SaaS Product Principles

Software as a Service (SaaS) business model is gaining popularity with the?rapid expansion of the cloud computing market?in recent years, the number of SaaS companies has risen significantly during the last decade. Currently there is a boom in vertical SaaS companies with a focus on disrupting an industry vertical. Vertical SaaS describes a type of?Software as a Service?cloud computing?solution created for a specific industry such as retail, insurance, banking, telecommunications or manufacturing. SaaS is all about long term value creation through product innovation for the industry in a more efficient way than traditional licensed software delivery model.

Building SaaS platforms (Vertical or Horizontal) require a great deal of thought. It requires companies to build great product teams that can deliver on the SaaS promise. More importantly it requires a deeper understanding of some of the key principles needed for building great SaaS products. In this article I focus on SaaS product principles that form the foundation for any great SaaS product and its corresponding business model.

Something that potential investors must understand: we do not chase revenue as the primary driver of our business. Shopify has been about empowering merchants since it was founded, and we have always prioritized long-term value over short-term revenue opportunities. We don’t see this changing.?~ Tobias Lutke, co-founder – Shopify

The SaaS Promise

• Reduce time to benefit: SaaS allows companies to rent services that are already built, installed, and ready to use with minimal configurations and less integrations. This allows companies to side step all the headaches that come with the traditional model of having to buy or build and maintain with increased costs and slower time to benefit. SaaS is an “always-on” business model. Thanks to cloud computing being available globally, SaaS companies can access a greater TAM and serve a global customer base at the same time. Allowing the customer to get a significant reduce time to benefit in a fast and affordable manner.
• Significantly lower costs: SaaS resides in a multi-tenant cloud environment therefore it is significantly cheaper than the traditional software model where you need to license enterprise software and then install and manage it yourself. Customer don’t need to run their own DevOps teams or worry about heavy CAPEX investments to maintain on premise enterprise software solutions that are custom built for their needs.
• Scalability with pay as you grow: SaaS model allows scaling based your needs and it is much easier and cheaper to scale just in time for the growth of the business. SaaS allows small and medium?businesses to use a software that otherwise they would not use due to the high cost of licensing and running it themselves. Maintenance costs are reduced as well, since the SaaS provider owns the environment and it is split among all customers that use that solution. SaaS providers takes on the full burden and responsibility for running a globally scalable software infrastructure to meet the significant demand of all their customers.
• Frequent feature upgrades: SaaS customers benefit from frequent new feature updates and improvements as the SaaS provider executes their own roadmap focused on future needs of their customers and the industry. This allow customers to have access to new innovation in the industry at a significantly lower cost and in an automated fashion. Access to these features are all bundled into the monthly subscription fee the customer is already paying, making it very convenient and cost effective for the customer.
• Ease of use allowing faster experiments and POCs: Business users can leverage the product instantly without having to know a lot of technical details. They can run experiments and POCs to test new ideas and learn at a lower cost than the traditional model. Business users do not have to worry about best practices as they are already built in.

It’s amazing to consider that no matter what size customer we were pitching, or where in the world we were selling, a singular idea drove all our accomplishments: we never sold features. We sold the model and we sold the customer’s success.?~ Mark Benioff, co-founder – Salesforce

SaaS Product Principles

Customer experience matters across all user journeys and APIs

Importance: High NPS, Organic Growth, Lower CAC, High LTV

A remarkable customer experience is critical to the sustained growth of any SaaS business. A positive customer experience promotes loyalty, helps you retain customers, increases future revenues, and encourages brand advocacy. Being obsessive about this will lead to great product that customers enjoy and want more of. This allows a SaaS company to solve a particular problem in a superior way better than incumbent legacy on premise solutions. Paying attention to small things and doing them well to deliver delightful wow factors is paramount to deliver a superior customer experience.

Build to target market need and not for individual customer want

Importance: Simpler product, less bloat, lower TCO, and higher margins

At the center of the product philosophy, any SaaS company need to have an absolute clarity on the purpose or the collective ambition as to why we exist in the world and what value we intend to bring to the target market. Customer wants, industry pain points, industry trends, technology trends …etc will help inform and validate the product management analysis as to what true market “need” is for a product.?This need comes to life as a minimum viable product concept that needs constant iteration and refinement through testing. This needs to be done via a scientific method of developing a hypothesis, testing that hypothesis, correcting where necessary and expanding it when appropriate.?

Sales teams need to learn to sell “the cars that are on the lot”, not sell something that is not available.?~ Marty Abbot – AKF Partners

Well formed, simpler, less bloated, and more configurable products are cheaper to operate with high margins and less costly to maintain.

Minimalistic and simplistic product philosophy

Importance: Lower TCO, Increased Productivity, Increased Maintainability, Increased velocity

The truth is that simplicity is almost always best because, when focusing on simplicity, your creative work becomes easier to understand, easier to recognise, easier to use, easier to expand upon, and downright easier to create. Simply put: simplicity makes things easy.

A minimalistic approach allows you to follow an incremental value driven approach for building great products. Instead of creating 1 year product roadmaps, focus on the minimum viable tests that needs to be done to capture that next big hill with a focus on the core value proposition. I consider the following very important for a minimalistic and simplistic product philosophy.

1. Product Discovery: Talk to as many customers as possible to understand the customer wants, pain points, and market needs to establish what the next big hill you need to capture (Product launch you need to do).
2. Market Opportunity: Ensure that a majority of these customers you talked to are eager to use this new product capability and are willing to be the first once to use and pay for it by signing on the dotted line.
3. Product IRR (Internal Rate of Return): This new capability MUST ensure revenue growth of more than 30% year over year. If not kill the product to avoid bloat and repurpose teams to capture the next big hill

Culture of constant product refactoring and evolution based on new customer and industry insights

Importance: Lower TCO, Faster TTM, Increased Business Agility, Increased Revenue

Product refactoring is a very core technique to the whole agile way of thinking because it fits in with the whole way in which we can build products in a way that it can change easily. Product refactoring is central to this because refactoring is a disciplined way of making changes. These changes are not limited to the technology teams. It applies to the whole product concept. Following a Domain Driven Design philosophy across the organisation will allow this to be a part of the DNA of the entire organisation.

Even as product teams understand the problem more clearly and as the problem itself undergoes rapid change due to the ever changing landscape the product must be kept simple. Product must be continuously refactored to deal with any duplication or ambiguities that were discovered through deeper understanding or introduced by the latest change. The important thing is that product teams must expect refactoring to be a normal part of their work. This is NOT optional!

Full stack DevSecFinOps product teams - End to end ownership of products

Importance: Lower TCO, Increased Velocity, Faster resolution of incidents, One team culture

The benefits of DevSecFinOps are simple. They allow you to build great products and own the end to end process of the product lifecycle. Drives team level ownership and craftsmanship in building and maintaining great products at scale. Enhanced automation throughout the software delivery pipeline eliminates mistakes, reduces attacks, optimises cloud costs, and reduces downtime.

Getting product teams involved in incident management and operations is key. Restoring services is more important than anything else for SaaS companies.?This allows the product teams to understand the customer impact and develop empathy for their customers. There is no better motivation for ensuring that problems do not recur, and that we create a learning organization, than ensuring product teams to understand the pain and cost of failure.

Quality, Security, “-ilities” take priority over features as they are first class concerns that are MUST do

Importance: High NPS, Lower churn of customers, high revenue assurance and retention

In a SaaS world these non functional requirements (NFRs) become a first class product principle. Quality, security, availability, scalability, reliability, and nearly any “always-on” metric are now a must have. The risk of failure moves from the customer in the on-premise world to the SaaS provider.?No longer can product managers ignore this, these are MUST have capabilities.?In the SaaS world these become the foundation of your business model. Failure in any of these will cause irreparable brand reputation damage causing significant loss of revenue.

Configuration over Customisation

Importance:?Lower TCO, Higher Quality, and simpler product, and higher margins

Building customised software products is not SaaS. This leads to increased TCO, lower margins, lower quality and it is impossible to scale. Building products that are configurable enough to tailor the solution to the customer need is a far better approach. Configurability of the product is a core tenant of SaaS. Configurability creates a lower TCO, higher quality and a scalable business model with high margins. This is the most expensive principle to get wrong as it will destroy your SaaS business model. This principle enables all other principles as it is foundation principle. This allows engineering teams to create a smaller code base with lower development costs, lower costs of operations, higher quality, lower cost of future augmentation, and lower overall maintenance costs driving higher margins for the business.

Multi-Tenant by design

Importance: Lower TCO, Higher Margins, and Faster TTM

SaaS products need to be multi-tenant by design. Multi-tenancy really helps the SaaS business model to have a lower TCO, higher margins and faster TTM. All SaaS solutions should be multi-tenant to enable better resource utilisation that allows hyper scaling of the business. This allows ONE Product, ONE platform, ONE Team, and ONE Business model to serve as many customers with proper fault isolation and logical or physical separation of data. This is a core tenant of the SaaS business model. This is another foundation principle of SaaS that product teams need to get right.

Designed to be monitored with transparent business and system level observability

Importance:?Availability, Customer Retention, and high Revenue Retention.

Building products that are designed to be monitored from a business and system level is key for efficient operations, increased availability, high retention of customers, and high retention of revenues. It allows product teams to ensure the product is working as expected to deliver the customer benefits we promise. It allows product teams to detect issues and resolve them faster and sometimes before the customer would notice them. Product managers need to ensure the system is designed to be monitored to meet the SLAs we have promised our customers. This is another non functional requirement that is absolutely important to get right in the SaaS world. Without observability we cannot validate usage and value creation for the customers we serve.

Publish a single release for all customers on a frequent basis

Importance:?Lower TCO, ?low cost of maintenance, and higher margins

Being able to publish a single release to your entire customer base in a secure and safe manner is the holy grail of SaaS. This is why the SaaS business model delivers a lower cost of maintenance, higher efficiencies and higher operating margins. SaaS companies need to maintain only one version of the platform operating globally at any given time with frequent upgrades delivered in an agile fashion to the entire customer base.

Designed for easy, efficient and low cost operations

Importance:?Lower TCO, higher margins, high availability

Unlike the on premise software delivery model, the SaaS model requires product managers to pay more attention to the operational complexities and costs. Lowering operation costs needs to be a product management KPI with a clear focus area. These costs unchecked will erode into the SaaS margins. Driving automation across application, infrastructure and data layers will help lower the cost of operations. Product managers must be extra cognisant of infrastructure related costs. Optimising cloud infrastructure is a key driver for lowering cost of operations.

• How should we optimise the CI/CD delivery pipelines?
• How should we treat our environments (Dev, Stage, Pre Prod, Perf, Prod …etc.)?
• How do we optimise network utilisation?
• How do we reduce server infrastructure related costs??
• What are the data retention policies reduce storage related costs??

All these impact the SaaS business model and margins. SaaS Product teams need to own these costs and drive optimisations via automation to allow the business to have higher margins. Everything we do to develop the product and deliver a customer experience needs to be enabled through automation.?This needs to happen through the DevSecFinOps full stack product teams. Automation should be part of our “whole product” that ships with every platform upgrade.

Hire relevant SaaS talent who are “A” players based on principles & values

Importance:?Ability to deliver on the SaaS promise through SaaS principles.

Assembling a football team out of basketball players is unlikely to land you in the Super Bowl ~ Marty Abbot – AKF Partners

Building a SaaS business requires specialised skills which can be expensive to find. It is important to understand that these skills are essential to delivering the SaaS promise. Developing SaaS products require different skills, knowledge and behaviours than licensed, on premise products.?Companies must pay attention to the right talent mix with experience and depth at the top with younger high potential talent learning from them. SaaS cannot be built on training wheels, it is mistake to assume anyone could build world class SaaS products.

SLAs, SLOs, and SLIs

Importance: Knowing what we are promising to our customers and what we need to do to achieve them, increased revenue retention.

In today’s “always-on” world, people’s expectations for free and paid services alike are high. Customers expect high standards. Which is why it’s important for product teams to understand and maintain SLAs, SLOs, and SLIs. The three represent the promises we make to our customers, the internal objectives that help us keep those promises, and the trackable measurements that tell us how we’re doing. The goal of this is to get everybody on the same page about system performance. How often will your systems be available? How quickly will your team respond if the system goes down? What kind of promises are you making about speed, costs and functionality? ..etc.

• SLAs (Service Level Agreements): What we promise to our customers
• SLOs (Service Level Objectives): What goals and objectives we need to achieve to keep the promises
• SLIs (Service Level Indicators): How we are currently doing against the promises we have made

These principles form the foundation of the SaaS business model. Getting them right and building strategies to ensure these principles are adhered to will determine how successful the SaaS business model will be. If you deviate from any one of these principles it will NOT be SaaS or will not be able to get to a SaaS business model.

Customers won’t care about any particular technology unless it solves a particular problem in a superior way.?~ Peter Thiel, co-founder – PayPal

Dhanush Hetti