Product Failure: Why New SaaS Products Fail and How to Avoid it
Why is product failure such a common feature of the SaaS landscape?
That’s one of the questions we’re dealing with in the article. We’re also looking at what product managers do to increase the survival chances of their products.
What is a product failure?
Product failure happens when the product fails to meet the OKR set for it.
In practice, it normally means not generating enough demand to even recover the initial investment. Such products are not sustainable and don’t survive in the long run.
What are the top challenges in launching a new SaaS startup?
When launching a product, teams face a number of obstacles.
First of all, finding the right user problem to solve is a challenge. Many companies fail to offer users painkillers instead of vitamins.
If the target market is very saturated, it may be difficult to stand out from the crowd, so differentiation is another hurdle to tackle.
Differentiation is closely related to pricing. Getting the pricing strategy that would make the product competitive but also generate revenue can be really challenging.
Not having any competition can be an issue as well, because this may mean you’re creating a new product category and users may not realize they have the problem you’re solving.
Coming up with a product vision and mission that users would relate to is another problem.
The average product failure rate in SaaS
The SaaS space is incredibly popular because it’s fairly easy to enter and potentially offers high rewards. However, a great majority of startups never make it.
It’s estimated that over 90% of startups fail. 20% of them never survive more than 2 years, and only a half make it past the 5-year mark. Only around a third of SaaS companies have a chance to celebrate their 10th birthday, and 6 out of 10 never make any profit whatsoever.
This is not limited to start-ups.
Lots of big-name companies have had products in their portfolios that never failed big time. Examples include Apple’s first personal digital assistant, Google Glass, and Microsoft’s Windows ME, nicknamed the ‘Mistake Edition.’
Main reasons why SaaS products fail and how to drive product’s success
Why is it so difficult to make it for SaaS companies?
The main reasons for failure include wrong PMF or customer fit, poor marketing strategy, difficulty to recruit and retain the right talent, cash flow issues, and technical debt.
Let’s look at these in more detail.
SaaS startups fail due to poor product market fit
Launching a product without a product-market fit is one of the most common reasons for failure. 34% or so fail because of that.
How to fix: test product-market fit and iterate
The work to achieve the PMF at the very beginning of the product lifecycle often takes many iterations and lots of testing and experiments.
A beta launch is a final check before we launch it to a wider audience.
Once you nail the product-market fit, don’t take it for granted. Work to develop a product-market fit framework to make sure you keep innovating to keep up with the market and customer changes.
Wrong customer fit for your SaaS app
We talk about poor customer fit if your product is attracting customers whose needs it cannot satisfy.
This has very grim consequences.
First, the customers churn because of the perceived value gap. If the customers are particularly disappointed, they might feel inclined to vent their frustration in reviews or share their negative feedback with mates.
How to fix: attract the right market with proper messaging and positioning
To get the right customers to your SaaS business you need a positioning strategy outlining your product strengths and competitive advantages.
This is the foundation for all the messaging your marketing team crafts to attract users.
By communicating your value proposition to the target customer, you avoid misunderstandings and build a loyal customer base.
The product is not ready to solve a real problem
When most users think about failed products, they think of missing functionality and bugs. This means the product doesn’t do the job it’s designed to do properly.
While it’s not the most common cause of failure, it’s still in the top 5.
How to fix: a minimum viable product can help avoid failure
Instead of building a number of features, focus on a set of 3 or so minimum viable features and build a solid MVP around them.
Reducing the scope of your MVP will increase your chances of launching a product that is fully functional and will help users get their jobs done.
The product is too early or on the wrong market
Selling a solution to a problem that users don’t know they have is really challenging.
If the market is not ready for your product, you will need to spend a lot of time and money on customer education.
Failing to plan for it and secure adequate resources will lead to the failure of such a product.
How to fix: do minimum market research
Market research will help you validate ideas and test the demand for them.
At this stage, the key is to spend as little as possible. So ideally, you should test your ideas without spending anything on them.
What are your options?
How about creating a video of what the product could look like and launching a Kickstarter-style campaign to see if people are interested in your idea? Or hacking a few existing products to build a prototype that would work like your product and testing user interest?
Fake door testing is another popular and cost-effective way to test your assumptions about new features.
The product has poor UI/UX
How easy it is for users to navigate around the product and complete their tasks has a huge impact on how successful a product is.
If it seems too difficult to use, many users will quit before they experience your product value.
Early adopters, who drive the word-of-mouth marketing of the product, won’t even touch it if it looks unfinished or unsuccessful. They don’t want to be associated with products that are likely to flop.
How to fix: avoid the most common UI/UX problems
To make your product easy to get around, make sure your UI is not cluttered. Avoid separate tabs for every single feature, long checklists, or drop-down menus.
What’s more, make it as easy as possible for users to discover value. Take good advantage of the empty state real estate to start onboarding users, and use in-app messaging to lead them to the AHA moment.
At the same time, make sure your tooltips and modals don’t obscure important parts of the UI. Avoid linear product tours as they are not relevant to many users, and opt for interactive walkthroughs that onboard users contextually.
Failed product launches
No matter how brilliant your product is, its launch will fail if you don’t have a proper strategy.
The strategy will very much depend on your goals and your growth stage.
How to fix: always use a go-to-market strategy
When preparing the product launch, invest in a go-to-market strategy.
A solid GTM strategy should define the target users and market, identify the key differentiators that will make you stand out from your competitors, and select the best marketing channel to promote the product.
It also needs to outline the launch plan and the team’s responsibilities.
Wrong business model and pricing
Deciding how much to charge for your product is tricky because there are a lot of factors to take into account.
If your product is too expensive, users will choose your competitors offering the same functionality. However, if it’s too cheap, its perceived value may be too low to make users trust you.
Similarly, it may be difficult to sell your product without a trial or demo, because users won’t trust you to deliver on the promises. But if your free model is too generous and satisfies all user needs, they won’t have a reason to upgrade.
How to fix: choose the right pricing strategies
To start with, look at different pricing models and choose one that fits your product and target audience the best.
What are the options?
You could have a flat-rate pricing structure at one end of the spectrum, and usage based on the other. A lot of SaaS companies opt for the middle ground and have tiered pricing, with a range of plans offering different functionality at different price points.
Once you choose your approach, decide if you’re going to offer a free plan. If yes, consider what functionality to include so that you can still offer additional value in the paid plans.
Whether you go with a freemium model or not, make sure to provide users with a chance to experience the value first-hand. This could be a live demo or trial.
If you go for the latter, consider the pros and cons of free trials vs. paid ones in the context of your product goals.
Lack of a retention strategy
Many startups fail because they underestimate the importance of a retention strategy.
Acquiring customers is expensive, so you need sure they stay with you as long as possible to improve the CAC:LTV ratio and maximize the ROI.
How to fix: do NOT skip minimum viable onboarding
The best way to retain customers is by delivering continuous value.
The work begins with Minimum Viable Onboarding as soon as users sign up for the freemium plan or trial. Its purpose is to help each user segment discover the most relevant functionality so that they can start using it immediately, and get to experience value.
Only when they get hooked, you can use in-app messaging and patterns like tooltips to introduce more advanced features, educate users with in-app tutorials and videos and drive further engagement.
To be effective, the process needs to be gradual so that users don’t feel overwhelmed by product complexity.
Missing product strategy and iterations
SaaS startups fail because they stop innovating and improving their products. As a result, their customers drift away to competitors and they lose their market share.
To retain your customers and acquire new ones, you need to show them that you have a strategy that will deliver constant constant improvements, new features, and better functionality.
How to fix: validate product requests and prioritize
To develop a competitive product strategy, you need to listen to your customers’ feedback and requests.
However, accommodating each customer request is not sustainable, so you need to validate and prioritize them before including them in the roadmap.
Public roadmaps are a good way of both collecting users’ requests and sharing what features and functionality you’re prioritizing.
How Userpilot can help you avoid product failure
Userpilot is a comprehensive product growth platform that allows non-technical teams to collect user data and drive product adoption.
What exactly can you use Userpilot for?
The engagement layer, which includes in-app messaging, allows you quickly onboard your new users and get them to experience the product value fast.
As users get to know the product better and become more confident, you can target specific user segments with personalized in-app patterns to gradually introduce the functionality that is relevant to their use cases.
The in-app modals and slideouts are also great for launching new features and making sure your users don’t miss all the improvements you’re introducing. This will help you keep them constantly engaged and stop them from churning.
To make informed decisions on how to improve and innovate your product, you need customer input. Userpilot makes collecting and analyzing quantitative and qualitative feedback with in-app surveys a breeze.
And thanks to the analytics functionality, you can cross-reference the results with product usage data to get a more complete picture of user needs.
Conclusion
Only a small percent of SaaS products survive the initial few years after their launch, so the odds are against you.
To increase their chances, product managers need to:
- conduct solid market and customer research to ensure there is demand for the product,
- build a reliable and easy-to-use solution to recognized user problems,
- develop and implement a robust go-to-market strategy,
- invest in product onboarding and education to hook users,
- and constantly improve the product to keep delivering value and retain customers.
If you want to see how Userpilot can help grow, book the demo!
