When speaking with entrepreneurs and investors about the investment required to start up a new Software-as-a-Service company, I often refer back to this list.   At Montclair Advisors thought this would be a handy reference for those looking to start a SaaS company during 2010.

Looks like you might need a money tree to start a SaaS company, but for those that reach critical mass and go public, there is a tremendous payback.  This is information has been gathered from various sources including Wachovia, CrunchBase and Google Finance.

Given we are starting a new decade and many could argue that SaaS started in during the last ten years, I thought it would be appropriate to recognize leaders of the SaaS movement. Here are the winners of the Montclair Advisors 2010 SaaS Hall of Fame:

Most Influential SaaS Company:     Salesforce.com

Salesforce has have been the most vocal proponents of the SaaS business model for the last 10 years. They are also the largest SaaS Company based on revenues ($990M) and market value ($8.5B).

Most Influential SaaS Individual:     Marc Benioff

As the CEO of Salesforce, Marc has been the major evangelist for the past ten years. His recent book Behind the Cloud is a great primer for entrepreneurs who are considering starting their own SaaS Company.

Best Transition to SaaS:                  Concur (Steve Singh)

Concur was the most visible company to move their business model to Software-as-a-Service from a traditional on-premise model. He moved his company from a low of .90 a share to creating a company with revenues of $250M and a market cap of over $2B.

Biggest SaaS Acquisition:                 Omniture (Josh James)

Adobe purchased Omniture firm for $1.8B in October 2009.

Largest SaaS IPO:                              NetSuite (Zach Nelson)

The largest SaaS IPO so far is Netsuite’s public offering in December 2007 for $185M. This event made Larry Ellison quite happy since he owned more than half of the company.

Largest SaaS Deployment:              SuccessFactors (Siemens)

In 2009 SuccessFactors announced the largest SaaS applications deployment to date with Siemens where they will deploy their performance management software for more than 400,000 managers and employees.

Biggest SaaS Comeback:                     Dave Duffield (Workday)

After his company PeopleSoft was acquired by Oracle, Dave Duffield formed one of the most successful pure SaaS companies, Workday, designed to create the next generation of ERP solutions.

Most SaaS Customers:                       Salesforce.com

Since they are one of the original SaaS companies it is not hard to believe they would have the largest customer base but they are clearly much larger than any other SaaS company with more than 65,000 customers.

Most Influential SaaS Analyst:         Bill McNee (Saugatuck Technologies)

Bill, a Gartner Group alumni, has built his firm, Saugatuck Technologies to be exclusively focused on Software-as-a-Service and Cloud Computing for the past ten years.

Most Influential SaaS Journalist:          Phil Wainewright

Phil has been a blogger and journalist with many different publications including ZDNet doing a comprehensive job of covering SaaS industry events, companies and trends.

Most Influential SaaS Pundit:              Jeff Kaplan (THINKstrategies)

Jeff has been a very visible figure at industry events, associations, publications where he has promoted and commented on SaaS trends and players for the past ten years.

Most Influential Investment Firm:          Bessemer Venture Partners

Byron Deeter and his colleague Philippe Botteri published a very popular Top 10 Laws for Being ‘SaaS-y’ as well as having invested in many leading SaaS companies.

Company:        Clarizen

Started:            2005

Located:           San Mateo, California

Geography:      Global

Market:             Online work and project management software

Products:          Online work and project management software

Key Customers:     AutoDesk, Clara, Enlaso, Fortinet, Lenovo, NBC Universal, NEC, O₂ and UPS

Website:            Clarizen Website

Blog:                 Clarizen Blog

Twitter:             @Clarizen

Recent News:

Clarizen Secures $8M in Financing From Leading VCs

More than 100 Service Providers Enrolled in Clarizen’s Vendors Connect Initiative

Leading Analyst Firm Names Clarizen as One of the Innovative Applications Companies
Under $100M to Watch

Clarizen Reports More Than 100 New Customers in Q3 2009

I asked Guy Shani, Clarizen’s vice president of Sales a few questions about his business and his view of the SaaS market as we start 2010.

Did you start out as a Software-as-a-Service company?

The company was started four years ago by a group of executives who had come from a company called SmarTeam, that specialized in enterprise Product Lifecycle Management (PLM) solutions.

The idea for Clarizen came after SmarTeam was acquired by Dassault Systemes and IBM. During the 10 years we all worked at SmarTeam, we built very expensive, heavy, customized enterprise project management software solutions. But after talking to our clients over the years, we began to realize that they were looking for lighter weight enterprise solutions on a different platform, and this is when we started looking into Web 2.0 technologies.

At Clarizen we began to evolve project management into work management. This involved a more active way to manage both structured and unstructured work activities. Work management revolved around resource loading, document management, and all types of communications involving wiki’s, bug tracking, expense management and time sheets. The traditional way to do project management was more related to planning and less about activities and execution.

During our transition away from an on-premise company mentality to starting Clarizen we learned many lessons the hard way. One of the core beliefs of the company is that we have to measure everything, and in my area of sales, we track all campaigns, conversion rates and gates, average sales cycles, adoption and churn rates just to name a few of the metrics we monitor. We also track all of our costs – costs per lead, customer acquisition costs and many other metrics. The on-premise model of sales was all based on relationship selling, where as the SaaS model is much more about endless testing and monitoring what works and then doing it again and again.

We have been funded by very well-known venture capital firms including Benchmark Capital and Carmel Ventures who is based in Israel. In December 2009, we announced our ‘C’ Round of funding of $8M, which was led by our newest investor DAG Ventures, who is based in Silicon Valley.

Why do your customers buy from Clarizen?

Main reason was our new idea around a lightweight work management solution, that no provider was really focused on delivering. The market has been traditionally dominated by Microsoft Project, which is a very static way to view projects, with little or no collaboration capabilities. Clarizen was developed to be collaboration-oriented. This worked well with our customers who are working in a cross-organization frameworks, especially outside just their own organization, which is challenging for a standard on-premise software solutions.

Our competition breaks into three different market segments; High-end enterprise solutions, that are highly customized like Primavera and Computer Associates; Lower-end unstructured collaboration tools like WebEx, BaseCamp, Zoho, many which are free; and Mid-market products that embrace both on-premise and hosted deployments, solutions like Daptiv and @Task which are targeted toward the professional project manager.

Clarizen is a scaleable, mid-market SaaS solution that is easy to use, serving the needs all employees who are involved in projects inside the enterprise.

The SaaS lessons we learned included that in order to be successful we needed to have wide user adoption, so our solution needed to be easy to use. This was also important because we would have a hard time training everyone who might want to use the system, so it needed to be a product that could be learned in five minutes. The other reason adoption was critical is that you wanted users to update their project status and completion, so we developed techniques like our email notifications that look like Microsoft Outlook invitations that encourage users to update their status. This type of interactivity makes the systems not only easy to use but the reporting much more reflective of how work and projects are actually progressing.

What do you see as the key trend emerging in the SaaS industry?

Many companies have tried to run a thin client, Web-based project management application solution over the past 10 years, not many have been successful. 2010 enterprise software buyers are now really looking at SaaS – for a serious and scaleable work management solution.

As we learned over the years, work management is an entirely different market, with different buyers, than trying to sell high-end, customized engineering solutions. Customers would always complain how long it took to implement our software, which was painful and a big business challenge we were constantly dealing with at SmarTeam. Things needed to be simplified. Our realization was that it wasn’t the solution that we were delivering but how we were delivering it that needed to change.

Based on our experience with on-premise approaches to project management, we definitely liked the Web-based approach and that’s why Clarizen started out as a SaaS company, which is what the market is looking for in 2010.

What is your outlook for 2010?

Customers are looking for real business savings, for friction-less solutions and functionality that is broader than today’s current on-premise offerings. Clarizen can offer a more flexible work management solution that addresses this unique business opportunity in the market.

Now with our recent funding, we have proved that we not only know how to build a SaaS machine but also by running our business by KPI’s and performance indicators as I mentioned earlier, we can fine tune and logically expand our business. This is why we have experienced a 400% growth in our subscription sales, since last year,  even in this very difficult economy.

Happy New Year!

In February Montclair Advisors launched our SaaS Business Profile Series and have been focused on covering as many SaaS companies as possible during 2009. As it turns out we were able to profile more than 30 SaaS companies of all types including pure SaaS firms, Cross-Overs and Hybrids!

We would like to thank all of the executives and companies that participated during 2009 and we look forward to continuing to follow their progress during 2010.

What we learned from these thirty-four profiles:

• SaaS is an evolving business model - It is still a new concept and few firms are running a pure subscription software models. Beware that there is still a lot of “Fake SaaS” out in the market overall.
• There are many variations of SaaS - these variations are based on the company’s starting point, the market they serve and the types of products they sell. Interestingly, Salesforce.com is actually not a very representative SaaS business model for the broader market.
• It takes time to build a real SaaS company - For many SaaS firms it takes up to 7 years to reach breakeven and nearly 10 years to ultimately gain scale with their business model.
• Cross-over providers will still need to hold onto their on-premise legacy for the foreseeable future, because it is hard to switch customers to SaaS all at once.  It is also difficult to upset your maintenance revenue streams, especially during tough economic times.
• The Great Recession has permanently changed the Software buyer’s behavior towards SaaS due to the lack of available capital. When you see SAP and Oracle and many of these profiled ISV’s moving their businesses to SaaS, you know it isn’t a fad.
• Penetrate and Radiate. The successful SaaS firms have started small, with easy to sell, easy to consume solutions.  They then develop additional software, services and content solutions to sell back into their installed base.

Here is an overview of the thirty-four companies Montclair Advisors covered in 2009:

Profiles by SaaS Category

Pure SaaS:        15     Started out and only offer SaaS subscription services

Cross-Overs:    11      Started out as on-premise, but have fully transitioned to SaaS

Hybrids:             8      Continue to offer SaaS services AND on-premise software

Public vs. Private

Public:               6

Private:             28

Profiles by Age of Company

0-5 Years:         9

5-8 Years:        10

8+ Years:         15

M&A by Companies

Sell-side:            2    Mint.com by Intuit for $170M and QuickArrow by NetSuite for $20M

Buy-side:           4    Lithium Technologies (Keibi Technologies), RightNow (HiveLive), Taleo

(Worldwide Comp), Xactly (Centive)

Fundraising Public & Private

What was also interesting to see is that even in the toughest economic climate since the Dot Com meltdown, that many firms that were profiled were able to raise capital in both the private and public market places.   The big winners were SuccessFactors who raised more than $200M in a public offering and Workday, raised an impressive $75M private round that was led by New Enterprise Associates.  As the economy begins to turn in 2010, expect to see more SaaS firms going back out to raise growth capital.

We hope these profiles have been helpful to our readers and we will continue to profile interesting SaaS firms in 2010, because we learn a lot about our emerging industry and we will continue to build back into the Montclair Advisors advisory services that help our clients become successful SaaS companies.

Please let us know what you think, because we would welcome any ideas on how to improve the Saas Business Profile Series for 2010.  Just drop me an email at kevin@montclairadvisors.com.

Company:        Lithium Technologies

Started:           1997

Located:          Emeryville, California

Geography:     Global

Market:            On-demand Social CRM

Products:         Lithium Social CRM

Key Customers: AT&T, Future Shop, Lenovo, PitneyBowes, Barnes & Noble, Best Buy and Verizon

Website:          Lithium

Blog:               Lithosphere Blog

Twitter:           @LithiumTech

Recent News:

Lithium Achieves 80 Percent Revenue Growth in First Half of 2009

Crucial.com Enhances Customer Experience with Online Community

Lithium Ushers in the Next Generation of Customer Relationships with Social CRM

Future Shop Recognized As Customer Leader by 1-to-1 Magazine

I asked Sanjay Dholakia, Lithium’s Chief Marketing Officer a few questions about his business and his view of the SaaS market in 2009.

Did you start out as a Software-as-a-Service company?

Yes, or at least an on-line business. The company was started in 1997, and was a spin out of Gamers.com a leading on-line gaming site. Because there was a lot of IP around how to manage the social dynamic related to on-line communities, the founders decided to apply this technology to help enterprises better manage their customer forums and networks. The Gamers.com experience was helpful because the founders had learned how to manage very large on-line gaming communities.

Why do your customers buy from Lithium?

Our customers come from a lot of different point products like forums and various types of social media and in-house solutions. These companies are looking for a better way to leverage their customer relationships to build vibrant customer networks, what we are calling Social CRM. Some social networking platforms are internal collaboration tools or platforms, others are consumer social networking solutions, but Lithium’s Social CRM platform is focused primarily on that outbound relationship with the customer.

The three major reasons a customer buys from Lithium are related to innovation, promotion and support.

Our customers use the Lithium solution to innovate around new product ideas, as well as solicit ideas and feedback from their customers. A good example of this is iRobot, a robotics firm that makes a variety of clever home accessories. Many of their customers have actually developed a pet affinity with their in-home robots and based on customer feedback from their Lithium customer community, iRobot developed personalized robots which has generated millions in incremental revenue from just that one community-based idea.

When it comes to promotions, our customer myFICO, the credit score company, has used the Lithium platform to build out their customer network. Because the company is highly regulated, they are prohibited from marketing their products to consumers but their customer network does the marketing for them. They have found that FICO Forum members, of which there are 850,000 members, usually spend 40% more than those customers who are not members, demonstrating the power of their network.

Support is a clear benefit of creating a vibrant customer network, because it shifts costs to a free channel where customers can support each other. Cisco’s Linksys division has been able to quantify up to $10M per year in savings by leveraging the Lithium Social CRM platform for their Linksys Forum. Sage Software has also found that their customers view the company as more responsive and have seen improvement in their Net Promoter Scores as they have rolled out customer support forums, like this one for their SalesLogix product.

What do you see as the key trend emerging in the SaaS industry?

There is an emerging opportunity to create new information products based on all the data that many SaaS companies have access to. So by applying their own best practices and proprietary algorithms, many companies are devising very valuable analytic-based products that expose information that enables enterprises to more efficiently manage organizations as well as to create new revenue streams.

Lithium wants to start building benchmarks and best practices that provide actionable industry information for our customers and show them how to better leverage their customer relationships.

What is your outlook for 2009?

We just put out a press release announcing that we had 80% growth in our recurring monthly revenues during the first half of 2009, which is impressive in this economic climate. During the first half we also welcomed new customers like Aflac, Trend Micro, Betfair, France Telecom, Avnet and Leapfrog Enterprises.

During the first half of the year we have also opened new offices in Zurich and London as well as hiring a new general manager for EMEA. The company has decided to invest into the despite the downturn and take market share. Overall we are feeling cautiously optimistic for the balance of 2009 and heading into 2010.

Thank you to Sanjay Dholakia and Raksha Varma for contributing to this profile.