How to Start a SaaS Business From Scratch

in this video I'm going to share with you the simple seven steps to build a SAS business even if you're just starting out for those that are new here I've personally built and sold three software companies spent tens of millions of dollars on developers and invested in over 60 plus software companies I fell in love with SAS because of the recurring nature of the business model every month people keep paying you as long as they're getting value over and over and over it's a beautiful way to build a business but if I lost all my

money followers and network this is how I would build a SAS scratch in seven steps first step is kind of obvious but it's a start with the problem back in the day I was trying to figure out the idea what do I build you know I want to make money in this software world but I don't want to build something that nobody's going to use and what happened is I just started Consulting it's actually a really cool strategy the more I was helping people build things for their businesses I would learn what was broken and

where there was a gap in the software world so in many ways learning how to build custom software for other people showed me where the opportunities are so this is the big hack see most people try to come out with the big idea I'd rather find out what the customers are already dealing with so if you know what industry you want to solve a problem for go talk to the technology companies already Consulting in that industry and ask them what do customers in that industry in the law firms or dental or Cairo or AI what

are you building over and over and over for them many of the biggest companies out there like Shopify like fresh books like 37 signals they all started by being cons Consultants first building a tool either for themselves or for their clients and then productize that for other people see the biggest challenge in building a software business is avoiding building something nobody wants it's the most expensive thing you could do the best way to do this is to get really familiar with people's frustrations even in your home I would encourage you to just go around and

add to what I call your frustration list make a list of all the things in your home that frustrates you even if it's not software focused because what it'll teach you is how to identify problems in the world World pain that you're having or listen to the words other people say to you so that you can find those opportunities to solve their problems one of my favorite things to do is to ask people to show me their spreadsheets the head of marketing the head of Finance the head of operations they all have these crazy spreadsheets

they've created to make their job easier and those are perfect places to look to find software solutions to build the other strategy that I look at is where is there already a Tailwind in the market so understanding what are some of the upand cominging technology IES the industry trends that are growing in nature things like AI drone technology 3D printing find these markets that on their own are growing and see if there's a software solution to be made to help those markets expand there might be Inventory management challenges billing challenges logistic issues manufacturing issues there's

all these new problems that are going to occur as something grows really quick and finding those technologies that are already growing 30 40% year-over-year compounded that's going to get you the biggest bang for your buck in regards to solving a real problem that doesn't have a solution for it the cool part about getting involved in a market that's growing is that even if you're good you'll be great because High Tides rise all boats if you're not doing good you'll do decent because the whole Market's growing so you just got to get into it think about

Facebook ads in 2013 versus the newspaper ads of today there are literally Tailwinds in the current market that you can jump into and grow and build your software into versus getting into something that's a headwind like the newspaper ads of yesterday so don't tell me your business idea tell me what problem it solved I don't think you find a huge problem in the market you find a customer that has a huge pain Point often times software starts off as almost like a feature but it gets a tow hold into the market for you then to

build a complete solution but you just want to find that one place where there's a gap it might be for somebody copy and paste something from a spreadsheet and paste it into some other tool so it could be a connector solution it could be some kind of configuration tool a translation tool but you just want to find something that's got an acute pain that's frustrating enough for the user to want to pay to solve it so they never have to do it again once you're in then you can expand the feature set to create a

complete solution and that's where people get it wrong they're like what's a big enough problem to build a billion dollar company no billion dollar company started when it started as a billion dollar solution it started as a $50 a month tool which brings us to number two which is to build a prototype one of my favorite things to create is a clickable prototype a wireframe of the solution that you want to build why do we do this so that you don't end up building the solution in a way that the user would never use see

most people think well there's a problem here and I'll just build it this way it's not can it be solved it should it be solved my youngest brother he had a property management software idea and he was like I think people need software to manage the property and if we had tenants using it and they interacted with their landlords it'd be a great solution I'm like cool wireframe it Sharpies and we just wireframe it and then we went to the mall and we said hey do you rent or do you own they're like I rent

cool here's the solution we're thinking of creating where the tenant gets to interact with the landlord through this solution and it was cool a lot of questions came up about like well does this work on my phone and can I text message and it was fascinating to see him want to build a solution that the end user actually didn't want it solved that way they wanted to be a ble to just text their landlord the way they do it today now as a landlord I want to be able to organize and Route all these different

job orders and manage the relationship with my tenants in a more efficient way but the tenant themselves they didn't want the solution learning that when it was in a paper stage saved him tens of thousands of dollars in building a solution that nobody was going to ever use that's why clickable prototype is so important having the example of how the screens are going to work and how the information is going to be requested and can I remove it as much information request from the user and literally make it click click value can they connect this

system connect that system two button clicks boom and then get values from my software the faster I can go from sign up to receiving value the faster I'm going to activate them and that's why we want to design those flows using the clickable prototype prototyping the solution before we ever go and pay an engineer to build it cuz that's the most expensive thing having somebody change code is way more expensive than just deleting a line on an interface or removing a screen in a software there's two parts though that you need to understand to be

able to build a clickable prototype number one is the function the second one is the flow the function comes down to are there apis application program interfaces data sources that allow you to actually make the solution work that's just functionality speaking can you actually technically solve the problem the way you envision so those are the apis you're going to integrate with a Facebook or a Salesforce or CRM solution like a go high level go look at their documentation to see if they expose that data or that information or that function so that you can actually

build it that's the first part and the second part is the flow the user experience the ux it's called how would that solution be presented to a user even if the function exists but if I'm confusing in how I prompted or explained to people how the software works I'm not going to get them to use it and those are both areas you want to solve upfront before you ever pay somebody to code anything so there's different ways to prototype software you can start with pen and paper that's an easy one every piece of paper is

a flow a screen and you just kind of put them out and lay them out in a sequence of how somebody would sign up for the software and enter the information and use it and what kind of report would they get you want to be more advanced than paper and Pen although I would encourage you start there then you could go to a product like a balsamic which kind of simulates a digital version of a paper and pen and kind of like wire frames The Next Step Above from there would be like a figma where

it's very close to like simulation where it's got like flows and you click around and it's got potentially even fake data to make it look like it's working the next level above that the highest level which is almost like Pixel Perfect software but it's still kind of a simulation is an Invision app it all depends on how realistic you want to make the software so that you could show it to a user to be able to get feedback and some of them are like you install the app on your phone and it looks like working

software but again it's a simulation a lot cheaper to change that than to change the code from software developers that you've paid which brings us to number three which is to validate your product one of my favorite things to do is to validate if there's a need for my solution based on if people are going to pay me money see the crowdfunding industry when people say this nobody's going to pay me for my software until I build it and give it to them and I go that's not true there's an industry called crowdfunding it's a

$18 billion a year industry where people show examples of what they're going to build once you give them the money and they crowdfund the development to me this is no different you want to validate it by getting somebody to pay you for your software I mean the other day I was actually working with a bunch of teenagers I run a program called Kings club which is for Youth and we were talking about the idea of when is a business birth the consensus was is the moment somebody pays you for the solution or product that you

offered most people don't want to go validate cuz they don't want to find out that nobody wants their thing that is actually the highest risk building something for somebody they never wanted to buy in the first place the truth is they'll be nice to you they'll tell you great idea go build it so you go borrow 100,000 from your parents you quit your job you go all in and then when you Circle back and say you told me it it was a good idea I've got the software done do you want to buy it they're

like uh not really we're kind of busy and then you go what the heck like you said that this was a good idea it's like yeah it's a great idea good luck with it what happened you didn't ask for money nothing survives first contact with the customer and the best way to validate is to get them to pay you dollar so here's the strategy I call it creating an early adopter program where you show people the prototype to get feedback and then at the end when they tell you how great it is then you ask

them to get involved in your early adopter program which is you get them to invest in buying a license of your software typically it's whatever you're going to charge for the year give them 50% off for that year but get them to pay up front for the whole year so that you can collect some money many people do this on the back end of a webinar we they invite a bunch of people and they'll teach and then they'll say you know when I teach this thing most people get stuck here because we know they get

stuck here we've got this vision of creating this software if you want to be part of the early adopter program here's how we're doing it for those people we're calling it the Inner Circle and you can invest by buying a year license Upfront for 50% off and then there's benefits of that you might have your name on the website you might allow them to be part of the product roadmap feedback system so they can give you feedback on what you build some people even give Equity depending if the person has a large audience where they

can promote your product into their customer base you might do that as well I mean this is literally something that's been going on for decades where people crowdfund ideas to validate the idea then build it I've used this strategy to launch and pre-sell every service coaching product I've ever built even back in the day when I started my company flowtown the way we validated this idea to give you social data on top of your email addresses is we created three fake landing pages and on the last page when we collected the credit card to actually

verify you were willing to pay on the thank you page we didn't charge a credit card and we just said oh sorry our servers were over capacity let us Circle back once we get things fixed just to test if they would put a credit card in and pay so there's many ways to crowdfund or to validate your idea but getting people to pay is mandatory because if they don't pay they won't pay attention they don't pay they won't invest and when you go to launch they're just going to tell you it's nice but they're not

going to actually use the product most people think they validated cuz they got three people that paid the money when all they did they were just really good at selling my co-founder used to call me cell Martell cuz I thought I was doing validation and all I was doing is selling people on the vision but what I would do is whatever the person has an objection I would just say yeah we're going to put that into the product and then get their money so if you do that what you end up is even if you

presold 10 people you're essentially a very lowcost custom development shop because every person had a different request for a feature and you said yeah we're going to build that give me your money yeah we're going to build that give me your money yeah we're going to build that give me your money and then you've got 10 different specs of your product to get those customers which actually doesn't make for great business so you got to make sure that when you pre-sell and validate your prototype you stick and stay to the same thing that you're going

to build for all 10 people you cannot deviate each conversation which brings us to number four which is to build your MVP or a minimum viable product the key there is to constrain your features I remember a long time ago me and my co-founder were arguing with each other around the future strategy for growing the business and we had two different completely different ideas for this product and the way we resolved it is we each took the prototypes and went to the market pre-sold them and figured out who could sell it the best now the

constraint we put on ourselves was that they had to be things that we could build in the next 3 months Max so right off the bat when you go to build this make sure that the features are things you could put together with the development team within 3 months so whatever amount of money you raise by validating it that's your budget to hire contractors or team to to build it just constrain it to 3 months to launch the first version if not you will go months and months and months I had a friend of mine

reach out to me they were $5 million 3 years into the Prototype and they had yet to launch and they asked me for advice my advice is you should have called me 3 years ago my advice is you should have created some constraints around how much time you spend on the software 5 million is way too much money I mean most people that I work with they can get a working prototype in the market with paying customers for less than 100,000 sometimes $50,000 right it all depends on how much you can kind of Connect into

other software to do some of the heavy lifting so you don't have to write that code yourself so the key is if you're trying to hire a Dev team do this go on upwork find developers that are good reviews that are relatively inexpensive for their experience give them all a test project which could be one feature in the software that you want to build and see how they all code it you want to pay them for it but the key is is you want to give them the wi frames that you created to pre-sell your

software that's why it's important to do that work up front that way you don't have developers designing your software that's very bad developer design software usually sucks it's ugly it's it's weird you can tell when a developer designed software versus a professional designer or even better yourself using the right tools so don't let a developer create the design give them the product specs you could also use a no code solution like bubble make.com go high Lev for a lot of people recently rapid API and these are great the only challenge is is that if you

prototype something that's actually working software with it it's not built on your own stack so if you do have an aspiration to exit the business someday you might have to rewrite the software in your own code so that an acquirer could actually maintain and modify the software without you being held prisoner or Hostage to a platform see the reason you never want to build on somebody else's platform is that at any point they could get bought they could change their pricing and all of a sudden make your whole business model mod not work anymore I

ran into that when I built my company flowtown we built a whole platform on somebody else's data and apis all of a sudden they changed things and made our whole product stop working when we could have made that decision earlier and upfront before we had 50,000 customers on our platform so understanding that there's tradeoffs on speed you could go a lot faster using a no code solution but you might butt up around feature constraints where you can't build certain things and or somebody changing their pricing or their API making your whole solution not viable anymore

which brings us to number five which is to collect customer feedback now here's the deal I want you to be maniacal about getting feedback from customers not just looking if they're using it see too many people want to lie to themselves and they're like oh yeah people are using it they're loving it I'm hearing all about it I've had people say to my face lie to me say oh man I love that company I love that tool I love that product and then I go look behind the scenes and they haven't even signed up for

it or used it people are weird so you could take these as false positives that you built something that's great instead what I want you to do is actually talk to customers get on the phone I used to call this smile and dial every Thursday I would sit down for 90 minutes and I would call new customers that signed up figure out what they thought how they heard about me what we could do to improve it to really understand where the opportunity is to improve the product see most people building software will hide behind the

scenes looking at the data and the reports and the analytics that's like having a retail store and hiding in the back room looking at everybody's shop in your store through the closed circuit television instead of getting out of that back room and just talking to them in person they're literally in your store and they're not buying you might as well find out why do you not have the size is it the colors not working for them they were they looking for something completely different that you didn't carry understanding why people that don't use your software

are not using it doesn't mean you got to fix anything but it's at least going to tell you where the opportunities are to improve your activation how quickly people get value from your product and your retention how often people stick around and keep paying you month over month so one of the key areas is to always work backwards from the customer understand what they're trying to accomplish and where they got stuck or it wasn't easy for them to complete often I'll ask the customer what do you do 3 minutes before you use our product and

3 minutes after you use our product because that is also a huge opportunity to figure out where your solution could expand and create more value for them because if they're getting ready to use your product or going some's else with the information that you produce for them that could be an opportunity for you to expand the value that they're going to get from your Your solution see most people confuse a customer by not asking them the right question and it's an art form is the wrong question will get you the wrong solution which could cost

you tens of thousands of dollars building a feature that they didn't actually want because you didn't ask a question right most people get stuck building software for a customer or two customers or the most paying customer or the loudest customer they don't actually look at it as like my job is to be an investigator to look at all my users and figure out what are they all facing and where can I innovate based on what exists in the market there's actually an opportunity to differentiate to create something sticky to look at features that are going

to have higher retention if you just keep doing what people tell you to build you're going to run into being a lowcost customer development shop you want to be an innovator and to do that you need to ask the right questions and come up with the best solutions to solve the problem that they're telling you about so the three steps is once you're getting feedback step one is to collect all the feedback from all the customers then you want to analyze it and put them into like grouping of problems and how they're giving you that

feedback and what they think you could do fix the product and then deploy the roll outs so those three steps collect analyze and deploy the roll outs is how you iterate on the product here's where most people mess it up most people ask customers that aren't even using the product for feedback on how they can make it better what I want to find out is who's kind of using the software but not like a power user and figure out from those users what's the one or two features if I added would make them all power

users cuz it's a lot easier to have somebody that's kind of a yellow usage and turn him into a green then to go from a red not using it to a green most people spend too much time on the Reds they were never going to use your solution in the first place cuz they probably didn't have your problem as big as these customers in the middle because AOW minority if you solve for them you solve for a very small group of customers compared to the rest if you have 100 customers and there's only two people

that are being louded about a specific area of your product that isn't working for them and you spend any time on those two customers you're ignoring 98 of the other ones where you could get 40% of the people really using your product to retain 40% not just the 2% of people that are being allowed in the support emails if you actually want my list of questions for problem identification and solution identification and Innovation I actually have a Google doc where I've collected my favorite hundred questions to ask customers depending on what you're trying to learn

just go on Instagram click the link in the description below and message me cust Dev for customer development and I'll send you a direct link to that Google doc to help you with your questions which brings us to number six which is to generate demand there's only four ways to create demand for your software product the first one is publish content second one is paid through paid acquisition so ads third is Partners people that have the existing customers and trying to get in front of their groups or the fourth is through press having people write

about you so that it drives attention and eventually people might sign off for your solution the one that most startups use when they're building their software is Partnerships and the reason why is it's so fast for me to get in front of an audience of Perfect Fit customers that I know have the problem and present my solution to all them at once pay the partner an affiliate fee 20 30 40% of monthly lifetime value of the customer for the perfect partner I might give that much 40% of the monthly fee that I get they get

as a promotional partner and that way I just have to find one partner that gets me in front of thousands of potential customers and trying to go one after one after one for a $50 a month subscription I remember one of my clients Matt at review wave he did this brilliantly with events where he figured out a rhythm to get in front of the people that attended certain events for his industry and would present on stage in 5 minutes this quick little pitch that would get everybody running to his booth for him to have a

conversation collect business cards and many times close those customers at the events to help fund all of the cost of travel and sponsorship so so events webinars emails Facebook groups all these are examples of places where your potential customers are aggregating and whoever owns those will allow you if you pay them to get in front of them you could do a lot of stuff around paid acquisition the problem is is that you got to put your money out first to eventually get a customer you could publish like SEO challenge there is you got to spend

a lot of time trying to create that traffic social media Etc before you ever get a customer and then you could do the Outreach to press which can work it worked a lot better back in the day for for the right types of press think about podcast those are great potential channels for you to get the awareness out there in your market for your solution I mean at the end of the day do the thing you're going to keep doing for a long period of time if you're good at blogging do that if you're good

at short form content do that if you're good at building your personal brand do that you could even partner with somebody that has a massive personal brand that already has an audience of people that you want to sell to here's where most people mess it up you got a cool software solution and you've got this person that tells you they're going to bring you thousands of customers if you give them 10% Equity 40% equity in your business and then they don't do the thing I would just rather not give them Equity at first have them

promote your product to their customer see how many people buy and if they want they can convert the amount of money you gave them every month for the amount of customers that pay cuz they could send you a th000 customers but if they only stay for a month and then cancel then that's not going to help you you want to pay them when you get paid and then if they make enough doing that you can always give them the opportunity to convert that dollar amount into equity into your business into shares into your business they're

like hey man I could sell a lot of your product to my audience you should give me Equity I'll do some shoutouts in my content it's like how about we just make you an affiliate I'll give you 40% every month of what people from your audience sign up for and pay me and then if that's a large amount of money let's say 50,000 a month they could always convert that royalty into equity in your business as an agreed upon valuation Equity is the most valuable thing you have in your software business it's not about the

10% it's about what does that 10% mean in the future if you sell your business for 100 million and some guy helped you get a 100 customers at the beginning 10 years later you sell for 100 million are you going to be happy giving him a check for $10 million when all he got you as the first 100 customers and most of those people didn't even stick around very long like you better off just pay him the affiliate fee the dollar amount of what that was worth and keep your Equity to yourself because you want

to use that for top employees potential investors and honestly maybe to sell some shares for yourself down the road so you can get some money early and not have to go and exit it right away and just create some options for yourself which brings us to number seven which is to find a growth hack see most people think growth hacks are marketing they're not a growth hack is a unique channel for you to acquire customers that most people don't know about for example there's this crazy story of a Canadian Airline called WestJet when they were

starting off and they were trying to figure out what are the new routes that they open up between which cities they actually had internal data through an old employee that had their number one competitor Air Canada where they could log in as this employee scraped the information from their internal portal and figure out where there was the most demand for certain flights and that was the sequence when they got new Jets added to the fleet that they would open up new routes to help Finance their growth now this is completely illegal they got sued for

it and they settled so don't do that but the concept is brilliant where does your customer spend time is there a way to get in front of them when I was starting Clarity we were trying to get experts on our platform people that were willing to take phone calls and it occurred to me that most experts speakers creators folks that were out there thought leaders they spent a lot of time creating slides that they would share on a site called SlideShare so what we did is we actually took all the demand for people seeking advice

and then had people that would manually go through SlideShare find the top three experts based on the popularity of their slides go to the last slide on SlideShare which was their contact information and then email them asking them if they're willing to take a phone call for a price to help the person looking for advice now we did that manually at first and eventually automated through some software we called that feature bonejour which is French for hello because it created liquidity in our Marketplace for experts to get paid for their advice I've done this several

times for example when I help HR software in Asia try to find their early adopter customers we realized back in the day that if a customer was using Google apps for domains which is Google's Suite of business tools they were more likely to buy their software so how did we find them we took all the domains of the businesses all the email addresses ran them through a domain lookup to see if they were using Google Apps as their mail record for their email if they were then those get scored higher from a lead score opportunity

and called on first that tripled their ability to generate outbound sales productivity these are examples of growth hacks Uber did this they'd enter in a new city they would partner with all the event organizers at an event venue and give gift cards for Uber to put in the attendance 's gift bag so that when they would show up and they got their gift bag they would have a credit for an Uber Drive they never used Uber they had to install the app they' use $20 gift certificate and then they would go like oh I need

to use this to get back to the airport at the end of this event and that's how they would activate new cities amongst many other things and many of them got them in trouble but that's the big idea a growth hack is only a growth hack if nobody else knows about it and gives you an unfair and unique advantage in your market so think about who has your data so real growth taxs require creativity the question I like to ask is this who's got my list who's got my data who's got my customers who's already

done all the heavy lifting to identify the perfect fit customers for me the more I understand who buys my software who has the biggest budgets quickest to buy has the highest need if I can look in the market and identify those people get in front of them reach out to them just make them aware that I exist that's a great opportunity another example I had a friend that paid somebody to run ads on top of their pixel on their website because they knew people that bought their product would buy their customer so they paid them

to borrow their Facebook pixel to run ads to get in front of that customer in a way that that person didn't even have to affiliate for them really smart strategy again does that violate the terms of service I don't know but those are ideas where you got to kind of go on the edge to figure out who's got my customer who's got my data who's got my list and then work backwards to find ways that are obviously not illegal to get in front of these customers it's all about creativity it's called a growth hack because

it is a hack most people mess this up because they're just doing marketing instead of trying to figure out a unique opportunity either it's cheaper traffic it's cheaper attention a really hard thing to scale but you've built a system and process around scaling it or you can create a Playbook that nobody else would do because it just seems so complicated they would just rather do something that costs more to do it and by building these growth hacks you create unique demand marketing channels for your software that nobody else has if you want to learn about

the best businesses you could start in 2024 click the link and I'll see you on the other side