If you own, manage or are considering starting a software-as-a-service business, then you can’t afford NOT to check out these fundamental rules of the game and cutting-edge tips for success.
Hot off the presses!
Enjoy,
JY
Because B2B SaaS roots are in enterprise or office software which have traditionally been delivered on a CD, i.e., like any offline commodity that is physically seperate from the business itself, the opportunity to change the game by building your business into the product is one of the most overlooked by SaaS vendors.
When you move your software product online into a software-as-a-service delivery model it enables you to connect the product directly to your customers on the outbound side and directly to your internal systems on the inbound side. I’ll dig deeper into how you can leverage this for your customers to create disruptive economic shifts in the market in another post, but for now I want to focus on how this enables you to reengineer your fundamental business processes by building them out from your product.
Perhaps the best role model for building the business into the product is one of the earliest Internet success stories: Amazon.com. Although most of what you can buy at Amazon is a physical product, the fact that it gets shipped to you is almost an afterthought–you could achieve the same purpose by ordering through an offline catalog. What you are really buying when you shop at Amazon is convenience and credibility, and these capabilities are fundamentally features of Amazon’s SaaS application. It includes affiliate referrals, product search, offers, recommendations, one-click checkout, order management, support and nurturing. More specifically, it automates the buying process. Amazon’s affiliate programs spread points of entry (links!) all over the Web, and when you reach the Amazon website you are naturally led through every stage of the purchase cycle. These are the automated business processes you want to build out from your SaaS product.
Chances are that your business is different from Amazon’s in some fundamental ways, e.g., target customers, product complexity, community involvement, etc. and you will need to tailor your approach to your market. But, I’ll bet if you study this success story and fully understand the implications, you will find analogies that you can apply to your business. For example, crowd-sourcing has become a very popular approach to international translations, but Amazon was crowd-sourcing automation of the decision stage of the book purchase process10 years ago by encouraging customers to create reviews and top 10 lists.
For more on how to build your business into the product, check out…
Quiz: What is the most successful enterprise SaaS application to date?
Hint: It’s not Salesforce.com
It is ironic, but the unfortunate fact is that most SaaS vendors see the Web as little more than the browser through which they deliver an enterprise software application. In fact, the phrase itself software-as-a-service, creates a subtle bias toward viewing the business as simply a piece of traditional software delivered on-demand over a network. Connecting an application to the Web unleashes disruptive economic forces that go far beyond multi-tenant architecture and reduced TCO. It enables viral organic growth, low cost customer acquisition, business productivity gains across-the-firewall, and new monetization models to augment simple license subscription. That is why the most creative SaaS vendors are realizing that the real opportunities for business innovation lie outside the firewall and are transforming their SaaS offerings into Web 2.0 businesses.
Below is a list of principles that can help you transform your low-cost, commodity SaaS into a high-value Web-based business.
Reach out and become a hub on the Web
Build the business into the product
Reach across the firewall to unleash disruptive economic forces
Monetize creatively
After I’ve had a chance to elaborate on each of these ideas in a separate post, I’ll provide the answer to my somewhat trick question above. However, I’m hoping that the solution will emerge as obvious.
For better or for worse, I am old enough to remember the reengineering craze of the
early nineties. For those of you that are under 30, this was a monumental
hype cycle throughout the technology consulting industry centered on redesigning
business processes for order-of-magnitude gains in productivity by leveraging
new client-server technology. It was codified in the famous book: Reengineering
the Corporation by Michael Hammer and James Champy.
Brainstorming and out-of-the-box thinking were the order of the day,
because creativity was the key ingredient to realizing the potential gains.
However, creativity has not been the mantra of the SaaS revolution,
the mantra of SaaS has been lowering TCO (total cost of ownership).
Basically, take what you do now, make it multi-tenant, outsource it, and pay less.
While this is a great business proposition for customers, it places SaaS vendors
squarely into highly-competitive, price-sensitive commodity businesses. If you
want to differentiate your offering, you must look beyond the client-server
application you are replacing and ask yourself: How can I revolutionize the current
business processes of my customer by connecting my SaaS offering to the larger Web?
Or, more concretely by connecting it to users and applications outside the firewall.
A key point of difference is that the business processes in question
are NOT internal processes (classic enterprise), but internal-external processes or even purely external.
While 90’s style reengineering was about employee productivity gains,
SaaS and cloud-based reengineering will center on prospect, customer, and partner processes
and will derive order of magnitude gains in productivity from integration, network effects,
user-generated content, and outsourced processing or data.
In earlier posts, I gave some specific examples that included Zendesk’s online support
applications and B2B2C platform plays. But, I believe that opportunities abound and that they
will only increase as cloud computing becomes more the norm. My poster child
for this concept is Google AdWords/AdSense. This application is rarely
classified as SaaS, but it is clearly B2B(2C) software-as-a-service. I think this is because it
doesn’t look like a traditional enterprise client-server application, like CRM
or ERP. However, it does completely revolutionize a business process that crosses the firewall:
demand generation. And, if you buy what I’m selling in this post, you will now classify them
as a new breed of enterprise SaaS CRM, just like email marketing platform can be considered as such.
The fact that Google and Salesforce recently announced partnership
and that Adwords is becoming more and more integrated into salesforce.com
provides evidence enough.
If you think outside-the-box or rather outside-the-firewall,
can you reach out across the Web to your customers prospects, customers,
and partners or to the cloud to other applications and data to
enable order-of-magnitude increases in productivity? Can you envision
entirely new killer applications that have not be made before? If you can,
then your have taken the first step toward breaking out of the SaaS mainstream
and the hard life of low cost-based competition to the Web 2.0 world of
innovation, differentiation and competitive advantage.
If you are a software-as-a-service (SaaS) provider and deliver your product over the Web, then by definition you are Web publisher, so act like one. Web publishers, whether their business is news, games, e-commerce, or a simple blog, are obsessed with increasing site traffic and converting it to registered users. On the Web, there is one and only one source of site traffic: links.
Links from search results, links from search ads, links from banner ads, links from websites, links from blogs, links from feeds, links from widgets, links from bookmarks, links from toolbars–links, links, links. Becoming a hub on the Web means creating a nexus of incoming, high quality links to your website from sources that are relevant to your business, and most importantly relevant to your prospects’ needs. There is nothing else online as cheap or as effective in generating demand.
Links come in two categories: paid/transient and free/permanent. The more free links you have, the fewer paid links you need. Most SaaS vendors immediately jump on the SEM bandwagon to get paid search traffic. They also apply SEO techniques to optimize keywords on their websites, but only obscure keywords are useful without high PageRank, and high PageRank requires (that’s right, you guessed it!) links.
What is your link strategy? Links opportunities abound and arise naturally from your online business, but you have to be conscious of their critical improtance to captialize on them. For example, who is part of your potential online community e.g., customers, partners, investors, employees, colleagues, expert blogs, social networks, events, associations, directories, etc. and have you engaged them in a manner that generates online content and discussion that results in links? Do your traditional online marketing and PR activities generate tons of effective links?
Clicking on a link is often the first step in the online sales cycle. Understanding and improving your Web presence is as important as (more important if you are a startup) improving your sales pipeline close ratios, because you have to get the leads in order to close them. So, are you measuring your Web visibility as acurately as your pipeline? Can you identify a qualified link as effectively as you can identify a qualified lead? Do you have a concrete plan to get more links and increase your PageRank? If not, it is almost certain that the ROI on spending your marketing dollars to increase your organic web presence will be much higher than increasing your budget for SEM or banner ads.
This is post number 3 in a series of 5 on transforming SaaS for Web 2.0 success.
Succeeding in SaaS requires a fundamental shift in sales and marketing mindset from push to pull revenue generation. Lower revenue per transaction, and even lower first year subscription revenue creates intense pressure to decrease average customer acquisition cost. It is not possible to drive revenue through the high-cost offline marketing and sales approach that is well known to enterprise software.
This shift entails an unpleasant loss of control over the sales process and forces SaaS companies to focus more keenly on facilitating purchase than on driving sales. If this sounds like semantics, consider how you personally develop interest in and buy products on the Web. Are you more likely to respond to an unsolicited email and attend a Webinar or click on a link in a blog post? How often do you click on sponsored search links versus organic results? Your prospects don’t behave any differently. You as the customer are in control, and there is no marketer or salesperson present to wrestle that control away from you.
With the customer firmly in control, the role of sales and marketing shifts from chemist to catalyst—from driving revenue to accelerating organic growth. Accelerating organic growth entails stimulating demand and facilitating the purchase process by understanding and leveraging a prospects natural buying behavior. The goal is to eliminate purchase barriers and to respond on-demand with whatever information or motivation is necessary to encourage the prospect to take the next step in the buying process.
Being at the right place at the right time requires up-front investment in so-called free marketing tactics, e.g., SEO, public relations, blogging, social marketing, video, automated nurturing, newsletters, case studies, interactive demos, product trial, etc., so that content is ready and waiting to be served up when needed. In reality these activities are not free; they are simply free at the time of use, shifting the economics of revenue generation from direct, variable sales and marketing costs to indirect, fixed costs. In fact, this characteristic provides a convenient financial definition of organic growth:
Organic Growth = New Revenue generated with (near) Zero Marginal Acquisition Cost
No advertising, no outbound marketing campaigns, no sales calls, no technical inquiries, and no manual order processing. This viewpoint clearly highlights the primary benefit of accelerating organic growth: leverage. Increasing organic revenue decreases the average acquisition cost per deal and increases overall profitability. Moreover, accelerating organic growth and lowering marginal acquisition cost systematically expands available market potential by enabling the business to sell to the outer reaches of the long tail.
SaaS business owners and managers should continually ask themselves the simple question: How can I get more prospects to find my product, evaluate my product and buy my product over the Web even if no one comes to work in the morning.
This is post number 2 in a series of 5 on transforming SaaS for Web 2.0 success.
The following is an excerpt from a guest post I wrote for SaaSBlogs
Most SaaS businesses embrace the idea that Web-based delivery and a multi-tenant architecture create economies-of-scale and lower TCO. Hence, they price their annual subscriptions at 1/5 to 1/20 the cost of an enterprise license. However, these savings only occur in R&D and IT infrastructure. Achieving a stable, profitable long term cost structure requires proportionate expense reductions in sales, marketing and support operations.…But how?
Building a successful software-as-a-service business requires an extreme cultural focus on the product that has more in common with consumer packaged goods than enterprise software. In my last post, I provided a summary contrast between SaaS and enterprise software business models. If you look down the SaaS side quickly enough, you should see a tight correlation of ideas around the product itself. In fact, if you can get your head around two fundamental assumptions about SaaS products, pretty much everything else follows.
1) There is only one instance of the product…it is a commodity
2) The product is tightly coupled to operations, because EVERYTHING happens online (ideally).
I believe almost all significant SaaS failures can be attributed to violating one or both of these product fundamentals. Here are some absolutely deadly mistakes that are a direct result of failing to adhere to these tenets.
Business plan failure - Insufficient demand
Typical Cause
Designing the product for a niche market that is too small and too demanding
Launch failure - High cost per lead and low conversion
Typical Cause
Failure to master online marketing and to build it into the product, e.g., ignoring SEO because it is some kind of black art and prioritizing advanced product features over the ability to provision a trial account and buy online
Adoption failure - Poor organic growth
Typical Cause
The product was designed for the sophisticated buyer, not the long tail. So, it is too complicated and the purchase process has not been automated. Prospects cannot find you online, understand the value from your website, try your product, buy your product and start using your product…all without your assistance.
Growth failure - Inability to keep up with demand
Typical Cause
Building an incomplete product with lots of features, loose ends, poor quality and an architecture that wasn’t planned to scale from day one
Maturity failure - Inability to turn a profit because labor costs are too high
Typical Cause
Adding labor BEFORE self-service automation, e.g., hiring too many sales reps instead of developing website content, trial and online purchase or hiring dedicated support staff without full leveraging blogs, forums and instructional video
Overcoming these obstacles requires the realization that SaaS businesses are product-centric, and that the product itself is a living, breathing member of the Web. The operational implications of this are dramatic, entailing a shift in investment from high labor sales, marketing and support processes to business automation and innovation through the product.
In many ways, marketing a software-as-a-service (SaaS) application is more like marketing packaged software, computer hardware or consumer electronics than enterprise software. Failure to make this paradigm shift has meant the death of many a SaaS startup. The reasons are simple. First and foremost, enterprise software is usually delivered in an unfinished state. The so-called product is delivered and then configured, customized, integrated and QA-ed onsite to deliver a unique solution–a product of one. This is more akin to the artisan products of a cottage industry than to manufactured commodities.
The fact that SaaS is a commodity delivered via the Web entails a shift in business model that affects everything from product design to organization design. Below is a summary of characteristics that contrast the traditional enterprise software business model to the new SaaS business model.
In the world of SaaS multi-tenant architectures and bargain basement prices, the entire business model hinges on having a single commodity sold at high volumes. Moreover, SaaS is marketed and delivered primarily within a single channel, the Internet. This creates incredibly tight coupling between the product, business strategy and operations. In particular, there is an unusual itermingling of the product itself with the other 3P’s of marketing: price, promotion and place. For example, a change in pricing model will usually entail simultaneous changes to both your Web ordering code and your license management code. And, search engine optimization (SEO) is likely to impact how your product is designed and delivered over the Web, not just your marketing website and landing pages.
I’ve recently started working with Zendesk, and I can’t say enough about this Web 2.0 SaaS helpdesk company. In my last post, I made the point that most SaaS vendors just don’t get Web 2.0. Zendesk is the exception that proves the rule and I think this company has an amazing future.
You might think that the last thing the world needs is another helpdesk product. I personally can’t think of too many spaces that are more crowded with everything from cheap packaged software to large scale ERP-integrated SaaS offerings. So, what makes Zendesk special? They get what all the other B2B SaaS / Enterprise 2.0 companies are missing. When I submit their offering to the Web 2.0-savvy IQ test, their marks are off the chart.
First and foremost, Zendesk is a native Web-centric application that completely integrates the backend helpdesk with a company’s online customer support presence. When you turn on Zendesk, you not only turn on the traditional helpdesk ticket tracking, business rule automation and reporting, you turn on your customer support portal, online forums, mashup widgets, pervasive RSS and your support@yourcompany.com email–all these customer communication points are seamlessly integrated to your back end helpdesk. When I speak of B2B2C being an emerging disruptive force in Enterprise 2.0 SaaS…this is exactly it.
Zendesk launched in November of 2007 and in a short half-year has [an undisclosed but an amazing number of ] paying customers and an increasingly impressive list of brand names. Why? Because you can sign up and get going without any help at all. The website content, trial sign-up and purchase are seamless and is 100% automated. And, the minimalist design is so intuitive that no training is required. Although I know these guys like to give each new account a little tender loving care, the truth is that getting going is as straightforward as any Web 2.0 consumer site.
If your run a Web-based business, or simply want to provide better support over the Web, and agile customer service is more important to you than heavy-iron process automation and compliance on the backend…my pick is Zendesk.
The goal of this blog is to share knowledge and opinions that will help executives at Internet software companies that create and deliver B2B Software-as-a-Service (SaaS) and B2C Web applications to critically analyze real-world, go-to-market strategies and tactics by applying sound business principles to the disruptive technologies that are reshaping our lives.
more about »
Posts