Why Do Most SaaS Startups Fail?

Why Do Most SaaS Startups Fail?
Why Do Most SaaS Startups Fail?

This post was most recently updated on December 13th, 2022

It’s no secret that the vast majority of startups fail. In fact, according to Shikhar Ghosh, a senior lecturer at Harvard Business School, ” Roughly 75% of venture-backed companies don’t return cash to investors. ” And while that stat is sobering, it’s even more so for SaaS startups. SaaS startups have a failure rate of 90%. So why do most SaaS startups fail? Let’s take a look at some of the most common reasons. 

Lack of a Unique Value Proposition

One of the most common reasons for failure is that there is no unique value proposition (UVP). For your startup to be successful, you need to offer something unique and solve a problem that people are willing to pay for. Without a UVP, your startup will have a hard time standing out from the competition and acquiring customers. 

The key for founders regarding this value proposition is understanding their target audience and what they need, then designing a solution accordingly. Detailed research into customer pain points and industry trends can give founders the insights they need to deliver a truly innovative new product that captures users’ attention –and continues to retain them through every phase of their journey. By clearly identifying the unique value offered by the SaaS startup, founders have a chance at success in an increasingly competitive market. ​

Lack of Product-Market Fit 

Another reason SaaS startups fail is that they don’t have product-market fit. Product-market fit is when your product satisfies a market need. In order to achieve a product-market fit, you need first to identify a problem that people are willing to pay to solve, and then build a product that solves that problem. Achieving product-market fit can be difficult, and it’s one of the main reasons why SaaS startups fail. 

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Having a clear product-market fit is absolutely critical for any successful business. Without this, a product has very little chance of achieving success, as it will have no real demand or market pull. To ensure that the idea you have for your product is actually viable, you must thoroughly research the market to determine whether there is enough of a need. This process involves carefully studying to discover what the customer really needs and wants in terms of features and functionalities for the product, and also researching industry trends. It’s essential to understand who would be interested in buying your product and why they are likely to do so.

Having a thorough understanding of the potential customer and their interests can help identify further opportunities to expand your target market, thereby tapping into new avenues of revenue. Additionally, by having strong insight into both your current and potential customer base, you can handle any discrepancies between demand estimates versus actual purchase behavior with greater efficiency. With these steps taken care of, you should be able to form an effective strategy that will give your product the best chance possible to achieve long-term success. ​​​​​

Poor User Experience

The success of a software-as-a-service (SaaS) platform largely depends on the quality of the user experience it offers. In today’s digital world, it is not enough to create a great product; you must ensure that users feel comfortable and welcomed when using your platform. Customers should find the interface intuitive and navigation effortless for maximum effectiveness. Companies should also focus on providing an outstanding customer service experience since this will help to encourage repeat usage and can even spark word-of-mouth advertising among customers. Another essential aspect of the user experience is the security system – customers won’t patronize your platform if they have reason to believe their data is vulnerable or at risk in any way.

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If a SaaS startup hopes to attract and retain a large user base, it must provide an enjoyable and positive experience that allows customers to leverage its features as quickly and efficiently as possible. If customers are not happy using your platform or being part of it, then your startup will eventually fail because no amount of marketing automation or clever design can replace the impact of having satisfied users who tell others about their good experiences with the service. Providing a spectacular user experience is one of the most important factors in creating and maintaining long-lasting relationships with your team’s customer base. Regardless of how great a SaaS offering may be, if users don’t enjoy being part of it then all other efforts will be for naught.

Lack of Traction 

Traction is key for any startup, but it’s especially important for SaaS startups. SaaS startups need to grow quickly in order to be successful, and the only way to do that is by acquiring customers at a rapid pace. Without traction, your startup will struggle to grow and eventually fail. 


The vast majority of startups fail, and the failure rate is even higher for SaaS startups. The most common reasons for failure include lack of a unique value proposition, lack of product-market fit, and poor user experience. If you’re starting a SaaS startup, make sure you have a strong UVP, you’ve identified a problem that people are willing to pay to solve, and you’re able to acquire customers quickly. 

Sounds like a difficult deal to crack? Well, startups are difficult to build and sustain but by having a startup studio by your side, you can minimize the chances of failure. Venturenox is an established startup studio that builds SaaS products for startups from scratch. The studio offers a risk-free process, pre-built resources, and expertise to shape startups in the best possible way. The team quickly validates the founder’s ideas after finding the product-market fit, later developing it into a high-functioning SaaS platform. 

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If you are looking for ways to make your startup work and grow, startup studios can help you build and sustain your product!