Is there a modern-day SaaS playbook for success? And more importantly, is it really the path to sustained Category leadership?

by Jonathan Simnett, Managing Director at Hampleton Partners, Co-Host of The Difference Engine Podcast
Originally posted on the Categorical Blog.

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In recent years, we’ve witnessed a wave of SaaS companies seemingly emerging out of nowhere, carving out entirely new Categories and claiming dominance. But there’s a catch – the current playbook that many of these companies are following seems to come with a built-in expiration date. Is this tech and financial flywheel truly a good thing, or does it ultimately leave customers in the lurch?
Creating Curiosity
The story of the SaaS industry has been nothing short of explosive. But as we’ve seen, it’s easy to fall into the trap of assuming that every SaaS venture is destined to succeed by following a well-worn path to market dominance. What happens when that path becomes self-destructive, leaving both customers and companies grappling with its unintended consequences?
One name that’s been a significant part of this conversation is Jason Lemkin, the founder of SaaStr, whose thoughts on SaaS have had a major impact on the industry. In fact, we even reviewed his SaaStr show in The Difference Engine podcast. Jason and many others have been vocal about the fact that SaaS, as we know it, may be reaching its peak.  In our view we are heading towards an AI-driven paradigm shift as the industry moves towards AaaS (Agents as a Service) model. 
So, let’s ask: is the SaaS playbook, in its current form, truly the route to sustained success – or is it time to rewrite the rules entirely?
The Stages of Building a SaaS Business
To understand what’s been happening in the SaaS world, let’s break down the stages needed to build a significant SaaS firm:

1. Think Category: Reframe customer expectations within an existing market. Focus on solving an existing customer pain point—such as dirty, expensive, and inconvenient taxis (Uber), or the rigid, costly accounting packages of old (Xero).
2. Raise Huge Capital: Secure significant funding to create a solution to that problem and enter the market. Then use some of that capital to subsidize pricing, enabling your product to rapidly gain market share from incumbents who are unable to compete on price due to their own lack of investment.
3. Capture Market Share: Redefine the market by leading the charge in this newly established category, raising even more capital at ever higher valuations.
4. Exit Strategy: Founders and VCs cash out, either via an IPO or a sale to an incumbent company.

Sounds like a foolproof plan, right? But what happens when the IPO market dries up, secondary markets freeze, and valuations begin to plummet? This is exactly what’s happening today, creating challenges for SaaS businesses that were once on an unstoppable growth trajectory.
The Changing Landscape of SaaS
We’re now seeing a new reality. Over the past couple of years, mass layoffs in the tech world have flooded the market with seasoned engineers looking to start their own SaaS businesses. Competition is heating up, and as supply exceeds demand, the landscape has shifted. The dream of creating the next big SaaS business is no longer as straightforward as it once seemed.
So, what happens next? New CEOs or owners, eager to make their business profitable, often turn to price hikes, cost-cutting measures, and tiered pricing. While this may be a sensible move from a financial perspective, it often leads to customer disappointment. And if customers are not locked in, they’ll start looking for alternatives – causing yet another cycle of innovation to kick off and former dreams of Category leadership to vanish.
We recently spoke with an entrepreneur who cashed out, leaving a highly profitable company in the hands of private equity. It’s a sweet deal—an exit, a large paycheck, and the freedom to start fresh. And for investors, this playbook has been incredibly successful. But is it really benefiting the end user?

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