SaaS Entrepreneur

SaaS Entrepreneur: The Definitive Guide to Succeeding in Your Cloud Application Business

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SaaS Entrepreneur: The Definitive Guide to
Succeeding in Your Cloud Application Business

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The Indispensable Book for the SaaS Entrepreneur and Startup

SaaS Entrepreneur provides your company with:

  • Critical information and numbers that ensure you build a successful SaaS business.
  • Updated case studies that provide templates to success.
  • An extensive toolbox of checklists, sample files, and spreadsheets to help you reach your goals.

SaaS Entrepreneur: The Definitive Guide to Succeeding in Your Cloud Application Business, Second Edition is the most comprehensive guide you will find to understanding and succeeding in building SaaS (Software as a Service) businesses and services. Its case studies, operations analyses and timely data provide critical insights and information that will help you build and grow a successful new SaaS business.

The Second Edition incorporates updated key and critical numbers and benchmarks from Softletter’s SaaS Survey and reports, new information on Generation Z, developing for the portable workspace and transparent cloud, new case studies and much more.

What is in SaaS Entrepreneur?

SaaS Entrepreneur is divided into the following chapters:

  • Special Foreword: An Interview with Zach Nelson, former CEO of NetSuite
  • Introduction
  • SaaS and the Power of Communities (and the Death of Traditional Software Product Management)
    Positioning, Marketing, and Pricing Your SaaS System
  • Sales Organization and Compensation in SaaS
  • SaaS Business Metrics
  • Operations and Infrastructure in SaaS
  • Development and SaaS
  • Customer Service and SaaS
  • Professional Services in SaaS
  • Legal Issues, SLAs, Taxes and VAT in SaaS
  • International Markets

SaaS Entrepreneur’s appendices are broken into:

Appendix A: The SaaS Entrepreneur Checklists
Appendix B: Glossary of Terms
Appendix C: The SaaS Resources Directory
Appendix D: Further Important Reading for SaaS Companies

Each chapter in the book contains detailed descriptions of the specific operational issues and challenges you may face, as well as appropriate and helpful case studies, all of which are based on actual events and challenges faced by SaaS companies and are reinforced by over 200 tables, charts, and figures. We would like to take a moment to personally thank the company executives and staff personnel who participated in our research and provided us their valuable industry insights.

Second Edition: November, 2017
Sold by: Softletter
Language: English

Read Excerpts from SaaS Entrepreneur

In many respects, this is most important chapter in the book. If you decide to read nothing else, read this chapter thoroughly and implement its suggestions as soon as possible. Failure to do so will first damage, then destroy, your ability to compete successfully in SaaS.

 

When pundits and analysts argue over what is the single most important point of differentiation between SaaS and on-premise, licensed software, they usually point to:

 

  • The recurring revenue nature of SaaS. In SaaS, you do not purchase licenses; rather you subscribe for X amount over X period for the right to use the software. But some software companies allow you to subscribe to their on-premise software.

 

  • The fact that SaaS applications are run in an Internet browser. But in some cases, SaaS applications are provided via terminal services and in other cases a ‘thin client’ desktop version of the software is installed on a PC and can both access a remote server and/or run on your PC locally. (And many mobile applications run the same way.)

 

  • The fact that SaaS applications are not installed on a company’s servers. But a significant number of companies do license and install SaaS products on their internal servers. This is often referred to as the hybrid model and while we urge SaaS companies to avoid it, customer and financial demands sometimes require you license your products.

 

There are other issues and technologies that are discussed: multi-tenancy; virtualization; agile development. The ‘cloud.’

 

While these can indeed be differentiators, they miss the crucial point of SaaS. And that is that SaaS systems, by their very nature, create communities of customers who can collectively interact with each other and your company on a 24/7/52. In SaaS, the application is the social network. But to benefit from it, you must prepare to manage and leverage the application network to the maximum extent.

 

While these can indeed be differentiators, they miss the crucial point of SaaS. And that is that SaaS systems, by their very nature, create communities of customers who can collectively interact with each other and your company on a 24/7/52. In SaaS, the application is the social network. But to benefit from it, you must prepare to manage and leverage the application network to the maximum extent.

 

What Creates the Application Network?

 

What comprises the application network? Two inherent elements of SaaS:

  • The first is that if your SaaS system is properly architected, you should be able to monitor, capture and analyze every aspect of a subscriber’s interaction with your product. This includes keystrokes, functions accessed, functions not accessed, browser usage, etc.

 

  • The second is that because SaaS applications inherently concentrate subscribers with a common set of interests in one virtual ‘place,’ the foundation for a community is already in place. If you provide the right infrastructure, your community of customers will grow, thrive and transmit information about your product and their usage of it to your company on a constant basis at an ever increasing bandwidth.

SaaS Sales Force Organization

 
Sales Engineers in SaaS

Sales Engineers (SEs) in the software industry have traditionally been technically oriented individuals with good social skills. They are typically assigned to work in the field alongside a direct sales force (the author’s first job in the software industry was as an SE), often on a one-on-one basis, especially in major sales scenarios. SEs are typically paid a base salary with a variable component that ranges from 10% to 25% of their base. This variable compensation is often tied to sales team overall performance, as well as such measurements as customer satisfaction ratings, technical proficiency and other criteria.

In SaaS, the SE title is surviving, but the function they play in your organization is changing (as the upcoming Varicent case study helps illustrate). In the future, the SaaS SE will:

  • Not work with individuals but with sales groups, most often on a remote basis. An SE may visit onsite at the end of a sales cycle to perform such tasks as configuring a new subscriber’s system to their specifications and in some cases provide on-site training.
  • In some organizations, transform into sales people. Again, the Varicent case study demonstrates this process in action.
  • Work as community managers. The needs of this position are often a perfect fit to the SE skill set. (In on-premise software, an equivalent dynamic is often present as many product managers are former SEs.)
Hunters and Farmers in SaaS

Traditionally in software (and other industries), sales forces are often divided into two types of personnel, ‘Hunters’ and ‘Farmers.’ In this model, sales force hunters are charged with tracking and closing new business. After the customer prey has been bagged, the supine corpus is handed over to farmers — friendly types who presumably mulch and compost the corpse, then grow new revenue flowers from the remains. (This colorful interpretation of the model was provided to us by a friend who works in IT in New York. He told us he never much cared for being hunted.)

We suggest that this model is going to be obsolete in SaaS. There are several reasons we reach this conclusion:

As already noted, many customers are educating themselves about SaaS systems and services in advance of contacting your company. Traditional methods of contacting customers, such as cold calling, are falling into obsolescence (though there are still industries in which a person will pick up the phone if they do not recognize your caller ID). But the question arises of ‘who is hunting whom.’

The method of engagement and interaction with both potential and current subscribers is very different in SaaS. As we have learned, SaaS creates a persistent relationship between a company and its subscribers. If a SaaS company has created and nurtured a vibrant customer community, up sells and cross sells will most likely come from community interaction and promotions managed by community managers. And in such an environment, the concept of ‘passing off’ a customer from one person to another seems off the point.

The best SaaS sales people do not seem to be a good psychological match to the profile of the on-premise hunter. The stereotype of an on-premise sales person is best exemplified by an old high tech joke: “How do you tell the difference between a car salesman and a software salesman? The car salesman knows when he’s lying.” But in a SaaS environment, good sales people often have to mix strong product knowledge with good people skills. A good SaaS sales person is often also a strong business problem solver and can develop a trusted relationship with a customer. It is not an asset that can be handed over to another person or group easily.

A variety of different metrics have been developed to assist SaaS companies in tracking and measuring their financial progress and performance. Some of these numbers, such as optimal churn rates, trial and freemium conversion rates, sales close rates and others are covered in different chapters of SaaS Entrepreneur. To assist you even further in this area of your business, a spreadsheet created by SCIO Development as part of our ongoing Softletter SaaS Survey project is provided on the SaaS Entrepreneur Virtual DVD that you will download after purchasing this book. The spreadsheet will enable you to plug in your own numbers and model your metrics in a large variety of ways. The spreadsheet comes in both a populated and blank version and can be edited to fit your needs.

Common SaaS Operational Metrics

Average Revenue per User (ARPU). This metric is valuable in business models where customers subscribe to different application levels, modules or service levels. When multiple income streams are generated, it can be useful to track these income sources separately and use that data to determine what types of subscribers contribute the most revenue.

Cost of Service (CoS) or Cost to Maintain (CtM). The cost of services and operations to maintain the application and client instances. This can include hosting charges, hardware and software renewals (though we think these should be broken out of this metric and tracked in their own ‘bucket’), support, staff operations, and outside services—all of which are operations costs. The running change calculated in the spreadsheet is a key indicator because it can offer insight into trends you might not see otherwise.

In the 10-K section of this chapter note the general and administrative percentages (G&A) and research and development (R&D) percentages for SaaS companies; these provide more insights into cost of services numbers. Also note the information on what percentage of revenues SaaS firms dedicate to running and maintaining their infrastructure provided later in this chapter.

Average Customer Acquisition Cost (ACAC) or Average Cost to Acquire (AtC). This is a ‘front-loaded’ cost because you normally must spend money on sales and marketing programs before you generate revenue. In SaaS sales, it is hard to know the ‘lead-time’ from the first moment a prospect comes in contact with your company through to closing the sale (metrics on this topic are provided in the Sales chapter of the book). Only in the case of metered marketing campaigns that include promotional tracking can you begin to analyze your sales. In the spreadsheet example, we have taken the simplistic approach of counting the previous period sales and marketing costs as the contributing factor for the sales in the following period. You can modify this to set a period that better reflects your sales model, but until you actually know the cycle, this is a good starting point on which to model your assumptions.

This metric also points out another factor: most business-to-business sales models for SaaS include different subscription periods so you cannot assume a uniform renewal rate. Subscribers may be renewing on a monthly, quarterly, yearly or multi-year basis. In those cases, a separate report that tracks renewal period choices made by different market segments will be very valuable. These reports can answer questions such as, ‘Are larger enterprises actually subscribing at the longer subscription lengths?’ ‘Is this an SMB market with subscribers picking monthly and quarterly subscription lengths?’

The Perception of Professional Services by Your Customers

In professional services , the change in revenues generated is driven by several factors:

  • The perception that SaaS is quick and easy for a company to subscribe to, implement, and train staff on new on-demand solutions. Contradicting this belief are expensive bills received for professional services; these introduce serious ‘cognitive dissonance’ in the buyer’s mind. Upper management is not interested in seeing swarms of sales engineers and implementation specialists camped in company cubicles and empty offices after a SaaS subscription has gone into effect.
  • Subscribers have expectations that the value of their subscriptions flows directly from the software, not from the professional services rendered. The mindset of the typical SaaS customer is that professional services ‘tidy up’ the subscription commitment, not provide its ultimate value.
  • Maintenance is almost impossible to charge in a SaaS environment. In and around 2005, as the SaaS industry began to revive, some firms attempted to include maintenance fees in their pricing models but quickly did a turnaround in the face of fierce subscriber pushback. Why? Because there is nothingto ‘maintain’ in a SaaS system. Annual usage fees are possible, but they should not be associated with the word ‘maintenance,’ which must be eliminated from the corporate billing vocabulary.
  • Increasingly, SaaS subscribers expect that advanced support will be delivered from a customer community that coalesces around the SaaS system.
  • Many corporations have subscribed to SaaS systems because they wish to regard the expenditure as an OpEx and not a CapEx expense. Large expenditures in professional services confuse CFOs, who are the ones that tend to monitor CapEx vs. OpEx calculations.

Key Differences in Professional Services Teams and Practices

Training

Traditional classroom training for SaaS subscribers is disappearing. Empty classrooms are now the norm. Training has become an online entity, often with both instructor-led and self-paced delivery options.

Many SaaS companies are choosing to provide customized training through partner organizations that have specialists on staff.

Professional Services Delivery

Today with SaaS, the delivery of professional services is far more commoditized and standards-based. Contracts are typically a fraction of the length found in larger on-premise implementations, and terms are far easier to understand. Key areas of differentiation are comprised of the following:

  • After initial set up, companies offer simple packaged services with increased functionality.
  • A typical project timeline may include four weeks of billable work accomplished over an eight-week time span.
  • Initial fees are often only 25% of traditional on-premise implementation; plan for revenue from ongoing managed services, business, consulting and training.
  • There is no single rule of thumb to determine the initial implementation and set-up fees for the services package.
  • Projects are normally measured in weeks, not months.
  • In terms of meeting budgets and timelines, project goals often shift to focus more on increasing subscriber satisfaction and utility of the software.

"SaaS Entrepreneur" Toolkit and Book Details

SaaS Entrepreneur’s narratives and case studies are backed up by more than 650 Goals and Success checklists contained on The SaaS Toolkit.

These checklists are in Excel files and are color coded, indented, and commented for easy organization and use. They are not locked in any way and can be extended to fit your particular market and business challenges.

 

The checklists are divided into two types: goals and success. The goals lists outline the results you need to achieve to succeed. The success checklists outline in detail the different steps you must take to reach their goals.

 

Both types of checklists are broken into 10 sections that mirror the structure of SaaS Entrepreneur. The over 650 separate items in the checklists provide you with a framework for action and measurement. Combined with the book’s extensive case studies, narratives, and hard data,SaaS Entrepreneur is a comprehensive system that guides you to business success.

 

The indispensable guide for all SaaS companies and attendees to SaaS University and EPIC courses. 

  • Format: Kindle, PDF and epub (SaaS Entrepreneur is no longer available in print)
  • Price: $49.99 if purchased alone; free to Softletter Premium and Gold subscribers.
  • Pages: 400+ (approx)
  • ISBN: 978-0-967200835
  • Publisher: Softletter
  • Sold by: Softletter
  • Language: English

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