How to Build a SaaS Startup: A Step-by-Step Guide

April 3, 2022

Lightning has struck! 

In a flash of brilliance, you got hit with an idea for the next billion-dollar startup. 

But you’re wondering where and how to get started. You need a guide to lay out the process. 

We’ll walk you through the steps to build a viable SaaS startup. Let’s dive in!

Conduct Thorough Market Research 

You start your startup because you have an idea that solves a problem. But having an idea doesn't guarantee success. You need to see if people are willing to pay you if you solve that problem for them. 

Your analysis should have three components if you want a comprehensive perspective of your idea’s potential. 

Who's Your Customer?

Not everyone will be your customer, mainly because not everyone will have the problem you aim to solve. And even if they do, your way of solving it might not be right for them. 

Your ideal customer has a specific profile. You should find out who they are and what they need. Collect demographic information, including gender, age, location, education, and occupation. 

But more importantly, interview potential customers to find out: 

  • What caused the problem? 
  • What solutions have they already tried? How satisfying was each solution? 
  • What makes one solution better than another in their mind? 
  • What prevents them from switching to a new solution? Do they have any habits or anxieties that make switching difficult? 
  • What habits and concerns make it hard for them to continue using the new solution? 

The answers you find let you build a complete picture of your customer’s mind—also known as a persona. You can then tailor your offer to fit your persona’s preferences. 

Who Are Your Competitors?

Don’t be afraid of competition. Having no competitors is a bad sign because it means there’s no market. So, seek out the businesses that can solve your customer’s problem.

Competitors fall into three categories: 

  • Direct competitors target the same customers as you. 
  • Secondary competitors offer a similar solution, but they target a different group of customers. Alternatively, they may go after your customers with a higher-end or lower-end product. 
  • Tertiary competitors have relevant solutions that may be useful to your customers or partially solve their problem. They’re also excellent choices for partnerships. 

Study all your competitors to identify their strengths and weaknesses. How do they market their product? What’s their pricing strategy? 

Download their app and use it. Put yourself in the customer’s shoes to see what works well and what can be improved. You may find an opportunity to serve the customers better. 

What Are the Market Trends?

As a SaaS startup, you need to stay ahead of evolving customer needs and market conditions. Otherwise, you’ll miss out on opportunities, and your product will become obsolete. 

Study market trend reports to get a feel for the landscape and where things are headed. You can almost always find a valuable opportunity that’s relevant to your space. 

Analytics tools let you track important metrics and identify trends. However, you don’t have to spend thousands on a high-end dashboard. A simple tool like Google Trends can give you a big-picture perspective of your industry. You can then use specialized tools to pinpoint opportunities worth pursuing. 

Finally, keyword research tools allow you to discover your potential customer's problems and how they express their pain. You can also see the solutions that currently exist by searching those keywords. 

Build Your Team

SaaS companies are different from traditional software companies. Your customers don’t buy and install your application on their computers. Instead, they log on via a browser to the application hosted on your servers. Therefore, you need to pick a team that can manage servers and security in addition to traditional software development processes. 

Overall, your team needs to handle the following responsibilities: 

  • Marketing and sales 
  • UI/UX design 
  • Backend and frontend development
  • Infrastructure and security 
  • Customer support 

Remember that you don’t have to start with a full-fledged team. A small team of highly skilled people can achieve much more than a large group of average employees. You can always outsource the non-essential functions and focus on what helps your business grow. 

Decide on a Business Model

It's the money that keeps your business up and running. Your business model determines how you’ll deliver value to your users and generate revenue. 

SaaS companies usually rely on four types of business models. You can mix and match these basic business models until you find a combination that works for your company. 

And remember that nothing is set in stone. You can change your business model down the road if your current one doesn’t get you enough traction. 


With a freemium model, your users won't be charged for the basic service. Instead, they pay for extra features and in-app purchases that make their job easier. 

This model is a bit risky since people aren’t usually willing to pay when they can enjoy something for free. So, you should carefully pick which features you give away and which ones you put behind a paywall. 


Users pay a fixed price to use the service for a specified period—between a month and a year. They may also be charged for add-ons. And there’s usually a free trial period to allow users to test the platform.

A critical point with subscriptions is that you need to offer at least three tiers with different features and prices. This simple pricing decision allows customers to only pay for the features they need. As a result, they’ll be more likely to sign up. 

Pay as You Go 

In this model, users only pay for the resources they use. The model is excellent for SaaS companies that offer metered services like storage or streaming. Its appeal is that customers only pay for what they use. So, they’re not overcharged and perceive the service as fair. 


With an ad-supported business model, your users get all the features without charge, while the revenue comes from advertisements. Because users don’t have to pay money, they’re more likely to use the service. However, the business will be in trouble if you can’t find advertisers who are willing to pay for your users’ attention. 

Write Down a Lean Plan

When you hear about planning, the first thing that pops into your head is a business plan, a large document detailing all your goals, execution methods, and financial projections. But almost everyone in the startup world knows that business plans are a waste of time. No one will read them, and almost nothing will go according to plan. 

Instead, you need a lean plan. A lean plan is like a roadmap that only contains key points that your startup should follow. 

There are many benefits to a lean plan. For one, it's shorter, so you can spend your time on things that matter—customer discovery and execution. Secondly, your plans are more flexible, so you can change your priorities as your situation evolves. 

And when you reach the fundraising stage, you can use your lean plan to write a complete business plan.

Build a Prototype

Now you need to see whether your idea can come alive. It's like when you write a story. You can't just start writing the whole book; you first need a draft. A prototype is that draft.

It doesn’t have to work bug-free. It just needs to show your concept. After you build it, you can identify the shortcomings in your idea and address them.  

Develop Your MVP

So far, you’ve analyzed your customers, built your team, and revised your plans. Now, it's time to put your idea to the market test and get feedback from real customers. To do that, you need an MVP. 

What’s that?

A Minimum Viable Product is a version of your idea that solves the main customer problem and generates revenue.  

Whereas a prototype tells you if your idea is feasible, an MVP lets you gauge the market response. It’s an actual product that works without bugs or glitches; only its functionality is limited. 

Launch Your Product

Once your MVP is ready, it’s time to get the word out. Your ideal customers must know that your product exists and learn how to use it to solve their problem. 

Where are your customers gathered? What online outlets can you use to target them? Social media? Slack channels? Forums? 

Reach out to them by buying ads on the right platform or creating free educational content. Offer an incentive, such as a limited-time discount, to encourage signing up. However, don’t waste money on generic ads on YouTube and Facebook. These platforms can turn into bottomless money drains if you don’t have a highly specific target audience. 

Also, make sure your technical infrastructure is sound. You don’t want unexpected glitches to surface when onboarding new users. 

Measure Your Success

Success is subjective. But in the startup world, it usually involves growth and revenue. There’s a multitude of metrics you can track to guide you. Here are some of the most important ones: 

  • Conversion rate: How many people take out their wallets after learning about your service? 
  • Customer acquisition cost: How much should you spend to attract each user and turn them into a paying customer? 
  • Customer lifetime value: Imagine a person using your service for as long as they have the problem you solve. How much revenue would they generate for your startup? 
  • Churn rate: How many users stop using your service in a given period? 
  • Monthly recurring revenue: How much revenue can you count on having at the beginning of each month? 
  • Average monthly revenue per user: On average, how much money does each extra user bring to your service? 

Find Investors

Most people can't afford to run a startup on their own. You can ask family or friends, but it can put too much pressure on you. 

Plus, money isn’t the only thing your investors should bring to the table. As an early-stage startup, you need wise partners who will give you money and show you how best to use it. 

Here are the best fundraising options for a SaaS company that’s just getting started: 

Angel Networks

Angel investors are startup founders and business people who have already built a successful venture. They now invest their money and expertise in promising ideas and help them grow. 

An angel investor doesn’t just give you money; they become your partner. They help you in the challenges and introduce you to the right circle of people. 

Startup Accelerators

The main benefit of joining a startup accelerator isn’t getting funded. Accelerators help startups define their vision, find their target market, and build a compelling value proposition. They provide access to mentors and offer seed money in exchange for a small portion of the startup’s shares. 

So, as you can see, the right accelerator can boost your chances of success. 

Crowdfunding Platforms 

The crowdfunding model turns the fundraising process on its head. Instead of asking for money from companies and successful business people, you go straight to the customers. 

Essentially, you pre-sell your product and use the funds to build it. Users are incentivized to pay you money because they’ll receive the final product with a discount and other perks. 

The crowdfunding model has the added benefit of market validation. If customers aren’t willing to support an idea, they’re most likely not willing to pay for it once the product hits the market. 

Build Your Brand

A strong brand is the only genuinely sustainable advantage in today’s hypercompetitive market. Your customers need to associate you with a clear value. 

What is it that makes you different from your competitors? Explain your vision and talk about the future of your company.

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