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.

The Value of Growth for SaaS Companies

I received a report from SaaS Capital titled “Leaders and Laggards: SaaS Growth and the Cost of Capital”. The subject of the report is how the public markets value a high growth SaaS company (their definition of high growth is >25% YoY).

The report states, “13 public SaaS companies tracked by Pacific Crest Securities have increased in value 40% since the beginning of 2008. During that same period, the S&P index has yet to return to its pre-recession value.”

More on the Role of the Customer Success Function in the SaaS Business Model

Last year, I posted a blog about the SaaS business model and the role of Customer Success, titled, “VP Customer Success — Critical to the SaaS Business Model“.

For anyone who has run, is running, or plans to run a SaaS company, you quickly learn that the SaaS model is highly dependent upon two major apertures in its revenue generation funnel; the first is revenue in the top and the second is churn out the bottom.

SaaS: Lead Generation – Not Sales Capacity – Drives the Model

One of the key issues that concerns investors and management teams alike vis a vis the SaaS business model is its potential to consume a large amount of capital until finally reaching profitability. Many people have written about this topic, including me.

SaaS companies are typically built upon a stream of relatively low cost subscription licenses, paid out monthly/quarterly/annually — even multi-annually. Unfortunately, for the vendor, the subscription model usually generates far less up front cash than a traditional ‘perpetual license’ software model. But, over time, the compounding effect of the SaaS model can build into a nice annuitystream — provided churn rates are minimized.

It is this up front cash differential that is the primary appeal of the SaaS model over the traditional software model with customers. However, this differential is also what makes the model vexing for the SaaS management team and the investors.

Creating Global Market Leadership

The Power of Brand in the Technology Markets

I have listened to hundreds of presentations from entrepreneurs looking for funding since I joined InterWest Partners. They all have one thing in common: the majority of the presentation is spent on the product they are building and the market they are targeting.

Similarly, when a venture firm does its due diligence, it spends a significant amount of time and effort speaking with current or prospective customers and analysts to gauge their level of interest, the importance to the business, ROI, usage rates, etc.

This is all very laudable.

However, if you were to perform autopsies of technology start-ups that have failed, I think you would find that most were able to build the products they said they would—and that the customers who purchased them received more than marginal utility from them.