There were many similarities in the advice from the four pureplay SaaS vendors who participated, and I've picked out the most striking recommendations below. The fifth participant was Sage, whose story as an established vendor is so different from what these pureplays have experienced that I wrote a separate post earlier this week about its progress to the cloud.
All of these pureplays target the volume end of the business market. It's debatable whether that makes their experience applicable to vendors targeting other segments of the market. It would have been good to have had a participant from a pureplay vendor like Workday or Huddle that has more of a focus on larger enterprises.
But if you're looking for examples of wildly successful growth stories in the SaaS sector, pretty much all of them come from that volume end of the market — and all four represented here are more than doubling sales year-on-year. As John Paterson, CEO of small business CRM vendor Really Simple Systems, told the meeting: "Small and micro businesses are the ones that are buying this stuff."
Here, then, are seven success tips for SaaS ISVs that stood out from what was said at the meeting.
1. Don't migrate, obliterate
The morning opened with a stark message from John Paterson, who founded Really Simple Systems in 2004 after a career at conventional ISVs including the maker of SunAccounts. He was adamant that building for the cloud means starting over from scratch:
"You cannot take an existing product and migrate it to the cloud. It's going to be horrible and no one's going to want to use it."
The scorched-earth policy not only applies to the underlying code; he said that using the same sales model or trying to keep customers happy by sticking to the same user interface was also sure to fail. Being a well-spoken Brit, he was apologetic, but firm:
"It's gonna be a rewrite. Sorry about that. If you try and take short cuts it will hurt you in the long term."
2. Fire your dev team
Paterson followed up with the observation that it's a non-starter if you try to build a SaaS product without retraining and retooling for a cloud platform. Or better still, acquire a completely new dev team that understands how to build SaaS rather than trying to economize by staying with what you know.
"The skillset is different. The mindset is different," he explained. "Forget about your existing skillset and go with what's going to be the best platform. It's a long term decision."
Really Simple Systems had made some errors when it started out. "If I had my time again I would have gone all open source," he said. Its original architecture had a separate database schema for each customer. That would have become a nightmare to manage at the venodor's current size, he said, especially with essential functionality such as auto-provisioning of accounts when customers sign up online.
3. Make it easy to sign up
Julian Buck, commercial director of small business accounting vendor Kashflow, concentrated on customer acquisition in his remarks. "Making it easy for customers to join you is your primary goal," he said. The offer should be straightforward and based on trust rather than detailed negotiation: "Terms and conditions are important but you can't start talking about contracts."
While some vendors use a freemium approach — Really Simple Systems adopted this model for its entry into the US market — others such as Kashflow and rival accounting vendor Xero prefer a limited-time free trial. Xero's UK MD Gary Turner commented: "If it's free, you're the product that's being sold. We don't think it works unless it's part of a marketing strategy."
Once the prospect has signed up for a trial, you have to keep them engaged, said Buck: "You have to be absolutely certain that what you're offering to the customer is stickable."
Kashflow encourages prospects to sign up for a free trial, at which point it has teams of people who work with these 'trialists' to help them succeed with the application so that they become paying customers. Rather than being salespeople, these teams focus on helping people decide whether the product is right for them, he said.
"You have to accept that your users will want to try you out. The-on boarding team's job will then be to engage with those trialists and help them get the most out of their free trial."
Underlying this entire discussion is a point that Paterson made about a key distinction from conventional licensed software: "You've actually got the sales marketing and billing built into the product." And at this end of the market, automating a self-service process is crucial: "The patience and attention span of your prospects is minute."
4. Let customers leave
Buck pointed out that it is natural for some customers to move on. Therefore it's important to understand the average customer life and the factors that make your product fit or not, depending on where they are in their lifecycle:
"We don't try and lock people in. There's more to the attractiveness of our brand if you make it easy for customers to come to you and just as easy for them to go away. If people leave us that's their decision."
The value of each customer is more than simply the money they hand over while they're signed up, he added. Most small businesses trade with each other and if they have a good experience with you, they'll tell each other about it. "That's the value," he said.
Not offering telephone support is a part of ensuring a good customer experience, he noted. The likelihood of your call center being overwhelmed at the peak times when customers prefer to phone in means they'll inevitably go away disappointed. Expectations are more easily met using email, social media and self-service help, he said.
5. Find new partners
Ian Moyse, sales director at small business automation vendor Workbooks.com, said that there is still a lot of distrust and misunderstanding of cloud in the traditional partner channel. Meanwhile, a new breed of partners is growing up to fill the gap.
"A lot of partners who would come talking to us about cloud weren't the traditional resellers," he said.
Many have been set up by people with IT channel experience, and they readily admit that it's tough to make the necessary shift of mindset and business model. But having done so, they are finding their cloud business are more profitable and find it easier to find growth because the market is expanding.
Another valuable source of partners are hosting companies and telecoms providers, because they are already used to the recurring billing model. But they are less able to provide the configuration help that small business customers still need for many SaaS products. "There is still money to be made in configuring for these small customers," said Moyse.
6. Don't trust your datacenter
It may seem self-contradictory, but these cloud providers emphasized the importance of not relying on a single datacenter. "We manage 99.99% uptime. It's bloody hard," said Paterson. "We maintain two datacenters. One of them is bound to fail once a year."
It's essential to build an infrastructure that can fail over without disrupting customers if one datacenter goes down. Some, like Really Simple Systems, do that by directly managing their own co-located equipment. Others, as Sage does for its Sage One infrastructure, use Amazon Web Services or other cloud providers, but again keeping open a failover option to a second datacenter.
7. Sell like there's no tomorrow
Actually no one did say this at the meeting but David Terrar did make a passing comment about loss-making SaaS vendors earning sky-rocketing stock valuations so I thought I would throw this one in off my own bat.
At this volume end of the market where most of your prospects are switching to your product from using either spreadsheets or nothing at all, there's really no barrier apart from your own capacity to achieve higher volumes. If you fail to invest all your free cash in expanding your market share, then you're just leaving the field open to others.
I think the public markets do understand this (although there's always an element of the crowd chasing overinflated expectations in any stock price that's booming). Any fast-growing SaaS vendor serving a volume market that's reporting profits (or worse, paying dividends) is doing its shareholders a disservice, because it's underperforming its potential.
We are still several years away from this becoming a mature market. In the meantime vendors should maximize customer acquisition, control churn and keep driving down their operational costs. Josh James, founding CEO of Omniture, explained the mechanics of all this in a 2008 conference keynote and Tien Tzuo of Zuora also does a good exposition (YouTube) on these three SaaS metrics (SlideShare).
Disclosure: Workday is a diginomica premium partner.
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