A hitchhikers guide to SaaS transformation (Part 1)

Software as a service (SaaS)—also known as cloud-based software, on-demand software, hosted software, or web-based software—is more than a delivery model for modern applications. It’s a movement. And it’s only gaining momentum. Analysts have been forecasting for years of the growing demand amongst enterprises to consume software this way, however as was demonstrated recently with Salesforce’s $27.7 billion acquisition of the web-based workplace messaging application Slack (the second largest acquisition after IBM’s purchase of RedHat), there are distinct signals that SaaS is going into high gear.

Its no surprise really, just as consumers we expect to easily deploy apps easily into our personal devices, organizations of all sizes are looking for a more frictionless experience with their business applications. They want to be able to take advantage new features and capabilities without all the headaches of managing on-premises software. They don’t want to outlay large sums of capital upfront, bear the risks of stalled, or failed implementation projects and need to realize value quicker. Ever changing business conditions demand seamless scalability, and faster integration between software products.

If anything comes as a surprise, it’s that many of independent software vendors (ISVs) and other builders of traditional software products are not keeping pace with this trend. Not that they don’t want to. As someone who has worked closely with software companies of all sizes around the world, one thing I consistently hear from founders, leaders, and CTOs, “We want to get there, but don’t know how?”

If you are one of those companies, then this article is for you. Over the next few weeks I am going to publish a series of articles about what I have learned not only as an advisor or partner, but as a builder of a SaaS company myself.

Prepare for an organization-wide culture shift

Leadership teams often mis underestimate all the things that need to change to be a SaaS company. Typical tasks include let's get sales to figure out subscription model customers will buy. Let's get the engineering team to use the cloud and deliver software released faster. While these are just some of valid things to do, they don’t fully appreciate the cultural transformation that goes to sustaining them. The analogy I use is SaaS is not a weekend sport, its a lifestyle change. It requires every function in the organization that is responsible for delivering product to customers to go all in. This doesn’t include just sales and software development but, marketing, services, support, finance and even your talent teams. The fact is changes are difficult for traditional software companies that have decades’ worth of well honed process defined, intellectual property locked up in their code and reliable systems to support their vested customers. Last year I lead a panel discussion with three prominent, yet very different companies (ADP, MariaDB, and Nasdaq) where I asked them how they approached their transformation.

Understanding what customers really want, not just need

Today’s customers expect to start seeing the benefits of your software within hours or days instead of months. They empower their business units to make purchasing decisions independent of corporate structure. And they need a frictionless onboarding experience once they’ve made a commitment. While traditional software is notorious for having long evaluation cycles, a slew of stakeholders (procurement, finance, IT), and risky implementation projects. Procurement is fundamentally different in the SaaS world because customers subscribe to your software rather than own a license to it. As the billing-platform company Zuora says, "At the heart of the Subscription Economy is the idea that customers are happier subscribing to the outcomes they want, when they want them, rather than purchasing a product with the burden of ownership." Software companies that want to offer a subscription model of purchasing and consumption have to restructure the way customers engage with them. Customers need simpler, more flexible ways to pay for only the features they value and only the number of people that use the product.

SaaS demands a real-time relationship with customers, which means you not only need to know more about them, but how they are changing. As an operator of software, not just creator, the service level bar to customers is higher. Just like in any enterprise system, keeping the service available is table stakes. Beyond understanding your infrastructure health and usage metrics, you need to know about your customers’ functional needs and even anticipate them. You need to understand things like which features they use the most, how long they stay there, and which data they interact with. Only with this kind of information can you continually develop an ever increasing value proposition to them. When you know these preferences and translate them into a new set of metrics—such as customer acquisition cost (CAC) and lifetime value (LTV)—you can onboard new customers faster and cultivate stronger relationships with them over time. Breeding a culture within your organization of seeking to understand, deeply questing, constantly interpreting and acting quickly on these metrics is key to staying ahead of your customers.

It takes courage, along with some sound steps

Sure the move to SaaS takes commitment, but it also takes courage in the face of changes that might seem daunting, even downright dangerous. That resolve will be tested at many stages of the journey, big investments will be necessary, decisions trading short term benefits for long term gains will need to be made, and ambiguous problems will appear requiring unconventional solutions. However the perseverance to tackle each of them with a sense of urgency will allow you incrementally get better faster. While there is no universal blueprint for success, there are some proven steps to follow. AWS has worked with hundreds of companies, such as Adobe, Infor, F5 and Alfresco to advise and support their transformations as they moved applications to the cloud. Three years ago, we established the AWS SaaS Factory program to distill and share what we’ve learned. At the AWS re:Invent event last year, we announced the AWS SaaS Factory Insights Hub, a central directory of over 70 business and technical resources to help you as you get deeper into implementation. This rich collection of case studies, blogs, whitepapers, webinars, analyst research, learning modules, and other resources can support you in moving to the cloud with confidence, no matter what stage you’re at. A great starting resource I recommend starting with is the SaaS Journey Framework Whitepaper, which provides practical steps in developing your business plans, product strategies, roadmaps, minimal viable services, and go-to-market strategies.

In part 2, I talk about investment profiles, pricing value and the metrics that help you achieve customer success.