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Software as a Service - Is It the Ultimate Business Model?

29 Sep 2021
Welcome to Episode 5 of the Aspiring Entrepreneurs with Sophie Howard podcast!
If we're talking about business models that can give us huge profits in an instant, Software as a Service (SaaS) is surely among those at the top of the list.
 

So what makes SaaS such a supreme business model?

E-commerce Expert Aidan Booth joins me once again to discuss how SaaS can bring you financial freedom. Aidan and I chat about the pros and cons of doing SaaS, how SaaS generates recurring revenue, and ways that you can get better in the industry.

If you want to find out whether SaaS is the perfect business model for you, tune in to this episode!

Episode Highlights:
  • Introduction [00:00]
  • Aidan's experience in doing SaaS [01:51]
  • How Aidan's team builds software solutions [4:45]
  • Aidan's preference between web software and mobile app [5:46]
  • Risks and rewards of starting a SAS business [7:27]
  • Aidan's tip to go big in SaaS [11:22]
  • Why SaaS isn't as complicated as it seems to be [14:57]
  • How SaaS is a self-sustaining business model [18:32]
Resources:
  • Thank you for tuning in! If you found this episode valuable, please be sure to subscribe so you stay updated whenever I post new episodes.
About Our Guest:
Aidan Booth is an internet marketer whose team offers online marketing training & consulting services, niche website & e-commerce store setup, support to small businesses, their own physical product brands, software as a service, and hosting & domain registration.
Connect with Aidan Booth:
Podcast Transcript
Sophie Howard:
Hello, Aidan, welcome back to the show.
Aidan:
Thank you. Thanks for having me.
Sophie Howard:
Well, we loved your first interview or conversation we had about the different platforms for e-commerce sellers, and you must be the most prolific starter of online businesses of anyone I know. Just phenomenal amount of work, output and ideas generated and things that you actually don't just talk about, but actually do. And when we met recently in Queenstown, we were talking about different business models out there, like what are all the clever things that are coming out? Who's making money, who's making passive income? This is always the holy grail. The more passive, the better, the more predictable the next month's income, the better, and the less that's reliant on an us calling the shots every day or doing the work every day, also the better. We've both got young families and other things we like doing in life, and so the holy grail is always this monthly recurring revenue.
And while there's lots of pros and cons and all the different business models out there, I have to say that software as a service is one of my personal favorites. Although the one I've probably got the least experience finishing, but I have started a couple and there's a couple in production. And you are a bit further down the track with your software development experience, Aidan, so I will hand over to you and let you maybe introduce a couple of the things you've been doing in the software as a service space, because this is the ultimate business model. If you can come up with a core solution that solves a business problem or an individual consumer's problem and gives them some value and they pay month after month, and you've only created the software once, you are a winner. Can you share a little bit that you've done please, Aidan.
Aidan:
For sure. Over the past decade we've done a few different SAS, software as a service products, and I'll say about half of them have done quite well and half of them have been complete bombs. I've got some experience at different ends of the spectrum, but I'll probably talk more about the winners. Just one really what I think is a good example is we've got a software company, it's called Netblaze, you can check it out if you want. And what it does is it provides marketing services to small businesses in the United States.
This is a software tool that is designed to help small business owners. And the small business owner might have a restaurant, they could have a little local gym or yoga studio or anything like that. Maybe they've got a little rental car agency, anything like that. These businesses can't afford to hire a full-time marketing manager, but they know they've got to do some kind of marketing. That's what the software is designed to do. It's designed to automate a lot of it and where it can't be automated guide and streamline a lot of the other bits and pieces. That's an example of a little bit of an innovative solution that really helps people and it's fun to work on. And it's that recurring revenue model where you've got that passive income coming in.
I think the thing that I love about software as a service is that it's something that can really turn into a ginormous business very quickly. It's the kind of thing that you can sell off for $100 million five years later. And I know a good number of people that have done that, and we know both know a few people that have been down that path. That's what I love about it, and that's an example to get us going there.
Sophie Howard:
Brilliant. You've obviously got a good eye for spotting the opportunity because all these software solutions really depend on somebody having a problem that technology can solve for them, whether it's matchmaking between Uber drivers and people needing a Lyft or Airbnb. There's always a business problem that somebody has to spot as the opportunity where the software could come in and solve that problem or create that value.
That's one part of it that's maybe putting this particular business model in a camp for slightly more experienced entrepreneurs or people who've run a few other simpler businesses first. You've got to have a pretty keen eye for what the businesses problem is and being able to really clearly articulate that and then use an outsource team, probably of developers or a team somewhere or service to create the software. There's quite a few moving parts. Plus you've got to then market the thing. There's a lot to get right, using a really broad range of skills to actually nail it. You can't really have great product, but no marketing, you can't have great marketing, but it doesn't solve a problem that anyone needs fixing. You came up with the idea, I guess, for this one?
Aidan:
Yeah.
Sophie Howard:
And then who built it, or how did you get it built?
Aidan:
We're fortunate that we've got a team of developers and they are 100% focused on developing the different softwares that we build. My part in all of this is the marketing and coming up with the ideas and also that marketing is part of which is the traffic source that's going to work best. That's where we spend a lot of our time, making sure the message resonates with different users. And I think that's definitely where I can add the most value. I don't know anything about programming or development other than what my team can do, so I rely a lot on them for that side of it.
Sophie Howard:
You've got the option with any SAS product to create a full blown, huge piece of software that sits on its own on a big website somewhere and people log in, have access, pay every month, or it can be something really simple like an app they download once and you get the in app purchases. What did you decide on for your software solutions that you've built and how did you decide on those?
Aidan:
We've done both. I think by far the easiest is building a web based app nowadays, a web based tool, because so much of the behind the scenes infrastructure can be used. It's already existing, you don't have to build this thing from scratch. And I feel like it's a much more streamlined approach and it's the way of the future. People are always connected so you don't want to, in my mind, if I've got a piece of software that I need to download then maybe I won't be able to use it on my iPad or my phone. And what if I want to use those? Whereas if it's a web based tool, then oftentimes it'll be compatible with almost anything. That's my preference. I think it's more aligned with where everything's going in the future. And then there's also this whole world of mobile apps specifically designed for smartphones and tablets and so forth. We've got less experience in that part of it, but a lot more experience in build a web based app.
Sophie Howard:
I've noticed a lot of the... Both you and I get lots of really good coaching and do lots of good courses with other people as well. I've noticed a lot of people I get coaching from, being an internal student, use apps to develop and deliver their content as well. Now, the community's on an app, not reliant on Facebook. And so there's all sorts of different little business opportunities popping up if you're a smart opportunity spotter and can work with tech teams and marketing. But it would be a rare breed of someone who could do this single handed, I reckon, who's got the tech skills, the marketing knows and everything in between, that creative piece too. It's much more likely to require a small team rather than a solo venture. That would be my experience.
Aidan:
We've seen the same thing. And I think, if you're looking at this and comparing it to other business models, there's definitely, I think, more work maybe needs to go in upfront before you have anything you can actually sell. But then the rewards of something like this, you can have a simple piece of software that costs $100 a month and it's used by 1,000 people and you've got $100,000 revenue coming in every single month and your overheads might be just a tiny. Risk and reward, you do have a bit more work maybe that you need to do upfront, but the rewards can be huge. That's the trade off that we're making there.
From my point of view, it's really fun working on these things because there are just so many options. One of the things that we are doing a lot, just to give you another example, with the marketing there, Sophie, is we've got PR agencies out there that are working on our behalf. We're becoming featured in a lot of different magazines and publications, both online and offline. And that's not the thing that we would see with affiliate websites or eCommerce websites.
Even just this past week, my business partner, Steve Clayton, he was on a radio, they've got something called Entrepreneurs Hour, Entrepreneur Lunch or something. And it's a 10 minute segment in the middle of the day in Chicago, and he was on there, and that came through the PR firm doing this outreach. And by virtue of being on that radio show, we had a little small avalanche of customers ringing us up and wanting to get our product. And this is a marketing channel that probably most people have forgotten about, but it's still out there. And for the right type of software and software as a service in general, it opens up a whole world of opportunities for marketing. It's pretty exciting. It goes far beyond what we would normally do with eCommerce or affiliate marketing or specific online based tools.
Sophie Howard:
And I guess we can sell our software to individual consumers, we can sell them business to business, but one of the key metrics is keeping people sticking with our service so that every month it's easier to stay than to leave. If you think of an example like Helium 10, which is a tool that lots of Amazon sellers use, we all very happily pay $100 plus a month to have that time of product research shortened and great data and great learning environment and community. It's not just the technical stuff, it's the community and updated education and other softer stuff around the software as well. Really, really neat business model. And if you look on Tech Crunch or any of those sites that track all the deals being done in Silicon Valley and what all the investors are up here, these are the ones that get snapped up for the biggest multiples.
Even Zoom, we're recording this podcast on Zoom. I think their valuation is 55 times revenue, whereas a great Amazon brand might be three times your net profit, so that's typically a third or less of your revenue. Huge, huge multiples, hardly any running costs and a very forgiving audience. You can patch the fixe to the glitches in as you go, you can launch with it mostly working and get the customers realizing the value there, realizing you're committed to making it a better product month after month. And when you get this right, this is the winner I'd say.
I've got one project with a couple of investors. In fact, I've got two software projects on the go. Hopefully you can talk about these on the show soon, they're still a little bit early, but they're definitely ones where we've needed a small team rather than me on my own. Partly because there's some quite serious upfront investment required for the developers, but also you need tech brains, marketing brains, and an understanding of exactly what solution it's bringing customers. Very, very fun, just the hugest potential of anything we're probably going to cover on these episodes is the software as a service for those that want to go really big.
Aidan:
I think the tick that you mentioned, the multiplier of profits for an exit strategy, if you're selling, these tech companies or software that you develop just by virtue of being a tech solution and by virtue of having this recurring model where people are paying month, after month, after month, after month, that's the reason why they've got these huge multiples. The other thing I'll also mention to people is you don't need to have something that solves 10 different problems. You could be solving one simple problem for people, and that could turn into a piece of software that you could sell and people use time and time again for years on end. I've got a couple of them that I'll give you examples of.
One is, a website's called Signeasy, and I use that for signing any document that I need signed. And I've been paying for it month, after month, after month. I don't know, five, six years now. I've got another one on my phone here that's called Tiny Scanner. What I use that one for, I think it's $10 a month or something, is that one's an app on my phone, but another good example. I would never think of canceling that because anytime I need to scan a document or take a paper document, make it digital, I just take a photo of it on my phone and it turns it into a PDF. And it's one really, really simple job that they do well. And I'll pay for that for a long, long time to come.
One of the biggest mistakes that we've made in the past that has resolved in failures of software has been when we've tried to do too many different things. It makes it much more complicated to build, it makes it much more complicated to market because how do you explain a piece of software that does 100 different things all at once. It's much better to keep it simple, find one problem or focus on just one problem and then little by little, once you start getting some runs on the board, once you get a little foothold, you can start expanding out what you actually do, provide more value. But don't fall into that trap of trying to do everything because it complicates things on so many levels.
Sophie Howard:
I see a lot of the platforms on SAS businesses that do really well, they can either be providing a business service, something like Zoom or your signing documents, software, or research tools, that kind of thing. Just helping brainstorm a few ideas, people who are thinking about how they would get started with this. They can be really silly, lightweight things. I always check out businesses for sale. I'm always fascinated by who's built big successful businesses that are profitable, want to see what they've done. But there's things like tarot card reading and horoscope businesses selling for nine figures, it's ridiculous. And it's just like a recurring monthly thing on apps, it's amazing.
And then I see people do really smart stuff. Now I never remember which country's which, but there's an Airtasker in one country and TaskRabbit in the other. One's US based, and the original, and then somebody in Australia, very enterprising, just saw that model, realized it hadn't been done in Australia and basically did the same model locally. If you live somewhere that's not a major market, I'm sure there's all sorts of things that exist as SAS solutions in the States that don't exist in Australia or New Zealand or the UK say, you might be able to get some great ideas just by reading Tech Crunch every day and seeing who's raising money for what simple ideas. They're often ridiculously simple, but the best ones just do one thing like Zoom just does online meetings, Airtable has a free version, and then if you suddenly need lots more data and space and features, you pay a bit more.
You can always start with a free, for an entry level trial or a $1 trial, and then jump up as you need more complicated and additional features. It really is good and it means you can launch with just a very simple thing, even if it's free and you add features and start charging for those as you go.
Aidan:
I think also when you become aware and starting to think about software as a service, if you think about what you're doing on a daily basis, anytime you come up against something which is a bit repetitive or a bit annoying, sometimes you can think, oh, maybe could I solve this with technology?
I'll give you what I think is a good example. In the past few days, I've been completely unrelated to online business, but I've been investing in different ways. And one of the things that I'm doing is when I'm investing in different investments, I don't have a way of seeing what my daily profits are other than taking a snapshot of what it was today and then having a look at the same time tomorrow, but I should be able to break this down and get it more granular. It turns out that for this particular platform that I'm using, there is an option to download a spreadsheet. Now, when I download that spreadsheet, it gives me all of the information and I could easily turn that, probably for a few hundred dollars, I could create some kind of a tool, not me, I could hire someone to create some kind of a tool that does that automatically for me. And I'll be able to say, okay, show me the stats, show me my profit or loss between 8:00 AM yesterday and 3:00 PM today. And it would do it in a split second.
At the moment to get that information, I've got to download a spreadsheet, I've got to then take the information in that spreadsheet, create a pivot table, and then finally it splits out some information. And it's just so pointless me doing that, that's a problem that software could solve and would probably be quite valuable to people who, like me, have got no way of really meticulously tracking the results. Again, that's just an example that I've had in the past couple of days, I'm consciously aware of these things and I think when you become aware that you can create solutions, you start seeing so many more opportunities.
Sophie Howard:
It's a great bit of your brain to be able to turn on scanning for other people's problems that software might fix. It's the most lucrative little chunk of your brain you can ever activate, I reckon. And once you start, you see them everywhere, it's amazing. It's something maybe we'll bring more people in on this show to interview, how they came up with these ideas that sound so simple it's amazing no one's done them and they just save somebody five minutes a day. It's a long time since I've done a pivot table, but nobody does those for fun.
Aidan:
No.
Sophie Howard:
I would pay a lot to not do pivot tables. And just admin, it doesn't need to be complicated, but it's so good when you can just solve something simple, easy to explain, recurring hassle or annoyance that people have to deal with. And even maybe in a more mature industry, say Amazon FBA products, there's some really sophisticated tools there to do your research and homework. And even reporting and inventory management, on KDP for books, it's amateur hour. There's a couple of things, but they're very simple and crude compared to how sophisticated the Amazon industry is for products, just because there's more people and more money and more years of people managing complicated and big businesses.
Always look for the opportunity to transfer from one place or one industry to another. And you don't need to invent anything from scratch, even the most original ideas now are still only ever combinations of existing things that are already out there. It's just a new combination or in a new place, or just some little tweak that makes it appropriate for a new market. It's really fun. It's very, very exciting stuff in this corner. I'm deep in it, learning lots. And it's a hard thing to learn about though, there's not a lot of good training out there. I think there's a gap in the market for learning how to get good at developing software ideas and making them come to life. I think maybe we should talk about that one day.
Aidan:
Maybe there's a assess tool that could be developed about giving people a framework for making their software. Beyond the training, but actually, put this block here and this block here, and you've got some tool that works for you. Interesting for sure.
Sophie Howard:
Or a platform where people can download all the things that frustrate them. You run a Facebook group on things that drive them potty and are really frustrating, and then you can have people paying to see it to scan it for business ideas.
I've got a friend in Wellington who's a venture capitalist and has a very, very high strike rate and a great track record. Actually, shouldn't use strike rate because we use that in different ways in different parts of the world, very high success rate with picking really smart investments. And his thing is just always listen out to what people are grumbling and groaning about, checking in luggage or anything where you can then think of a technology solution to a day to day problem.
One of the things he's invested in was an app that's now just been sold overseas, it was software developed in New Zealand to help salons and hair dressers and spas take bookings online, how simple, rather than over the phone and somebody who's doing treatments has to clear 20 voicemail messages between appointments, instead, and then the person who's rang goes, "Oh, I'll just have to check my calendar when I'm free and have to talk to the nanny." It's really inefficient and it's now automated, brilliant.
Aidan:
The right thing about these is they sell themselves. It's not like you're trying to pitch. You don't even have to pitch anything to anyone. Someone says, look, oh, this is going to save me a lot of time or a lot of money every month, or this is going to make me some money and it sells itself. This is the other upside about a really good SAS tool. If it's simple and it can very clearly show people what it does then the selling of it is quite simple and the retention rate of customers for the right market, right tool can be through the roof. I know people that have built hundred million software tools and they've actually sold them. One of my friends sold one for $400 million recently. And he has a 95 or 97% retention rate of customers. He gets a customer and that customer stays for life because they do a good job of doing one simple thing that saves their customers money and saves their customers time.
Sophie Howard:
Wow, amazing. Very, very exciting stuff this one. Watch what's working, see who's succeeding and pick what their thought process was and pick what they're building it strategy was and keep your eyes peeled because this is the path to riches, I think. And fun. We'll wrap up there. Thank you so much, Aidan, always great to hear your ideas, and it's really cool talking to someone who's had experience in so many different business models, including SAS, because I think this is one that really is the holy grail for people wanting predictability, passive income, high margins, and low maintenance. Winning. Congratulations on your success and thank you again for coming back on the show.
Aidan:
Thanks for having me, Sophie, always a pleasure.

 

About the Host
Sophie Howard is the founder of Aspiring Entrepreneurs, a community designed to help people develop the skills and confidence to build a business and a life that serves them. Sophie began online in 2013 with an Amazon firm, which she sold for more than $1 million in 2015.

Sophie has lectured on stages all around the world, encouraging and teaching other ambitious entrepreneurs. She has established instructional programs educating thousands of students how to sell online, in addition to releasing over 1000 products.

Sophie has also written a book titled "Aspiring Entrepreneurs: A Guide to Finding Your Best Path to Financial Freedom."
Connect with Aspiring Entrepreneurs:
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