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Software-as-a-Service (SaaS) is all about the Product

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.

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