Development costs growth on a post MVP phase of a SaaS product
SaaS companies and investors love it because the economics of SaaS is far more compelling than selling software licenses. SaaS revenue usually comes in regularly and is easily predictable, making it much easier to predict cash flows in SaaS companies, which allows you to use this in planning and even here and now sell future cash flows to investors and, accordingly, fund current growth quite generously. For this reason, SaaS companies are considered one of the fastest-growing software companies in history.
Many entrepreneurs do not understand at what stage of development their company is and often overestimate its scale, guided by thoughts of the fastest possible growth.
This can backfire, with a report published by Startup Genome showing that 70% of startups fail because of the rapid scaling of their business model. If you act as if your company is bigger than it really is, and don't measure the most relevant metrics for your stage of development, this approach will ultimately be a disaster for you.
Over the past 10 years, we have helped launch over 40 startups and two of them are our own. Naturally, during this time we have made quite a few mistakes and gained invaluable experience. Therefore, today we decided to show you several cases of what happens to the SaaS after you launch the first version, what the costs may be, and what needs to be done to keep the project afloat.
What kind of costs growth in saas project to expect?
Despite the fact that modern companies have access to vast amounts of analytical data, most of them still do not understand what exactly they need to focus on.
A classic and typical mistake of novice startups is to think that after the release of MVP:
- Development costs can be greatly reduced;
- The main thing is to find the money for the MVP and when sales start, there is no need to invest own money again;
- The income will come immediately after MVP is launched.
Why do most people think so?
- People confuse IT business with a more classic offline business when you can invest and then not invest for a long time - they are used to a different dynamics of costs;
- Are not used to and underestimate the difficulty of competing in the global market;
- The factor of the novelty of the IT industry is underestimated - there are more research and risks associated with product implementation.
How does the reality of post MVP saas development cost look like?
So, what really needs to be done after the launch of the profit center in order not to lose the business. To begin with, let's correctly formulate what these three letters MVP mean.MVP (minimum viable product, sometimes mistakenly stands for a minimum valuable product or minimal valuable product) is a minimum viable product that allows you to get meaningful feedback from users, to understand what they need and not create something that they are not interested in and for which they are not willing to pay.
Within the concept, your startup idea is a hypothesis. To check it, you need to do the following:
- Formulate a hypothesis clearly.
- Determine the criteria by which its viability will be determined.
- Make a minimum viable product to confirm the hypothesis and launch it.
- Measure performance indicators.
- Draw conclusions and test the following hypothesis, if necessary.
MVP for startups is by no means a raw product made in a hurry. It just takes a minimum of time to develop it, and it contains only key functions, the relevance of which for real users should be checked. Studies show that 60% of features are not used at all, which means they are not in demand among users. The MVP concept allows you to shorten the project launch time by creating only the necessary functions and start getting real feedback on your product.
The product must be attractive to the user. And so a new concept appears - the minimum lovable product (MLP). A minimum lovable product not only solves customer problems but also delights them.
Jiaong "JZ" Zhang, VP of Product at Webflow and formerly at Airbnb, WeWork, and Dropbox, commented on the evolution of MVP: “The MVP was appealing because it brought the product to market quickly and cheaply. But increasingly fierce competition makes it harder to release an MVP. If a startup really wants to stand out, it needs to create a minimum lovable product.”
The cost of SaaS stabilization
One of the most important points at the stage of transition from MVP to MLP is project stabilization. This is the case when, from a technical point of view, you make this product as working as possible. It often turns out in the middle of development that fixing all the technical mistakes and making the user-friendly interface costs much more than originally planned. In fact, this is the responsibility of the developers.
Our team can help minimize project stabilization through high-quality business analysis, planning the development of the backend and front-end according to the terms of reference, and not on a whim. Also, all designs are tested on prototypes. All these actions taken together reduce the time and money spent on stabilization.
How do pivots increase the cost of SaaS development?
To get to the MLP stage, you need to take care of one more important point. The ideal product, in terms of your vision and the perception of users, can differ significantly in substance. As much as you would not like, but to reach MLP you will have to admit the reality and significantly adjust your product. Pivots are most likely inevitable, and therefore money will be needed to implement them.
A finding from The Startup Genome report reveals that “Startups that pivot once or twice raise 2.5x more money, have 3.6x better user growth, and are 52% less likely to scale prematurely than startups that pivot more than 2 times or not at all.”
For example, we experienced it in 2017. We worked on a binary options trading platform. In the same year, such platforms were simply banned in Europe and Israel. That is, our customer risked being left with 100% losses. But with the help of a different pivot, we found a way to redesign the platform for different trading, which is legally allowed. That is, sometimes you cannot predict when and why you will need additional development or radical changes to your product, but you must be ready for them in order to stay afloat.
This saved the project, but the cost of the issue is +5 months of teamwork, which is a lot! If this money is not invested, then the project could be closed with 100% losses.
SaaS technical support cost or how to save the team
It is important to understand that the development and improvement of the project do not end at the MLP stage. One of the critical points at this stage is the preservation of the team, otherwise, this leads to a slowdown in the pace of development and, accordingly, the loss of money.
In this case, outsourcing of employees is the best solution, since you can gather and disband the same team several times. In our company, we have repeatedly faced a situation when work on certain projects was suspended and after a while, we got together again to make the product even better.
The result - it turned out to be very difficult, the client had to wait, it is not always possible to return the same developers - a waste of time on entering new ones. This is all bad for the project and kills the cost savings from stopping development.
Conclusion - it is advisable not to stop the development and not even greatly reduce, but to continue, but competently build a marketing and business plan so that it is well intertwined with the development.
What will it take to get to the growth stage?
If your project has not died after 3-6 months of the post MVP stage, then you reach a new level of this business relay - the growth stage. On the contrary, at this stage, the project requires new changes and financial investments. Code refactoring code will be one of the main consumers of the budget.
Do not be under the illusion that costs will not rise, they will rise at this stage. Here is a list of unpredictable things that cannot be avoided:
Its purpose is to make it easier to understand how the program works.
So what does it mean to make it easier to understand how a program works? The specific goals of the refactoring might be:
- Improving the project of the existing code;
- Finding errors;
- Making the code more understandable for other team members;
- Making the code less annoying;
- Making it easier to add new code.
Also, refactoring helps to implement software products faster. The quality increases - and, accordingly, the speed of development. Refactoring is definitely necessary if a new person comes to your team, and the code in the form in which it exists is not clear to him. This suggests that the quality of the code is unsatisfactory.
For refactoring, first, write good tests: unit, functional, or integration. Second, change the code in small iterations. Run tests at each step.
Depending on the topic of your SaaS, there is often a need to combat fraud.
Fight against fraud
Almost every project we worked with during the growth stage was attacked by scammers. So for example, our own project Stripo, which is far from the topic of fintech, was also attacked, we were banned and caused damage to the project. Therefore, we had to devote developer time to solutions to combat fraud.
So for example, our own project Stripo, which is far from the topic of fintech, was also attacked, we were banned and caused damage to the project. Therefore, we had to devote developer time to solutions to combat fraud. Accordingly, this point implies another development point that requires financial investments - security.
Invest in security
This is usually the stage of a project that most developers go through at a fairly basic level. But as soon as the project becomes more visible, it comes to the attention of hackers, who naturally will not miss trying to hack your system. Therefore, it is necessary to conduct a security audit at the beginning of the growth phase.
A network security audit is a technical assessment of an organization’s IT infrastructure—their operating systems, applications, and more. But before we dig into the varying types of audits, let’s first discuss who can conduct an audit in the first place.
- Internal Auditors;
- External Auditors;
Now that we know who can conduct an audit and for what purpose, let’s look at the two main types of audits:
- Manual Audits: A manual audit can be performed by an internal or external auditor. During this type of audit, the auditor will interview your employees, conduct security and vulnerability scans, evaluate physical access to systems, and analyze your application and operating system access controls.
- Automated Audits: An automated audit is a computer-assisted audit technique, also known as a CAAT. These audits are run by robust software and produce comprehensive, customizable audit reports suitable for internal executives and external auditors. Advanced auditing software will even provide an extra layer of security, continuously monitoring the IT infrastructure and alerting IT technicians when suspicious activity occurs and when predetermined security thresholds have been crossed.
Enterprise saas support cost for new developments
This is perhaps the most important item of financial investments at the growth stage. This is due to the fact that the industry is developing very quickly and competitors are also not sitting idle, new features and technologies appear.
For example, earlier our project Stripo positioned itself as a simple HTML editor. Then Google proposed a new email markup language called AMP. In this regard, our team was approved to implement support for AMP, which is essentially a pivot.
As a result, it took another 3 months and 2 additional developers for the first version, and now we support AMP that requires additional time.
Now we would like to visualize all of the above. The example we talked about above is three and a half of our work. Everything that is said in this article is the experience gained in this project as well. We assure you that this will surely happen with your SaaS project too. Therefore, you have the opportunity to observe from the experience of other people how the costs of the project grew over the course of three years.
The philosophy behind MVPs is simple: the longer companies wait for a product to be released - and the more money they spend on creating it - the more risks it entails.
An MVP released at the right time, when enough money has been spent on it, reduces the risk of low ROI and helps with the formation of stable cash flow in the future.
In this regard, if you still wonder how much should you spend on saas support and how to spend your budget wisely, our main recommendation is as follows - plan marketing and sales not after the launch of the profit center, but from the first day of the project in order to start receiving feedback and enter the market as early as possible. Reduce the profit center as much as possible in order to:
- Reduce risks in case of failure;
- Launch it as early as possible and while the developers continue to do further start selling it.
The Ardas team is ready to help you with the implementation of your SaaS development so that your budget is distributed as smart as possible and without unnecessary losses. And we will also help to make an adequate realistic assessment and not the one that developers do without experience in promoting and developing Saas, it is usually 2-3 times less.
Interested in this expertise?
Get in touch with us and let's discuss your case. We will gladly share our knowledge and experience with you and find the most suitable option for you.