Should you buy or build a SaaS product?
If you’re reading this, you’re probably wondering whether you should build a software-as-a-service product, or just buy one that is already built.
Below are two stories, regarding both cases.
John builds his SaaS 👷♂️
John wanted a SaaS product because of market trends and how profitable they can be. He had no experience working in tech, no experience managing engineers, and no experience building a product. He was a decent salesman – in his head perhaps more decent than in reality – but he could definitely sell moderately well to an audience that didn’t challenge him too much.
He decided to build the SaaS product himself, from scratch.
He had an idea, talked to some friends about it, and wanted to start building. Hired a designer to design what he wanted, and eventually asked a development agency to develop his product. This has cost him $70,000 at this point, and he feels that the hard part is done.
When the product was built he decided to put it in the market, and started having conversations about it with actual potential customers.
The market wasn’t receptive to the current state of the product, people found it confusing, and significant changes were necessary to make it work like people wanted.
The costs for the development agency suddenly went up too much, as the agency said that those changes required changing too many things, and quoted him $50,000 to essentially re-do the whole product.
He lost faith in the agency, and tried to find a CTO that could code and that would work for free in exchange for equity, and do the necessary changes.
Nobody wanted to be a part of an obviously sinking ship with incompetent management, and he couldn’t save his product. He never had a chance.
At the end, he has $70,000 of worthless source code in a USB stick, and has no idea where he went wrong. He blames the development agency, and “being too early to the market with his revolutionary idea”.
Jane buys her SaaS 💰
Jane wanted a SaaS product for the same reasons John did. She also has no experience building a product nor managing engineers. She can also sell similarly to John.
Jane decides to buy her SaaS. She finds a broker and buys a SaaS that generates $5000 in MRR. This costs her $300,000. She financed $200,000, and put in $100,000 of her own money into a proven SaaS with actual customers.
By doing this she skipped ahead a long arduous journey of:
- Finding a team (this SaaS “came” with a part-time developer that costs $1500/month)
- Navigating product development with no experience whatsoever, she was smart and leveraged her capital instead of pretending she knows how to build a product
- finding product-market-fit ($5k MRR may not mean PMF yet, but that’s a detail for another article)
- The Zero to one process
Jane knows that this SaaS has the potential to 10x rather quickly because it was built by someone that had very little sense when it came to marketing or sales. She knows there is a lot of low hanging fruit when it comes to getting more sales for this.
She contacts a growth agency and they make a deal that is part retainer and part profit share, after 6 months the MRR is now $50,000, and she could flip it as it stands for $3,000,000 to someone who has the skills to take it even further, she can pay off the loaned $200,000 within the first year.
Should you build a SaaS product, or should you buy one that’s already built?
It’s a question that many startups have to answer.
On one hand, building your own products can be incredibly rewarding—but it’s also extremely time-consuming and expensive.
On the other hand, buying an existing SaaS product can help you skip ahead months or years of trial and error and potentially gigantic hard-to-quantify costs at the start.
You’ll be able to get something that is market validated by the very fact that it already exists!
If you’re thinking about building a SaaS product for the first time, here are some things to consider:
- Risk
- Market Validation
- Time Commitment
- Support
- 1 in 3 startups fail to find PMF
When you’re thinking about whether to build or buy a SaaS product, there are a lot of factors to consider.
If you’re building, there are the costs of development, marketing and customer acquisition, ongoing support costs and maintenance. The cost of these things can easily run into the millions, even before you’ve actually sold your first product.
If you’re buying, there’s the initial cost of buying a solution that already works for other customers. Depending on how mature it is and how well it has been validated in the market, this could be anywhere from hundreds of thousands to millions of dollars.
But there’s another factor that may not be as obvious: time. If you choose to buy a solution instead of build one yourself, it can shave months or years off your development time and finding PMF – saving both money and stress in the process.
Should you build a SaaS product, or buy one?
The answer to this question is not always clear cut. On the one hand, many companies are building something that they hope will be the next big thing in their industry. On the other hand, there are plenty of companies who have already built great products and are looking to monetize them through an acquisition or partnership deal with another company.
It depends on your goals and how much time you’re willing to invest. The $50,000 to develop a product may look cheaper than the $300,000 to buy one. But you’re forgetting to factor in the total cost of time, opportunity cost, software rewrites because the agency you used wasn’t your friend.
If your goal is to get something working fast and then sell it, then buying an existing product might be the best choice for you. However, if you’re looking to create something that’s highly customized for your business model and needs, then building it yourself will make more sense.
The bottom line is this: if you go with an existing solution that fits the needs of an existing market, you can save yourself time and money while avoiding unnecessary risks.
For any entrepreneur, the decision to build or buy a software-as-a-service (SaaS) product is a touchy one. While building your own SaaS can be rewarding, it’s also expensive and time-consuming. Buying an existing SaaS is a lot simpler—but it means giving up some control and taking on risk that you might not have known about.
Conclusion
You may think that building your own SaaS is cheaper, and for some people it might be. (as an experienced software developer I can build MVPs in 90 minutes, for example, but finding PMF is the hard part, and that may come before writing any code)
I’ve personally seen people put $300k+ into building products that either never saw the light of day or never had a single customer onboarded. It’s very rare to have a successful first product, especially when you are simply not experienced enough.
There are SaaS products out there for sale with $5k MRR that will cost you $300k (MRR * 12 * 5), and if you buy them, you just skipped ahead years of product development.
If you have skills that can 10x this SaaS, such as having a big network of customers to sell to, or great marketing skills, you can make back your investment pretty quickly.
Reasons to buy a SaaS product
- Fast
- Already market validated
- MRR from day one
- Potential team in place that knows the product already
- More predictable cost
- Less risk
Reasons to NOT buy a SaaS product
- You simply don’t have the capital
- You want to experience the rewarding experience of building your own product
Reasons to build a SaaS product
- What you want to buy doesn’t exist (there could be a reason for this, be careful)
- You are an engineer or have successfully managed engineers and can iterate fast (just remember to listen to the market)
Reasons NOT to build a SaaS product
- Cost is less clear
- More risk
- Requires more skills
- Requires more time
Conclusion
The truth is, building a SaaS is buying a SaaS. Plus:
- user research
- product development
- engineering
- 3 or 4 or 5 pivots (could mean building 3, 4, or 5 distinct products, each with a high cost)
- building a team
- sales
- marketing
If you have no experience in either of those processes required for building, I’d suggest buying one outright, and using the existing team to maintain it and either using your own growth skills or someone else’s to grow it.
If you’re looking at either buying or building a SaaS, reach out. We have a vast network of sellers, builders, and advisors ready to save you hundreds of thousands of dollars.