS company invests between 80% and 120% of their revenue on sales and marketing in their first five years of existence and can look forward to a median annual churn rate of 20%. So it’s clear that retaining existing customers and getting new customers is an ongoing preoccupation for them. Developing a deeper level integration with excellent onboarding and support can help to address acquisition and churn costs.
There’s been an increase in vertical SaaS – products that are completely customisable and target specific industries or roles. As they are experts in their niche, these providers are able to adapt features according to demand and effectively address customer needs.
An example of a niche SaaS experience
I had an experience with a niche provider recently which got me thinking a lot about this way of doing things. I even spoke to the founder and CEO, and he confirmed a lot of my conclusions.
Firstly, I found this particular SaaS product because our client had a very specific need and this is the only offering in the market specialising in this one thing. Having checked them out, I established that they offered the solution I needed and was happy to go ahead. Rather than push me into a free trial or demo, this company’s onboarding process started with me popping in my card details to secure a few hours of paid consultancy. The sweetener, in this case, was that the first month’s subscription to the product would be included, but I still had to commit fully to start working with them.
I availed of the consultancy hours provided to get the tool set up correctly, configured for the client’s exact needs, and integrated with the other tools it would be sharing data with. Because the company’s own experts were leading this process, it went very smoothly and is now running well. This is not one of the few-dollars-a-month solutions I mentioned above, it will cost the client a few hundred euros per month, but it is absolutely worth the cost because it’s doing something no other solution can.
Going niche was a very deliberate choice made by the founder of this SaaS company. They wanted to do one thing and do it really well – making a quality product they can charge a premium for. In a company like this, the operating model is a bit different. They may have just a few thousand potential customers around the world, so there’s not much point in doing massive marketing campaigns or pouring money into trade shows, etc. Instead, they focus on smart tactics, referrals, and partnerships to reach the right clients.
They know that getting the product working optimally takes a certain level of expertise. They know that a DIY implementation will lead to clients having a sub-par experience of their product which will ultimately mean they drop off sooner. So they’ve made their proactive approach to onboarding part of the signup process. This means that some prospects will simply never go for the upfront consultancy and so the company will miss out on a sale. But those that appreciate a quality onboarding experience enough to pay for it will be happier with the product and this will be reflected in lower churn rates.
A healthy future for specialist SaaS providers
I think this way of doing things is offering really great value to the customer, too. You’ll partner with a provider that’s an expert in the field, where each client matters, and where you can expect greater flexibility and customisation. Building out a suite of applications using these more tailored solutions will cost you more, but will ultimately bring a better return in terms of efficiency, smoother data sharing, less staff input, and fewer technological redundancies.
If you are building a SaaS company, remember that you don’t always have to chase market share; sometimes targeting a specific market and becoming the only credible provider in it is the winning tactic.