What Makes a Startup Idea 'VC Backable'?
What exactly makes a startup idea attractive to venture capitalists? Understanding this can be the key to unlocking the doors to VC funding.
There are two biggest reasons why SaaS companies fail. Either they create a product no one really needs or run out of time/funding before becoming profitable. Every other problem can be solved along the way.
Company founders often confuse "nice to have" features with the actual "need". For example, you can build yet another chat app. It can have the largest selection of zombie emojis, and it's perfect for chatting with your friends during Halloween.
It's nice, it's cute. But is anyone going to pay you to use it? How many people are even going to bother downloading it? Probably not very many.
On the other hand, if you have worked in the IT industry for a long time, you probably noticed how long it takes to initially set up the project and scale it. You also noticed developers are writing a lot of repetitive/boilerplate code. So it makes sense to start a low-code platform and save countless development hours, shorten time to market by 3-5X, and increase the project's profitability.
This SaaS solution can save (literally) billions in development costs. And if companies can reduce their development costs by 3-5X, they will gladly pay for that solution. To put it into perspective, on a $100k software development cost, a company can save $70k. And that is the (real) need.
You can read more on the differences between low-code vs. programming and choose the option that's the best for you.
Another problem SaaS companies face is the race against time. Even if you have the best product in the world, you can still fail. Just because you ran out of time or startup capital. And maybe another competitor took all your market because your development was too slow.
The easiest way to fix that is to make your development team much more effective. You can do that by paying top dollar for the best developers in the world. Which is both hard to find and hard to finance.
Or you can give your team superior tools that very few competitors use. For example, using low-code tools for development. Because they give your team the ability to build software really fast. At the same time, you can still fully customize your project, so the extra speed doesn't come at the cost of flexibility.
To put it bluntly, you can't have a SaaS company before you have a SaaS. This means your most significant time factor is building the software. The faster you create your first working version, the quicker you can get the users. And the sooner you'll have a functioning company.
Custom SaaS software takes anywhere from 4-12 months to launch. But if you use a low-code platform to build the software, you can start a SaaS company in just 1-3 months.
Your only job, then, is to promote your solution to people who have the need for it. And the bigger the problem you're solving, the easier it is to convert those people into users and loyal customers.
The biggest expense when starting a SaaS company is software. If it takes 1 person a whole year to develop software, it will cost you around $100k. But if this developer was 3-5X more productive, it would only cost $20k to $30k.
And there are several strategies you can use to bring down the cost. Here are the most important ones…
Without improving anything else, using low-code tools can increase development productivity by at least 3X. Which means it can lower the development costs by the same amount.
So whatever software you need to develop, your project will be more cost-effective using this method. And you will have to pay less for the same amount of results.
Your ideal, full-featured solution doesn't need to be the first solution that you'll offer to your users. And if you can reduce the size of your initial product, that will also reduce your startup costs.
For example, if your users still find great value even when your SaaS is only 20% done, that will reduce your costs. Because if you can start selling your solution earlier and still get paid, then you're continuing development with the customer's money.
This means you only have to pay for the first 20% of development, and the rest will be paid by your users.
If you are solving a really big need in the market, then your customers will tolerate a smaller MVP. And the bigger the need, the smaller the initial product you need. Because of that, your initial costs will also be lower.
Also, the bigger the need, the easier it is to sell your solution to your SaaS users. Which is very important. After your first software version is released, your costs do not stop. Your SaaS still needs to be maintained and developed.
And the easiest way to stop your costs from growing is by getting paid customers. The faster you get them, the faster this new income will cover the expenses. After that, your business can live on its own.
This holds true regardless of any external investment you got. The point of any business is to stop losing money and start making money. The only difference is the preferred time horizon. For example, some companies prefer higher profitability over a 5-year period rather than moderate profitability over a 1-year period.
Starting any company is hard, but adding software into the mix can be really challenging. Because it requires very technical knowledge on top of business, sales, and marketing expertise.
However, based on case studies, you can see that tracking the progress of software projects is improved when using a low-code platform.
And this allows non-technical founders to track the development progress more easily. Because low-code platforms allow a more visual overview of the project compared to traditional programming.