Learn / Guides / SaaS startup guide
Chapter 1: 4 key ingredients for startup success
Passion is often seen as the essential ingredient that breeds success.
The logic goes like this: if you are passionate about what you do, you will work with conviction and drive, which in turn will make your business succeed.
But following your passion blindly might lead you straight to failure: as a young SaaS startup, there are a few other ingredients you need to take into account.
Last updated2 Feb 2022
You have to have timing on your side
A few factors have a clear influence on the success of a business:
an original idea
a solid team
a robust execution
a viable business model
some cash in the bank (hopefully).
One thing that is absolutely crucial, but often forgotten? Timing. At the height of the recession, people were willing to do extraordinary things for additional income, including sharing their living space as part of a new sharing economy—and this is how Airbnb found its success. In SaaS, research & experience software Qualtrics started thriving during the recession when its customers were cutting back on expensive in-person market research.
Although neither company planned its business as a direct answer to the recession, timing was clearly in their favor as people were increasingly more willing to try alternative solutions to make their ends meet.
"Nothing is as powerful as an idea whose time has come."
Think of books like those by Franz Kafka, written decades before finding an audience, or artists like Van Gogh who achieve critical and commercial success posthumously. It might sound like a weird comparison, but a similar logic applies to SaaS startups: sometimes you might have an excellent product idea, but the market is just not ready for or responsive to it.
So how are you to know if your timing is right?
"The best way to assess timing is to really look at whether consumers are ready for what you have to offer them. And to be really, really honest about it: not be in denial about any results you see, because if you have something you love, you want to push it forward, but you have to be very, very honest about that factor on timing."
In other words: you must be able to support the ‘why now?’ question with qualitative and quantitative data points that are outside of your own personal reasons for starting the business. For example:
have a few conversations with representatives of your target market about their past pain points when carrying out a task, and their expectation of future ‘pleasure’ when doing it differently. Investigate how they are currently solving the problem you are attempting to solve, and try to determine from their answers if the service/product you are offering might be able to help;
run some basic testing by creating a landing page for your product and seeing if a) you can attract traffic; b) people are interested and interact with the page; c) people are willing to give you their email address; d) people are willing to click your main CTA.
Identify your unfair advantage
In addition to being able to seek and find opportunity when the time is right, you need to find a way to positively differentiate yourself through what John Nesheim calls an 'unfair advantage': a talent, a skill, an insight that positions you above your competition. In other words, something that is unique to you and your company, and can propel you onto the path of success.
David Darmanin, our Founder and CEO, believes his unfair advantage when he started Hotjar was being a ‘subject matter expert’:
"I had been in Conversion Rate Optimization for a very long time, so I'd used feedback and analytics tools before and attended a lot of events. I had grown a successful software company, so I had made a lot of mistakes to leverage. I worked with some of the best companies in the world, so I was very well-connected and networked with a lot of industry leaders. So when we started Hotjar, what helped a lot is that I knew exactly where to go."
What is your unfair advantage in the SaaS business you are building? Making a list of the unique blend of talent, experience, knowledge, and expertise you bring to the market will help you identify your advantage and capitalize on it. Word of caution: as your company grows, your unfair advantage should also evolve.
"New enterprise competition is not a one-move game. The long, long march along the start-up trail will expose you to aggressive competitive battles with new rivals and harsh responses by established companies. As you react, you will change your unfair advantage. You will scramble to shore up weaknesses and innovate to increase strengths. In a few years, you will not recognize your latest unfair advantage when compared with your first."
Validate your idea with potential customers
‘Make sure you have an addressable market’ may look like a no-brainer recommendation, but over a third of startups fail because there is no market need. As a minimum starting point, when developing your Minimum Viable Product (MVP) you should have identified what the market needs and the problem that needs solving. This, in turn, will help you gather data to answer questions such as:
Is the product/service you are building useful to potential customers? (How) would they benefit from it?
Do they have a budget for it?
How big is the market you are addressing right now? How big could it become in the future?
Quick note: do not be afraid to start again or pivot your idea if the data you collect identifies a better opportunity.
"Our first 10 customers are nothing like the people we are bringing on board today. So we solved the problem for someone a few years ago but today’s customers are completely different. And that’s something to be aware of, I think, when you’re starting out."
It may seem counter-intuitive at the beginning, but your best bet is thinking big while starting small: start with a focused feature set for a small market, with the big one in mind. Think of how Facebook started with Harvard students and then, when the idea was validated, it expanded to other universities before going global.
Passion is a multiplier of success, not the reason for it
The first few months growing your business can be rough, and being passionate about what you are creating will help you persevere through the ups and downs of your journey. Don’t let wild passion blind you to the direction you’re taking the company, though: it’s good to take some time off now and then to get another perspective.
Overall, you should see passion as a multiplier of success, not as the reason for it:
"Passion works as a multiplier if you can direct it towards a wide-open opportunity in the market and couple it with a large dose of unfair advantage. It also keeps you motivated to always stay learning—it inspires you to read, research, network, and work with (and for) more clever people than yourself."
If your timing is right and you have an unfair advantage to leverage, passion is what ultimately might lead you to succeed even if the competition is ferocious.
Assess your timing: there must be qualitative and quantitative reasons that justify your product’s existence at this specific point in time.
Identify and leverage the ‘unfair advantage’—a talent, skill, insight, etc.—that makes you stand out from the competition.
Do your research to validate your idea and find a market for your product. Be willing to start from scratch or pivot if your data suggests that you have not found a market yet.
Passion alone is not enough to guarantee the success of your SaaS business, but it determines how motivated and resilient you're going to be. Use passion as a multiplier for success.
The Passion Fallacy, Hotjar Blog
How to Choose a Target Market for Your SaaS, Marketing for Developers Blog
What’s the Difference Between Qualitative and Quantitative Research? This is Product Management
Video & Audio
The Single Biggest Reason Why Startups Succeed, Bill Gross
Validating Your Business, Tim Ferriss and Noah Kagan
XAwards: The Passion Fallacy, David Darmanin
Behind the Cloud, Marc Benioff
The Millionaire Fastlane: Crack the Code to Wealth and Live Rich for a Lifetime!, M.J. DeMarco
So Good They Can't Ignore You: Why Skills Trump Passion in the Quest for Work You Love, Cal Newport
The Power of Unfair Advantage: How to Create It, Build It, and Use It to Maximum Effect, John Nesheim
Creating Competitive Advantage: Give Customers a Reason to Choose You Over Your Competitors, Jaynie L. Smith
Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, Alexander Osterwalder
Hotjar is Behavior Analytics software that makes it easy to go beyond traditional web analytics and understand what users are really doing on your site.