As it turned out I was right about 50% of my predictions last year, so here’s my educated guesses for what is going to happen to the SaaS market in 2012:

#10  Oracle will buy Netsuite.

I know this isn’t much of a surprise since Larry Ellison owns approximately 65% of Netsuite, but with the RightNow acquisition, this type of move makes more sense as part of coordinated Cloud acquisition strategy.

#9  SaaS IPO window remains open.

There are a number of SaaS firms who have either filed, like Eloqua, or are seriously considering going public in 2012, like Workday, Dropbox, Box, and Guidewire.  This window can be opened even wider by successful IPO’s from companies like Yelp and Facebook.  The only problem is that there are over 100 companies who have already filed to go public in 2012, so it might be difficult for smaller SaaS firms to do their IPO.

#8. Master brands will continue to chase SaaS offerings.

IBM just purchased DemandTec and SAP bought SuccessFactors, while Oracle bought RightNow.  This is a big change from 2010 when most of these companies were not interested in the Cloud or SaaS.  All of these master brands have tried to build their own SaaS businesses, but I think they have now finally realized that SaaS is a business model, not just new technology.  The smart firms will keep their SaaS businesses and their core license businesses separate and not try and merge them.  Good luck.

#7. Workday will have a monster IPO.

There is no doubt that the 2012 IPO of Facebook will set all sorts of records but for enterprise software, I think Workday will be one of the biggest on record.  The company just took in $85 million in funding over the past few months, in what was termed an IPO preview round. Workday could raise as much as $500 million in an IPO, which would force the big ERP players to start building out their SaaS businesses as a defensive strategy at the bare minimum.

#6. SaaS starts to go global.

I was involved in an Oracle SaaS webinar a couple of weeks ago for an audience in Europe and the response was really impressive.  I initially thought that most of the registrants would be from the UK, the Netherlands, Germany and Scandinavia.  Actually there were attendees from almost every country in Europe.  I have also started to hear about strong SaaS interest in Australia, New Zealand, Brazil, Japan, China and many other countries.  2012 will just continue to build on the SaaS market’s growing global momentum.

#5. Salesforce continues to expand beyond CRM.

During 2011 Salesforce purchased several firms that added new capabilities to their platform including DimDim (collaboration), Radian6 (social analytics), Model Metrics (mobility) and then they bought Rypple in December, which launched them into the Human Capital market.  I predict that Salesforce will add several other HCM tuck-in acquisitions (JobScience, Jobvite), financial applications (FinancialForce, Zuora), or even supply chain management (Glovia OM, Kenandy).

#4. IT Management and Security SaaS offerings emerge.

Companies like CA have been successful in launching their new Nimsoft ITM SaaS offering during 2011, but there are also many other firms that are beginning to gain momentum with their new SaaS offerings as well. This is a very big market opportunity to replace existing legacy infrastructure and security offerings. Companies to watch include Service-Now, Trustwave, Splunk, PingIdentity and Proofpoint.

(Note: CA/Nimsoft and PingIdentity are Montclair Advisors clients)

#3. SaaS continues to be social.

With Jive going public during December 2011, they are just the most recent example of SaaS social applications gaining market acceptance.  Salesforce has been very successful with their Chatter and Radian6 offerings.  Independents like Yammer, SocialCast, Lithium and CentralDesktop will continue to see increased demand for their social/collaboration platforms.

#2. More big VC rounds for SaaS firms.

2012 will continue to see VC’s put a lot of money to work with leading SaaS companies.  We saw some major investments during 2011 including Box ($81 million), Dropbox ($250 million), HubSpot ($32 million), Marketo ($50 million), Workday ($85 million) and Zuora ($35 million).  This trend will continue in 2012 and companies will be putting a lot of money to work to build out their platforms and distribution capabilities.

#1. Storage is a major story for 2012.

As more and more data is stored in the Cloud, consumers and businesses are looking to all different types of on-line storage services.  During the year that Apple launched its iCloud small business and music storage service, we also saw major funding rounds for SaaS companies including Dropbox and Box.  We even saw a new IPO from Carbonite that provides a small business/consumer Cloud back-up service.  This is definitely a segment of the SaaS market to keep an eye on in 2012.

The buying habits of software buyers over the past couple of years has really shifted. The way software was sold in the recent past was by promoting its revenue-producing benefits or the Return On Investment (ROI). This changed when the Great Recession hit the broader software market and buyers started thinking less about ROI and more about reducing or controlling their overall operational costs.

Between 2008-2009 this was a natural reaction by most businesses because their revenues began to dry up and they needed to reduce costs, payrolls and other investments in order to survive.   This was when SaaS all of sudden made a lot of sense to software buyers because:

• They could try the software before they bought it
• Pay for the software through a subscription, usually out of the company’s operating budget
• Only buy the software functionality they were going to use
• The SaaS provider paid for and managed all of the required infrastructure
• It was possible to get the software up and running very quickly

Workday 13 Update

Workday provided a preview of the latest product update, Workday 13 at the end of April.  This appeared to be a major release of functionality across their entire ERP suite including Workday HCM, Workday Payroll, Workday Initiatives (Work Management), Workday Financial Management, Workday Spend Management as well as some new user experience capabilities.

This was the first update we have received in about two years so it was really impressive to see how much progress the company has made not only with their products but also with their overall business.  Here are some key facts:

• 200 customers and more than 130 of them are live
• Flextronics have over 100,000 employees using their systems
• Over 1,000,0000 employees are using their various products across their customer base
• Targeting an IPO for the second half of 2012
• Releasing about 3 updates per year, compared to 1 every 18+ months for their ERP competitors

Workday HCM

As I mentioned, the last time I saw a Workday product demonstration, they didn’t very much in the way of talent management functionality but that has really changed. They now have compensation planning, performance management, succession planning and competency management.  They have wrapped these capabilities in a robust in-line analytics and decision support framework.  This framework includes pre-packaged reports and some really slick user interfaces for workforce management.  This screen shot is of their 9-box interface for their succession planning product.  What I thought was really cool is how they have integrated their position management and organization charting capabilities right into this 9-box interface for their Talent Matrix.  These capabilities look very competitive to most of the other leading SaaS TMS players in the market.

For capabilities that they don’t currently have in the their talent management products like recruitment they will continue to partner with leading specialists like StepStone (now Lumesse) who acquired MrTed and Taleo.

For learning management they have built an intelligent interface into Plateau (recently acquired by SuccessFactors).

When they demonstrated the Workday 13 product, the one thing that popped out at me was the user experience and how engaging it was.  The user interface appeared to quite flexible, allowing the user to drill down, or across to access important information, as well as the use of compelling charts, graphs and dashboards.  I thought it was interesting to see how an object oriented architecture can really impact the overall usability of your SaaS products.

Workday Payroll

For an ERP system it is very useful to provide a payroll solution to tie into.  Workday’s product has been built from the ground up to be a SaaS-based payroll solution.  Workday Payroll was launched in 2009 and supports US based payroll requirements.  The news for Workday Payroll is a new partnership with OneSource VHR for payroll co-sourcing services such as payroll settlement, tax and garnishment administration.  These are common requirements for organizations with very large workforces.

Workday 13 still offers integrations into third-party payroll providers and payroll aggregators such as Patersons and ADP.

Workday Mobility

Seems like every HR software company is now offering a mobile application for users.  The news in this area was the announcement of limited availability of Workday for the iPad.  Again, one of Workday’s strengths is user interface design and this product is no exception.  The product is not intended for heavy transactional use but more for the executive or manager that wants to easily browse through talent profiles, monitor their Chatter-like personal Workday Workfeed or gain insight into their workforce by running a report or analytics.   The general availability for Workday for iPad is planned for Workday 14.

Overall, I thought that the Workday 13 release contained some useful improvements and the product is really impressive.  Given their 3 times a year release cycle, they will continue to innovate at a brisk pace which will be difficult for the traditional ERP competitors to keep up with.  Also, their laser focus on usability will also become a huge differentiator when looking at incumbent solutions, as long as Workday can deliver the necessary functionality and security that enterprises are going to continue to demand.

I was going to write this post earlier in the week but it seemed that everywhere I turned I saw more developments and wanted to include them.  The market is really starting to get frothy and there are many big SaaS/Cloud deals happening and companies going public with very large market caps.  Let’s take a look:

Recent Acquisitions

SuccessFactors (NASDAQ: SFSF) Acquires Plateau Systems for $290M, which was paid in half cash and half in stock.  This is an interesting move since it is the first acquisition that could be considered ‘core’ functionality when compared with other acquisitions like CubeTree (Collaboration), YouCalc (Analytics), Inform (Analytics) and Jambok (eLearning).  Plateau also has a fairly significant product portfolio overlap including compensation, performance management and succession planning, so it should be interesting to see how these offerings are consolidated.

Plateau has a very respectable customer-base with a large number of federal government customers as well as many large enterprise customers.  The company also was profitable and has some interesting Platform-as-a-Service capabilities that should be very useful for a larger SaaS portfolio.

Based on the market basket of publicly traded SaaS firms, this deal will make SuccessFactors the second largest firm in the group based on current revenues.  We estimate that at their current quarterly run-rate of $68M and Plateau’s estimated annual revenues, the combined company now is probably around $340M, which is only second to Salesforce.com.

CenturyLink (NASDAQ: CTL) Buys Savvis (NASDAQ: SVVS) for $2.5B, which is now third largest telecommunications company in the US with $18B in annual revenues.  The company had purchased Qwest earlier in the year and that deal was finalized on April 1st.   Now with the acquisition of Savvis, CenturyLink is moving into the Cloud Computing market with more than 48 data centers globally.

This is the second major deal in the Cloud Computing market of an emerging Infrastructure-as-a-Service provider, when Verizon purchased Terremark for $1.4B in January.  This should stimulate further consolidation of other providers and Rackspace may be the next target.

Salesforce.com (NASDAQ: CRM) Picks Up Radian6 for $326M for the Canadian social media monitoring company.  Radian6 helps their customers monitor ‘hundreds of millions’ of social media conversations. Salesforce believes that the acquisition will enable it to enhance all of its products, including Sales Cloud, Service Cloud, Chatter and Force.com.

Infor and Golden Gate Capital Buys Lawson Software for $2B.  Now this is technically not a SaaS or Cloud related deal but it just is another example of the pressure traditional providers are feeling from the up and coming SaaS and Cloud providers like Netsuite, Workday and even Oracle’s new Fusion offerings.

Recent SaaS IPO’s

Cornerstone OnDemand (NADSAQ: CSOD) went public on March 16th and quickly captured a market cap of $800M, even when the company lost more than $45M.  The company offers a suite of Talent Management solutions similar to what is offered by SuccessFactors and Taleo.

ServiceSource International (NASDAQ: SREV) completed their IPO on March 25th and were valued at more than $800M as well.  ServiceSource helps companies manage their revenue streams from renewals, maintenance and subscription agreements, which is especially important for SaaS firms.

Responsys (NASDAQ: MKTG) was able to launch into the public markets on April 21st and got a very respectable market value of $2.4B.  The company offers SaaS-based software and services that help retailers and eCommerce firms build and manage online campaigns.

By Kevin Dobbs

Montclair Advisors, LLC

Now that many software companies really feel that the risks associated with a second recession are firmly in the rearview mirror, it now seems like everyone is looking to grow their businesses.

I read a great post yesterday by Bruce Cleveland at InterWest Ventures about the Value of Growth for SaaS Companies, which I thought really accurately captured a challenge that many software firms face when transitioning to a SaaS model.   This is a subject that is near and dear to me given my background as a reformed marketing executive and someone who was responsible lead generation at Oracle years ago during the Tom Siebel and Marc Benioff era.   I think it was Tom Siebel when he was running Oracle’s inside sales team that told me “I want it to rain leads from the sky!” At the time I was actually shocked because he was asking me to literally drown his sales team with qualified opportunities who wanted to buy Oracle’s database products.

As I have come to learn that he knew exactly what he was talking about and his track record demonstrates that productive sales teams deliver amazing revenue growth results.  Bruce’s post highlights that a SaaS company without meaningful growth is not worth very much and probably will fetch the low-end of the valuation curve, which is still pretty good in today’s crazy market (See last week’s post about the SaaS Bubble).   So how are high flying SaaS companies like Salesforce and SuccessFactors achieving CAGR’s in excess of 30% every year?   Check out this chart I put together on some of the leading publicly traded SaaS firms (sans Salesforce because they will skew the chart):

As you can see the companies with the higher growth rates are also the ones that have high market caps (valued more highly by Wall Street).  What is really interesting is that SuccessFactors was able to grow by almost 50% for the past three years, even through one of the worst recessions in the last 100 years.  The value of growth can also been seen by a company that recently went public, Cornerstone OnDemand, they have been rewarded with a market cap that is over $800M even though the company lost more than $40M last year.  Seems crazy right?  But they have a great organic growth story along with a major channel relationship with ADP which could also signal even faster growth in the future.

If you talk to any software sales rep they often complain about their pipeline and the lack of quality leads. Reminds me of those coveted Glengarry leads  from Mitch and Murray downtown.    So at the heart of all of these companies and their rapid growth rates is that they have all developed a core competency to generate high quality leads and build pipelines quickly.

(click on picture to see clip)

Here are some tricks that I have learned along the way that will help you to build out your SaaS lead generation strategies:

• Use a Portfolio Approach - Depending on your product, buyers, and market there may be many ways to generate interest.  Campaign elements of a typical lead generation strategy are a combination of organic and paid web traffic, email campaigns, webinars, customer programs, social media and targeted events.   Don’t put all of your investment in a single demand generation approach, but reward the tactics that generate quality leads at an affordable price.
• Test and Test Again - With the portfolio approach you will need to continually test your messaging, packaging, value propositions, and price points.   The best-in-class SaaS firms are continually testing and refining their lead strategies.  This is important as most SaaS marketing organizations are trying to lower and optimize their Customer Acquisition Costs (CAC).
• Automate Where Possible -  There are a lot of great Sales 2.0 tools available today that can give you a real unfair advantage in the lead generation process.  Companies like Marketo, Pardot, Eloqua, Constant Contact, NetSuite and even Salesforce offer many tools to help you automate and analyze your marketing efforts.  I would definitely recommend implementing a lead nurturing or drip marketing program to continue to work your lower quality leads, this is a great way to build your pipeline over time with little direct human intervention.
• Track Everything - Make sure your sales operations and marketing teams are tracking and analyzing all of your lead activities and conversion rates.  You don’t need to be overly complex, but just tracking some basic things like lead scores, lead acceptance rates, leads converting to opportunities and close rates can help your organization to fuel your high growth SaaS sales engine.

With Cornerstone OnDemand’s recent IPO (NASDAQ: CSOD) and their high valuation based on a negative EBIDTA, many are starting to ask if we are headed for a second Internet or SaaS Bubble?

I do agree that some of the valuations at this point are a lot higher than a reasonable person would expect, but this is probably just pent up interest in the technology sector. It doesn’t help that Facebook and LinkedIn has seriously pumped up the valuations for Internet/Social Media firms, but today’s SaaS companies are very different from the Dot Bombs of 1999/2000.

Remember these companies?

All of these companies were built on bad business models, too much money and expectations that were out of control. And by the way are all out of business.

But not all of the Internet companies that were formed during this period were bombs; in fact there are a number of firms that are now pillars of the technology industry including these firms:

It would be safe to say that each of these companies struggled during and after the Dot-Com collapse but they were able to modify their models to take advantage of the efficiencies that the Internet provided. Amazon has built a business that can effectively compete against the largest retailer in the world, Walmart, even though its sales are only 1/12^th their revenues.

All of these Internet Survivors had to develop a real business model that would deliver solid margins, profits and growth. They each had to assemble experienced management teams, learn how to deliver superior customer service and build trusted brands. Not easy to do, but they did it.

Fast-forward to today and we have a whole new set of Internet and Software-as-a-Service companies that have emerged and gone public including these firms:

(1) CSOD IPO: March 17, 2011

(2) SREV IPO: March 25, 2011

As you can see most of these companies were founded before the Internet Bubble burst and were forced to create real business models that could deliver profits.

At Montclair Advisors, we specialize in SaaS business advisory services and we know many of these firms quite well and they all have strong management teams, growing businesses and staying power. Unlike the Internet firms that went IPO in 1999 or 2000, most of these firms have had to build up their businesses over ten or more years and are based on some form of recurring revenues.

Major differences between the companies on this list versus the early Dot Bomb firms include:

• Proven Over Time. As you can see most of these firms are at least ten years old and have weathered the economic changes through the last two recessions.

• Businesses at Scale. Most of these companies are over $100M in annual revenues, which means they have been successful in selling into multiple markets and geographies.

• Recurring Revenue Streams. Anyone who has been involved with a company that has developed a subscription business can tell you how hard it is to create a meaningful recurring revenue stream. The advantages of being a SaaS software company based on subscriptions means that revenues remain consistent so there is a high degree of transparency and visibility.

• High Degree of Customer Satisfaction. All of these companies are dependent on satisfied customers that want to renew their annual subscription agreements and purchase more services. This is quite different than the ‘drive-by’ relationships many of the early Internet companies developed with their customers.

• Strong Management Teams. After the Dot Com crash it became much harder to file for an IPO and manage a company in the post Sarbanes-Oxley world. These next generation of Internet companies have attracted leading management expertise that knows how to innovate and rapidly scale viable businesses.

So are the valuations of companies like Cornerstone OnDemand and Servicesource, Facebook and LinkedIn too high? Are we beginning to see a SaaS Bubble? Maybe, but all of these companies have been built for the long term and will be around long after any correction, unlike their early Internet cousins Web Van or Kozmo.com.

By Kevin Dobbs

Montclair Advisors, LLC

Dreamforce 2010 was in San Francisco last week and there were a lot of announcements and it is only now that I am starting post my thoughts.   This post is going be around Force.com 2 and how Salesforce has rethought their approach, repackaged their platform and now have relaunced their PaaS.

This table provides a quick summary of how Salesforce has repackaged the Force.com 2 Platform.

What is interesting is that several of these offerings are just new packaging concepts and several are net-new products.  Let me walk you through the suite:

Appforce

This is basically the original Force platform using their proprietary 4GL, point-click-language APEX that has been repackaged as a departmental application platform.  What is interesting is that this environment is not just for departments, large enterprises like Japan Post and Thomson Reuters have done very large Cloud development projects using this platform.  I think that Salesforce realizes that due to its proprietary nature, most organizations will be attracted to Force.com but would prefer a more open and portable development environment.  Applications built with Appforce are also able to be easily integrated with Salesforce’s collaboration capability Chatter

.

Siteforce

This is a development environment specifically designed for building websites without having to write code. There was a great demonstration of how you can build and modify websites, even for mobile devices, using their drag-and-drop interface.  This will be popular with firms that do a lot of campaigns and need to design a lot of landing pages which can be tied back to Salesforce.  Like the Appforce products, Siteforce can be linked to Chatter to add social and mobile features to websites.  This was an existing capability inside of Force.com that has now been exposed as a new offering.  The marketing materials we were given state that there have been more than 20,000 website built using Siteforce.

VMforce

This platform is a result of a partnership with VMware, that opens up the Force.com platform to more than 6 million Java developers.  Using VMforce, developers can now run their Java-based applications on the Force.com platform, similar to what they would do it they were using Amazon EC2.  Developers can also use Java IDE’s like Spring or Eclipse as well as other open standards.  With my clients, this is a popular approach, it provides some leverage with existing Java-based apps as well as professional developers prefer to develop in this type of environment, rather than using a 4GL point-and-click product.   VMforce is currently in beta and will be ready for general availability in 2011.

Heroku

In a really interesting move, Salesforce went out an purchased a leading provider of Ruby-on-Rails for $212M in cash, $27M in stock and another $10M for un-vested employee shares.  Like VMforce, Heroku will offer developers a way to write applications using Ruby and then run them on Force.com.  The rumor was that VMware had made a run at the firm several months ago, but wanted to remain independent.  Marc Benioff in his keynote indicated that Heroku would remain independent from Salesforce, I am assuming in the way VMware has remained independent from EMC.  Several benifits for Heroku as part of Salesforce will be access to their 87,000 customers as well as their technology stack including Chatter.  Today, there are more than 100,000 websites and applications written using their platform including BestBuy and FlightCaster.

ISVforce

In another re-packaging move Salesforce has taken the Force.com platform and created a new program to help larger ISV’s to build their next generation applications on top of their PaaS.  This is a program that contains services and tools to help Independent Software Vendors to move their apps to the Cloud. Salesforce provides development services, trails and provisioning, connections to AppExchange and application monitoring along with their multi-tenant Infrastructure-as-a-Service.  Some early adopter ISV’s include Blackboard (who did a quick little demo), BMC (RemedyForce) and CA (Agile Vision).

AppExchange

Salesforce continues to promote their on-line application marketplace, which is similar to what Apple offers with their App Market, and how has over 1,000 applications available. Some interesting facts provided by Salesforce about the AppExchange include there have been more than 360,000 application test drives through the AppExchange, nearly 700,000 application installs and more than $1B invested in companies who are on the AppExchange.

Database.com

Another interesting announcement is that Salesforce has gone into the database business.  When I first heard this, I thought it wasn’t necessarily a good idea, but then I read that they were just repackaging a gigantic Cloud-based version of Oracle and selling the database by-the-slice.  Apparently Oracle thinks this is not a secure approach to selling databases, but let’s see how this all works out.  Amazon has something similar with their RDS offering.

The result is that Salesforce now has a suite of offerings that are designed to meet the needs to enterprise customers, software companies, professional and casual developers.  The strategic benefit of all of these offerings is to open up several new revenue streams for the company and continue their leadership momentum in the Cloud.

by Kevin Dobbs

Montclair Advisors, LLC

When advising software clients who are interested in moving to a SaaS business model, one of the areas I really dig into is how are they selling to new customers. Most of us in the SaaS community realize that carefully tracking your Customer Acquisition Costs or CAC, is a critical component in building a successful and profitable company, but I think it is equally important to understand how traditional software sales  and marketing models and SaaS models differ.

Traditional Software Sales & Marketing Model

Over the past 25 years there has been a traditional way to market and sell enterprise software which has been based on key principles such as:

• You need a Large direct sales force including a large support team, or as I used to call them, ‘The Cast of Thousands‘
• Front loaded compensation plans that pay out when deals are sold
  
• High average sales prices, including services, that would almost always be over $500,000
• Long sales cycles, usually 6-12 months, with pursuit costs averaging around $70,000 for every deal the company played in
• Win rates are in the 30-50% range
• Average face-to-face selling time that is around 15%
• Pipeline building using a combination of in-person events (seminars, tradeshows, user group meetings), telemarketing teams (inbound and cold calling) pounding the phones and a lot of paid marketing campaigns
• Lead pipelines that appeared full but always seemed to lack the appropriate level of qualified opportunities
• First generation CRM systems and reports that were produced periodically using Excel

Brings back the good ol’ days doesn’t it.  Many software firms are still using this model and they are finding out that it doesn’t work very well in the new world of Software-as-a-Service sales.  Some of the reasons it doesn’t work is that software buyer preferences are definitely changing, but one big issue is it is very expensive to operate this type of model, especially when you get your revenues paid out over time.

SaaS Sales & Marketing Model

There are several important differences in the SaaS model that make the traditional software sales and marketing model less than effective;

• SaaS customers pay a subscription based on users or usage of the software service over time, usually over three years.  After the recession, this has become the new normal for software sales
• More focused solutions that usually have Average Sales Prices that are typically lower, so reps need to sell more deals to hit the same quota targets
• Key metrics like customer satisfaction, renewals, up-selling and cross selling are even more important for SaaS than they were in the past
• Sales method is more of a “penetrate and radiate” approach
• It takes a long time to build up a recurring revenue stream

Given these differences, then what should your SaaS Sales & Marketing model look like?  Here are some ideas to consider when building out your SaaS sales and marketing plans for 2011 that can help you to build out a low-cost but high-efficiency sales and marketing machine;

Marketing

• Hire experienced marketing leadership and professional
• Evolve a good list of key influencers and industry contact and communicate with them frequently
• Develop a clean prospect database
• Mix paid and free social networking programs
• Build a vibrant customer community and market to them with products like Lithium
• Leverage social media like LinkedIn, Facebook and Twitter to generate interest and leads
• Use Web 2.0 marketing tools like Marketo, Eloqua, Pardot and try drip marketing
• Track everything (see the last Smart SaaS post)

Sales

• Hire experienced SaaS sales leadership and reps
• Your SaaS sales team should be more low touch than your traditional sales team
• Experiment with telesales even with high end enterprise products
• See is using an indirect channel makes sense for your business, if managed correctly these distribution partnerships can dramatically lower your sales costs
• Carefully track your lead hand off between marketing and sales, make sure leads are not falling through the cracks
• Track everything

Metrics like Customer Acquisition Costs and the Magic Number can help your sales and marketing teams see how effective their programs are and can provide insight when to invest and when to continue developing your repeatable sales model.  I would also encourage you to learn more about Mark Leslie’s Sales Learning Curve, because it offers a more scientific approach to cost-effectively building out your SaaS sales team.   Best-in-class firms that have profiled in this blog have adopted many of these techniques to build a scalable but cost-careful sales and marketing organizations.

Stay tuned for Tip #6 Package for Viral Adoption

Continue reading…

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

SaaS Blogs

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:

• • 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