Secrets of SaaS

(Image credit: Image Credit: Wright Studio / Shutterstock)

Throughout my career I’ve held various leadership roles and seen first-hand how SaaS can positively impact business. CloudHealth is a sterling example of that – prior to being acquired by VMware last year, we were a 100 per cent SaaS-driven, born-in-the-cloud company. I’m a huge believer that the benefits of SaaS can have profound, long lasting impact on companies across many industries.

Here are some of my own observations on all that SaaS has to offer, gleaned through professional experience:

  • The right to innovate. With SaaS, businesses are able to focus on their core mission, without spending resources on buying, provisioning, running and maintaining infrastructure. User support also becomes simpler since everyone’s running the newest version of the same systems. IT becomes a strategic asset for growing the business, as opposed to a cost-centre.
  • Collaboration. A business that wants to scale effectively must have fast, cross-functional interlock between teams. SaaS not only enables collaboration but makes it critical to the success of your business. The benefit? The company is silo-free, and every department uses high context and shows high performance. For example, I can get customer metrics at my fingertips that will tell me anything I want to know – from churn rates, MQL to SQL ratios, trial conversions, and customer acquisition cost to Net Promoter Scores.
  • ·Agility. With SaaS, adding new technologies is seamless. There’s also the opportunity to try out various tools to determine the best for each task and integration with the wider business. Sometimes, a specialist tool won’t work as well as initially anticipated – not a problem! Switching it for something different is simple, and organisations are unlikely to be locked into particular vendors. (On the flip side, that means going above and beyond for your customers – forming lasting partnerships and creating true advocates for your brand.) SaaS gives you the ability to fail fast and scale at speed.
  • Budget. Pit operating and capital expenses against each other, and operating costs usually win. The cost of an on-premise data centre and associated up-front license commitments can be difficult to take on if business profitability is uncertain. In contrast, monthly fees enable a business to scale up or down in line with commercial realities.
  • Momentum. If you have an internet connection and a credit card, a whole business can access cloud-based productivity, CRM, finance and storage tools even before employees have desks to sit at.

Is everyone a winner?

We live in a SaaS world, and there’s no going back. Is the data centre dead? Hardly. But a new reality is upon us, and cloud services are upending the world of business as we know it. I believe in putting the value of SaaS to work for your business. Simply put, the biggest advantages of SaaS are innovation and customer satisfaction.

Think about it: with SaaS, the perceived barrier to entry is often lower. Customers see a low-cost entry and so companies with smaller budgets, who initially would consider a product out of reach, might be more likely to give it a go. That then becomes an opportunity to prove a product’s worth, and it falls on the vendor to engender loyalty once the customer sees the impact which it can have on the business.

Studies show that losing something that made you happy hurts about twice as much as the happiness initially gained. So, as long as a service adds value, customers won’t want to lose it. The ability to walk away from a SaaS offering might seem worrisome in theory, but shouldn’t be if you listen to your customers, forge lasting partnerships with them, and provide a product that truly drives the success of their business.

Metrics that matter

If you’ve read this far, then hopefully you understand that SaaS is about much more than selling subscriptions and cashing bills each month. To underscore my earlier points: for success and longevity, leverage these advantages to direct investments into the service, to increase loyalty and to turn users into advocates.

Having created and maintained a SaaS product, you now have the opportunity to establish a new kind of relationship with customers. Traditionally, developers would create a product, ship it, and move onto the next. Whereas part of the magic of SaaS is that you get even more granular visibility into how customers are using your products.

SaaS demands customer intimacy. In part, that comes from easy access to crucial information. To give you a better idea, here are some of the KPIs I check on a daily basis: customer acquisition cost (CAC) ratio, recurring revenue, annual gross churn, year -over-year quarterly growth, and cost per lead, to name just a few – which I then compare to the SaaS average: 76 days. Industry wide, the annual SaaS survey by KBCM Technologies (formerly Pacific Crest) is the gold standard for benchmarking and provides a valuable yardstick by which SaaS companies can metric their own performance.

The value of having this data at my fingertips is invaluable. It exemplifies the agility which all businesses yearn for, and which is the key driver for SaaS transformation and growth. Any good business puts their customer at the centre of everything they do.

If you have a company culture code, I’m almost certain “customer focus” will appear. But SaaS takes this a step further. It requires customer intimacy: knowing what your customers bought, why they bought it, and why they renewed (or didn’t) so that you can constantly provide them with even better, tailored value.

To conclude

All too regularly, the ‘service’ part of SaaS is misunderstood as another word for ‘product’. In reality, this means that you’re actually giving customers the same thing, but swapping the up-front license charge for a monthly fee. Ultimately, the greatest benefit of SaaS for vendors is the opportunity to give customers exactly what they want.

In addition, look at the valuation of publicly traded SaaS companies – on average, it’s several times larger than their non-SaaS counterparts. We’ve effectively reached the point where it’s no longer a disruptor, it’s become standard for bringing products to market at the speed which customers want in order to transform their business.

Tom Axbey, Vice President, CloudHealth by VMware