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Ultimate Guide to Risk Management for SaaS Startups

To avoid unnecessary loss of revenue you should always be able to determine your risks. Check out this guide to risk management for SaaS companies and let your business grow without hiccups.

4 mins readSeptember 21, 2021

SaaS Startups: What are the risks?

Dubbed as the modern way to revolutionize one’s business, the concept of SaaS or Software as a service is slowly taking the business world by storm.

It is the latest trend when it comes to delivering business applications, Customer Relation Management (CRM), finance processing, sales, as well as database organization without the technicalities of traditional software and complexities of hardware installation.

Here we delve deep into the risks of running a SaaS business model and how you can curb them in advance.

Running a SaaS business: 5 Advantages

Five of the top advantages of running a SaaS business include:

  1. Managing software versioning: Because SaaS is hosted in the cloud, only the provider's end needs to apply updates.

Customers will always be up to date on software versions and will have access to the most up-to-date features thanks to periodic incremental updates, which are included in the subscription price.

2. Scalability: Companies are under increasing pressure to deliver real-time data, which necessitates the processing of enormous volumes of data in a timely way.

Fortunately, SaaS systems can be scaled; they can manage large amounts of data and spikes in activity, such as payroll processing or month-end closings. This ability enables for up-to-date resourcing.

3. Predictable revenue: Although no one can anticipate income exactly, when the software you supply becomes essential to a company's operations, you'll gain loyal clients and begin to see regular monthly revenue from subscriptions.

This approach is far more predictable than one based only on one-time purchases. Customers that subscribe to your services for a longer length of time are less likely to cancel.

4. Cloud deployments: The SaaS firm gives membership to the end user simply by allowing them access through their online account credentials with the deployment and installation of software in the cloud. All that is required is a web browser and internet access.

There's no need for the client to install on-premise software or invest in costly equipment to host the program, and there's no requirement for an end-user license.

5. Flexible licensing: The SaaS subscription model is considerably more flexible to the customer's demands, and it provides adaptability that hosted software does not.

Subscriptions for SaaS are available in monthly and yearly periods, and the length of subscriptions is generally determined on an as-needed basis. Furthermore, unlike with hosted software, there is no need to acquire a license or install the software.

Being aware of all the benefits of your products compared to other companies is easy, but what about the challenges?

Frequent Challenges of the SaaS model

1. Safety and Security

The major challenge that holds back most business owners is the safety and security of data stored on the internet. Issues with data sensitivity, preferred versions, and limited choices are equally on the rise.

Saas relies heavily on the internet to maximize its full potential, though this can be a big concern since internet connectivity often fails, making the service totally unusable.

2. Slow speed

Internet connection speed is yet another factor because running SaaS on the below-required internet speed may cause the application to slow down.

3. Lack of integration with other apps

The lack of integration with other programs is yet another challenge that needs to be addressed properly. You can, however, minimize these issues by:

  • Explaining thoroughly the upsides and downsides of your products.
  • Giving a wide variety of options and choices depending on business.
  • Providing concrete ways to control delays and service interruptions.

Operational risks in selling SaaS

As a company, your main goal is to maintain a steady profit and keep your business expanding while lowering operation risks and liabilities. Whether it’s a hardware issue or interrupted service or system failure, having a strong risk management process in place is critical to the success of your trade.

For example, to resolve glitches in the quickest time possible, make sure that contact records and necessary documents are readily available.

When it comes to administrative and technical controls, you want to keep downtimes to a minimum level. Although 99% service reliability is hard to achieve, you need to rectify issues as soon as they arise to prevent them from spreading.

You can setup alerting systems to notify team members of possible issues and have good metrics to accurately assess problems. Likewise, make sure to follow the 3 golden rules when setting up your alert process :

  1. Identify key areas of operation and make a business continuity plan.

  2. Develop step-by-step directions on how to resolve glitches and technical issues.

  3. Inform staff regarding disaster recovery procedures and emergency plans.

The importance of cybersecurity in SaaS

This guide to risk management for SaaS companies wouldn’t be complete without pointing out the importance of cybersecurity. Data breach scandals are a primary threat to all startup SaaS businesses, especially if clients are from the government and financial sector.

A single leakage or data exposure can break your reputation, or worse - permanently shut down your company. One way to avoid this is to carefully and continuously monitor all applications.

To avoid credential theft and account breaches, always monitor activity logs including successful, repeated, and failed attempts. Now, if you want to secure administrative credentials, make sure to supplement privileged users, change network permissions, modify policy controls, and audit logging configuration.

For third party applications integrated within the SaaS app, you must monitor activities concerning changes in access permission, certificate activity, and token authentications.

Pro tips:

  • Keep backup systems always updated to easily recover damaged or lost data.
  • Add security levels when sharing files.
  • Create firewalls.
  • Activate 2-factor authentication
  • Report any malicious activities.

5 Tips for SaaS Risk Management

If you've made it this far, you're heavily considering sticking to the SaaS business model over the long term. If so, keep a mental note of the following 5 tips to manage the risks you'll face along the way.

1. Cash in, cash in now

Trials are often offered in order to lure potential clients. While offering a long-term trial might seem attractive, it actually hurts your business and does more harm than good.

You don’t want customers to use free trials forever, and you don’t want them to duck out once they’ve had enough. The goal here is to get them hooked for the shortest time possible and get them to pay ASAP.

Trials should only be offered for 14-days at the most, as most customers won’t use the full duration of the product and instead duck out after three to five days. Likewise, offering long trial periods will only result in a delaying tactic that will lead prospective clients to procrastinate and eventually forget about your product.

But if you offer shorter trials, people take will take the trial seriously, increasing your chances to sell your SaaS product more efficiently.

Points to remember:

  1. Check your data to determine the average time of users ending trial periods.
  2. Shorter trials cut down your sales cycle, compelling customers to act fast.
  3. It also lowers customer acquisition costs which will reduce your operating expenses.

2. Get sufficient capital to get going

One of the many reasons why business owners love SaaS products is that their features are affordable and also predictable. Skyrocketing sales will definitely bring consistent income to your business, but be wary that the cashflow will start off sluggish.

Especially if you are a SaaS startup company, you’ll need a considerable amount of revenue to kick off your business. With a good amount of cash on hand, you can use this to fuel the important things that matter to your trade.

Another thing you need to note when selling SaaS software is that discounts will never bring long-term benefit. While it’s advantageous to your sales team since it makes selling easier, discounts hurt your branding as a company.

Price is a good indicator of quality, and customers don’t want to settle on cheap products only to find that they will not benefit from them in the long run.

Points to remember:

  1. Consider offering annual plans and different packages at special rates.
  2. Spend your capital wisely and use it to hire salespeople or to improve your products and services.
  3. Offering different prices makes it hard to predict estimated revenue.

3. Follow-up relentlessly

Closing a deal successfully during the first contact is indeed a once in a blue moon experience. Especially in enterprise sales, it’s rare to pull off a contract during the initial discussion.

Your success in making SaaS sales greatly depends on your patience and ability to carry out follow-ups on a regular basis. You should never take maybe as an answer, instead, you need clear answers from prospective clients – yes or no.

Right after getting your target customers signed up for trials, make a call right away while the product is still fresh in their minds. Communicate with them constantly. A voice call will do, but if time restricts you from carrying out personal interactions, use the powers of email.

Send as many emails as you can and don’t be afraid to be reported as spam.

Points to remember:

  1. Using a valued email address, instead of consider
  2. Reaching out to clients at different times of the day and reiterate your call to action.
  3. Sending out breakup emails to non-responsive clients, to elicit a sense of urgency.

4. Never close a bad deal

The next tip for selling SaaS software can be controversial for some but strategic for many. Never close a deal with unqualified customers. It’s hard to let go of assured income, but the responsibilities that come along with these customers outweighs the revenue.

Unqualified customers often make complaints and constantly seek support. The time, effort, and money you’ve invested in explaining and answering all their questions and objections can be invested more efficiently somewhere else.

Likewise, unqualified clients have a tendency to badmouth your team with negative and biased feedback. One single negative review online could hurt the reputation of your company big time.

Unfit clients habitually blame the products they use rather than their own failure, and you don’t want these negative reviews to happen to your business.

Points to remember:

  1. Create an ideal customer profile, make it as close and as real as possible.
  2. Identify the needs and wants of your prospects and share these with your sales teams.
  3. As much as you can, try to figure out the decision-making process of your client.

5. Get cyber liability insurance

Since cloud-based SaaS offerings are getting popular right now, it’s just a matter of time until hackers target your business. Hackers do everything they can to attack companies, and as a provider, you need to make sure that everything is well protected in case this happens. Especially if you are dealing with confidential files, the cost of exposing this data can literally drain your finances.

In addition to taking action to prevent cyber attacks, you need to protect yourself, your employees, and the company from unwanted risks and make sure to obtain cyber liability insurance and have the necessary coverage to uphold the interests of your business.

Cyber liability safeguards your company from security-related claims including network failures, data breaches, and media or content liabilities.

Points to remember:

  1. It is important for businesses that gather personal information for online use.
  2. You’ll need this insurance if you keep and maintain a database of clients.
  3. SaaS relies heavily on technology, making cyber liability insurance a must for your business.

Pro tip: In addition to cyber insurance, if your company has venture-backing you should also consider a management liability package. This policy will cover losses related to errors made by your directors and officers.

Risk management for Saas startups: 3 Takeaways

Last on this guide to risk management is the impact of standardizing your activities. Remember these final 3 key takeaways your security measuresat the core of your business:

  1. Build a robust architecture that tackles Saas security strategy.

2. Make sure that there is a good balance between risks and productivity measures.
3. Keep up to date with technological advancements and industry developments.

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