With the global Software-as-a-Service revenue hitting $16 billion this year, and then $22 billion by 2015, it’s tempting to jump in and develop your own SaaS business. But do you have a recipe for success?
Here are tips from proven SaaS entrepreneurs that should help you get started. Our company Time Doctor is also a SaaS business and that’s how we’re fascinated by the industry and by examples of successful SaaS startups.
“Maintain a Healthy Balance”
At a startup you must do a lot at once. In the early days of Marketo I had to wear many different hats. For example, I would regularly have to review a press release, prepare a webinar, update our lead-scoring rules, give a demo, and interview a job candidate all in a single day. My advice is to take a cue from yoga and let go of anything unnecessary. And each day, do one task to address each of these four goals: build awareness, manage leads, create sales support and build the product.
For example, start off the day listening, reading, and engaging in relevant conversations around the topics that your product or service addresses. Focusing on social networks and the top relevant blogs is a great place to start. Then move on to managing incoming leads and talking to your sales team making sure they have the content they need to properly act upon these leads.<
And finally, carve out some time to focus on building and improving upon your product. It may sound like a lot to take on for one person, but one task a day is all it takes to really begin moving the needle.
“Customer support is the difference between success and failure in SaaS products”
At the very beginning, your SaaS product will necessarily be incomplete, buggy and hard to use. But that’s ok for now! Because unlike your big competitors, you can (should) afford to spend time to spend on every single customer. You can sit down, learn about what problems they’re dying to solve, and patch over all the weak parts of your product with a smile, an apology and a taste of vision for what’s to come. It buys you the hearts and minds of your early customers.
And those hearts and minds are what you need to grow. We measured our Net Promoter Score recently, and *all* the happiest customers noted great customer support. Those same customers are the ones promoting Segment.io on Twitter and in person to their friends. Growth is one of the hardest parts of building a SaaS company (the users are sticky once you get ’em!), and you need all the promoting juice you can get. Help your customers, and they’ll help you.
“The “Say-no-to-Services” Sermon Revealed”
Really, this is two tips for the price of one.
Firstly, beware startup porn
Secondly, beware of startup porn that preaches “Just-Say-No-to-Services”, as though Services is the latest street drug and your business is at high risk of addiction. “Stay true to your MVP, subscriptions will save you” is usually what these articles preach.
And I suppose this is all well and good if you’ve just raised a bucket load of easy cash. But the reality is that for 99.9% of SaaS startups, revenue from consulting and services is a hidden stream of gold, waiting to be mined. Business is so under-resourced from a sick economy that they will gladly pay a premium for hands-on help getting up and running with your product. If you approach this in a smart way, it is almost like getting paid to ensure your product is so deeply embedded in an organization that churn is never an issue.
“Ask for Money”
Too many entrepreneurs have ideas and then proceed to give away their product for years and years to establish a user base. While that may work in some specific niches, nothing proves the viability and value of a business more than someone pulling out a credit card to pay for it.
The value exchange is clear when someone is willing to pay for your product versus when they fill out a survey saying your tool is valuable but they get the service for free. You don’t truly have a business until you have a revenue model to support the business.
“Measure churn and active product usage”
Churn and active product usage is the metric a SaaS company should be super-obsessed about. If you acquire customers, but they don’t end up using your product as much, you really don’t have a SaaS company.
The inherent advantages given by subscription businesses are immense, and it is true that great SaaS companies break revenue records every month, however if your product is not being used much, eventually customers are going to cancel their subscriptions. Therefore, simple interfaces, focus on target user workflow and constant educating the users about your product and its benefits becomes very important.
“Price on customer behavior and what they value”
SaaS businesses are slow to start but become predictable recurring revenue machines in middle age. Don’t be afraid to experiment with annual plans up front to drive in cash and reduce early churn. Avoid freemium unless your offering is support free. Don’t price on your perceived costs. Price on customer behavior and what they value. Talk to your paying customers to see if the reason they’re paying are the reasons you think they signed up. Sometimes they find your service valuable in ways you didn’t envision and that are repeatable.
“Treat Customers Like Prospects”
A confession. When I marketed on-premises applications, I paid attention to existing customers on only two occasions: at the annual user conference and when we needed a reference. We had already won their business and collected their license fee, so why bother spending any more time on them?
In the SaaS world, that’s not only bad behavior… it’s bad business.
SaaS companies can’t afford to spend lots of money bringing new customers in the front door only to have them leave out the back door. Renewals are essential. It can take several months, even years, to recover the cost of acquiring new customers.
That’s just how the SaaS business model works: Spend money up front and make it back over time. When you lose existing customers – when they don’t renew their subscriptions and the revenue stream dries up – the model breaks. For SaaS marketers, that means you need to pay attention to those existing customers. Keep them informed of enhancements, show them best practices, solicit their feedback, do whatever it takes to keep them engaged and satisfied. You need to renew their subscriptions; you can’t ignore them.
So that’s it, the words of the entrepreneurs who managed to set a trail for others to follow, in a relatively new market space like SaaS. Do you have your own tips to share? Put it in the comments sections below.