Sad Startup Stories

the real cost of trying to establish a paas/saas business

Sad Startup Stories

The hardest lesson for a developer who tries to create a paas service might be that selling is pretty expensive.

This is one more sad startup story. A friend and I tried to bootstrap a start up for the german market. It did not worked out.

The product was self service data analysis on german market data. We spend months in research an development before realising that we could not get the needed data. Bad for a data product. Bad for us. Good thing: we learned a lot about setting up complex but reliable applications based on microservices. Fast and cheap. So, why not try to make money from this? We have startup money left for 6 months.

The cloud hosting market has evolved rapidly from providers of virtual machines to providers of platforms. Google charges a minimum of 110 Dollars for their cloud Kubernetes offer. On top of their charges for their compute instances, which you need for doing the actual work in a cluster. So you get world class infrastructure, but its not cheap. Or lets say: its much more expensive than the “old” cloud, your good old virtual machines with linux on it. The obvious opportunity: copy the offer, lower the price. We calculate a little bit and find we can offer a microservice cluster with prices of a few bucks per instance, cluster management included. The user would pay 1€ Dollars for a small stateless microservice and 3€ for a private managed postgres instance. So, how to validate if there are any customers for this product? Again the obvious way: set up a landing page, buy traffic and determine how many customers you can attract.

So we did: we built and started to buy traffic. That’s where the pain started. Buying traffic is expensive. The term “cost of acquisition” is in our case the price of the traffic we buy. We pay currently around 40 cent for a bought visitor. We have a conversion rate of a few percent. That means that we can buy a paying customer for 40$. Which is quite much for a service which costs just a few bucks per month. We can offer a working cluster service much cheaper than Google but nobody knows. Because the simple way of selling is to expensive. That’s a lesson: selling is more difficult than coding.

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