Worst SaaS Failures You Need to Learn From

Why Do SaaS Companies Fail?

Financial Times found that startups going bankrupt has soared to 7 times higher than 2019.

Carta also found that startups are getting leaner and leaner; Series C headcount has gotten 43% smaller compared to last year.

You can’t help but wonder: What is going on?

Before we can learn from real-life SaaS failures, we need to address the question, "Why?"

While SaaS companies have business models with high potential, projects can go wrong in several different ways.

1. Inadequate Market Research

Research by CBS Insights shows that among the reasons why a SaaS business fails is that there is no market need, with a sweeping 42%.

The truth is, in the end, the potential success of a SaaS startup relies heavily on accurate market research. 

You can always figure out a potential customer's pain points and come up with a good marketing strategy with careful planning.

But if the research was half-baked, you cannot dream of that marketing strategy being the right strategy or the pain points being accurate.

So, before following the roadmap, you want to make sure that everything in your research is ready for execution.

2. Wrong Target Audience

It is a similar common reason why SaaS products fail —no good market research means you cannot pinpoint the customer base.

If you don't know the people you are selling to from the get-go, you won't get to know them later on either.

You'll simply have no business with them, with your product having failed.

3. Poor Financial Management

Another most common reason for SaaS failure in the CBS Insights Research is that 29% of SaaS failures are caused by running out of cash.

It just might be that you didn't handle the investment rounds as well as you should have or that you managed funds poorly.

Either way, it is a common mistake.

The SaaS business model usually requires large initial investments, and revenues are expected to increase gradually. 

This is the type of failure that leaves little room for a chance at trying again, so the best advice there is, is to be careful with financial decisions from the start.

4. Competitive Market and Adaptation Issues

Here's something not many are willing to admit:

Competition in the SaaS industry is pretty intense today.

Business has always been for the brave. However, with the latest market changes, like AI, small companies are withdrawing from the market. I won't even get started on how startups can't even start to exist.

And while the market is in this state, it is understandable that this is among the top reasons why SaaS failure is so common.

5. Declining Customer Interest

The success of SaaS products depends on continued interest from the customer base. 

If the product is not constantly updated or expert customer support is not provided, user interest will decrease.

Consequently, the company may fail.

The message here is that ignoring customer feedback and neglecting product improvements leads to customer loss.

But how do we navigate these potential SaaS fails and obstacles?

How to Avoid the Worst Mistakes as a SaaS Company?

SaaS startups and even established SaaS businesses fail.

Unsurprisingly, the remedy to this in the SaaS industry starts with specifically working toward not making the common mistakes we've mentioned above.

Here's the nitty-gritty of it:

1- Do Your Market Research

Understanding market needs and competition is key to a successful SaaS initiative. 

To generate revenue and achieve profitability in the long run, you have to set the base right.

And that base is mainly made up of good market research.

A thorough market research can help you:

• Check your product-market fit,
• Understand your target market and target audience,
• Come up with a customer acquisition strategy and
• Fully establish a value proposition and back up the perceived value

Now, imagine not putting the effort needed into your market research: You would be ignoring your target market and value proposition.

No wonder so many SaaS businesses fail without it 😬

2- Build the Right Team

You can prep your product to perform well in a market environment. After all, it is your creation; it's not too hard to bend and reshape it.

Your team, however, is a different story.

An experienced and visionary team will go a long way in making your SaaS project a success. An inexperienced team will also go a long way in complete SaaS failure.

So, to avoid SaaS failure, it is imperative to hire the right team.

But it does not end with hiring talent; you need to be able to nurture it as well. Make sure to establish a strong company culture and provide resources for employees to improve themselves.

The absence of a unified vision regarding the purpose of a SaaS product influences success.

Don't let a fundamental disconnect or disagreement about the product's core objectives and how to achieve them stop you.

This lack of shared understanding ultimately hindered the product's ability to meet customer needs effectively and adapt to market demands, contributing to its downfall.

3- Devise Sustainable Financial Planning

Yet another common mistake we've addressed above was the lack of detailed financial planning, especially during the first stages of a SaaS startup.

Even with proper resource management and financial planning, the game is constantly on. Unicorns like Uber and Airbnb have taken over $1 billion in debt to get to where they are.

Without the right people on duty and a solid financial plan, SaaS failure is as easy as falling off a log.

What to do then?

You can't fully rely on existing investments, and your current cash flow might trick you into thinking you're well off.

First off, never get too comfortable.

Monitor cash flow regularly and keep your costs under control. 

Then, you can start to support your growth process by looking for ‎additional sources of funding when needed.

4- Ensure User Adoption

A brilliant product idea and flawless execution are crucial. But they're not enough to guarantee SaaS success.

Even the most well-designed SaaS product can struggle if users fail to adopt and actively utilize its features. Here's where a strategic user adoption process becomes your secret weapon.

Imagine this: you've poured your heart and soul into crafting an innovative SaaS solution. Users sign up, but then... crickets.

They don't explore the features, their engagement decreases, and churn becomes a looming threat. This scenario is all too common – a product with immense potential withers due to a lack of user adoption.

So, how do you bridge this gap and ensure your users not only sign up but actively embrace your platform?

The answer lies in a strategic user adoption process.

This involves a series of well-defined steps designed to guide users through their journey with your SaaS product, from initial onboarding to ongoing engagement.

Here's where adoption platforms come into play. These powerful tools can supercharge your user adoption process by automating key touchpoints and providing valuable data insights.

They can help you:

• Personalize the onboarding experience: Cater to different user types and learning styles with tailored onboarding flows.
• Deliver in-app guidance: Offer context-sensitive tutorials and walkthroughs at the moment of need.
• Drive user engagement: Re-engage dormant users with targeted prompts and nudges.
• Track user behavior: Gain valuable insights into how users interact with your platform and identify areas for improvement.

By implementing a strategic user adoption process and leveraging the power of adoption platforms, you can turn passive sign-ups into active users, ultimately boosting retention and driving long-term growth for your SaaS business.

Remember, a successful SaaS product is not just about what you build but how effectively you help users get the most out of it.

5- Emphasize Technological Investments

Inadequate technical infrastructure can limit user satisfaction, adoption rates, and customization capabilities.

When AI first boomed, Notion was quick to adopt it with Notion AI. Apps like Netflix and X continue to try their hand at super apps.

Now, these are all great trends that make the value proposition of a product visible, but not all SaaS startups can afford to invest in the trendiest technologies.

That's why you have to first invest in technological infrastructure to make your software secure, fast, and user-friendly. 

So, for short-term and long-term success in high-level tech adoption, you have 2 missions:

👉 Strengthen Your Technology Infrastructure

Plan your software and hardware investments carefully and use solutions that fit your needs. Make sure your infrastructure is secure and scalable.

👉 Follow Technological Innovations

There are constantly new developments in the world of technology, as we mentioned above. By following and implementing these innovations, you can stay competitive and provide customer experience for existing and potential customers.

6- Make an Extra Effort for Competitive Analysis

Remember how we did the market research in the beginning to avoid an early SaaS failure?

Well, that will have to happen frequently if you're interested in becoming a success story rather than a failed business model example.

How is that going to happen?

By following market trends and constantly improving your product. And how do you do that?

Analyze the Competition

First things first, you will want to take a close look at your competitors.

You will want to gain a deep understanding of how they operate and overcome challenges, from their marketing strategy and user retention methods to their pricing strategy and how they generate leads.

With all that information, you will develop and evolve your handling of those same challenges you have. But keep in mind that you shouldn't copy them.

Good competition nourishes one another.

If there is copying, one or the other eventually gets removed from the market, which wouldn't be ideal if it ends up being you who gets the boot.

Develop Innovative Solutions

You can check what your competitors are up to all day, but without innovative solutions on your end, SaaS failure might knock on your door next.

Plus, without unique offerings, your business might end up leaving the market way too early.

So, it is important to continuously improve your product and make a difference in the market.

Listen to Your Customers

And lastly, you cannot innovate and stay on top of your competitors without listening to your customers.

You might think you have to create a specific customer experience because your competitors did so, and then you might find out your users didn't need or want that from the beginning.

To avoid that, you have to check in with your users frequently and find out what they might benefit from the most.

Feedback collection tools and in-app surveys are your best friends doing that.

7- Strengthen Customer Relationships

Talking about listening to your customers, it is important to keep up with them even when you aren't launching a new feature or gathering feedback.

Basically, you need to have a good relationship with your customers all year round, not just during campaigns.

How?

Offer your customers continuous excellent customer support, ask questions to improve yourself, and enhance your product continuously. 

Once you can do that habitually, you'll see that solving one customer's pain points contributes more to long-term success than any customer acquisition campaign.

Now, these are all in theory. Let's see what SaaS failure looks like in real life.

8- Facilitate the Integration Opportunities

The beauty of SaaS solutions lies in their accessibility and ease of use.

However, as businesses embrace a growing number of SaaS tools, the initial ease can morph into a complex web of integrations.

Several challenges can arise when integrating SaaS products with your existing systems and processes:

• Data Migration Limitations: Moving data between disparate systems can be a complex and time-consuming process. Inconsistent data formats and lack of standardization can further complicate the task.
• Compatibility Woes: SaaS platforms often operate on different technical specifications. Ensuring compatibility between them can be a significant obstacle, requiring custom development or workarounds.
• The Multi-SaaS Maze: With a growing number of SaaS solutions in play, the complexity of integrating them all multiplies. Managing multiple API connections and data flows can become a daunting task.

When you enable easy integration processes, your users will increase, and existing ones will be willing to stay with you - aka, your SaaS business will survive.

Top Examples of Failed SaaS Companies

More often than not, a SaaS fail will teach you more about success than a success story.

And we happen to have gathered some SaaS company failures just for that occasion. Here are the top 3 examples of  SaaS failures:

1- Quibi

Quibi, short for "quick bites," was a mobile-first streaming service launched in April 2020. Its main goal was to revolutionize media consumption with short-form videos, typically 10 minutes or less.

Then, despite significant investment, Quibi shut down in December 2020, only eight months after its launch.

Now, though it looks odd, a few factors were at play in Quibi's failure:

• Poor timing with the COVID-19 pandemic reducing on-the-go content demand.
• An unappealing subscription model in a competitive market.
• Restrictive viewing options limited to mobile devices.

Key Takeaway ✍️

Though market pros were active in the project, the main problems are apparent, as are the solutions.

With more in-depth market research, more flexible viewing options, and a freemium model with ad-supported content, Quibi might have survived.

The takeaway here is not to assume but to research the market.

2- Atrium

Atrium was a legal tech startup launched in 2017 by Justin Kan, co-founder of Twitch. Its goal was to combine technology with the legal industry to streamline corporate law processes consequently.

And though it had raised significant funding and promised early traction, Atrium shut down in March 2020.

Why though?

• Inefficiencies in balancing technology and human expertise.
• Lack of traction among target customers preferring traditional law firms.
• Financial instability due to heavy reliance on venture capital.

Key Takeaway ✍️

To avoid failure, Atrium could have done a few things differently.

There seems to have been an unnecessary focus on the technology part of the solution. If they had better aligned the technological solutions with client needs, Atrium would have had one less problem.

They could have also focused on a more sustainable business model that was less dependent on venture capital and improved its go-to-market strategy to build stronger relationships with potential clients.

The takeaway here is that if you want to do SaaS, you need to familiarize yourself with the best practices of the SaaS industry.

3- ScaleFactor

ScaleFactor was a fintech startup launched in 2014 that aimed to automate accounting and financial tasks for small and medium-sized businesses.

Despite using AI and machine learning, raising substantial funding, and experiencing rapid growth, ScaleFactor shut down in June 2020.

The problem boiled down to 3 main reasons:

• Technology did not meet expectations, which ended up causing errors and inaccuracies.
• Rapid scaling led to operational inefficiencies and customer dissatisfaction.
• Venture capital reliance resulted in financial instability

Key Takeaway ✍️

To avoid failure, ScaleFactor could have focused on refining its technology before scaling rapidly to meet customer expectations.

Additionally, a more sustainable growth strategy with a diversified funding approach could have provided greater financial stability.

Now, though there are bad examples, there are good examples as well.

Don't forget to check 24 Best SaaS Startups That Can Inspire You in 2023.

Final Words

The SaaS industry has a 90% failure rate, often due to poor market research, financial management, and targeting the wrong audience.

But it can be overcome with the right practices.

SaaS failures like Quibi, Atrium, and ScaleFactor show the need for thorough research, strong financial planning, and robust technology investments.

So, to wrap it up, diligent market research, sound financial management, strong customer relationships, and continuous innovation are key to avoiding SaaS failure and achieving success.

Good luck in advance 🍀