THE DARK SIDE OF THE CLOUD

The Cloud and Software as a Service (SaaS) markets were expected to be worth $220 Billion by 2022.

But Covid-19 and a global pandemic have drastically changed our perception of the modern working world, and products like Zoom have become ubiquitous and part of the lingua franca almost overnight. Conservative industries such as the legal profession that had hitherto avoided the drive to adopt modern technology have suddenly found themselves implementing digital solutions. Home schooling for everyone is now a thing, and working from home, something that was previously the reserve of a select few, is now the day to day for many. And there’s little doubt that it will be a part of business as usual for years to come.

Amidst the chaos and misery that this virus has unleashed, SaaS has been a major beneficiary, and our understanding and use of technology will never be the same again.

A Big Gamble

But for all the successes we see, SaaS has a dark side, and wannabe software entrepreneurs are taking extraordinary risks as they try to stake their claim in this modern gold rush, and many are risking it all for a slice of digital paradise.

Family homes are being re-mortgaged and retirement nest eggs wagered as budding software entrepreneurs endeavour to finance their future. Literally hundreds of thousands of dollars and more, often of their own money, are being gambled on a digital dream.

But for some, it becomes a recurring nightmare, leaving them with neither their initial investment, nor a serviceable software solution. Often they’re left with little more than thousands of lines of code that are all but worthless. And sadly, this is nothing unusual.

SaaS is a brutal world with an estimated 10 out of 11 businesses failing to survive much more than 3 years, and of the approximately 10-15% that get to series A investment, only around 2% get to the next stage. Yet a myriad of new offerings are created every year.

Like any “gold rush”, some will strike it rich, and dreams of being the next unicorn, no matter how rare and mythical, are enough to tempt many away from their day to day. But with no experience making commercial software the likelihood of failure is greatly increased.

Horror Stories

All too often, I hear tales of massive personal investment, both emotional and financial, that are simply staggering, and stories abound.

An estimate for $20,000 to build a simple platform that turned in to $160,000 and a looming legal battle.

Another where $400,000 was spent on inexperienced developers who weren’t up to the rigorous task of building commercial grade software. They couldn’t fix their own bugs or complete the brief, and another $500,000 and a new development team was needed to get to market.

A third example where $1,000,000 was invested to create an MVP (minimal viable product) that still didn’t work because the complex algorithms in the software were riddled with bugs. The entrepreneur is now back in the corporate world, licking his wounds and working to fund the next iteration.

And just recently, I spoke to yet another founder whose efforts have been mothballed while he searches for additional investors. His biggest challenge, to get his target market to move from their existing systems to his shiny new offering.

These are just some of the stories I’ve encountered this year, and they share a set of common problems. Entrepreneurs are often experts in their industry, but they’re not software developers. Conversely, the development team often lacks domain expertise. The result is a mass of communication problems, unclear specifications, vague project criteria and a lack of focus. Throw in an inexperienced client and it’s all too easy for the scope to drift and the project to go off the rails.

With a developer costing at least $150,000 per year, any delay or extension to a project will hit very hard. Even a few weeks heading in the wrong direction will cost many thousands.

Combine all of that with a lack of marketing skills and a focus on the technology and its features, rather than the customer and the problems that the platform solves, and it’s a recipe for impending failure, regardless of whether the platform is up to the job or not.

A Busy Market

And then there’s the fierce competition, with most vendors likely having around 10 major competitors in their space. This may well be a sign of a healthy market place and an excellent opportunity, but it makes it very difficult for new players to gain a foothold.

Not only are they fighting bigger and far better financed foes, they’re also battling the power of incumbency. When it comes to a straight features and benefits fight, most products look much the same, so finding a way to differentiate themselves is difficult.

Weathering The Storm

So, what can prospective entrepreneurs do to help avoid the many pitfalls? There are three key areas to focus on.

The first is to invest significant time and effort documenting the vision, understanding the needs of the project, learning about the rigours of commercial software, identifying client avatars and so on. Put simply, the better and more detailed their explanation of their dream, the easier it will be to for a development team to turn it into code. Many fail to make this basic investment, yet it lies at the core of all future work, and without it, the project is likely doomed from the start.

The second is to find a development team with experience in the right domain and to ensure that there is effective communication. Picking an appropriate development partner is absolutely crucial, yet all too often, entrepreneurs buy on price. But as ever in life, you get what you pay for. Mistakes in the early stage of a project are amplified, and it’s all too easy for a 6 month project to take 9 months. Additional costs like this can be crippling or even fatal to a project.

The third is to understand that if you build it, they will not come. You have to go out there and get them. Success in SaaS needs you to play the long game and focus on the second S, Service. And step one is to complete your MVP, with all the necessary extras like help and training, and then get it to market, even if it’s far from perfect. As co-founder of LinkedIn, Reid Hoffman said, “If you aren’t embarrassed by the first version of your product, you shipped too late.”

If you can do all of that, you have your entry ticket to the world of SaaS.

Silver Lining

With the SaaS market growing at 30% or more year on year, it is still very much the land of opportunity for those prepared to have a go. Many will fail, but some will get it right, and the rewards are excellent.

And while the outlook for SaaS wannabes may appear bleak, the market is growing, adoption rates are growing and so is consumer confidence in the online world. The technology revolution is in full swing and it’s never been easier or cheaper to build a software platform.

But easy and cheap it isn’t.

If you fail, you may go home empty handed.

But with the right idea and the right execution, your Cloud may have the most silver and brilliant of linings.

#MrSaaSSays