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3 essential ‘must haves’ of SaaS companies
To succeed in their markets and to gain financial backers, SaaS companies need to be much more than a solution in search of a problem. Rather, the following elements need to be in place:
- A well-defined problem to solve, and a working and provable solution.
- A revenue bridge.
- Founders that demonstrate they have done their due diligence by assessing true market value potential.
All three elements are crucial.
The first demonstrates the company has pinpointed its target market and understands what its needs and pain-points are, and is able to provide a solution.
The second explains how the company makes money from its product or service. The third point is critical when approaching investors. Without a thorough and detailed market assessment it will be difficult for investors to have faith in the company and its founders, and without that faith they won’t be willing to invest!.
DID-YOU-KNOW?
Established SaaS companies looking to scale up and enter new markets need to assess their market growth potential before attempting to raise investment capital.
The TAM approach to market analysis
One of the main metrics used in tech industry market analysis is Total Accessible Market or TAM.
TAM refers to the total market demand for a product or service across an industry, and it is an essential metric to show when seeking private funding. However, since no business is likely to achieve 100% market share, it’s necessary to drill down into the share the business can realistically achieve.
The first subset of TAM is SAM – or Serviceable Addressable Market. This is the value of TAM targeted by the product or service that is within geographical reach.
The final subset is SOM, which is the Serviceable Obtainable Market.
SOM is the portion of SAM that is realistically achievable for a business.
SOM is the end-goal of TAM, as while TAM determines whether a solution has a commercially scalable market to grow into, SOM measures the market it can gain realistically.
As well as being used for estimating market share, these metrics are useful for working out the value of a tech company.
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