Why Most SaaS Startups Fail to Achieve Product-Market Fit and How to Fix It Fast

Is there a demand for your product? If there isn’t, SaaS development is moot. It’s best to rethink your product to ensure it solves a problem or meets a need. Even if there is demand, is it sufficient to make your investment, time, and effort worthwhile?

Establish a strong product-market fit, and you’re off to a great start. So, why do most SaaS startups fail in this area? Once you know where the problems lie, you can take steps to avoid them. Let’s dive right in.

The Most Common Reasons SaaS Startups Miss Product-Market Fit

SaaS development projects can become very complex, and they can change direction multiple times before the final product hits the market. So, what started as a great concept may end up not giving the market what it actually needs or values.

At DigiNeat, we hear about SaaS software development woes all the time, and they often boil down to missing product-market fit. Why? Here are three potential reasons:

Incorrect Priorities

Too many development teams focus on assumptions based on internal discussions or on what competitors are doing. But the best projects deal with verified user pain. Identify a major problem experienced by a significant number of potential users, and create a SaaS platform that provides a simple, cost-effective solution.

Focus on what’s truly important — at least at first. Leave everything else until your core functions are delivering. If your product is packed with features that just aren’t needed, you could miss your market entirely.

Poor User Experience

Know your customers: it’s the first rule of both marketing and product development. Even if you have a viable concept that solves a major problem at scale, your product may miss the mark if onboarding is a chore and navigation is a slog. Minimize friction for your target audience. Then, test and iterate.

Unclear Value Proposition

Does the average user see the value in your product straight away? Do they understand why your product is better than those of your competitors? If both of these issues are unclear in the minds of your users when they first interact with your SaaS platform, adoption will be weak at best.

According to an analysis of failed startups by CB Insights, 42% of failures are due to a lack of market need. In fact, this issue kills far more new SaaS products than either lack of funding or competition.

How to Validate Assumptions Before and After Building

Validate your decisions, features, and user experiences at every stage of SaaS software development. It’s easy to stray away from where the real market need lies when you’re in the midst of a complex project.

Before you start any significant SaaS development work, conduct interviews with your target users to confirm pain points and their frequency. Are those issues severe enough to persuade someone to buy your product?

It’s also a good idea to run pre-sale experiments. In our experience, landing pages, waitlists, and concierge MVPs are all effective at gauging an audience’s willingness to pay for SaaS products.

One of the reasons why it’s important to limit the scope of your initial SaaS launch is the need to iterate based on user feedback. And the best feedback only comes once a working version is available.

Here at DigiNeat, we track behavioral signals such as activation rates, time-to-value, and feature adoption. We also follow up with users who give up or become inactive. In many cases, a lack of perceived value or certain UX issues are to blame.

Create and Maintain Tight Feedback Loops After Launch

Review feedback from users monthly at the very least. If possible, implement a weekly process to ensure you can act before users begin to leave in large numbers.

Founders who regularly survey their users and act on the feedback swiftly see significantly higher PMF scores than those who don’t. It’s that simple. Over the years, we developed a feedback strategy that delivers useful information that enhances SaaS platforms from launch. Here are the highlights:

Develop SaaS with event tracking to capture key user journeys and actions. These might include sign-ups, activations, and habitual use.
Analyse user information every week to identify retention drops — and what’s causing them.
Structure your feedback loops to capture as much information as possible. We use automated in-app surveys, NPS follow-ups, and customer calls to gather the information we need quickly.
Prioritize feedback quality over quantity. We usually get much more from one long and detailed user interview than a thousand quick-response forms.

Continuously Iterate Through Real Market Responses

When we’re asked how to build SaaS, we always say iteratively. Keep your initial scope focused and limited to a single problem, and build from there. This, of course, requires feedback from your audience.

We always focus on the metrics that predict sustained growth. According to Sean Ellis, a great indicator of product-market fit was a simple question:

How would you feel if you could no longer use the product?

If at least 40% of users replied “very disappointed,” you’re probably onto a winner. Below that, you may need to find out why people aren’t responding.

To iterate effectively and get to the crux of the issues that are holding back your SaaS platform, follow these simple steps:

Define Your Target Outcomes

What does success look like? Is it a certain level of weekly active usage? 30-day retention rates? Revenue growth? Keep your metrics specific and limited in number.

Focus on the Changes That Influence Your Target Outcomes

Now you know what your preferred outcomes are, focus all your changes on moving them in the right direction. Stick a pin in everything else until you’ve made progress, which should help your team focus on your project’s priorities.

Think About the User, Not the Feature

You and your team might fall in love with the idea of a particular feature, but if it doesn’t help the user with their problem, what’s the point? Never lose sight of the primary pain point you’re helping users to tackle. If the feature doesn’t serve this objective, put it to one side.

Recognize That PMF Evolves

As you enter new segments or add capabilities, product-market fit shifts. This is why you need to continuously revalidate as you move forward. Markets shift. Demand changes. New technologies emerge. And your SaaS product has to stay one step ahead at all times.

Avoid SaaS Development Missteps: Reach Out Today for a Strategy Call

When you build a SaaS platform, never lose sight of the connection between the product and the market’s needs. And be aware that this connection can change during the development process.

Validate all aspects of your SaaS — all the time. Put in place tight feedback loops, and take a disciplined approach to iteration based on the behaviours of actual users.

At DigiNeat, we partner with SaaS founders to design validation frameworks, interpret market feedback, and build roadmaps that keep product-market fit on track at all times. Our outcome-based approach to SaaS development is the perfect way to ensure your product-market fit remains steadfast throughout the process.

Book a strategy call today to review your plans and take a step closer to the successful SaaS platform you and your team envision.

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