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With more than 80% of venture capital investments occurring in enterprise and with the public markets disproportionately rewarding SaaS corporations with huge enterprise worth-to-revenue multiples (median is 7.6), it’s no surprise that interest Software-as-a-Service is booming. After assembly quite just a few SaaS corporations, I’ve compiled a list of my splendid traits for a SaaS business below.

Attribute 1: Product Is Core to the Operation of the Business The product is essential to the operation of a buyer’s business. For instance, Zuora enables subscription billing; Expensify manages worker bills; ZenDesk builds customer support systems. Clients can’t operate without it.

Characteristic 2: Cost/Worth Proposition is Straightforward The product is either cheaper than the alternative: hiring an engineering staff to build and maintain a customized implementation of the product;

Or provides network effect benefits otherwise impossible to find: LinkedIn’s network effects drive the adoption of LinkedIn’s applicant tracking system;

Or provides sophisticated technology that's tough to duplicate: Infer builds machine learning models on top of sales data to improve company performance. Not every company has ML expertise.

Characteristic 3: Finances Its Own Growth

The company benefits from negative working capital and shorter time-to-market.

Negative working capital means customers pay at the beginning of a month or quarter or year to use the product. These prospects pay to improve the software over time by providing cash up entrance, reducing the cash needs of the business. Because prospects are paying to improve the product, quite than buying a "production-ready" enterprise product, the company can go to market much earlier in their development.

At the outset, the corporate targets the less sophisticated SMB segment which doesn’t demand the compliance, heavy security and integration options needed by enterprise customers. This also lowering time to market and provides revenues and product feedback within the quick term.

Attribute 4: Efficient Sales Model

The company is able to recoup its price of buyer acquisition, be it online marketing or inside/outside sales, in less than a year. Ideally, the corporate provides 12 month contracts and the company can be profitable on a customer before the customer has an option to churn. Hand-in-hand with this thought is powerful buyer retention.

Characteristic 5: Market Leadership The company is already a market leader, is on the trail to changing into the market leader, or is operating in a segment with little viable competition. In SaaS, sales and marketing execution are critical to the success of the business. Competition will increase buyer acquisition costs and increases sales complicatedity.

SaaS companies can be hugely valuable and for good reason: their products are core to their customers’ businesses, provide something which is exclusive within the market (cheaper, higher), finance their own development by means of efficient sales models and ideally set up market leadership.

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