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B2B SaaS Flies in the Ointment – Old enterprise habits die hard

The software/Web/Internet industry is a tight community and SaaS vendors routinely recruit sales, marketing and engineering executives because they possess unique experience, knowledge and relationships within an industry sector, e.g., ERP, CRM, BI, retail, supply chain, etc. While this may often be a valid decision, every SaaS CEO should be aware of its pitfalls: old enterprise habits die hard. Knowledge and experience with the high volume, low cost approaches required to build a successful SaaS business, e.g., telesales, Web marketing and multi-tenant architecture, often hold greater importance, depending on the skills and experiences of the overall management team.

The wildly successful revenue model of enterprise software was built on solution selling, feature dominance, customization, and proprietary IP—all of which were expensive, because they were expected to delivery competitive advantage to the customer. Whether or not this was always the case may be debatable, but it is clearly not the case in B2B SaaS. The value proposition of SaaS is the exact opposite, which is why it poses a threat to enterprise companies. SaaS delivered under the value proposition of outsourcing non-strategic, commodity capabilities at the lowest possible cost. This is the essential conflict of the innovators dilemma in SaaS, and why you don’t see a lot of enterprise software companies jumping on the SaaS bandwagon.

When breakeven looks like it is years away, it can become incredibly difficult for managers to exercise the required discipline to avoid undermining the company’s long term strategy and inherent cost advantage. In the short run, it can quite sensible to pursue that six figure deal with unique functional requirements (after all the customer only needs this one thing!) , even if the sales cycle will take a little longer and the roadmap needs to be adjusted for this one customer. The enticement of this low hanging fruit can be further complicated by the strategic needs of the company. But, if these activities undermine the company’s attention and effort in building a low cost, high volume customer acquisition and product delivery machine, that million dollars in revenue will soon be overshadowed by multiple millions of dollars squandered in wasted effort.

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