Validating your software or SaaS idea is one of the most important steps in creating a new SaaS business.
Too often, entrepreneurs come up with what they think is a great product, spend months or years creating it, only to find that it doesn’t sell.
This post assumes you already have some SaaS project ideas.
If you don’t, one of the best ways to generate some is to listen to things that people complain about. Talk to those people to find out how big the problem is. Try to think up a software solution. This however is a topic for another post.
Once you have some ideas, you should give each one considerable thought. While you can’t know for sure that a product will be successful, you can make an educated guess.
The ultimate test comes when you actually ask people to pay for it (pre-sales), which is also the topic for another post.
After creating a few SaaS products, my business partner and I have come up with some criteria for evaluating ideas. This list has been developed based on things we have noticed when trying to sell our own software products. Some things made it easier. Some made it harder.
If you disagree with any of these or have some more ideas, please drop in a comment below the post.
SaaS Idea Evaluation Criteria
Below is a spreadsheet we created to evaluate our ideas. Below it, you’ll find an explanation about each criteria and why we think it is important.
These are in no particular order. We used a “weighting” column as an estimation of how important we think each criteria is.
We rated each criteria on a 1-10 scale, where 10 was the “best”. So a long “time to market” would be a 1, because faster is better.
Time to market
A huge mistake is spending huge amounts of time creating a product, without first proving that it is something people will pay for.
The faster you can get an MVP (minimum viable product) to market, the faster you can see if people will get out their credit card and buy it.
Cost to build
This one is fairly self explanatory. The longer something takes to make and the more it costs to build, the more risk there is that you’ll waste time and money with no payoff.
The main contributor to this is the complexity of the product. A product that tries to do too many things or tackle a very difficult problem can cost a ton. To lower this, consider stripping off as much as possible to create an MVP.
Entering into a market that you know little about means there are more unknowns. Having some expertise in an industry makes it easier to understand the problems that your future users describe.
You can definitely create a successful business in a new industry, but learning the ins and outs of something entirely new just adds another barrier.
A network of people that can help you get the word out is invaluable. Building good relationships takes a lot of time, so if you already have a bunch of industry contacts then you have a head start.
Are people searching for a solution?
In SEO circles this is simply called keyword research. Keyword research is a massive topic. In short, it means finding out how many people are searching for certain things in Google every month. There are tools like SEMRush that estimate the volume and even provide suggestions.
SEO is an amazing marketing channel if you have people searching for solutions to the problem you solve.
A previous product of ours, Silver Siphon, solved the problem of creating a Stripe bank feed inside a software product called Xero. People would search for “stripe bank feed in Xero” and we were right there at the top.
If people are searching, it means that there is a market for what you are going to create.
Are people searching for related problems?
If people aren’t searching for exactly what your product solves, are they at least searching for related problems?
For example, if you had a product that sends proposals, are people searching for something like “proposal templates for web design”? If so, this is something you can later create content around to attract potential clients.
Is there an obvious way to encourage referrals inside your product? A big positive here is if your clients’ clients can use the product.
For example, imagine you had an email marketing product. If someone using it is a business coach, then their clients are also businesses. It would make sense for the coach to refer your product to their clients.
A product also has referability if it’s clients tend to band together in communities. That same email marketing tool would be easy for people to refer inside entrepreneur communities. This is where affiliate marketing comes into play, offering your clients commission if they refer someone else.
Another classic example is Dropbox, where you could unlock more storage by referring friends.
Can you identify a bunch of people that have access to loads of your target audience?
If you had a tool for real estate agents, can you find some “real estate coaches” or associations that have access to lots of agents? These are potential partners who you could build relationships with and over time they may help you access lots of clients.
Are there other software products that you can integrate with that could refer you clients?
Xero have a directory of software products that integrate with them. Many people use Xero, so the partner directory was once a great source of new clients for many software businesses.
If there are products which already serve your target audience, integrations can be a great acquisition channel.
Don’t have to explain the problem
If it’s hard to explain the problem you’re solving, then it can also be hard to sell. Is the problem super obvious to your target audience?
“To your target audience” is key here. If it’s hard to explain to other people, that’s not so bad. As long as your people can immediately see why it is important, this is a huge plus.
Tech savviness of the market
This one can be a double edged sword.
If your clients are tech-savvy, they’ll have an easier time working out how to use your product and onboarding will be easier.
They also might expect more from the product.
Is the problem you’re solving going to be around for a long time?
Building a business around something that is relatively short lived could bite you.
For example, grey hat SEO tactics tend to get killed off by Google. If you have a product in that industry, you run the risk of being crushed.
Is there a simple way to scale pricing based on the size of your client?
Many successful software products are able to scale their revenue as their clients grow in size. The simplest is number of users. More staff = more users = higher pricing.
An email marketing platform might scale based on number of emails sent, or number of contacts in the system.
This allows for a higher revenue per client over time, which opens up more marketing opportunities.
Once people are set up in your product, are they likely to stay?
If it’s not a big deal for them to cancel, then churn can be harder to manage.
Examples of high stickiness are email marketing and project management. Once someone has set up their business to run inside your system, it’s a lot of work to move to another system. That barrier makes it less likely they’ll leave.
Is it possible to show people the value of your product quickly?
For example, an SEO audit tool might require a user to put in a URL and click “Go”. Then it generates an extremely valuable report. In a couple of minutes, the client can see the value.
If it takes a long time to realise how valuable the product is, converting people from trials to paid users can be more difficult.
Number of use cases
If your product can be used to eliminate the need for several other products, clients may use that as a reason to switch to you. Many people like consolidating their subscriptions, so this can work in your favour.
Just be careful of trying to take on too much as you may end up doing it all poorly.
Point of difference
Can you find an obvious way to stand out among existing products in your industry? Be careful if your point of difference is feature-based. Features are easily copied.
Strength of competition
Breaking into the phone market at this point would be extremely difficult. There are two main operating systems with app ecosystems that you would struggle to ever even scratch.
Do you think you could take on the companies that are already in your market?
Size of market
The common advice to new business owners is to “niche down.” So, to choose an industry, serve them well and use their language in your marketing to make it easier to sell.
It’s possible to over-niche though. Are there enough people in your audience that with your planned price point you can create a viable business?
That’s it! If you have any other criteria please let me know and I’ll update this post with credit to you.