So, you want to SaaS?
At FortyAU, we develop a lot of software. We also hear a lot of business ideas. One of the more common things we hear from business owners is, “We have this great internal tool. Let’s make it into a Software-as-a-Service application and sell it.”
While this may be an excellent path for many companies, there are some important things to consider when converting your current software to a SaaS offering.
Are you a service or product company?
We’ve had plenty of clients find success leveraging an internally developed product as a service to their industry. After all, these are their internal services and they know them better than anyone else — be it healthcare, hospitality, or financial services. Typically the product evolves over many years as they gain a deeper understanding of the service they offer, their clients’ needs, and the evolution of the two as they grow together.
Over the past two years, Crunchbase has covered the valuation of businesses in the technology space, finding that SaaS product companies hover in the “10 times revenue” range for valuations by investors. After seeing the outrageous valuations of companies with strong recurring revenue, it is very appealing to pivot to offering their internally-developed product as a service.
That being said, there are some important questions to ask before you decide to pivot your service to a product, ensure you have the resources to scale up, and find the profits or valuation you’re looking to obtain.
- Do you have the infrastructure in place to support your SaaS product?
It’s important to understand that converting your service to a product will impact every facet of your business: sales, marketing, operations, human resources, and finance. Therefore, it’s vital to ask yourself the following questions:
- Do you currently have the right team members in place to support a transition to a product company, or can you identify those types of people in interviews and recruiting?
- As a service company, how would you define your product-based value proposition?
- How will your sales strategy differ?
- Do you have a support infrastructure to manage this? (Think: I forgot my password)
- Where are the right places to invest in marketing for product sales?
The first question is the most critical, as personnel retooling is very expensive to any organization. That’s not to mention the ancillary damage you may experience within your work culture as people are shuffled around — those remaining could lose confidence in management and may leave the company.
- Does your product offer a competitive advantage?
When considering your competitive advantage, there are an unlimited number of questions you need to ask yourself outside of the questions mentioned above. For starters:
- If your product got into the hands of your competition, would it make them more efficient or more appealing to potential clients, including yours?
- Are you willing to give up market share for your core services in return for potential gains in software sales and maintenance?
- Alternatively, is there another use/market for the product that would not affect your core service area?
Consider these examples:
- A warehouse inventory tool could also be used for construction
- A manufacturing workflow system could be retooled for insurance claims
- A data management tool for healthcare could be used for financial services
While pivoting your in-house software to another industry would require an investment, this option allows you to maintain the income from your current business without worry.
- How will you grow the product and the customer base?
We recently spoke with a SaaS company who we are a client of. After completing our Quarterly Business Review (QBR) where we discussed current usage, new features, and their product roadmap, we asked about their processes. They gave us a “behind the scenes” tour. Spoiler alert: the customer journey doesn’t end with the sale.
We’ve been unknowingly part of their processes which includes:
- Monthly check-ins
- Feature release notes and videos
- Quarterly and yearly business reviews
- And of course, constant requests for feedback.
All of this was carefully orchestrated with a series of tools meant to engage (or re-engage) customers’ use of the product, which included specific measurements carefully implemented in order to ensure the proper data was being actioned. They shared with us that there are more people supporting this effort than those who build new features on the product itself! This process of engagement, education and feedback is known as “Customer Success”.
Product companies — and for that matter, very good service companies — need to invest heavily in customer success infrastructure in order to be successful. If they do not have (or hire) the necessary expertise, they have a difficult time convincing current customers to renew their services.
Thankfully, there is a lot of reference material on setting up a Customer Success process — Gitlab and many other companies have actually open-sourced their strategies to help other businesses who are considering implementing customer success practices. But even if you’re following the best manual, your customer success program can only be as good as your implementation strategy.
Still Considering Pivoting to a SaaS Offering?
We can help! Whether it is assessing your current application for SaaS conversion, adding critical features, or discussing your company roadmap, drop us a line. We’d love to talk to you about your business’s unique challenges and help you create technology solutions.