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BEST PRACTICE PAPER

Top 10 Mistakes Executives Make When

Launching a SaaS Company

Te market or sotware-as-a-service (SaaS) applications is booming. Gartner predicts that by

2012, more than 66 percent o all independent sotware vendors (ISVs) will oer some o theirapplications via the Web as sotware as a service, either exclusively or as an option.

For ISVs, that means theres unprecedented demand or such applications, while the barriers to entry havenever been lower. As a result, the time or bringing to market innovative new solutions has never been better

Tere are also some potential pitalls, however. Here are 10 mistakes to avoid in those business areathat are mission critical or any organization: nance, marketing, promotion, and the applicationdevelopment process itsel.

Remember: the SaaS Business Model is DiferentBecause the SaaS business model is driven by recurring revenues rather than large, up-ront ees,companies must manage their business dierently, including how they set up nancial processes, investin resources, and use the built-in advantages o the SaaS model. Ater all, SaaS isnt just about a paradigm

shit in technology. It also requires a business and cultural shit in how companies are organized and runMistake #1: Running your SaaS operations like a traditional enterprise sotware company

Because SaaS companies dont survive rom one big sale to the next, companies must set upnancial structures to take advantage o a model based on recurring revenues. Tat means theirnancial processesincluding collections, invoicing, and renewalsshould closely track revenueand expenses. It also means careully managing xed costs and setting up accounting practices thshorten the order-to-cash cycle. In addition, it requires close monitoring o key nancial metrics,including those that are indicators o uture income, such as lead fow, renewal rates, and attrition

Mistake #2: Under-investing in lead generation or relying on feld sales too earlyManaging xed costsparticularly sales headcountand getting strong early adoption are critical tojump-starting the SaaS business model. Many SaaS vendors are nding innovative ways to generateleads and accelerate sales cycles without spending large sums on traditional marketing and advertisin

Successul strategies include oering test drives, requent e-marketing initiatives, guerilla marketineorts, evangelizing customer reerences, and segmented marketing. With all o these approaches,its important to track metrics such as lead fow closely. When you do invest in sales headcount,its also important to provide incentives not tied to large deals, such as rewarding customer eventparticipation, getting reerence customers, boosting adoption rates, and ensuring low attrition.

Mistake #3: Neglecting to build programs to encourageand trackproduct usageUser adoption is especially critical to the SaaS business model because customers can leave atany time i theyre not happy. However, one o the built-in advantages o SaaS model is that yoknow exactly how customers are using your product. Harness that power! Because you can seeall the mouse clicks and usage statistics or your products, its easy to measure user adoption, tenew eatures, and spot potential problem areas. Ten you can use this inormation to drive yourmarketing programs and keep tabs on the health o the account.

Avoid Common Marketing MistakesAs with any product, eectively promoting your SaaS application is very important. Some strategiewill be similar to classic marketing eorts, and others will have a dierent ocus. All should have ongoal: getting new customers and retaining existing ones.

Mistake #4: Relying on a build-it-and-they-will-come mentalityJust rolling out a SaaS product wont guarantee success. Tese days, having a SaaS product is tablstakes in the enterprise sotware industry. Marketing 101 principles still apply: you need correctpricing, compelling oers, and sales discipline. You also need an aggressive promotional strategythat includes dening your key audiences and targeting them through all available channels.

Abstract

Opportunities abound in the market for SaaSapplications. Learn from the experience of the

top SaaS provider in the industrysalesforce.com

and dont make these mistakes when you

launch yourSaaS company.

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Mistake #5: Waiting to establish a customer success organizationBecause your revenues will be spread out over time, you need to have built-in incentives to makeyour customers successul so theyll renew their contracts. By helping customers drive user adoptionand recognize ROI benets long ater the initial implementation and rollout, you can help ensurethat success. One o the best strategies is to designate dedicated employees to act as ongoingconsultants, advocates, and coaches. Separate rom your sales and support teams, these employeescan advise customers on how to best use the application, communicate with your product teamregarding customer requests, and generally serve as internal advocates or customers. Teir goal:100 percent reerenceable customers; no attrition.

Mistake #6: Underestimating the power o customer reerences and volunteer evangelismAnother way to maximize your marketing dollars is to let your customers do some o your marketingor you. It wont just save you money; its also a highly eective approach because customers tend totrust another customers experience more than any companys marketing pitch. Be sure to includecustomer quotes or testimonials in all your collateral, and invite customers to join your events to sharetheir success stories, both online and live. Use customer reerences or every product claim or neweatureand compensate your employees or getting those reerences.

Mistake #7: Neglecting user communitiesUser communities are a great extension o volunteer evangelism. By empowering the usercommunity, you help customers get the most rom your product, which in turn boosts useradoption. You also get a ready-made user group or real-time ocus testing and you can reducesupport costs: Community members can help each other instead o calling you. Youll nd thatleaders will emerge rom your user population. Empower them with the resources they need and

listen to them!

Dont Rely on Traditional Application DevelopmentJust as the SaaS model is based on a dierent business model that requires new approaches to commonbusiness disciplines, traditional approaches to application development also just wont do. One o theadvantages o the SaaS model is agility and speedmake sure the same is true o your developmentprocesses. And the sooner you have a product, the sooner youll earn money.

Mistake #8: Using traditional methodologies to deliver Web-based applications or ser vicesMonolithic releases designed and implemented with waterall-type project methodologies arentsuited or the rapid iterations common to SaaS applications. In the SaaS universe, its OK torelease products that arent completeas long as you engage your customers and incorporate theireedback into uture product iterations. Agile development methodologies work well and allow youto incorporate customer eedback into upcoming releases on a regular basis.

Mistake #9: Building a technology inrastructure rom scratchor cobbling together third-party solutionJust say no! Do what you do best and outsource the rest. Various vendorsincluding salesorce.com, with its Force.com platormprovide ready-made solutions or application development.Unless you can demonstrate a clear competitive advantage along every tier o the technology stackyou need or development, why bother building it and reinventing the wheel?

Mistake #10: Getting caught without an API strategyIntegration is key or SaaS vendors, and an application programming interace (API) helps toaccomplish that goal. Be sure you have an open API strategy rom Day 1. Your customers willthank you because it will make it easy to integrate with their existing systems. Its also great or youbecause youll be able to partner easily with complementary vendors and Web services to createnew mashup solutions. Such a strategy will also entice the developer community to create newextensions to enhance your product line.

By making the most o the advantages inherent in the SaaS model and avoiding these mistakes, youllbe on your way to SaaS success.