1) Cash Management

A key issue for earlier stage SaaS businesses is cash. This means that all resources are often diverted into activities that are seen to be actively driving value in the business. As such, investing in the finance function is often seen as a drain, since this does not contribute directly to the sales effort. However, a high quality finance function will help guide your SaaS business to profitability. By giving the senior leadership confidence in the underlying cash generation and expenditure reporting, decisions can be made as to where to best prioritise scarce resources, as well as assisting in important areas such as debt collections and banking relationships.  

2) Straying From The Core Market

A common pitfall for SaaS businesses is developing a very high quality tech offering and then trying to deploy it in an adjacent market. Although the power of modern technology means markets can open up much more easily, it is often harder than it looks. Building and maintaining competitive advantage in a new market requires constant innovation and strengthening of the existing offering. By pursuing multiple avenues and verticals, a company’s precious effort and resource will be diverted away from the core, and may eventually erode competitive advantage as a result.

3) Poorly Drafted Partnership Agreements

Partnership agreements with larger business, potentially in different countries, are common ways for SaaS businesses to grow. It is true that these have significant advantages in that they are an efficient way of leveraging your business to a wider market. However, they do have pitfalls which can actually constrain growth if the partner does not deliver and impede a future exit. Ensuring an agreement is well drafted from a commercial sense will prevent partners reneging on promises and prevents the pursuit of different strategic initiatives in a business. Engaging both a lawyer and a commercial adviser is key when negotiating these  contracts to ensure they are signed on the most favourable terms.

4) Software That Isn’t Scalable

Not all software is scalable. To truly class software as scalable certain features need to have been put in place, such as short sales cycles and efficient bug fixes. Investing the time and money into designing your software with this in mind can help you scale more quickly. An example of this is the single versus multi-tenant decision. Building a single version of your code base is time consuming but, once built, it shortens customer implementations and ensures bug fixes are easier, as you only have to support one version of the code base. Having antiquated or multiple versions constrains growth as it takes a lot more manpower to upgrade or fix it when things go wrong.

Growing a SaaS business is hard at every stage of its lifecycle. However, having an understanding of these four challenges, and the ways to mitigate them, is important to help you make the right decisions in both the short and long-term.

Oliver Roper is Assistant Manager at Shaw & Co

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