SaaS Survey Results

By Ron Snyder, David Steinore, Kathy Gogan

Executive Summary
Survey Overview This article is the result of a survey of 25 executives in the SaaS (Software as a Service) business arena, which was conducted in Spring 2006. This included 8 CEOs, 2 General Managers, and 7 Vice Presidents. Some of these key takeaways are new; some are true for all businesses. All of them can assist you in accelerating your success and that of your Buyers. Each topic has a description, the survey responses and then the aggregated recommendations. B2B SaaS Success To be successful you need to create a culture of Buyer obsession, intimacy and single minded pursuit of Buyer success. This is because success in SaaS is a long term play that requires a persistent partnership with your Buyers. The Top SaaS Challenges identified in the survey 1. 2. 3. 4. 5. 6. 7. 8. 9. Finding the Hockey Stick Design to Buy Enabling User Outcomes Proactively Intervening Balancing Self Service vs. Full Service Building the Right Sales Model Marketing Online and Offline On Demand vs. On Premises Buyer Focused Organization

SaaS Challenges and Responses

1. Finding the Hockey Stick There was common concern that the SaaS business does not inherently have the inflection point at which the revenue curve turns up and grows dramatically faster than before. Responses Dont consider SaaS a different delivery model. It is a new way of doing the software business. You must earn business every day. Since it is a new way of selling, you must achieve a significantly lower cost of sales compared to other business models, because there is less upfront revenue. SaaS is about volume & velocity mass adoption is based on satisfactory experience. Pro forma accounting helps shows progress (in addition to GAAP accounting). Recurring revenue model versus one-time revenue model takes some getting used to. Find the Sweet Spot inquiry@Breakthrough-Inc.com www.Breakthrough-Inc.com 650-508-0622 2006 Breakthrough, Inc. Page 1 of 6

With SaaS, you build and pay capital costs up front and then get smaller monthly revenue compared to the revenue of traditional software. Volume will show up when you hit the sweet spot where the function, price and service provide sufficient Buyer outcomes versus the alternatives. Designing for scalability is central to achieving critical volumes to generate predictable revenue and cash flow. If you are not getting the revenue you desire, the place to look is in the value you are delivering vs. the presumed weakness of the SaaS business model. 2. Design to Buy

It is important to design your product, marketing, sales and support efforts to make it easy for the Buyer to buy and produce their intended results. The Users recognition that it works for me begins the virtuous cycle of references and referrals that drive viral marketing. Further, this is critical for high customer retention and maintaining the on-going revenue stream. Responses The simpler the product, the better the chance of success. Simple marketing it does these 3 things. Create a different sales process for each market you sell to.
Sales and Marketing are blurring. Design marketing to support the sales process 100%. Happy customers become sales reps. User experience is critical. The things that make it demo well; make it work well. Make it easy to demo, test and then buy. Have an ROI tool that is flexible enough to address different user scenarios. There are more touch points between a SaaS company and customer. You need a

system to track customer experience. Configuration vs. Customization You must deliver the value customers want and integrate into their business seamlessly without the customizing your offering. Make it configurable Buyers can have it their way within the range of options provided. Make it simple - focus on the core problem you are solving and a few critical capabilities. Clearly define products for specific markets. Customers must understand it is not a customized service. The Buyers trade off is getting a lower price point for a high capability product and giving up customizability. What to Do Make the product Easy to Buy: Be clear about the problem you are solving and how you solve it. A simple offering - easy to select and buy. Clear, easy pricing. Easy to use: user interface, experience; responsive; should not require training, simple documentation. Demonstrable ROI. Ensure excellent coordination between Sales and Marketing. Provide flexible ROI tools that are credible to the Buyer. inquiry@Breakthrough-Inc.com www.Breakthrough-Inc.com 650-508-0622 2006 Breakthrough, Inc. Page 2 of 6

 Set clear expectations regarding what configuring can accomplish.

Metrics to succeed by $ Revenue # of Customers # of Customer Minutes of Usage # of Customers Using per Day # of Features used - Whats popular, whats not, whats needed infrequently. Ratios of Buy/Look, Success/Buy, Referrals/Buy 3. Enabling User Outcomes

There was consensus that it is important to go beyond features and benefits to a deep understanding of the outcomes that the User needs to produce in their environment. Responses SaaS companies should fail fast and move forward. The business user doesnt care how you provide the capability; they only care what it can do. Validate what it takes for the user to be successful - engineer outcomes. Focus on Time to Value - there must be a short distance between deciding and implementing the application or feature. Engineering must be responsive. Take too long to fix the problem; people will move on. Start small and go where the market wants to take you. Beware of feature creep; trying to be all things to all people. Because SaaS is fast moving, Time to Market is more important than in On Premises. Iteration Velocity With SaaS you can take full advantage of the collective wisdom of the Buyers and provide them with new capabilities and insights. What to do Provide Buyer forums, knowledge bases and collaboration tools so that you and your Buyers can fully leverage the collective wisdom. Identify new features and deliver them in short product cycles. Actively look for opportunities in new markets and new applications. 4. Proactively Intervening

Inherent in SaaS is the ability to capture detailed usage data. The guidance is to identify usage patterns that predict failure and intervene to enable success and customer retention.. Responses Proactively monitor usage data, identify failure patterns and intervene before they leave as a user. Make all the information you collect available to the user - otherwise its creepy. Provide a transparent view of service and performance. Persistent Partnership The relatively small monthly payments that give SaaS a different economic basis, provide the Buyer with great value - pay as you go. This requires your persistent partnership with them, because your win comes from their ongoing success. inquiry@Breakthrough-Inc.com www.Breakthrough-Inc.com 650-508-0622 2006 Breakthrough, Inc. Page 3 of 6

What to Do Take advantage of the deep insights available from your usage data! Because you have minute by minute dashboards and usage pattern recognition, you can identify people who are falling behind and lend a hand before they fail. 5. Balancing Self Service vs. Full Service

Although there is a trend toward providing self service in both buying and using SaaS products, the findings were that it is important to strike the right balance between self service and full service based upon the customers needs. Responses New way of selling: even in Self Service selling, you still need a consultative approach. Build Self Service into the product; figure it into the profit margin. Build in serviceability earlier in product development. Default to low-touch (via web technology vs. human intervention). Some SaaS products require human support to buy and to use. Ensure a good first experience. Provide Best Practice forums, a sense of community. Provide online help and customer service. It must work for the User In the Internet and SaaS world you must find the right balance between Full Service and Self Service. SaaS by its very nature enables self service, but it cant be a one size fits all solution. You must make sure the Buyer feels served each time they touch your product and organization. What to Do If their evaluation and information needs vary, provide different presentations. If they want to cut to the chase on price, enable that. If they want to try the product, make it easy to setup and run the demo and trial. If they want to discuss ROI, a new feature, integration with other products, fit with their business process and goals; make the right person available. If the complexity of the product requires human support to enable high value customer outcomes, provide it. 6. Building the Right Sales Model

Because SaaS is different than traditional software sales, it is imperative to develop appropriate sales and compensation models for this business. Responses Realize this is a different model vs. the traditional enterprise sales, thus, you need a different breed of salesperson and a new compensation plan. Selling a few big items is not an appropriate sales approach for this market. Keep cost of sales low. If you cant manage the cost of sales, you cant succeed. Leverage customer relationships in a new way - on-line. Have customer success people listen, learn and capture best practices. What to Do Sales must be patient and invest vs. being too revenue driven. You cant anticipate when inquiry@Breakthrough-Inc.com www.Breakthrough-Inc.com 650-508-0622 2006 Breakthrough, Inc. Page 4 of 6

customers will be ready to buy a SaaS product.

Develop a sales culture focused on on-going customer success.

7.

Marketing Online and Offline

Many respondents noted a challenge regarding marketing SaaS products to normally offline industries. Responses Have the message nailed! In the next stage, companies with the best marketing will win. Use traditional marketing methods coupled with on-line marketing. Selling to people who are not convinced about On Demand makes it a longer sales cycle. Online vs. Offline Pay attention to how your Buyer searches the world; dont use the new fangled tool, just because. For example, do you find your accountant, doctor and lawyer by searching the Internet or through referral? Your industry may or may not be Internet focused or find you through the Internet. Traditional methods of Marketing and Sales may still be necessary to identify prospects and generate interest. Chances are your customers industry can benefit greatly from your SaaS offering, even though they may not use the Internet, search or other new techniques to find you. Your Marketing and Sales budgets need to support the mechanisms that work best to reach your Buyers. Push vs. Pull Sales in the SaaS world are about being pulled by the Buyer along the direction that they need to go - more so than in the traditional push model of sales. You need to understand how to cost-effectively find prospects, make it easy for them to find you and extend an invitation they respond to. 8. On Demand vs. On Premises

There are different points of view regarding mixing On Premises and On Demand products. Responses Its an advantage to offer On Premises and On Demand. Customers who want to take ownership can take it back in house at a later date. Offer both - especially for larger companies. Have a clear SLA. Must be willing to cannibalize On Premises installed base (for companies that have one). Its harder to do both - as opposed to doing a SaaS pure-play. Observation The businesses that start as pure play SaaS see value in staying that way for simplicity and cost-effectiveness. The business that have existing On Premises offerings see value in adding SaaS as a new offering in addition to their current offerings. Yet some find it challenging to manage both offerings (i.e. managing internal resources and harnessing the mindshare of a sales force that sells both products). One must consider how to position new products versus legacy offerings and how to serve enterprise customers with commitments to existing solutions. inquiry@Breakthrough-Inc.com www.Breakthrough-Inc.com 650-508-0622 2006 Breakthrough, Inc. Page 5 of 6

9.

Buyer Focused Organization

As with all businesses, it is critical that people across the organization are aligned in a consistent strategic and product direction. This is key to enabling the organization to scale and reach critical mass needed for financial success. Responses Beware of getting lured away from your strategy by cash and sales opportunities. Without a common direction; you are dead! Align your entire organization on your strategic direction. Keep everyone involved in the process; including future product direction. You must build shared values and process up front; then you can scale. Build your infrastructure upfront. If you dont, chaos will reign. Structure vs. Flexibility B2B SaaS companies have a valid concern between too little structure and too much; too little process and too much. Some were concerned that too much structure and process will slow the organization down and inhibit innovation. Others noted that without structure and process it will be hard to succeed and scale up. You need to find the right balance of each in order to move quickly, innovate and optimize your results. What to Ask Is your company single-mindedly focused on empowering your Buyers to be massively productive? Does your company move like a well choreographed team or like a bunch of individuals? How deep into your company does the Prospects and Buyers feedback go? How well do you respond? Thin Membranes Many companies still have silos, disconnects and lack of coordination. A primary cause of this is people focused on something other than the strategic direction and the Buyers needs. What to Ask Are there common objectives and metrics that drive the entire team? How fast and accurately does the information flow inside your company? Do you have a metric to measure how thin the membrane is between you and your Buyer?

Breakthrough, Inc. enables B2B Software and SaaS companies to

Accelerate Sales by making it Easier to Buy. Breakthrough, Inc. is a sales and marketing consulting firm that enables technology-based companies, including Software (especially Software as a Service) businesses to align the Buying, Selling, Marketing & Product Design Processes to Deliver products/services the market wants in a timely fashion; improving market share, Make it easier for Buyers to Buy; accelerating sales results, and Make it easier for Users to Succeed in generating desired outcomes; creating a virtuous cycle of references and referrals Accelerating sales performance and creating happy customers! inquiry@Breakthrough-Inc.com www.Breakthrough-Inc.com 650-508-0622 2006 Breakthrough, Inc. Page 6 of 6