Software-as-a-Service (SaaS) businesses are the unsung heroes of the Coronavirus pandemic. They’ve kept us connected both to our colleagues in the workplace and to our loved ones. SaaS has been essential in allowing health organizations to provide remote care while also offering advanced cybersecurity to protect the data that really matters. They’ve kept us entertained; helped us educate ourselves; and provided mental health assistance in a time when many of us desperately needed it.
If nothing else, COVID-19 has driven home how fundamentally important SaaS has become to our society. People have taken notice. I fully expect that as we move forward, the market for SaaS apps will thrive, and the value of quality apps will see an upturn. If you’re planning to leverage this fact and sell your SaaS business, here are a few things you should keep in mind.
1. Compile Excellent Documentation Before Going to Market
Prospective buyers are usually interested in a few things when looking to purchase a SaaS business. First, they’re interested in hard numbers. What is your business’s monthly recurring revenue? What is your churn rate? At what rate is your subscriber base growing? How are these two values expected to change in the future?
Buyers will also want to know what your software does. What need does it meet; what level of demand is there for it now; will demand increase in the future? Also, is there a complicated code a new buyer will have to learn before utilizing the app? They also want to know how your business compares to other sellers. What differentiates your business from its competitors? What unique value does it provide to the end-user? Is there any programming and tech that makes your business difficult to duplicate?
Finally, they’re interested in what sort of marketing is supporting your business. Is your app relatively unknown, with little time and effort put into advertising? Or is there an active marketing push to promote awareness of your brand? Do you have pre-existing partnerships with any marketing firms that buyers could leverage post-purchase? Take time to answer these questions before trying to sell your SaaS business.
2. Understand What Makes a SaaS Business Valuable
The most valuable SaaS businesses, regardless of industry, have a few things in common. First, they’re dedicated to excellence. Downtime is minimal and addressed as quickly as possible, and the platform’s users experience relatively few glitches or bugs. Reviews of your software matter, and present a good value proposition for someone looking to buy rather than start from scratch.
Second, they have excellent prospects for growth. On paper, they boast a decent monthly recurring revenue and an increasing user base. The industry in which they operate is either growing fast, or they’ve done something remarkable to differentiate themselves from their competitors. they offer exceptional customer support. This includes extensive help documentation and self-service helpdesk functionality, an excellent ticketing system, and experienced support professionals. This translates into low average response times, a high-resolution rate for technical problems, and a high level of customer satisfaction.
Third, they have an incredibly efficient growth and sales model. The majority of their growth comes from inside sales rather than field sales. They’re able to consistently reach leads who bring in other customers on their own.
Finally, they don’t rely heavily on the owner for day-to-day operations. A good SaaS business effectively runs itself. We’ll talk more about that in a moment.
If you feel your business is lacking in any of these categories, understand that this may impact your valuation when you take steps to sell your SaaS business.
3. Make Sure It’s Easy to Run Before You Sell
Unless you purchased your SaaS business from someone else, it’s likely that you had at least some hand in its development, and understand it on a deep and technical level. Prospective buyers may not possess this same level of expertise. This means that, if your solution requires a great deal of technical skill to operate, you’ll be selling to a smaller pool of buyers than if the backend is streamlined and intuitive.
Ensure that your code is clean and organized, with thorough annotations and complete documentation on how everything works. Consider also retooling the backend so that it requires minimal expertise to understand or operate. Whoever’s buying your business will likely still require the expertise of a developer to operate it effectively, but the more you can do to reduce the learning curve, the better.
4. Work with an Established Broker
Unless you’ve made a career out of buying and selling SaaS businesses, the sales process can be both complex and overwhelming. As such, it may be in your best interest to seek out and work with an experienced broker. They have a deep understanding of the sales process which can prove invaluable to you at every stage, from more accurately valuing your business to connecting you with the right buyer.
Even if you have sold a SaaS business before, it may still be in your best interest to collaborate with an expert. They’ve got a massive network of potential buyers you can leverage. More importantly, they can help ensure your sale goes off without a hitch, acting as a third party in the purchase process.
5. Leverage a Growing Market
SaaS businesses have played an important role in our personal and professional lives for several years now. The Coronavirus pandemic simply made us realize just how critical they’ve become. From entertainment apps like Netflix to workplace collaboration tools like Slack and Zoom, SaaS has weaved itself into every single aspect of our day-to-day.
As a result, even once the dust settles and the pandemic finally passes into history, I expect the SaaS market to see a significant boom. That’s good news not just for buyers and sellers, but for anyone in the SaaS space. Even if you aren’t planning to sell in the immediate future, it’s important to view your business as an asset and work to increase your value, not just your profitability.
Opportunity strikes for those who are ready for it. Taking steps to plan now will help you make a good and profitable exit when the time comes to sell your SaaS business.
