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By Kevin Dobbs
Montclair Advisors, LLC
When thinking about your transition to SaaS, there are many questions to consider including target customers, value propositions, packaging, pricing and how best to build customer relationships.
After conducting more than 50 Smart SaaS business profiles of all different types including pure SaaS, Hybrids and Cross-Overs, all of these companies would probably answer many of these types of questions differently depending on their type of customer, functionality, geography, vertical markets and the only way they can get useful answers is to continually test everything. Best in class SaaS firms are always trying different pricing, packages, messages in order to optimize their businesses, like a recent firm we profiled - Clarizen.
Some resources when thinking about these types of considerations include:
Software Pricing Partners - Jim Geisman
Chaotic Flow - Joel York
Sixteen Ventures - Lincoln Murphy
4 Pillars of SaaS - Phil Wainewright, ZDNet
In addition to testing, it is a good idea to measure everything including website traffic, marketing campaigns, product usage, customer satisfaction and a myriad of other SaaS and business metrics. Again, the best firms track and monitor all the key business metrics in order to improve their ability to generate revenues, build market share and reduce unnecessary customer churn. SaaS requires a very tight operational model and has moved business an art to a science and now there are an entire new class to tools to improve revenue performance and reduce costs. Some of these next generation of tools include:
Sales Automation
EchoSign - Provides electronic signature and contract management.
InsideView - Sales business intelligence and social media platform.
JigSaw - Business information and data services.
NetSuite - CRM and ERP suite.
RightNow - CRM, call center and social platform.
Salesforce.com - Salesforce is not only a solid Customer Relationship Management system but also a great system of record for all types of sales, marketing and service information and applications. Also offers a application marketplace that provides value added extensions. Salesforce also offers Chatter a collaboration platform to improve internal communications.
SugarCRM - Open source based CRM that provides a robust no cost solution.
Marketing Automation
Eloqua - Marketing automation platform.
Genius.com - Sales and lead automation.
MarketBright - Marketing and lead generation management.
Marketo - Marketing and revenue management.
Pardot - Business to Business lead automation.
SaaS Analytics
Birst - On demand business intelligence product.
Cloud9 Analytics - SaaS performance management.
GoodData - SaaS business intelligence product.
PivotLink - On demand business intelligence product.
Using many of these tools companies can help a SaaS firm track their business, sales and marketing performance. The question that I often get is ‘what should I be tracking?’ There are an emerging set of SaaS-based business metrics that include Monthly Recurring Revenues (MRR), Churn, Customer Acquisition Costs (CAC), The Magic Number (MN) and others that provide very precise views into how a SaaS business is performing. Here is a chart that details some of the more common SaaS business metrics by functional area:
Other resources to learn about SaaS metrics;
5 C’s of SaaS Finance - Bessemer Ventures
Chaotic Flow - Joel York
For Entrepreneaurs - David Skok, Matrix Partners
Haut Tech - Michael Dunham at Scio Development
My opinion about the SaaS business model is that there are a lot of new considerations about building a profitable subscription business today. The buyers are different, there are many robust low-cost tools available, Cloud technology that can radically change your cost model and time to market as well as many other business factors, so the only real way to really tune your business for SaaS is to continually test everything!
I would be interested in your comments and hearing about what you are testing.
Stay tuned for Tip #4 Sales & Marketing on a Budget
By Kevin Dobbs
Montclair Advisors, LLC
Let’s face it, Hunters and Farmers are very different types of sales people. One is into the thrill of the chase and the high anxiety of selling the next big deal. The other is into cultivating relationships, building communities and patience.
When it comes to sales people inside of a SaaS company, these same attributes apply to this team as well. Trying to get your major account or direct sales reps to effectively manage your existing accounts and still hit an aggressive quota, that usually doesn’t work that well. The same holds true if you are trying to get your account managers to push their customers to close a big deal, and they just don’t want to push too hard because they might ruin their relationship. Then why are you trying to get them to do the same job?
The other big difference is usually how these sales professionals get compensated. A typical software sales rep will have a $1.5-$3M annual quota and want to make at least $200K, where as an account manager might have a much smaller quota, $300-$750K and be making $110-150K. That’s because they have different skill sets but both types of sales are critically important when building your SaaS sales team. Philippe Botteri from BVP discusses what Gary Messiana an EIR told him about how he compensated his reps for delivering MRR:
Gary wanted the sales rep to think MRR and the most logical thing to do was to give $1 of commission for $1 of MRR sold. $1 of MRR generates $12 of annual revenue, so $1 commission equals 1/12=8.3% which is very close to the typical 8% paid for sales commissions.
The second thing he did was to define was the ramp up of the commission rate to make sure the best sales rep would get the most upside. To do that, he applied another simple rule:
-
- For 0-25% of the quota, $0.25 commision per $1 of MRR
- For 25%-50% of the quota, $0.5 per $1 of MRR
- For 50%-75% of the quota, $1.0 per $1 of MRR
- For 75%+ of the quota, $1.5 per $1 of MRR
I like the simplicity of the concept and it can be applied to all types of sales roles.
Depending on the type of products/services you are selling, you may actually not have high priced outside sales reps and actually focus more on building out a low cost tele-sales capability. Even if you do this, you should still separate out your new sales team from your account management teams. Because SaaS is perfect for the ‘penetrate and radiate‘ sales model, you need teams that can sell that first product and then another team that keeps the customer happy and renewing as well as buying more products and services.
Bessemer Venture’s 10 Laws for being SaaSy also recommends separating your hunters from your farmers. It is important to be able to find new customers but it is also important to be able to renew, upsell and cross-sell customers additional products, which will increase your company’s Monthly Recurring Revenues. This well defined sales structure works well with many of the leading SaaS firms including RightNow and Salesforce.com.
One of the big objections about this type of approach is that if forces the customer to deal with two different sales teams. Although this can be a problem, I have found that these types of channel conflicts can be remedied by using team based compensation plans that have everyone getting paid based on shared goals related to existing customers. This type of approach also encourages development of up-sells/cross-sell opportunities by the account management team, since they often require the new sales team to engage in these deals and close them. The team compensation approach means everyone wins, including the customer.
I keep coming back to skills and personalities when structuring your SaaS organization. Keep your teams small and focused. Make sure you have ways for those promising team members, who might start out in tele-marketing or account management, to have a path to progress up the sales food chain. Just make sure that your organization structure is well defined, there are clear rules of engagement and that that compensation plans encourage your sales teams to work together and keep your customers satisfied.
Stay tuned for Tip #3 Test Everything
Here is our updated Public Company SaaS interactive spreadsheet. Enjoy!
Company: Yammer
Started: 2007
Located: San Francisco, California
Geography: North America
Market: Enterprise Microblogging Platform
Products: Yammer Desktop, Yammer on your Mobile Device, and Yammer Plug-Ins
Key Customers: Deloitte, AMD, AAA of Northern California, Nevada and Utah, SMG, Cargill, Thomson Reuters, Sungard, Hill & Knowlton and SunCorp.
Website: Yammer
Blog: Yammer Blog
Twitter: @Yammer
Recent News:
Yammer is Selected as an MIT Sloan CIO Symposium Innovation Showcase Finalist
Fortune 500 Companies Flock to Yammer
Yammer Secures $10 Million in Series B Funding from Emergence Capital and Previous Investors
I asked David Sacks, Yammer’s Founder, CEO and Chairman of the Board few questions about his business and his view of the SaaS market in 2010.
Did you start out as a Software-as-a-Service company?
Yes, we did start out as a SaaS company. Our company was incubated inside of Geni, which develops family tree software. I was also involved with the consumer Internet with my experience starting PayPal. As both companies scaled, I found it was hard to keep tabs on what everyone was doing, and Yammer was developed to address this challenge. We found that microblogging was a great way to keep current on the status of important projects, individual profiles and information feeds inside of an enterprise.
Then in 2008, we spun out Yammer and that same year won the TechCrunch 50’s Best in Show award.
Initially we were targeting small and medium sized businesses but we are now seeing that Yammer has strong appeal for large enterprises like AAA, AMD, Cargill, Cisco, Deloitte, and Thomson Reuters.
Yammer is very viral because it was very easy for anyone to sign-up, confirm their company’s email address and start using the system. You don’t need to wait for an IT administrator to set up Yammer and you can quickly invite your work colleagues, with the same company email domain, to join in and begin collaborating with you.
When a company wants to claim the network being used by it’s employees, they pay a nominal subscription fee, and then we provide a set of administrative tools that allow them to manage upgrades, security, compliance, deliver premium support, and customize their site.
Part of our initial business model was to base Yammer on the consumer model of software, but make it enterprise-class. We wanted to remove the traditional friction from our software sales process by making our product as easy to use as Facebook.
Why do your customers buy from Yammer?
Our customers never have to pay or upgrade our software unless their employees are using it. This is very attractive, when you compare it to the traditional software selection process where you have to vet vendors, choose one, negotiate the contract, implement the product, pay a lot of money and then no one uses it. Yammer is de-risking the traditional enterprise software value proposition. Employees are valuing it because they use it.
When large companies see thousands of employees using Yammer what do they do? They can do three things - wait and see what happens, shut it down or buy it and we are finding the vast majority of companies are buying Yammer because their employees are being productive and want to collaborate using the software.Our customers also really like our administrative tools for e-discovery, security, directory integration, and network administration.
“If Facebook and Twitter had a baby, it would be Yammer.”
We are like Twitter because we offer a real-time feed of information; you can follow any one, join groups and sort information feeds by hash tags. We are like Facebook because there is no 140-character limit, you can have attachments, threaded replies and we offer a variety of enterprise management tools.
Yammer is a like a virtual office where workers can feel more connected to each other, especially remote workers. We act like the traditional company water cooler for these distributed organizations. As workforces become more mobile, Yammer just make a lot of sense for enterprise collaboration. Today we only offer Yammer in English but we have noticed that there are an increasing number of new customers who are signing up outside of North America. In the near future we will be supporting multiple languages in addition to English.
Customers also like our value-based pricing model. We charge between $3 and $5 per seat per month, depending on the level of support and administrative tools. We also provide volume discounts for our larger customers. This is much more cost attractive than purchasing Chatter from Salesforce.com for $15 per seat, which is quite expensive and most employees don’t want to communicate through the company’s corporate CRM system. Our very fast viral Freemium approach appears to be working, because since we have been live for only the last 18 months we now have over 1 million seats today.
What do you see as the key trend emerging in the SaaS industry?
The first trend is the consumerization of enterprise software; Yammer is a great example of this trend. Real innovation in the technology space over the past 10 years has been on the consumer-side of the software market with products like Facebook and Twitter. At Yammer we want to take these learnings back into the enterprise software world. When I was at PayPal, we were very successful using the Freemium model to promote adoption. This type of approach to software can definitely result in the overall democratization of enterprise software. SaaS is the first step, when the delivery model changed, then there were no upfront costs and the risk is dramatically lower. Using techniques developed by consumer software firms, more and different kinds of buyers can now access enterprise-class software.
The second trend we see is that enterprise software products will be designed more for the end-user than power users or administrators. A good example is how Facebook and Twitter don’t do every possible feature or function and they don’t clutter the user’s screen. This simplified approach to software allow causal users to be more engaged with their products and other users. These types of causal use software products will also appeal to younger employees who have used Facebook and LinkedIn and expect their enterprise software products to be that easy to use.
Social Networking is also a major trend we are seeing. We started thinking about this over the last couple of years, since 2007. Now it seems so obvious, that social networking would grow into an unstoppable trend. The ability to connect workers, to leverage expertise and content all in real-time, which allows everyone to work smarter, just makes a lot of sense. I still think that there is confusion about Enterprise Social Networking, for instance Salesforce sees it as a CRM newsfeed, and we see it as enterprise real-time communication. Eventually we see Enterprise Social Networking replacing corporate email and instant messaging.
What is your outlook for 2010?
In January we raised $10M, led by Emergence, that provided capital to allow us to expand our team. Our investors liked the fact that we have built a very cost effective business, based on our viral distribution model. Our Q1 sales were greater than all of our sales for last year combined.
The software industry is realizing that Enterprise Collaboration is going to be a huge space. Most software companies will want to get into this market because every company will want one of these collaboration platforms to deploy. The only problem is that most enterprise software firms looks at these types of tools backwards, because they already have multiple different product lines, then they will need to stuff it through their sales channel. At Yammer we have already solved this distribution channel problem and we can actually open up our channel to these companies as a Distribution as a Service model.
We continue to sign up a number of large customers, and this type of adoption makes other large companies comfortable using our technology. Things look great and our traction is accelerating.
Started: 2003
Located: Palo Alto, California
Geography: Global
Market: Electronic Signature and Contract Management
Products: EchoSign Web, EchoSign Salesforce, EchoSign for Google Apps, EchoSign for Netsuite, and EchoSign for Oracle CRM OnDemand
Key Customers: British Telecom, Comcast, Delta Airlines, GE Capital, Qualcomm, and Time Warner Cable
Website: EchoSign
Blog: EchoBlog
Twitter: @fromechosign
Recent News:
EchoSign Electronic Signature Reaches 1,000 Customers on Salesforce.com’s AppExchange 2
EchoSign Integrates Its Electronic Signature Software with NetSuite’s Cloud Computing Platform
EchoSign Now Available Through the Google Apps Marketplace
I asked Jason Lemkin, EchoSign’s CEO and co-founder a few questions about his business and his view of the SaaS market in 2010.
Did you start out as a Software-as-a-Service company?
When we started our company in 2006 the market wasn’t that clear on what SaaS really meant. Our vision has always been clear to build a web or Cloud service where companies could execute a contract electronically on the Web.
This is my 4th start-up and the second company that I have co-founded. I was a lawyer at the Venture Law Group here in the Bay Area and it was really obvious to me that this was the right way to get contracts done but lawyers tend to be slow to adopt new technologies.
It always seemed logical to be able to execute contracts electronically, because it saves time and headaches but our vision might have been a bit early. Our early customers were an odd mix of web-centric folks who read TechCrunch, use BaseCamp project management products, and other companies that wanted to automate their business contracting processes. Now we are seeing regular businesses are catching up to our early adopters by leveraging the Web for their contracting processes. We believe this might be one of the last open areas for the automating of business processes using the Internet. Like a lot of other paradigm changes contracts will be going from the analog world to digital, and most contracts in the next 5 years will all be executed electronically.
Why do your customers buy from EchoSign?
We have sold to nearly 20,000 customers of all sizes including Proctor & Gamble to Real Hip Hop Records to Dell and more than 80% of our customers use our products for sales oriented tasks. The real advantage for our customers is going from an older fax-based contract process to EchoSign. We can take a process that currently takes days and compress it down to just a few minutes; in fact we have found that the average time to execute a contract with EchoSign is less than 45 minutes.
Aetna likes EchoSign because healthcare professionals can complete contracts faster and more reliably and can reduce the expenses associated with faxing or mailing these agreements. The company has found that by using EchoSign, they can reduce contract-processing time from three weeks to one day on average. Currently about 70% of all of Aetna’s transactions with healthcare providers are electronic and EchoSign helps with these processes and provides visibility throughout the contract lifecycle.
We built EchoSign to be a very easy to use sales tool, not just a product for lawyers. All types of business people are executing contracts today. Business professionals and sales reps just don’t have time to learn how to use new tools; they just want to focus on closing contracts and getting back to their business.
Like Aetna, many of our larger customers also see the benefits of EchoSign for their legal organizations because we provide visibility into their overall contracting process, which helps with compliance by creating electronic audit trails, delivering a secure signing process, which can also help to avoid fraud.
What do you see as the key trend emerging in the SaaS industry?
When we started the company three years ago, customers were just buying SaaS point solutions like Salesforce.com and WebEx. Today companies are running their entire business using Cloud-based software. So the concept of signing and closing contracts can no longer be viewed as just a point solution, but a component of a larger, integrated business process.
For example, a typical integrated sales process for one of our customers might be capturing a new lead from Google Adwords, then demonstrating their product over the Web using WebEx and managing the sales process using Salesforce.com and then executing the new customer contract using EchoSign. Our customers would ideally like all of their SaaS tools and processes to be integrated because it saves them time and money. Applications should just be loosely connected together using API’s, they want these products to work together in a more integrated way.
Another trend we see is the rise of many different partner ecosystems that companies like ours will need to work with over time. EchoSign is a Salesforce AppExchange partner; in fact in 2009 we were the signal highest rated application on the AppExchange. We also work with Google Apps, Oracle, Salesforce, Box.net and others. We have these partnerships because our customers are looking to integrate all of these web products together to run their businesses and we want EchoSign to be a part of these expanding set of business processes.
Even though Salesforce has over 70,000 customers, the Laws of Attach Rates would tell us that we can only assume that 1-2% of their customers will consume our service. We just announced we have signed our 1,000th Salesforce customer, so we are doing well but we need to work with many of these partners who support large eco-systems of customers. Because we are relatively easy to integrate into, we should have a higher attach rate to these solutions and this partner leverage will enable us to grow our business quickly.
What is your outlook for 2010?
Last year, during the recession, we saw elevated churn rates but now our business is back to pre-recession levels. The churn was related to bankruptcies and other similar types of recession fallout.
Our customer’s buying patterns are pretty consistent. Prior to the recession, we had many lower quality customers, but now we are seeing more stable, higher quality customers who are less likely to churn in the future.
These stronger companies are buying our solutions now, which is fueling the growth of our business and we are not seeing those lower quality customers out in the market. I guess it was easier to build a company when equity and debt were available to start a business. Today, strong companies are succeeding and accelerating out of the recession and EchoSign can help these companies optimize their sales processes.
A good sign for our business is that we are starting to see our customers asking to pre-pay for multi-year deals as a way to lock in future pricing.
The broader SaaS market (I would include PaaS and Cloud Computing) have been really interesting this year and here are some of the notable news items that have caught my attention over the past couple of months:
Mergers & Acqusitions
SuccessFactors buys CubeTree for $50M… Interesting move into the collaboration space
IBM buys CastIron … Nice compliment to their Cloud Infrastructure offerings. Is Boomi next?
… then IBM buys CoreMetrics.
Salesforce.com buys JigSaw for $142M! … Surprised that they would pay up for a content company.
CA buys Nimsoft for $350M … gets into the SaaS infrastructure management market. Good company.
SAP buys Sybase for $5.8B … not sure about this one? A diversion to deflect attention away from BBD?
RedPrairie buys SmartTurn … traditional SCM provider begins their move to SaaS.
VMWare looking at EngineYard … interesting since Amazon funded this Ruby-on-Rails PaaS startup.
Fundings & IPO’s
Marketing Automation: Marketo raises $10M Series D, led by Mayfield.
Enterprise Collaboration: Yammer raises $10M Series B, led by Emergence Capital.
Financial Analytics: Host Analytics raises $15M Series C, led by Next World Capital.
Cloud Business Intelligence: Cloud9 Analytics raises $8M Series C, led by Mayfield.
Recent SaaS/Cloud IPO’s include Convio, SPS Commerce and Financial Engines.
New Products and Launches
Broadvision launches Clearvale … Ning for the enterprise.
Plateau launches PaaS platform for Talent Management
Mercer partners with PeopleClick Authoria, first combination of HR consulting content with Talent Management technology platform
VMware and Force.com partner, launch VMForce.
Lawson launches ERP Cloud offering on Amazon AWS … too little, too late?
Recently Profiled SaaS Companies by Montclair Advisors
Birst, CentralDesktop, Cloud9 Analytics, GoodData, Marketo, Netsuite and WOLF Frameworks.
There are definitely a lot going on in the SaaS and Cloud Computing markets and we will continue to cover newsworthy events and profile leading players throughout 2010.
Company: Wolf Frameworks
Started: 2006
Located: Bangalore, India and Herndon, Virginia
Geography: Global
Market: Cloud and Platform-as-a-Service
Products: Wolf Frameworks PaaS
Key Customers: TRA, GMR, Wipro, Delhi Frieght Carriers, HLB Mann, eCounting, Head Start, Juice Junction, SEDS and eDok
Website: Wolf Frameworks
Blog: Wolf PaaS Blog
Twitter: @WolfPaaS
Recent News:
ARTIST - Learn2turn builds E-DoK on WOLF PaaS
I asked Sunny Ghosh, WOLF Frameworks, Director and CEO a few questions about his business and his view of the SaaS and PaaS market in 2010.
How did you get started?
We started WOLF in 2006 as a pure play Cloud Computing company about 4 years ago. My partner Ralph Vaz started the company and we have both been in the technology industry for more than 30 years collectively.
We have worked on building many exciting products such as Invensys Skelta, Ebbon-Dacs, DB Query, Digimaker CMS that are widely used in the United States, Europe and Scandinavia.
We have seen technology as a growing burden to a customer’s business. When the technology changes like when COBOL transitions to Pascal, then to .Net, then to the next big technology. But why couldn’t technology be separated from the business because it doesn’t make much sense to tightly render a technology specific assembly for customers, which cannot be changed without technical programming? If you could just keep technology complexity and business requirements separate, then technology could be democratized and be made available to all sizes of companies.
Since the Browser is now the focal point of all modern computing, this means this is the end of the operating system and PC-centric approach to applications. By simplifying technology and making easier to access and less expensive, there is a much larger customer base to build our new business on.
Why do customers buy from WOLF Frameworks?
We have three different types of customers that we sell through our partners:
- SaaS Startup’s who have a great idea and want to build a prototype. This type of customer will be a single user and spend a month to build out their concept.
- Professional Services companies that offers business of services and wants to develop a tool that eliminates services time and to create a new recurring revenue stream.
- Enterprises and ISV’s that are looking to create line-of-business applications, and mashups like GoToMeeting integration with their CRM system or corporate dashboard solutions.
At WOLF we offer a zero code Platform-as-a-Service offering. Since most of our customers and users are business analysts, we needed to make a product that was easy to use. WOLF Frameworks consists of a five layer of architecture including XML integration, billing, presentation, application development and database layers.
WOLF Frameworks offers a variety of capabilities that make it a rapid development environment like the following:
- Templates
- Reports
- API’s
- Multiple devices
- Built in storage
- Business rules and workflow engine
- Access rights
- Support for multiple databases
All of these capabilities allow customers to develop applications 70% faster than traditional approaches at half the cost. Customers have used different types of applications including accounting systems and also electronic patient record system.
We also use open standards like XML, AJAX for inter-operability and portability. WOLF also is based on leading technologies like .Net, MySQL, and SQLServer. Our platform also works with leading Infrastructure-as-a-Service providers like Amazon Web Services, Rackspace and a Canadian provider iWeb.
The WOLF platform can also operate in a hybrid environment that supports both Cloud and on-premise applications. In fact we can take a license of your OnDemand Cloud application into your Private Cloud whenever and since we use a single code base it is possible to sync-up hybrid environments.
One of the major reasons customers like to use our platform is because WOLF Frameworks offers minimal vendor lock-in. Applications developed with WOLF are portable since they built with XML. The data, application design and the hosting providers can be moved, with minimal effort.
What broad trends are you seeing in the SaaS/Cloud markets?
Obviously one major trend is the emergence of the Platform-as-a-Service solutions like WOLF. Our customers are looking for fast, cost-effective ways to develop new Cloud-based solutions to either replace older products or to build out totally new ideas.
There are many different PaaS solutions emerging;
- Application-led solutions from Netsuite and Salesforce;
- Application development-centric solutions like WOLF, Force.com or Intuit’s Quickbase
- Development-centric solutions built on LAMP, Ruby on Rails or Microsoft’s Azure and
- Community-centric platforms like Linkedin and Facebook.
The other trend Private Clouds. Our same customers are looking for ways to extend their existing solutions out to the Cloud but are concerned about security and Private Clouds offer a great alternative to on-premise software. WOLF also offers the ability to develop applications that can run in a hybrid mode, both on-premise or in a Private Cloud as well as out in the Public Cloud. You can also migrate existing web applications into WOLF’s multi-tenant platform rapidly.
What’s your outlook for the balance of 2010?
We are feeling good about our growth and have 10,000 users today and look forward to continuing a solid 2010.
Company: Birst
Started: 2005
Located: San Francisco, California
Geography: Global
Market: On-demand Business Intelligence
Products: Business Intelligence Suite
Key Customers: Children’s Choice Learning Centers, Citrix, Key Technology, Rackspace Hosting, RBC Wealth Management, Securian, UE Vision and Metro Atlanta YMCA
Website: Birst
Blog: Birst Blog
Recent News:
Birst Delivers More Power to the Business User with Launch of Birst 4 Spring Release
I asked, Brad Peters, CEO of Birst a few questions about his business and his view of the SaaS market in 2010.
Did you start out as a Software-as-a-Service company?
I started Birst after leaving Siebel Systems, where I was running the Siebel Analytics products, that are now owned by Oracle. My team managed the analytics platform and applications for all business intelligence, which at the time was competing with MicroStrategy and BusinessObjects.
When Siebel was sold to Oracle, our division was the biggest business at Siebel and was growing fast while all other business lines were shrinking. What we were finding is that BI was better tuned for changing buyer preferences of better, faster cheaper than were our existing enterprise CRM products.
At Siebel, we saw value of analytics and SaaS and because of that, Birst was started as a real BI SaaS company. It was really hard to get to true SaaS since many of our initial customers were large financial services companies back in 2004, who wanted customized solutions. We figured out how to build and deploy products quickly but we didn’t want to build these giant, complex, customized products. SaaS was a great way for us to get back to basics.
What is interesting is that CRM problems are similar to BI business challenges. Business Intelligence is more dispersed than CRM with multiple data sources, scoreboards, dashboards, data transformation, and reporting. Because it is complex and data comes from many different places, that’s why many companies have often given up and just used Excel to solve these BI challenges.
We started the company in 2005 with the philosophy that BI is never going to be easy, but if we could solve the problem for large companies, then we could charge more for our solutions. Birst launched a simpler self-service version in 2008 which only took ¼ of the time and resources that it took to deploy traditional BI from firms like BusinessObjects or Cognos, but customers get the same functionality.
At about this same time, we discovered that other BI providers were cheating, by using a single-tenant, or a ‘fake SaaS’ approach, they would also cripple their product’s functionality or offer just a single table. This approach just frustrates customers. Birst can also access data wherever it lies, even if it is on-premise, in existing systems, which saves customers costs and cuts out huge chunks of deployment time.
Why do your customers buy from Birst?
SaaS BI is not just Excel on the Web; it is hard to develop and deploy true BI. Actually is easier to develop a CRM system. We also believe that delivering incremental and value-add BI capabilities is also difficult. BusinessObjects and Cognos have never launched a product on single platform, and often orphan older products.
The current SaaS BI market is not about ‘rip and replace’, our customers don’t want to do that because it has been expensive and painful to get to where they are today. More customers want to extend their existing BI investments. For traditional BI firms this is difficult because all of their product suites are an amalgamation of different products and companies they have purchased. We find that our target customer has spent a minimum of $250K rolling out an enterprise BI solution. If you can’t pay that amount, you do without and use Excel. A good example of this is one of our customers Metro Atlanta YMCA, who is using Cognos for finance but the marketing department wanted to use it too but didn’t have the resources, now they use Birst to extend Cognos, which is a great alternative.
Our products appeal to companies that have dispersed groups and are looking to pull data from many different sources and run centralized reports or create dashboards. Organizations like sales, finance and even supply chain appreciate the flexibility of Birst.
One lesson we learned was that the toolkit approach to BI or transforming BI into data applications doesn’t really work well for customers. At Siebel we sold sales and marketing analytics applications that came with hundreds of pre-packaged reports but our customers never used them because their data models were all different. In the end, one size doesn’t fit all, because you have to match the BI product to each customers business model. Birst delivers a set of templates for sales, finance, and supply chain that deliver 80% of the functionality required and this helps to reduce our implementation times dramatically. BI doesn’t fit easily into a box, your tools need to be flexible and deployment should just be personalizing the last 20% of the solution.
Birst sells to both IT and Line of Business executives who are frustrated getting access to important business information and IT is constrained and they want to get the BI monkey off their back without sinking their organization.
What do you see as the key trend emerging in the SaaS industry?
I think the major trend we are seeing is that SaaS is migrating to mainstream acceptability. People didn’t even know that SaaS existed five years ago and at that time was still an early adopter market. Salesforce.com has done a great job evangelizing the SaaS business model as well as convincing customers that Cloud Computing and SaaS are more secure than customers may have thought. Today we don’t have to do a lot of basic SaaS education because the market is well along the maturity curve.
The other major trend is industry consolidation of the major BI vendors into mega suites. This high degree of consolidation is resulting in a feeling of vendor lock-in, which is disenfranchising customers because there are fewer pure play BI alternatives.
What is your outlook for 2010?
We have been working hard on launching Birst 4, which is a huge leap forward in our plans to bring a full SaaS BI solution to market. During 2009 we continued to build out our company, to be ready to go to market this year. We also announced big partnerships with Salesforce.com, RightNow, OEM partners and 30 system integrator partners.
I find it hard to correlate our business success to the outside economic conditions. We get the sense that the economy is loosening up but our future is going to be more determined by how well we execute on our business in 2010 and beyond.
Since everyone is interested in SaaS funding and valuations I thought it would be helpful to tell you about an interesting Cloud Computing investor panel I attended at the recent All About the Cloud conference in SF. The session was moderated by Jason Green from Emergence Capital Partners and was joined by Gary Hromadko from Crosslink Capital, Mark McNay from William Blair and Evangelos Simoudis from Trident Capital.
So what did they have to say?
The market has finally changed for the better
2009 was all about survival and the venture community did less than half the investments than in a typical year.
This year is now about growing again and current investments are more focused on companies that have weathered the economic downturn. Their investments are focused on changing the slope of these types of company’s growth curves, by concentrating more on sales and marketing.
SaaS and Cloud companies are leading the way
Consumers have been driving the adoption of easier to use Cloud-based solutions like eBay, iTunes, Facebook, Twitter and LinkedIn. They are viral and can reach critical mass very quickly because there are low barriers to adoption.
With SaaS, the recession has really pushed the advantages of a subscription business model and moving from CapEx to OpEx software investments. It’s like leasing your car rather than buying it.
Lean start-ups are definitely in. Almost all early stage software investments in 2009-10 are Cloud-based because it takes a fair amount of capital to fund SaaS firms and it takes a long time for them to reach profitability. One interesting comment was that later stage on-premise companies are now being asked about what their SaaS/Cloud strategy is for the future, because without it, they may find funding might be difficult.
What the VC’s are looking for
SaaS 1.0 focused on a company’s income statement, expenses and cash flows than GAAP reported financials. One important measurement is a company’s incremental contribution margins (gross margins), which is critical for SaaS. Companies needed to balance capital efficiency with building a business that can scale.
Investors are looking for unique business processes that can only be built or automated through SaaS or the Cloud. Emergence latest investments are pure Cloud-based companies that have viral qualities like YouSendit, the files sharing company and Yammer and the enterprise micro-blogging firm, both of these companies are viral enterprise solutions. Yammer has more than 70,000 customers with at least 1 user and is signing up between 7-10,000 users a month and 10% are turning into paying customers. Crosslink invested in Carbonite, a backup and recovery company, has high margins and is the only other independent player in the category with Mozy, who is owned by EMC. They felt that scarcity of competitors and their ability to manage Customer Acquisition Costs were important in establishing the company’s value.
The panelists also said they are looking for companies that have a rigorous focus on metrics like Customer Lifetime Value and Customer Acquisition Costs. In fact CAC appears to drive business value because it has a lot to do with capital efficiency and the company’s ability to grow their business.
Exits, IPO’s and Valuations
Economy has recovered and CEO’s are ready to start taking on more risk, and it’s a real change in psychology because we are at the beginning of a macro trend that will last more than 10 years.
This is evident by more than 100 M&A transactions last quarter including high profile deals like IBM buying CastIron, Salesforce buying Jigsaw for $142M, Successfactors buying CubeTree for $50M. The current environment is right for deals, especially as SaaS is gaining enterprise momentum with recent deals like SuccessFactors’ mega deal with Walmart for 1.6M users. Transactions like Jigsaw, CubeTree, and CA’s purchase of 3Tera and Nimsoft for $350M all indicate a return to a healthy M&A atmosphere, that will probably last for the next 12-18 months.
Oracle and SAP won’t be aggressive on the M&A front until they come to the realization that they can’t build Cloud solutions internally. Because many SaaS companies have now crossed the $25-30M in recurring revenues threshold, these firms may become quite attractive to these larger ISV’s looking to make the move to the SaaS business model.
But these acquirers don’t want to take on the burn associated with many start-ups so it will be important to stay close to breakeven and you may have to sacrifice growth for profitability. Since the access to capital is still tight, start-ups will have to try and collect cash upfront and continue to tune their business models to improve cash flows.
Companies that seem to own a category have perceived scarcity value which will result in a premium on any transaction, especially if they are perceived to own a segment franchise. VC’s and acquirers are looking for a minimum of 40% CAGR to get a premium valuation.
On the other side of the liquidity front, the IPO window for SaaS companies is beginning to open up and firms like SolarWinds and LogMeIn have now been joined by SPS Commerce and Convio. At least before the recent stock market downturn, these companies had traded up by 15% since their IPOs.
The panel seemed to believe that the market is definitely getting better and that is good news for SaaS and Cloud Computing companies looking for funding or an exit!
Company: GoodData
Started: 2000
Located: San Francisco, California
Geography: Global
Market: Cloud Business Intelligence
Products: GoodData On-Demand Analytics
Key Customers: MarketMetrix, TriNet, Enterasys, Black Duck, and Gazelle
Website: GoodData
Blog: GoodData Blog
Twitter: @gooddata
Recent News:
GoodData Powers Reporting and Customer Analytics at Sinu
GoodData Powers Customer Analytics at Market Metrix
GoodData Deploys Talend for SaaS Data Integration
GoodData Helps TriNet Sharpen Focus on Customer Analytics
I asked Roman Stanek, GoodData’s President, CEO and Chairman a few questions about his business and his view of the SaaS market in 2010.
Did you start out as a Software-as-a-Service company?
We restarted the company in 2007 focusing exclusively on Cloud Business Intelligence. Based on my experience, until recently most SaaS BI was based on an older ASP rather than a true multi-tenant model. By 2007, there was a real opportunity to build elastic BI solutions on top of the Cloud especially with the emergence of companies like Amazon who launched EC2. The traditional way of delivering business intelligence was too expensive and not available to everyone who wanted access important business data. Often times a company’s BI solution was slow and expensive because of inconsistent data demands which are common, that creates spikes in usage.
GoodData spent two years thinking through this problem and building out our platform, which is built on top of Amazon’s Web Services infrastructure that provides a scalable way to build our business. Our team beta tested our solution and by late in 2009 we started selling our new products and re-launched our company.
Our collective experience over past last ten years has been in and around the SOA space, which is very closely aligned to the new Cloud Computing world. For me the inspiration for GoodData was when I really began to realize the possibilities and the disruptive properties of the Cloud. We just needed to find a big business problem, which led us to the world of BI.
It was clear that customers who have bought traditional Business Intelligence solutions from IBM/Cognos, SAP/BusinessObjects, SAS and others, faced the classic innovators dilemma when expecting these providers to deliver new, easy-to-use solutions. Then Salesforce.com came along and said you no longer had to buy software, you could rent it, and by having your software in the Cloud it would always be fresh. They really helped to validate our use of the SaaS business model.
Why do your customers buy from GoodData?
With our approach GoodData can now deliver Business Intelligence for the masses through our use of SaaS and the Cloud. Our customers buy from us because we are focused on creating a really positive product experience, which means that our customers can control and personalize their own user interface, dashboards, metrics, and reports.
Our solution was designed to be really easy-to-use because our customers would rather just turn it on and start using it, which makes their ‘out of the box’ adoption very rapid. We provide a nice set of business-oriented BI templates including pipeline management, marketing, customer services and customer lifecycle analytics all at a reasonable price.
GoodData’s focus is to have our customers up and running quickly. Today we concentrating on “Success in a Month” but over time we want to be continually improving so in the future we will be able to say to our customers GoodData will provide “Success in a Week”.
The most difficult part of building a fully functional BI solution is the intelligence part. GoodData understands that any BI deployment requires creating the model, loading data, integration, then producing metrics, reports and dashboards, we just want to make it really fast and easy.
For Trinet, one of our early customers, our solution is so easy they were able to get started with only one hour of training and most users actually have had no training at all. User adoption at TriNet has been fast because our solution is intuitive. GoodData believes that the analyst in the cube type of BI solution is a broken model because they rely on IT to get their SQL queries and it takes a lot of expertise to use that type of product. We believe that IT should be out of the report writing business and more focused on getting data into systems.
The use of marketing metrics typically get heard but not seen but with collaboration this type of campaign information can be shared in reports, dashboards and KPI’s. When you visit call centers, for example, they have all their metrics on the wall about sales regions, agents and then make decisions about this static information. With our model, we want employees to register and use our solution and we don’t charge for extra users. This model encourages adoption. We charge by the project and use a ‘land and expand’ sales approach. We evaluate our business not on the number of users we are charging for but more on the ‘data under management’ approach, which we think is a better way to approach BI.
With our target market, firms with over $100M in revenues, it’s not about the software or tools, it is about getting the information to front office workers quickly, so they can make better decisions.
What do you see as the key trend emerging in the SaaS industry?
Over the past two years we have been very vocal about Cloud Computing and how it is becoming a credible infrastructure. We hope that there will be less focus on the differences between Public and Private Clouds because this is not really relevant to GoodData. We think the discussion in the future will be mostly focused on costs and pricing of the Cloud.
We have a partnership with Amazon AWS, which delivers a complex, sophisticated Cloud platform. What is great about working with them is that they introduce new services every month that we can leverage without additional investments in R&D. The industry is going to be a lot more price competitive going forward, just like Moore’s Law was for microprocessors, innovation in the Cloud continue to drive down costs. This Cloud innovation cycle will be a key factor in our ability to lowering our prices while improving our BI services.
Another trend is metrics- driven businesses. This has been driven by the web, which produces much more data and business are now beginning to rely more on data than instincts. With the emergence of great web-based tools, metrics are now more accessible and usable for business management.
Collaboration is one step away from metrics. The recent announcement of Salesforce Chatter is a great way for organizations to distribute metrics/dashboards and better understand what is going on in their business. Internal tools like Chatter will help deliver and notify line-employees and managers how to better run their businesses.
What is your outlook for 2010?
Since this is our first year of being a commercial company, as the founder and CEO I am keeping the company very focused on Delivering Success in a Month in a repeatable fashion. Because at this stage in our evolution it is all about execution and focus.
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