Almost 90% of SaaS startups fail because of wrong marketing strategies, cash flow problems, and bad product-market fit. But how to be in this 10% of successful SaaS and micro SaaS companies? In this video I'm going to share five golden rules you should follow in order to build a successful micro SaaS first and make a profitable business later. For the last 5 years my company has built more than 20 web applications for micro SaaS and traditional SaaS companies who generated six-figure revenues in their first year. I guarantee that after watching this video you will learn something new and in the end I will also share 3 micro SaaS ideas for you to consider. Hey everyone, it's Andrew and let's get started! And the rule number one is called a cash cow. As you might already know that micro SaaS is a small SaaS business that is focused on creating one product that solves one need for a specific Market Niche. So usually micro SaaS businesses are self-funded while traditional SaaS companies often rely on investments. Some might argue that micro SaaS businesses can be managed by one person, however I find it hard to believe that a single individual can be an expert in coding, marketing and sales, while also having the financial resources to self-fund the startup to profitability. I don't say that it is impossible, but you need a decent cash flow to keep your SaaS company alive. But how can you do it? You need a cash cow. There is a chart called Growth-Share Matrix that includes four categories, and one of these four is called a cash cow. In simple words, a cash cow is a business, side-hustle, product or a 9-5 job in our case that makes money and allows us to spend some of this money to ensure slow growth of your Micro SaaS business. Here is an illustration that describes why this model is named a cash cow. If we are talking about real world companies, a good example is Apple. By selling MacBooks and iTunes songs, gift cards or subscriptions, Apple has an ability to fund their star product - an iPhone and new, high-risk products such as Apple TV. But in our case, again, to make sure our micro SaaS is growing, we need to feed it with money to build first and to promote on a regular basis later. Usually it can be any money making 9-5 job or a side hustle. In my case, we have several web development clients who pay us on a monthly basis and using this money, we invest it in our SaaS company. We buy backlinks for better SEO, test paid advertising, hire developers to help us and so on. Of course you can find an investor or it might be your business partner or a friend, or even relative, but usually that's not the case when we are talking about micros SaaS products. And even if you have a decent amount of money as an emergency fund and you want to invest them into your micro SaaS, which is risky I would say, be ready that you will spend them one day and if your startup will not be profitable at that time, what would you do? So to sum up everything about our first rule, a cash cow helps you to avoid cash flow problems when growing your micro SaaS. Nothing to add here, moving to our rule number two. The rule of thumb or 40/40/20 rule. The rule of thumb is widely known in marketing, wealth building and business as well. In our case it's also practical when building a micro SaaS product. I see that a lot of entrepreneurs are focusing mostly on development, they built a promising SaaS product, but they have no leads. Other business owners don't know how to build a custom micro SaaS product, they use ready to use solutions such as web builders, and in the end they start to promote it, but nobody wants to pay. Because the product is average or there are a lot of other alternatives on the market. But there is a solution called the 40/40/20 rule. The 40% of your focus and expenses should be invested into your R&D as known as research and development stage, and another 40% on marketing and sales, and the last part of 20% on general and administrative things. But in the real world, if we are talking about existing SaaS companies, the rule of thumb is more like 30/50/20 and the company I'm building with my business partner is not an exception. 40/40/20 is more like a placeholder and a starting point for you to consider. Of course if you are building your micro SaaS by yourself, the expenses on the research and development stage could be even 10%, but one thing always stays the same - the expenses on marketing and sales should be at least 40% of your monthly budget you are going to spend on your business. But to make sure you can grow and start making more money, this rule is working and tested by millions of businesses. Moving to our next Golden Rule. And our third rule is called know your potential market size. For Micro SaaS products you should focus on a specific niche. When startups do their pitches to investors, one of the must-have slide in their pitch deck is about potential market size. This slide helps investors to understand if your idea is in demand, what could be your potential market share, and how far you can go. I see that a lot of business owners create a product first and only then test the market, how difficult it is and so on and after that you can find topics on Reddit or other forums where founders couldn't understand why their promotion doesn't work for their SaaS businesses. To understand your potential market size you should look at one of two metrics: the calculated market volume, or the number of potential customers. The calculated market volume is usually difficult to calculate due to the lake of data, but you should consider the following formula: The number of potential customers you should multiply by purchases in a given period of time and you will get the market volume. As you understand that our micro SaaS won't make millions of dollars, I recommend focusing more on the number of potential customers. Basically there are two ways to find the number of potential customers. The first way is to research keywords and potential monthly traffic. Let's take as an example of SaaS app called Picwish. The main idea of this app is to remove background, so we need to use our remove background keywords, in different variations of course, to understand how many people monthly are searching for these terms. By searching in Google you can see that more than 300 K people in the United States are looking for web apps that provide remove background feature. and that is one of your ways to understand your potential market size. Another tool I recommend using is called Google Trends. It will help you to understand if you create a season depending product, let's say Christmas or Halloween decorations. The second way to research a market size is through industry reports and studies. Seek industry reports and studies related to your niche, usually you can find these reports from news websites or leaders in your niche. Let's take another business to understand the market size - Relai app. This app is focusing on bitcoin investing and to understand the potential Market size of Bitcoin holders you can just Google: "how many people own and use Bitcoin", and here we go, our first website is the Google search, and here are the stats. And that is your potential Market size. Please, hit the like button for YouTube Algorithm, it helps me a lot, and we are moving forward. And the
next Golden rule is called the Beaten Track or the Blue Ocean. All of you might hear a lot of times if you are creating a business you need to have a competitive advantage. I agree with that, but it's not always true, and I will prove to you why. Most SaaS companies have a huge number of competitors and some niches are overcrowded with the competition, but does it mean that this or that SaaS business is unprofitable? Of course not. The "A" company might have a 22% of market share, the "B" company another 25%, but the "C", "D", "E" and other 10 similar companies share the rest of the market. And the answer for that is that every company has its own fan base - a dedicated audience that knows about competitors, but they like your product. They might have found you before other competitors, and at that period of time they just don't care about anyone else. Without analyzing competitors you won't understand what works and what doesn't. However building a fan base of customers who love your product is always better than blindly relying on competitive advantage that might not bring you new customers. But of course you need to do something different: the same product, but different looking features, the same features, but a different business approach and so on. Talking about building something new, just two sentences here, I wish everyone would read a Blue Ocean strategy book that will help you to understand how you can stand out of the crowd. So it's always better to think long-term when building your micro SaaS and choose the right direction at the beginning of your journey. All right, it's time to talk about our next Golden Rule. The right growing metrics and the business model. I will start with the business model. There are six main pricing models you should know: Freemium, per-user pricing, flat rate, tiered pricing, user-based pricing and per-feature pricing. I won't dive deep into each of these pricing models, but I want to highlight the main three you should be using for your micro SaaS business: Freemium, Tiered pricing and Usage-based pricing. If you want to build your customer base quickly, I highly recommend starting with the freemium pricing model. Basically you provide access to a basic version of the software for
free. Talking about your product, at least 40% of your features should be free and the rest is up to you. But again, everything depends on your micro SaaS business. When we have added "Try For Free" button on our homepage, we started to see 3.5 times more registrations in our app. If you want to
provide more flexibility for your customers, try to combine freemium with tiered or usage-based pricing models. Now let's talk more about growing metrics. It's always a challenge to understand
if your micro SaaS will be profitable or not. You should dive deep into the marketing and sales process here. Let's say we are using a freemium and tiered pricing models. It doesn't matter what your
micro SaaS does, but you need to focus on the next metrics: users to subscribers conversion rate. You need to take all users who bought a subscription from you (monthly and yearly subscription should be separated) and divide it to all registered users or users who exploit your app for free; and users who bought a subscription or in some way paid you. Next kind of metric is called the customer satisfaction. With the NET promoter score you can measure Customer Loyalty by looking if they will recommend your product or not. Your NPS score is determined by single question and shown as a number between minus 100 and plus 100 with higher number being better. You can always send any kind of surveys that are relevant through email marketing. So it will not only help you to understand the customer satisfaction, but you will also understand the number of active and engaging users, and these users might be your ideal customers to learn from. Of course we don't talk about your expenses, monthly recurring revenue or other well-known metrics, just because it's more about the financial part, but you should always consider them also. If you care about these metrics, it would be more than enough to understand if your micro SaaS is developing. All right, and as I promised here are three ideas of micro SaaS you can build. Water balance tracking app. I know you
can say that there are a bunch of similar apps but it's a category called health and fitness and in this category every app is always in-demand. You just need to find your audience. Product analytics app. A SaaS tool that helps customers to analyze the product life cycle from sourcing materials to manufacturing distribution and disposal. So basically you scan with your camera
the product code and see the full life cycle of this product. Personal living assistant. let's say it's a mobile application that would give you a personalized tips and challenges with AI help to reduce waste, save energy and make eco-friendly decisions decisions in your daily life. For example it might suggest ways to recycle more effectively, cut down on energy usage at home, or choose products that are better for the planet. All right guys, I hope this video was helpful to you! Don't forget to subscribe to my channel to never miss a video about SaaS. Hit the like button for YouTube algorithm - it helps me a lot,and see you in the next videos!
