SaaSPert: Software as a Service (SaaS) Insights

Last time I said that I was going to post about great SaaS business examples. Well I’ve been researching this topic and it is “1 million miles wide and 1 mile deep.” I decided to use less real company examples and talk more on a “principles” basis.
My favourite examples of great SaaS business are the usual suspects: Sales Force, 37 Signals and FreshBooks. These three examples cover most of what is great about the SaaS model and how good solid businesses are built using the model.

If you’d like to read up some more, here is a recent article on the top 8 performing US SaaS stocks in 2008.

Some guiding principles:

1. Great SaaS businesses charge for their service

So as not to reinvent the wheel, read this from 37 signals. In summary, sentiments like “the future is free,” “we’ll all from ads,” “VC money will get us there,” “acquisition is nirvana” are short sighted and frankly, lazy.

Online advertising is getting completely saturated. Google is very difficult to compete with. AdSense as your only revenue stream is BadSense. VC doesn’t want to hear about advertising as a sole revenue stream anymore.

If a service is valuable, clients will pay for it. If it can’t be charged, it probably isn’t valuable.

Think about that. Think long. Think hard. Don’t invest frugally.

2. Great SaaS businesses foster and maintain trust

It is a pretty scary proposition for a client to entrust your business with their valuable and confidential information. It is equally scary that the more information they entrust you with, the more locked in they become.

This is a big subject, but getting prospective and current clients to trust the service (and maintaining that trust) is a core competency of the great SaaS businesses.

3. Great SaaS businesses evangelize their value

I spoke about offering value above. Great SaaS businesses let everybody know, in every possible way, that they offer bottom-line value.

4. Great SaaS businesses segment and understand their market

A SaaS application in use will have numerous stakeholders/users. A great SaaS business understands the needs of all service stakeholders and ensures they are addressed appropriately.

5. Great SaaS businesses understand buying behavior and the current status of SaaS

See the slideshow below and jump to slide # 12. In terms of new technology/product adoption theory, the majority of customers are “Pragmatists” and “Conservatives.”

In the current SaaS scenario, SaaS buyers are “Visionaries” or “Early Pragmatists.” The good news is that SaaS is becoming increasingly mainstream, i.e. “Conservatives” will come on board sooner or later.

What this means for great SaaS business is that they understand the buying profile of their target market. For example, if you are about to launch to a target market whose buying profile is predominantly comprised of “Conservatives” or “Skeptics” you are going to have a tough time. You’d be advised to wait a while.

6. Great SaaS businesses understand that they are selling a service, not software

Buyers of SaaS are often fed up with software products. They need a business result. Great SaaS businesses understand this and sell business results as a service. The software product simply enables their ability to offer that service.

7. Great SaaS businesses improve continuously

SaaS enables the ability to make frequent software enhancement releases with minimal end user disruption and cost. Great SaaS businesses fully exploit this reality and thus give their clients a tangible sense of ongoing value.

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Next time teaser:
Next time I will continue with the “Starting Out” series and look at “Who do you start out with?” Friends, Angels? To JV or not to JV?

Full Book Chapter Plan:
The full list is available on the Upcoming Topics page.

Glossary of Terms:
Please comment if I have used any term that you are unfamiliar with or feel should be added to the Glossary page.