The Corporate Organizational Structure of SaaS

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Recently, I had someone ask me how they might think about the organizational structure of their SaaS startup.

Here are some lessons I learned over my 25 years working on the operating side in what started out as small, private start ups (Oracle and Siebel Systems ) but turned into large companies – along with my experience working with many early and mid stage SaaS companies as an investor.

  1. Who the CEO elects to have as direct reports tells customers, employees, business partners, and shareholders what matters to her/him and what she/he believes is critical to the company to succeed. So, choose your reports carefully as you are signaling to a lot of people what is important to you.
  2. More layers between the CEO and the people who execute the business model can slow down decision making and reduce the speed of execution of the company. I have found that lackluster execution is what usually kills most start ups. CEOs are usually CEOs because they have excellent intuition and the ability to analyze data and make good decisions quickly. Relying upon others to “interpret” data and report on it may slow down and introduce sub-optimal decision-making (subjective decisions by lower level staff that may not be as experienced as the CEO or have ‘political’ agendas).
  3. The people who are responsible for executing the business model should be direct reports to the CEO. For a SaaS business model, this means the following:
    1. VP Marketing – responsible for the initial creation of revenue through demand generation (top of the funnel) and “future” revenue; revenue from future sales periods.
    2. VP Sales – responsible for delivering “in period” revenue via direct sales – inside and field sales
    3. VP Support – responsible for ensuring the product works as marketed/sold
    4. VP Service – responsible for implementations – if critical to the success of converting “contracted” MRR to “realized” MRR as projects are delivered
    5. VP Products – responsible for specifying a complete product that meets market requirements
    6. VP Engineering – responsible for building and delivering a complete product
    7. VP Customer Success – a “new” exec position critical to the SaaS model responsible for the bottom of the business model funnel – I wrote about this role previously in my blog . This role is responsible for making sure customers are happy and using the product every day (1 customer success rep for every $1M ARR is best practice). New products such as Totango are this function’s new “system of record” and the CEO’s window on usage metrics which is critical for renewals and reduced churn. You spend a lot of $ to acquire customers (CAC ratio), you need to make sure they stay as customers or the SaaS model falls apart.
    8. VP Finance – among many things, responsible for the accounting and collection of revenue
    9. Optional – VP Alliances/BD – if you need to interface with many different ISVs to deliver a complete solution
    10. Optional – VP Channels – if indirect sales is a key part of your business model

In my experience, a CEO and/or a GM,  should be able to handle 7-10 direct reports if each of those reports are A players and run their organization effectively.

In terms of process, what worked best for me as a divisional GM – modeled after successful executive staff meetings I was a part of – was a weekly meeting where each of my direct reports was required to cover what was accomplished the prior week and what was expected to be accomplished the following week — along with the usual review of revenue forecasts and financials.

Typically, for the forecast, we covered key deals for the quarter, and a WEB (Worst, Expect, and Best) revenue number and the critical elements required to achieve the forecast. By having all the functional leads in the room, we could quickly surface issues – product, deal terms, support issues, etc. – and collectively put together a plan of action to resolve them.

During each weekly meeting, as issues materialized, we generated a “resolution plan”, assigned owners and due dates and then reviewed the issues captured in the plan each week until they were resolved.

Each week at the overall Exec Staff meeting I attended, I covered the major metrics generated from my division’s weekly staff meeting.

These things worked for me so perhaps they will be helpful to you as you think through the optimal structure for your organization and its decision-making.

Letter To IBM

Dear IBM:

Congratulations on your recent acquisition of Kenexa for $1.3B. The HCM application market has been steadily heating up and with SAP’s recent acquisition of SuccessFactors and Oracle’s purchase of Taleo, this looks like a good counter move.

Your announcement coupled with the recent news that Apple has become the most valuable company in the world prompted me to write this.

As I thought more about Apple and IBM and their respective positions in the current technology markets, I realized just how different the two companies are today from two decades ago.

Twenty years ago, when I worked for Apple as a young engineering director, IBM was “the” business information technology brand. Apple was nowhere – except in niche areas such as graphic design.

Under Steve Job’s leadership, beginning with his return to Apple in the mid-90’s, Apple emerged from near oblivion to become one of, if not ‘’the’, most powerful consumer – and business – technology brands.

Today, Apple’s products are used pervasively by people – at home and at work –  throughout the world. Apple has become the leading mobile platform developers target for consumer and business applications.

IBM, in the early 90’s, was faced with its own set of challenges stemming from poor financial controls, lack of innovation and other issues. Gerstner is appropriately credited with solving these and his successors – Palmisano and Rometty – have continued that success.

Now, IBM’s stock is at a near all time high, more than doubling over the past 3 years.  The Company invests in all the right buzz areas: Cloud Computing, Analytics, Mobile, etc. Wall Street is singing IBM’s praises.

Yet, in spite of all outward appearances, I respectfully submit that IBM may be headed toward another very rocky and challenging stretch of waters.

How Will Salesforce Adapt to the Next Platform Shift: Mobile Computing?

I posted an article on TechCrunch last Friday. The title of the article was “How Will Salesforce Adapt to the Next Platform Shift: Mobile Computing?”

The purpose of the article was to point out that every decade or so a new computing platform emerges. Market leading incumbents typically have the most to lose when these shifts occur and typically have the most difficult time making the transition due to legacy architectures and revenue streams dependent upon preserving the status quo.

Are You Capitalizing Upon Your Social Media-ness?

I had a great meeting with Bindu Reddy last week. Bindu is the CEO of MyLikes and the former head of product management for Google Apps. Her husband and co-founder of MyLikes, Arvind Sundararajan, is the former tech lead for AdSense.

The premise behind MyLikes is simple: we are more likely to trust the recommendations of our friends, colleagues and advisors more than we trust consumer ads and the opinions of people we don’t know (with the exception of Hollywood celebrities and sports stars because, of course, we all know they are completely believable, role models for our children and extremely well educated – sarcasm intended).

Who Are You Building Your Business Applications For?

I have had the privilege of meeting with many early stage business software CEOs and teams over the past 5 years since moving from an operational role to an investing role.

Each of these teams is passionate about the products they are creating. However, many, in my personal opinion, share something in common that may prevent them from growing their companies as fast as they might otherwise.

Most are so intent on building their products for and then marketing/selling to daily practitioners they forget about creating a version of the product or a set of features in the product for the people who aren’t likely to use the product very often, or at all; the people who must approve the expenditure.