Thinking about starting a SaaS or eCommerce business?

Paul Dittmann, Monday, August 24, 2009 @ 7:15 am

I’m approached by people every week that think they have a great “new” idea for a web startup.   The ideas run the gamut from those that aren’t yet technologically possible to those “new” ideas that I have received 10 similar calls on over the past year.   Here are some things to consider:

Think about the business need and revenue model first.  Who are the users (your “customers”), what is the application or service worth to them, how many of them are there, etc.   If you can’t envision generating a million dollars plus a year in SaaS (Software as a Service) revenue or in gross margin for an eCommerce business, it’s probably going to be an expensive hobby, not a business.

Make sure you can create a sustainable competitive advantage.  What are your differentiators?  If you have to say I want a site like “xxxxxx”, you are probably starting off on the wrong foot.   You already have at least one competitor with a customer base.  

• You need to make sure you have clear differentiators that are easy to explain to potential customers.   And, you have to understand that even if you have real differentiators, you will need to spend more marketing dollars to get that across in the marketplace than if your offering were more unique. 

Be realistic about the cost of developing and supporting custom software applications.   Although $50k-$100k may get you a standalone iPhone or Facebook application, be prepared for $200k-$700k+ for a commercial quality eCommerce or SaaS application that has scalability, security, usability and proper automated code tests for long run supportability.    

• Forgetting for a moment the cost of building an application that is solid and scalable enough to run a successful web business on, remember that you need to build a sustainable competitive advantage.   If your application only cost $50k-$100k to build, the entry price for new competitors, some of which will have much deeper pockets, is too low.   Even if it is a good idea, you most likely will just be paving the way for someone else to be successful. 

Don’t give up just because of the above. You still may be on the right track but need to do more thinking and planning before spending money on development. Here's a quick checklist.

• Do I have unique domain expertise?
• Do I have, or can I get, a protected distribution channel?  (e.g. a spin-off with an existing client base)?  Or can I find a partner that can provide this?
• How much funding to I need, not just for development, but for marketing and operations?
• Where is the funding going to come from?
• Have I tested my concept with actual customer targets from both a functional and pricing standpoint?
• Should I be trying to build an application at this point, or build a prototype to test with potential customers and investors?  A PowerPoint prototype can done for $10k; a functional prototype can be build for $35k-$75k.
• What are my personal, or my team’s, strengths?  What skills am I missing for running a succsessful company?  How do I fill the holes?

My intent is not to discourage anyone from trying.  The web is still the wild west in many respects and the opportunities are there.   My intent is to help you prepare for success.   Too many people fail with great ideas because they use up all of their energy and resources jumping in unprepared and aren’t able to follow through.

Related Services: Custom Software Development, User Experience Design

Related posts:

1. Advice to Developers: Try Understanding the Business
2. Design Thinking
3. Agile Business, Microsoft and the Threat of Cloud Computing
4. Ajax and Leaky Business Logic
5. The Starting Line

Comments (0)

Software Development

Comments

• Leave a comment
• Comment feed for this post
• TrackBack URL

None so far.

Leave a comment