How the SaaS model helps cut costs for a startup?

I was recently at one of the Startup Saturdays and couldn’t help but notice the number of students gathered to start something in the coming years. Everyone had more or less a unique idea and all of them were going to do it using SaaS.

Be it online collaboration, hiring, developing, CRM, billing - there is one answer for all your startup needs - Software as a Service (SaaS).

The article points out from a SaaS user’s perspective how these products have made life easier for us new age entrepreneurs as compared to our predecessors (basically people who started before the year 2000).

To understand this we need to look at what exactly goes into building an organization around SaaS. You are someone just out of college with an Engineering OR an MBA degree who starts building a service to change the world, you have (mostly) very limited resources. A small room, which is mostly your fathers garage, your own room or a rented space. Now, in this space there is no place for production environment servers leave alone cooling solutions and swanky hardware. It is easier to buy an 11USD a month Production Server in California and start putting your ideas on it. This takes care of your IT startup backend. Now, your enterprise requires people. There are hiring solutions, one like ours that provides you with online tools to hire people and pitch to people online. This service can be used as per user per month basis and you only pay for what you hire.

You can then live on chinese from the street vendors while working your way towards your first million.

Now, for a small organization, the structure is vital to its growth OR to say the least, sustenance. With online collaboration tools getting affordable, you can have the same level of competence as any other well established IT firm using a paid service. A good example for this would be DeskAway and Zoho to name a few. All these services are free to sign up for and come with a nominal fee for more users. These services keep all your data on the cloud. It is out there to be shared with your knowledge contributors. Online collaboration is easier, helping everyone across the organization. Collaborating real time not only helps the founders determine usage but also gives the core team valuable inputs over improving the software.

As I mentioned, since the software is deployed online and you get real time data over its usage, you can determine who is using your software and for what time period. According to the 80-20 rule, you can then build features for this twenty percent of your clientele.

So, now even getting feedback is easier and more passive than it ever was.

I am going to put in points that help organizations using SaaS models to startup cheaper and stronger:

1. Low cost of entry: One of the most important reasons why SaaS is such a favorite with entrepreneurs. SaaS is delivered to organizations as a subscription model, usually billed on a per user per month basis. This means that the costs are granular in nature and are incurred only as long as benefits are achieved. This does away with the enormously large up front payments and massive annual license fees.

2. Low hardware costs: Since the application is hosted by the service provider, investing in expensive infrastructure is no longer required. All large initial investments on hardware, licenses, databases, ongoing overheads of employing and training IT staff, software and hardware maintenance and upgrades are managed by the software vendor.

3. Multitenancy helps: All SaaS software are built on a multi-tenant architecture, such that one software is shared on the server by many people. Also, the multi-tenant structure, helps you use the modules that you like and brand the interface as per our liking. Also, multitenancy not only helps cutting down costs but also helps in pushing out bug fixes and feature releases in a more efficient way. So as an entrepreneur, you do not need to worry about upgrading your package to avail of that swanky new feature on the software.

4. Scalability: Your organization starts with a few people and unless you are doing something wrong will always scale up. Now, SaaS models are applications built for the mass market. Such software’s can be upgraded easily to accommodate the extra users at a nominal extra cost. In fact for many services I know, if you upgrade to a package with more users over a longer period of time, the costs are much less than running it on a monthly subscription basis.

5. Easy to implement: These software’s are on the web and do not require any installation, let alone any changes for your end users to adapt to. You just need to launch a web browser to start using the software. There would be times when you are required to add an extension but this is not rocket science and people in your organization can easily adapt to this. Also, the time required to setup services is negligible compared to ASP’s.

6. Predictability: All SaaS models are based on pre-defined fixed charges and pay as you go revenue models. This makes it easy for a startup to predefine expenditure and also to prepare for unplanned usages. When you know exactly how much you would be paying for something for a year, it is easier to plan ahead and mobilize resources.

7. Improves focus on our core business: SaaS strategy not only eliminates the need for additional IT infrastructure spends, it substantially takes the burden off your internal IT staff. With the SaaS advantage, your staff does not have to manage upgrades, troubleshoot problems for generic software applications. This helps the company to direct limited in-house IT resources towards more business oriented initiatives. These business oriented initiatives are the ones that are usually run-out-source-able and require the focus of internal IT teams.

Here are a few Software’s you can use for your own startup:

CRM requirements: Sales Force

Online Collaboration: DeskAway, ZohoProjects, BaseCamp

Billing: Zoho Invoice

Hiring: ZohoPeople, SutraJobs.com

You can also check out the ZoHo suite to find more products.

So, if you are a startup and are looking to get a structure in place for your organization, I suggest starting with these services and leaving it to the experts while focusing on your core business for greater profits.

The same article is also available at saasburst.com and my blog.