A new definition for SaaS: “Sellotape assisted asset Sale” ;-)

I attended the always-excellent Megabuyte Forum event in London today (if you’re a C-level executive in a UK-based technology business, you really should sign up). Amidst a stream of highly relevant insights into the state of the UK market (and some interesting projections about its future state) came one gem that I'd like to share with you - and then explore some of the implications.

Matthew Brockman of HgCapital rebranded SaaS - only partly in jest - as “Sellotape assisted asset Sale”, and I can see exactly where he is coming from.

You could throw a rock in any direction at a meeting of the software industry nowadays and struggle to avoid hitting someone claiming that they were representing a “SaaS” vendor (this is not, for a variety of reasons, a strategy I would recommend you adopt too literally - and if you do, please make sure you’ve completed a risk assessment first).

SaaS (OK, it’s supposed to stand for Software as a Service) is all the rage nowadays. As Matthew was I think implying, software vendors have been scrambling to jump on the bandwagon (and drive their valuations towards giddying multiples) by claiming that they are SaaS based.

But there’s a lot more to driving a high valuation than slapping a layer of SaaS lipstick on an otherwise conventional software business pig. There’s got to be some real substance to your positioning - and, yes, you’ve got to have established a scalable business model to match.

Successful SaaS based businesses have to master a new set of business dynamics whilst at the same time executing on some core (and somewhat traditional) business fundamentals.

For a start, they have to embrace a software development ethos that is driven by a clear understanding of what their existing and future customers would most value, and not what their engineers want to build (or imagine their customers would like).

Rapid, incremental delivery of value is critical to the success of SaaS based businesses, and traditional software development and release methodologies are fundamentally incompatible with this objective. It’s no wonder that agile methodologies have become so popular - and so effective.

Next, you have to build a scalable (and highly integrated) sales and marketing engine that is capable of cost-effectively attracting and acquiring more of the right sort of customers, and then retaining and upselling them to progressively stickier (in a good way) and higher-value offerings.

SaaS solutions have to be designed so that they prove their value quickly. The initial customer experience is critical to this - so anything that stands in the way of illustrating and delivering tangible customer value has a dramatic and negative impact on the potential revenue and profits arising from the customer relationship.

Traditional enterprise software sales techniques are often hard to cost justify in this environment, and that’s why I see a lot of successful SaaS companies using blended inside and outside-sales models that communicate clear value to the prospect without requiring a face-to-face conversation at every (or even any) stage of the initial buying process.

And that “easy-in” strategy needs to be complemented by an upselling process that encourages the user to consume more and more of your functionality so that you become increasingly indispensable. Thoughtful packaging and value-based pricing are two essential foundations.

Simply laying a SaaS veneer over an otherwise traditional business model won’t result in a scalable and profitable business. And it probably won’t fool many potential investors. So if we want to ride the SaaS bandwagon without falling off into the mud on the side of the road, let’s all resolve to put that Sellotape* (*other brands of sticky tape are available) away and get every aspect of our business processes aligned with the total SaaS mindset.