By now, you have likely heard about the Software as a Service (SaaS) model and its rise within the business world. From CRM tools like Salesforce to communication platforms like Slack, SaaS companies are everywhere. Imagine having the chance to own part of that success by purchasing an already established SaaS business on the market instead.
Even though purchasing a SaaS business may appear alluring, it is wise to carefully consider how to buy a SaaS business before jumping in.
The Appeal of Established SaaS Businesses
Consider this: when purchasing an established SaaS business, you’re buying more than software; instead you are investing in an actual business with real customers, systems, and processes. This means there is no need to build from scratch, as an established SaaS has an existing infrastructure as well as having built loyal customer bases over time.
As opposed to starting your own business, where setbacks or even failure could arise from scratch, buying a SaaS company allows you to focus on growth from the get-go. All the heavy lifting–product development, testing and brand building- has already been accomplished and you get more time for refining and scaling it.
Why Buy Instead of Build?
Although purchasing a SaaS business may appear to be less risky and more lucrative than starting one from scratch, let’s examine some reasons why buying makes more sense than starting from scratch.
1. Save Time and Resources
Establishing your SaaS business from scratch requires extensive work; from developing software, testing it and collecting feedback before gathering results to updating and upgrading it as well as dealing with operational matters such as infrastructure setup and team recruitment.
2. Leverage an Existing Customer Base
Acquiring a SaaS business provides instantaneous access to an established customer base. Instead of spending years trying to attract customers through advertising alone, purchasing an already-established SaaS firm gives you access to customers who have paid already!
3. An Existing Infrastructure
By purchasing an established SaaS business, you gain access to its infrastructure – everything from servers and software architecture to security systems and databases. Starting an entirely new SaaS venture from scratch requires setting all this up yourself, which can both cost money and take considerable time.
How to Assess a SaaS Business Before Buying
Now that the initial hurdle of researching and purchasing is out of the way, the question may arise of “How can I assess whether or not the SaaS business I’m considering is worth buying?”. That is a valid concern and here are the main things you should keep an eye out for before committing:
Financial Health
Conduct an initial financial health analysis. Examine how much revenue the business is generating, its profit margin, debt or liabilities; these can all help determine its worth as an investment opportunity.
Customer Acquisition Channels
It is vitally important for any business to understand how its customer acquisition channels function; such as paid advertising, organic search or word-of-mouth marketing strategies. Knowing this will give an indication as to its growth trajectory and sustainability.
Legal Compliance and Tech Stack
What is the business’s legal landscape like? Are there any lawsuits pending or compliance issues you should be mindful of? And whether its software stack is up-to-date and secure before inheriting one with outdated systems.
Market Position and Competitors
You should carefully assess how the business stands against its rivals and competitors in its industry, considering its unique selling points and how its products compare against others. Understanding this competitive environment will allow you to gauge its growth potential accurately after taking control.
Acquisition Trend of SaaS Businesses
Over recent years, the acquisition of SaaS businesses has become an attractive avenue for entrepreneurs looking to break into this rapidly growing industry. Given their fast expansion rate and profitable markets, many entrepreneurs seek ways to get in quickly before competitors do.
More and more entrepreneurs are beginning to recognize the advantages of purchasing a SaaS business. When done carefully, an acquired SaaS can bring steady cash flow, scalability and long-term growth potential; for many entrepreneurs, purchasing is simply the faster and lower-risk entry point into the SaaS world.
Conclusion
Acquiring an existing SaaS business can be an appealing alternative to starting one from scratch, as you will not only avoid time-consuming product development stages but will also inherit an established customer base, infrastructure and market presence. By carefully evaluating each business before purchasing it, you can minimize risks while increasing the potential.
