The following is a framework for SaaS startups as explained by Bhavin Turakhia (serial entrepreneur, investor, billionaire) on a podcast with Sanjay Swamy where he discusses his four-point framework that he has established after working on SaaS startups for 20+ years.

B2B/B2C SaaS Framework:

There are 4 stages that any SaaS startup goes through. First, I will give an overview and then explain them in detail. The four points are:

Planning: the question you have to ask yourself in this phase is: "Do I want to enter into this business? Do I want to build this product?" In this phase, you do not hire people. You only have a small team of people to plan with minimal building or surveys. Once the outcome of this phase is: "Yes, I want to go ahead", then you go to the discovery phase.
Discovery: here, you start building the product and continuously ask yourself: "Is this going to succeed in the market? Do we have a traction channel (a channel to add customers)? Do we have a product-market fit (PMF)?"
Scale: Now, you have a product and a business that makes sense and also a go-to-market strategy but can you 10x, 100x, 1000x the product? What are the ingredients needed to do that?
Steady-state: this stage comes at the end once you've achieved a great scale. Here, you have to build the right moats (a business' ability to maintain competitive advantages over its competitors to protect its long-term profits and market share from competing firms). You need to optimize profitability, do succession planning, bring in the right leadership and ensure the survival and sustainability of your company.

1. Planning:

There are mainly six questions that you need to validate here for your business plan, they are:

Persona
Problem
Product
Go to market
Revenue
Moat

Let us take an example to explain how one would formulate his business plan and decide if it was worth doing it or not:

Suppose you wanted to build something in payments and banking, but that's very generalized. So, now you have to decide: Do I want to be a bank and sell to customers? Or, do I want to be a technology service provider to banks? If you are selling to banks, what size? Do you want to sell to all banks or only enterprise banks or only small banks? Find out what is the problem you're trying to solve for them?

Therefore, you need to identify a persona (all banks, for example) and a deep problem that the persona is facing. This would help define your product.

Your product's benefits should be greater than 10x as compared to the already existing products to make customer shift their existing products or solutions to your platform. A mere 20% or 30% incremental improvement as compared to the existing products would not convince them.

Therefore, you need to first understand:

Persona
their problem space deeply
your product and why it is > 10x better than existing products

Now, it's not enough to just have a great product. You must know how you are going to reach the market? Your go-to-market strategy should have a hypothesis of the first few traction channels that are going to work (get you, customers).

Your next focus should be on: How am I going to make revenue? In many cases, it tends to be fashionable with startups to not make revenue, but you must have a strong hypothesis for making revenue.

Next are your moats: After I build it, what's my protection of creating a sustainable business? Is it an easily replicable business? Is capital our moat? Do we need to keep pumping in a lot of capital? Is our brand our moat? Is our data our moat? Is our tech our moat? Are network effects our moat? What combinations of these can you use to create a sustainable and protected business?

At the end of the planning phase, you should have a reasonably fair hypothesis of the 6 points that you've validated through conversations, random tiny builds, research, etc. Remember to only invest further time and money if you have a validated business plan. You may need seed-stage funding to cover the costs in the planning phase which may range from a hundred thousand dollars to a couple of million dollars.

2. Discovery:

Here you need to:

find your product-market fit (PMF)
have one go-to-market (GTM) traction channel that can scale with lifetime value (LTV) greater than customer acquisition cost (CAC)

Product-market fit (PMF): To achieve PMF you need to build a quick product and keep thin-slicing it (removing bad features) and building additional thin slices (adding good features). There are 3 objective measures to find out if you have achieved PMF:

high net promoter score: people love your product and spread it by recommending others.
high asymptotic retention curve: if there were 100 people at the top of the funnel who tried your product and at the end you lost 60, 70 or 80 of them. Then, even if now only 20–30 people remain perpetually and continue to use your product on the 8th week, 16th week, 32nd week - they become your new persona.
high product attachment: Ask these 20–30 people that if you took the product away, would they be very disappointed, a little disappointed or won't care? Your goal should be to get to a very disappointed score of 40%, i.e., 40% of the people using your product should be very disappointed if you took the product away.

Then, your goal should be to build traction channels to get you, customers of this persona at a CAC lower than the LTV that you can get from them. You may need Series A funding for covering the discovery phase which may range from a couple of million dollars to 10 million dollars.

3. Scaling:

At this point, you have managed to go from 0 to 1, now is the phase to go from 1 to 100. Here, you need to:

Bring GTM personnel
bring in the right leadership
pump in capital
try an exhaust that traction channel found in the discovery phase
find new traction channels to add more customers

You may need other Series funding to scale your product.

4. Steady-state:

Now, you can pass the baton to new leaders after building the right moats and succession planning. You shouldn't need to raise capital here immediately.

Things to remember:

Focus on real revenue and profitability.
Raise funds with a clear purpose.
Focus on PMF and creating a true purpose of the product.
Stand for a particular purpose and problem you're trying to solve, eg: Ferrari: fast cars; Tesla: electric cars.
Do one thing well, not 10 average things.
Hire the best people.
Focus on value creation, not valuation. Valuation follows value creation.
Adopt OKRs in your company early on.

Bhavin Turakhia is an Indian serial entrepreneur, investor and billionaire ($1.3 billion). He has been coding since the age of 10 and building SaaS startups since 1998 along with his brother, Divyank Turakhia. He says that reading biographies of all the great tech companies such as Microsoft, Intel, IBM, Apple, etc and tinkering with computers from an early age made him realize quite early what he wanted to in life: "to do something in Computer Science and do it on my own".

He repeats his father's words that have gotten him so far in life: "You can achieve anything you set your mind to." He had started building Directi (Media.net): a contextual advertising platform in 1998 with a capital of Rs. 25,000 ($375) which he took from his father and later sold to a Chinese consortium for $900 million in 2016.

He had also built BigRock, LogicBoxes, ResellerClub, and Webhosting.info which he sold to Nasdaq-listed U.S.-based web-hosting firm Endurance International Group, for $160 million in 2014. He has also founded Codechef: a non-commercial coding platform (now acquired by Unacademy) and Ringo (now shut down): an internet calling app.

Currently, he operates Flock: a chat and collaboration app, Radix: a domain registration platform and Zeta: a neo banking stack, of which Zeta is now valued at $1.45 billion.

Surely, we can observe that he has been building SaaS companies all his life and has taken his startups to great heights all organically (without any external funding) except Zeta, by reinvesting his wealth into the companies that he built.

Photo by Austin Distel on Unsplash

I hope you have learnt something valuable and I wish you all the best for your SaaS journey 🎉️. Follow me on Twitter for more such insights regarding tech & startups.

Framework for SaaS startups