SaaS - Software as a Service > SaaS Business Fundamentals > Habits of Highly Effective SaaS Companies

Habit #1: Understand the true value of software

IDC's "Worldwide Black Book" finds that only 20 percent of IT budgets go for software, however that's where all the value is. The other 80 percent is split evenly between people/services, and hardware; all support overhead. We are providing an enterprise system that frees clients from that 80%

Habit #2: Don't underestimate the future of SaaS. Younger people get it, too.

That generation just entering the workforce — 18 to 22-year-olds who grew up on the web — their whole world is around what they can do online. They live online, they interact online, so they're going to want to use the power of the web in everything they do. They don't want desktop software, just a browser and the right links. In other words, the push for SaaS is only going to accelerate, because time is on its side.

Habit #3: Change direction, if you must, to catch a new wave in the market.

If your offering is not resonating with prospects, consider market trends, look for different "customer pain" points and address them.

Habit #4: Find the problems prospects need you to solve. And solve them. Even if it's impossible.

We may have to get more deeply into client operations than we initially want to (e.g. supporting their clients, performing energy audits, implementing energy retrofits, maybe financing energy retrofits). Efficiency Engineering is well placed to help with those extended services.

Habit #5: Share the risk with your customers.

This will reduce sales friction. Adjust client fees to their level of success. In our case, maybe charge based on monitored savings?

This recommendation will work with with software firms selling to other software firms, but may not apply as readily to our markets.

Habit #6: Think like a web company, not a software company.

Successful companies in this space tend to think a lot more like Google and eBay than SAP and Oracle. The companies who do well in this space really think and act more like a web company going after business customers than a software company that just happens to be on-demand.

There are three areas where software and web companies have a very different mindset in how they go about their business:

•	Development, especially how to develop,

•	Sales and marketing, and

•	Corporate mashups (also known as "composite applications").

Habit #7: Use agile programming to improve the customer experience, overnight.

In the old days, a web company would think of updating the site. Now the idea is that you're doing constant improvements, as opposed to a long development cycle and then a release.

It's not necessarily more work, but it does take a completely different development paradigm.

SaaS R&D managers should adopt the principles of agile programming, which include regular iterations and frequent feedback from customers. One of the great things about SaaS is you can actually see people use your application. So if you add a new feature, and you notice that 80 percent of your users go and use that functionality, but it takes them four clicks to get there, you may want to switch that, so it's immediately available as soon as they've logged into the application. You've just dramatically improved the customer experience, and you can do that this week! You don't need to wait until a year from now!

Habit #8: Team web developers for your UI with traditional programmers for scalability and performance.

On the UI side, look for people who come out of the consumer web business, and team them up with traditional development staff who can focus more on scalability and performance.

In the web environment, you have testing, staging, change management control, and rollback capabilities, and all the other things it takes to run a website. Things like rollback aren't in the lexicon of a software company because they don't normally install the software at the customer's site.

Habit #9: Grow your user base from a free trial, to initial signups, to wider adoption. And use sales resources accordingly.

According to Treb Ryan, founder of OpSource, "One of the things that almost all successful SaaS companies do is make their value proposition simple. Get it out onto the web and allow people to come and buy over the web.

"It's amazing how few do it, but those who do, who focus on attracting users and allowing them to buy on the web, and then once they have someone on, going out and growing those users from 10 to 100 to 1,000 users, they are the ones having success in this space.

Ryan admits this took OpSource some time to learn, and if he was doing it over again, he'd invest more in compelling web marketing sooner.

"The fact of the matter is that most successful SaaS companies don't start with the big elephant-hunter mindset. They really focus more on attracting users with free trials, and then monetizing them. It's an online sale, it's an inside sale, and then making the move into the enterprise, and growing those customers."

There are three key steps to this SaaS sales process.

SaaS sales step #1: Build traffic and offer easy free trials.

The first step should be web-based marketing and SEO to attract traffic. And use good design that makes it super-easy for people to sign up online.

It's a big mistake, says Ryan, to waste time selling prospects a free trial. Don't use any precious sales resources until later in the process.

"Sending a sales rep to sign up a five-user account is prohibitively expensive; allowing those five users to sign up over the web is obviously a far better plan."

OpSource now provides OpSource Billing, which supports online ordering so you can offer your visitors buttons to click for a free trial, to buy the service, and to add users.

SaaS sales step #2: Grow each customer with inside sales and account management.

In the SaaS world, a free trial gives you a "super-qualified lead set" to follow up. "When someone signs up for the free trial, track how many people are coming in, how many are using it on a regular basis. "Call them two or three weeks into the trial and say, 'Hey, I noticed you signed up for a free trial. I noticed you've been using it quite a bit. What can I do to help you understand more about the software? How can I get you moving to a full implementation?' Say they have a company with five to 10 users, now you have an embedded customer where you can start doing inside sales or account management. Say, 'Listen, you've got 10 users now. Can I help you expand? Do you know we have these other features?'"

Either grow the feature set each customer uses, or grow the user base at the customer, or both.

SaaS sales step #3: Go on a sales call to pitch an enterprise-wide deal.

And when the time is right, pull out your big sales guns. "When a customer is up to 50 or 100 users, it's a great opportunity to walk into an enterprise and say, 'Listen, you already have 50 or 100 users. Why not put everybody on the platform?'

"You can show that it's already worked well for their organization for a period of time, and now you're just looking to make it more efficient. And the great thing is that you have internal champions built in."

Ryan says this process of moving from web to telephone to sales calls in an escalating campaign to grow your SaaS user base is the wisest way to use your sales and marketing dollars.

Habit #10: Use third-party web services to help you focus on your core value.

Focus on your core value proposition, all the pieces that are most valuable and most critical on the production side. Outsource the back office.

Habit #11: Resurrect your lost channel with composite applications (corporate mashups).

If you can turn your app into a web service, you have the chance to become a mini-platform that can get integrated into other people's apps. By making yourself a platform, you can get involved in the ecosystem, and see the channel come back for you. And this can have a huge impact. SalesForce.com AppExchange is a prominent example of this.

Habit #12: Use System Integrators to help overcome the biggest purchasing objection: integration with legacy apps.

Integration with legacy applications has replaced security as the prime sales stumbling block for larger enterprises. Most companies are now past the security issue. Today, they are saying, 'OK, if I am going to adopt SaaS, how am I going to integrate them with these other things I already have?'

Enter a new generation of SI like Astadia and Bluewolf. These firms are helping companies integrate SaaS apps, do mashups of SaaS apps, and even integrate SaaS apps with behind-the-firewall applications, so these SIs doing SaaS integrations become your new channel. For example, a mashup of this sort might link Salesforce so that every time you close a customer, that customer shows up in QuickBooks or Sage or SAP. This opens the door to integrating legacy applications with newer SaaS products.

The ability to offer your app as a service breaks down sales objections, it opens up the channel, and it allows you to add a lot of functionality to your application that would cost you a lot to develop on your own.

Habit #13: Ride the SaaS wave to VC funding.

Treb Ryan says that OpSource's series "C" funding, led by Intel Capital in September, "had given us the cash we needed to operate the business in perpetuity."

So the next round — when they raised another $15 million — was gravy.

"The valuations were so good, it is really allowing us to get more aggressive, for instance, opening OpSource Europe, developing more services, building out new types of web-based sales models.

"The financial markets, the bankers, investors are all seeing these companies as a significant premium to traditional app delivery models.

"It was much different than a year ago. Now it's people approaching us. I think that's just an indicator of how strong this market is. I'll take that any day. This is my third startup in a row, so I've done this a number of times, and it's always nice to have people come to you!"