Re-learning Marketing for the SaaS Model

Running an on-demand business means software CEOs must understand and embrace the differences between the traditional and SaaS models – especially in sales and marketing.

By Steve Adams, Sabrix

Entrepreneurs, investors, and industry pundits continue to examine how the emergence of SaaS has altered the dynamics of everything from go-to-market strategies to technology hurdles to budget management and market valuations-all leading to dramatically different operating and financing strategies.

The challenge of understanding and managing the key differences in the two business models is nowhere more profound than for the CEO who has spent his or her career in traditional on-premise, perpetual license businesses and is launching a SaaS company or the CEO who has a going concern in traditional enterprise software and is considering a transition to or the addition of a SaaS offering.

Regardless of whether an executive team is going to launch a SaaS company, transition to a SaaS model, or attempt the high risk maneuver of managing a hybrid model (a challenge considered by many to be a fast path to operational and financial suicide), executive teams must quickly grasp the key differences in the two business models and make unequivocal decisions if they hope to grow their companies, to finance their growth, and to return shareholder value.

Living with “Multiple Business Model Disorder”

In fairness to the reader, I should declare that I work with an executive team at Sabrix that has consciously chosen to manage a hybrid model for more than 18 months, a team that has learned to manage the operational challenges associated with what I’ll simply call “Multiple Business Model Disorder.” One of the most significant challenges for the team during that 18 months has been to put aside much of what we have learned in our careers in traditional enterprise software and embrace a new go-to-market model with markedly different customer drivers and a different model for partnering.

We have learned many lessons about how to succeed with a hybrid model, especially in the area of sales and marketing. While some of the following recommendations may be obvious to many by now, recent participation in a major software conference suggests that many in our ranks continue to struggle with the subtleties of managing a SaaS business.

Optimizing the Go-to-Market Strategy

In the traditional enterprise model for software startups, sales models are predicated on typically long sales cycles (6-18 months) executed by highly compensated, direct sales teams of account executives, sales engineers, and services consultants. The deals are larger, the targets are often fewer, and the customer evaluation model includes key influencers who can speed up or slow down the sales cycle. Sales development teams are as effective at lead generation as traditional marketing vehicles, if not more so; and relationship management and the old “belly-to-belly” sales model can overcome a host of operational weaknesses, especially in the early days.In the on-demand or SaaS model, the demand generation process and costs are more akin to those of carpet bombing than precision air strikes, and there is a profound blurring between marketing and inside sales processes.

The focus is on high-volume, low-cost demand generation typical of that in SMB markets or desktop software markets of the past and present, and more attention must be paid to web-based demand and database maturation. The blurred sales and marketing model is an extremely process-driven model that is metrics-focused at every step of the process (i.e., it is a numbers game), and the ability to build an effective inside sales machine is paramount. Training and certification of inside sales representatives (ISRs) are critical processes since ISRs are in demand with the growth of SaaS companies, and one may have to rely on less proven individuals who are more likely to job hop in a competitive market. And while the cost of the ISR may be lower, the expense associated with other sales and marketing processes is higher as you attempt to sell large volumes of products or services at lower price points.

In short, the SaaS or on-demand model demands even greater attention to process, operational skills, metrics, training, as well as the ability to succeed or fail quickly and adjust accordingly. Finally, sales and marketing costs are often the single biggest challenge to the operating plan given price points that customers have come to expect from SaaS solutions, so the entrepreneurial CEO must focus an inordinate amount of attention on cost of sales in the budgeting process.

Understanding Customer Drivers

One of the fundamental shifts we have experienced in the new software model is the drivers for consideration of a purchase. More often than not, we are selling to the business user, not IT. These business users are interested in our domain expertise—knowledge about the business process we are automating or servicing—and view that expertise, not our technology stack, as the most important asset we bring to the relationship. There’s significantly less talk about the IT stack (although IT often remains part of the process), but the conversation shifts dramatically to Service Level Agreements (SLAs). Without the “on the ground” handholding that is key to jumpstarting a traditional software business, you must focus on service, service, service; you must set the tone of a service-oriented company from the first contact through every touch point with the customer.

Many would argue that this service orientation is equally important in traditional software, but customer satisfaction ratings often hovering around 20-25% reflect how well we have historically embraced this service orientation in our traditional enterprise software model. And, finally, “time to value” remains the primary driver for many customer purchases: “How quickly can I realize demonstrable and measurable business value from the purchase of your SaaS or on demand software?”

Reconsider Partners and Channels

One of the toughest questions for an entrepreneur whose past has been spent in traditional software models with VARs and system integrators (SIs) as effective channel partners is: “Where’s the opportunity to add value when the complexity of implementation is removed?” Often there is an answer, but the CEO must be equally comfortable with the answer that there may be none. You have to seek the truth and be honest from the start: If you as a software vendor have “shape shifted,” the channel partner may have to shape shift to add value. You need to consider the appropriateness of their doing so, their willingness, and your investment in a program to help them do it. As with the traditional software model, you must also carefully consider whether you should invite the channel partner into your model until you have thoroughly vetted the model yourself.

More often than not, trusted advisor programs that focus on revenue sharing through demand generation, business consulting versus IT implementation, or “bookend” services provide a more meaningful motive and context for partnering. For example in our model at Sabrix, we have partners who provide services that precede and follow the implementation of our outsourced service. We automate the tax compliance process from tax determination to delivering signature-ready returns; our partners provide Nexus studies and preparation of voluntary disclosures on the front end of our process and audit administration and defense on the backend of our process. In this instance, they effectively round out the outsourcing of the entire business process.

The opportunity for customization and integration remains challenging as a premise for partnering in the new world of SaaS solutions. The best on-demand applications will likely be those that offer the most complete solutions to the problems they solve for customers (which will require greater verticalization or specialization in many instances). If you focus on solving the complete business problem, you will need to ask: Is the domain expertise the burden of the customer, your burden as the on-demand application provider, or a shared burden with partners?

Our challenge as old dogs learning new tricks is an interesting one. As we shift to more SaaS and on demand business models, we may find that learning trumps experience; that is, if you have 15 years of experience as a sales or marketing executive, 14 of those years may not be as relevant as your ability to learn the demands of a new model. Therefore, the entrepreneurial team that can accommodate the steepest learning curve and adapt will more likely be the winners.

If motivational speaker Gary R. Blair is correct, “Learning is about more than simply acquiring new knowledge and insights; it is also crucial to unlearn old knowledge that has outlived its relevance. Thus, forgetting is probably at least as important as learning.” On the other hand, it may be more appropriate to adopt literary figure Christopher Morley’s credo: “There are three ingredients to the good life: learning, earning, and yearning.”

Source - Sand Hill