We are all SaaS companies now – the real work starts after the sale

August 11, 2020 9 min read

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^{By Joe Haslam, Executive Director of the Owners Scaleup Program at IE Business School. You can follow him on Twitter at @joehas .}

Now there are two types of companies in the world, those that know they are a SaaS company ( Software as a Service or Software as a Service), and those that do not know it yet. This is the message that I have been transmitting for a long time to the participants of the Owners' Scaleup Program at IE Business School . If anything, the coronavirus ( COVID-19 ) pandemic has reaffirmed my view that this is the path that all businesses should follow.

SaaS and I have a long history. Twenty years ago, in the heyday of dot.com , I left the world of business consulting. Together with five other colleagues, we founded Marrakech, a SaaS solution to solve the back office problems of e-procurement . The company raised $ 75 million in venture capital and had more than 250 employees before it was sold. Even the people who worked there don't believe me when I tell them that the software they developed still works today. The lesson here is that a good SaaS solution can take a long time to realize its potential, but when it does, it is almost impossible to displace it.

Luigi mallardo

So what is Software as a Service (SaaS)? Here I am writing to Luigi Mallardo, the teacher who teaches SaaS classes in the Owners Scaleup Program. The mistake, he tells me, is to think only about the technical implementation of the software that runs in the cloud. The trick is to think of SaaS as a way of thinking. It's not so much what it takes to set up a SaaS platform, but what that platform allows you to do. It is not so much about selling a product, but about getting a customer for life by offering an extraordinary experience. The real work begins after the sale.

One of my hobbies is extreme sports. I love mountaineering. I spend an inordinate amount of time reading Gearguy in Outside magazine. Next year's Arc'teryx hardshell jacket will be lighter! Is Lowe Alpine going to make a 25-liter backpack without the annoying crossover loop? This means nothing to a weekend hiker, but to a mountaineer these details are very, very important. And when a new product comes out, the question is which is the best place to buy it. I drive my wife crazy by controlling the prices of The North Face outlet store on the outskirts of Madrid.

But what if you decided to be like Alex Honnold and only use products from The North Face? What if TNF were like Netflix, in the sense that in exchange for paying them a monthly fee, I had access to an experience far superior to that of their retail customers? If you could talk to your product designers about what I like and what I don't like, you could help them design the products of the future. If I were willing to give them some information on how I use their products, eventually they would know what I need before I do.

A good first question when giving a master class is "How did Warren Buffet get rich?" Everyone knows that it is a value investor , but far fewer people know in which sectors it has invested. At least one of the answers is the insurance industry. Buffett has said that if he hadn't bought an insurer "Berkshire would be lucky to be worth half what it is worth today." And because? For "predictable and recurring premiums." The wise man from Omaha was into SaaS business models even before the cloud existed.

In almost every way, Irish retailer Primark has done what any business school teacher would advise. Experiment until you find a formula and then reproduce it until everything else is excluded. This allows it to grow exponentially. When analysts singled out British online fashion and cosmetics retailer ASOS, Primark showed queues outside its stores on Europe's main streets. Then came the Coronavirus (COVID-19) pandemic and all its stores had to close. Without any online channel, his sales went from 650 million pounds a month to zero. ZERO.

Jason lemkin

The expansion phase of a business is what occurs after finding a scalable business model that can be replicated through experimentation. The benefits come, above all, from the tight integration of an ERP ( Enterprise Resource Planning or Enterprise Resource Planning System) with a SaaS platform. It takes patience and time, but the result is regular revenue, low turnover, and high margins that grow every year. An excellent reference text for newcomers to this field is Aaron Ross and Jason Lemkin's book From Impossible to Inevitable: How SaaS and Other Hyper-Growth Companies Create Predictable Revenue, published in 2016.

Jason likes to chat about the rise of SaaS decacorns - 20+ companies worth $ 5 billion or more. These horns are: Salesforce $ 180 billion, Shopify $ 90 billion, ServiceNow $ 70 billion, Zoom $ 48 billion, Atlassian $ 45 billion, Workday $ 40 billion, Square $ 35 billion, Veeva $ 30 billion. $ 29 billion, Twilio $ 29 billion, RingCentral $ 23 billion, DocuSign $ 24 billion, Okta $ 23 billion, Datadog $ 22 billion, Slack $ 17 billion, CrowdStrike $ 17 billion, Coupa $ 15 billion, MongoDB $ 13 billion, Wix $ 11 billion, Dropbox $ 9 billion, Cloudfare $ 9 billion, Zendesk $ 9 billion, Avalara $ 8 billion, Hubspot $ 8 billion, and Five9 $ 7 billion. And this is just the beginning! The real benefits will come when the software world connects with the physical world. As in the case of Apple, stores also play a role in this regard.

Scott Galloway is a professor of marketing at New York University's Stern School of Business. You might know him from his biweekly podcast with Kara Swisher on Vox, from the weekly show Prof G, or from his new show No Mercy, No Malice on VICE TV. Scott loves "recurring income packages." He argues that deep down, consumers want LESS, not MORE choices in their busy lives. They are willing to bet on a brand 99% of the time if they believe that brand is not going to fail them. It is actually an extension of Clay Christensen's "jobs to be done" methodology. In sectors such as media, clothing, travel, and healthcare, we all want someone to do the "work" for us. In exchange for a monthly fee and your participation through an application the "fear of missing something" vanishes. Maybe a waterproof jacket from another company is better, but no one has ever laughed at someone for wearing The North Face clothing.

The more I called past Owners Scaleup Program participants to see how they were doing, the more I saw that the challenges they faced remained the same. They still do not have predictable and recurring income, there is no true customer loyalty, there is no information to make decisions about the products of the future. I am thinking of a particular case. Let's call him Pierre (because that's his name). Pierre has been successful in most of the things he has done, but he has never had to deal with something like the Coronavirus (COVID-19). He started the call by bringing me up to date, but then the usual problems came up. When time was up, he told me that the call had been very helpful, and I wonder when can we talk again? I said, "Pierre, man, I love you, but I'm not in love with you. Call me when you're ready to admit you're a SaaS company, until then don't waste my time."