Building a SaaS Business

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Author: Vincent O’Hare

Building a SaaS business is a potentially rewarding but difficult process. The SaaS business model is essentially a multi-variable problem in which all the variables are important. The SaaS business model is so finely balanced that one rouge metric can ruin the plan. It is therefore essential to ensure that the business model is right, before any technical work begins.

First of all, the ISV has to have a clear SaaS strategy, comprising business model and business development plan. In particular, the ISV has to have a very clear view of the target customers. For example, an existing ISV has to consider if the SasS business is chasing the same customers as for the conventional business? Or is the ISV ‘chasing the long tail’ of new, smaller customers, perhaps distributed internationally. The choice of target has a big impact on many downstream SaaS decisions, especially in terms of SaaS architecture.

Many existing ISV’s remember that when their application was first released, the functionality was much less than it is now. This provides a good clue as to how to get started; develop an ‘entry-level’ system containing the 20% of functionality used by 80% of the customers.

To transition to the SaaS business model the established ISV has to address the following Top 10 issues/challenges:

1. Develop the Business Model The ISV must pay great attention to developing and understanding the SaaS business model. Especially where there is an existing business, application and customer base to be run in parallel to the new SaaS business. Setting the overall business model context is critical for successfully developing a SaaS business.

2. Ensure adequate Funding Feature for feature, SaaS systems are inherently complex and require more funding to develop than conventional applications. Also, the subscription pricing model tends to delay the breakeven point. It is therefore important to ensure that adequate funding is in place to avoid partial completion.

3. Attack the right market Attack a market that appreciates the strengths of the SaaS model. 1. Enterprise grade applications at subscription prices 2. Zero cap-ex acquisition 3. Easy per-customer (Tenant) customization 4. On-Demand start-up 5. Web App accessibility

4. Chase the long tail Super-efficient SaaS systems are uniquely suited to signing up large numbers of subscribers. Make sure that your target market has a sufficient number of SMB organizations to make the effort worthwhile. Those customers might either be in a single large market (e.g. USA) or may be an aggregate of a number of smaller international markets (e.g. Europe)

5. Avoid ‘Crown Jewel’ Applications Avoid applications for which the customers are likely to be very concerned about security and control, for example, banking applications.

6. Recruit the best people Even the most capable ISV’s will need to recruit experienced commercial and technical management specialists in order to build a SaaS business. Look for real talent, real experience and be prepared to pay. Also, utilize specialist SaaS consultants to help attack the SaaS market, maximize ROI, minimize the learning curve and avoid classic mistakes.

7. Design, Design, Design Create a world-class SaaS design, prior to implementation. Again, be prepared to pay for top designers and/or engage consultants who understand how to design SaaS systems. 8. Build the business into the SaaS application Be sure to design business ‘Monetization’ into the solution. For example create Gold, Silver and Bronze levels of service based upon functionality, usage, entities, transactions, consumption etc.

Begin with an in-website application, incorporating in-application provisioning, subscriber management, billing, support, etc.

9. SaaS Ecosystem Continue by building-out a complete SaaS ecosystem comprising:

1. Subscriber Management 2. Provisioning (System and Module levels) 3. Pricing Engine 4. Billing Engine 5. Payment Processing 6. Usage Monitoring 7. Customer polls/feedback 8. Performance Monitoring 9. Search Engine Optimization 10. On-Line Marketing 11. Add Words/Click-troughs 12. E-mail Marketing 13. On-line demos 14. Downloads 15. Webinars 16. Wikipedia 17. Blogs 18. Communications (Twitter) 19. Social sites (Face Book) 20. Video sites (YouTube)

Creating and integrating a full set of ecosystem tools can account for a significant percentage of the business development effort.

10. Build Sales & Marketing around on-line marketing Whereas on-premises applications push sales revenue, SaaS vendors pull revenue, mainly from the Internet, using a combination of advertising and search engine optimization. It is therefore vital to have a complete mastery of on-line marketing, to drive appropriate traffic to the Website / Application via ads and links. Appoint a proven on-line marketing specialist to ensure that the business achieves prominence in within the customer community. Ensure that the SaaS sales operation is fully aligned with the on-line marketing attack.

The Author Vincent O’Hare is a independent SaaS development consultant providing SaaS development And SaaS application designs to know more about the service please visit www.saas-attack.com