Reasons Why Most SaaS Startups Fail

Quite a large number of companies are opting to get into Software-as-a-Service due to its viability as a choice of business. However, like any other business opportunity, there are a number of challenges that come with this pursuit. Most SaaS startups are bound to fail despite the ever-increasing number of businesses sprouting in the market.

The following are some of the reasons why these businesses fail despite being cost-effective and accessible to users.

Management without vision

Employees are the engines of profitability when put in the right environment with the right tools. They are trusted to do what they are hired to do and expected to always add value to the business by taking responsibility and having initiative. The metrics of what makes a good employee are wide, however, we’ll focus on the effect that management has on the overall performance of employees and businesses.

When it comes to SaaS, building a team that is well-executed and vision-driven is key. Employee performance is greatly pegged to effective communication and strength recognition. Communication is a topic on its own, however, poor communication leads to a lack of understanding which greatly affects performance.

Improve communication and employee recognition, and you’ll see a definite improvement in employee performance.

Lack of market research

Every business mission should be tailored around solving a particular problem. Is your startup in the business of solving a problem that needs to be solved? The answer to this question for any SaaS company should be a resounding yes.

Market research makes it possible for any business to get the necessary insights to tailor their products based on what the market wants and needs. It is important to know what the market demands as well as any changes that may affect the business in order to come up with an appropriate solution.

Market research is the most effective way of identifying potential customers and reaching out to them.

Cash flow struggles

Cash flow problems are are a part of any business at some point in their cycle, especially in the early stages. This can in effect prevent the business from seizing opportunities that may help expand the business.

To grow your business to the point where it becomes profitable, it is necessary to have a sufficient and regular capital injection whenever the need arises to support the said development.

Customer churn > growth

Customer churn rates that exceed the growth of the customer base are a cause for alarm. Customer churn can be explained as the decision made by customers to stop using your service. A great example of churn is a canceled subscription.

Churn cannot be eliminated completely because there are a lot of factors that affect this on both the business side as well as the customer side. However, it is worth identifying and seeking out ways to reduce churn as it has a direct relationship to revenue growth.


Factors that affect SaaS startups and cause them to fail are many. However, with a great product, the right team pushing the business vision and mission, product fit to the target market, and adoption of different techniques to reduce churn, your startup will be well on its way to being a success story.