Tag: saas

In SaaS, the problem shifts as you move to the enterprise

Who is this for: startup founders who’re building SaaS tools.

TL;DR: when you’re a ‘tool’ the problem is a tactical one that’s solved by the product, but as you start adding features, increase prices and become more than a tool, the problem you’re solving tends to move towards your customer’s ‘success’ and you solve it through services, support, marketing and Customer Success Managers (CSMs).

When Visual Website Optimizer was a tool

When I joined Visual Website Optimizer in 2012, it was a tool that helped people A/B test web content. Marketers had long wanted to do that but the capability was restricted to companies which were willing to deploy their engineering resources on it, or buy extremely expensive enterprise solutions.

Visual Website Optimizer bridged that gap on Dec 14, 2009 by giving the average marketer a visual, WYSIWYG editor that would allow them to A/B test basic stuff like button and text colors, font-size, images and form fields. All of this without touching code and at a perfectly reasonable starting price of USD 49 per month.

VWO as a solution

As VWO started being bought by more enterprises, it became clear that just allowing marketers to A/B test website content wasn’t going to cut it. We had to help them become successful with A/B testing. That’s a completely different, and larger, problem.

Here’s how we’re going about solving that problem

  • Being successful with A/B testing means the entire team in a large company needs to be trained on the product, so we need CSMs and Customer Marketing to work on a training module, which the CSMs deliver.
  • A/B testing campaigns involve a lot of front-end coding, so we have Technical Support for technical queries, and a Services arm to implement tests for customers.
  • People need to be able to understand our statistics to make the right decisions, and a graph can’t always help you do that, so that’s where content marketing comes in.
  • Customers need on-going help with test planning, ideation and strategy, which is where the CSMs come in again.
Wrapping up

The product lies at the center of solving the problem, but as you move upmarket you’ll need to solve the problem of making your customers successful, versus just giving them a few features and capabilities. That requires a mix of education, training, services, support and content to achieve.

Create new communication channels

Want to create an incredibly successful startup and make the world a better place in the process? Create a communication channel for businesses to reach their potential customers, and they’ll pay you handsomely for it.

Your approach to creating the communication channel doesn’t matter as long as you acquire a large enough user base with some spending power. There’s only one caveat: the users have to stick.

Let me explain what I mean with examples.

Facebook

Facebook did this by creating a social network where it gave people the power to share and make the world more open and connected. Then it built an ad platform so that businesses could reach out to all these potential customers. The hard part was and still is acquiring and keeping people on the platform because the day they leave, so will the businesses, and so will the revenue.

Based on their Q4 2015 and Q1 2016 results, Facebook is doing a damn good job of keeping consumers on the network. Where it’s stumbling is getting new users from the “Rest of the World” category (the developing world). And they need new users to continue their growth rate. The desperation with which they need these users was evident in how they went bat-shit crazy trying to defend Free Basics (Internet.org) in India. Read more about that on link 1, link 2, link 3 and link 4.

Instagram

Instagram is interesting. They acquired users but didn’t give businesses access to these users for a long time. Smart brands quickly found a way to still get to consumers through some women with large followers. Instagram is making no revenue out of that and recently launched the Instagram for Business service.

Youtube

Youtube is slightly different from the pack because others are responsible for creating the content that brings in users, but they share some of the revenue with original content creators who attract and keep potential customers on the platform.

B2B industry news websites

Take for example iEntry, which owns WebProNews. They churn out “technology news” and somehow convince people to visit their website and signup for their email newsletter. Then these two channels are provided to businesses to advertise to their potential customers. Almost every B2B niche has its own news website where others can advertise.

Chrome push notifications

Google was concerned that unlike native apps, websites had no way of engaging mobile users. It responded by allowing websites to send push notifications through the Chrome browser installed on user’s Android phones. Firefox soon followed suit.

While Google was responding to a different threat, some smart people immediately figured that a new channel for businesses to talk to customers had just opened up. And now you have a whole bunch of SaaS products (25 as on date of publishing) that basically bring marketing automation capabilities to website push notifications.

This channel is similar to white-hat email marketing, where businesses have to build their own personal email database.

Google Search

The largest “business to potential customer” advertising channels because of one reason: relevance. Think of every search query as a person looking for an answer to a problem. Google lets businesses bid for access and priority in the advertising channel with appropriate measures in the system to promote relevance.

Chat bots

“Facebook’s big announcement at its annual F8 Developer conference, was to make Messenger, its 900-million-user messaging app into a full-fledged platform that allows businesses to communicate with users via chatbots.” – 3 trends driving the chatbot revolution, VentureBeat

How to search for flights with Skyscanner’s new Facebook Messenger bot – Skyscanner

Wrapping up

The hard part is getting and keeping users. Businesses will happily come after you’ve acquired users.

Or you could simply provide the means to the communication and let businesses build their own audiences… like website push notifications or email marketing software.

Think of all the interesting ways in which people have acquired users and then made them available to businesses: Chat bots, Amazon, Linkedin, Zomato, Yelp, Woot, mobile games, content and news websites.

The difficult part, as always, is a product that attracts and retains users.

A Framework For Building SaaS Products That Don’t Churn

When you say “reduce SaaS churn”, most people will immediately imagine tactics like drip email campaigns, great onboarding, customer marketing, gamification and automated alerts when users show signs of leaving. But this post is not about tactics. This post recognizes that users are smarter than any of the cute tricks we can come up with, and it attempts to get to the core of why there are some products that business users keep paying for, and others they discard.

If you’re a founder or product manager, I’ll encourage you to think deeply about this stuff, versus thinking about your next “growth hack”.

Products on which company processes are based

There are products on which organizational functions are dependent and processes are built. These are usually CRMs, Marketing Automation, HR software and Support software. The defining features are

  • they’re used by decision makers for reporting purposes and are often used to track teams’ KPIs and goals
  • they’re used to run day-to-day functions of the team and organization, for example, the process of applying for and approving employee leaves, or changing the stage of a sales opportunity
  • some people are logged in to the system during their entire working day
  • others log in once in a while to complete certain tasks
  • the system collects and retains valuable data that companies are not comfortable losing

Some observations about these products are

  • the sales cycles are usually longer than a month
  • customers will rarely buy these products without first being sure of the processes that are dependent on them
  • they need extensive API support and data integrations, because the data they collect becomes more valuable once combined with other data
  • heavy cross-functional training is required after the sale, and the product takes the blame if a customer org. doesn’t adopt and use it to the best of its capability
  • you need a lot of quality documentation so that you’re not overburdened with support tickets

An important note about products used by decision makers

When I started out at VWO a few years ago, the most important metrics were “free-trial signups” and “paid customers” (about 95% were self-service monthly subscriptions). Back then, Google Analytics (GA) was our most important source of data. We recorded free-trial signups, upgrades to a paid subscription and revenue in GA so it was what we looked at everyday.

In the past couple of years, we’ve started serving more mid-market and enterprise customers. Because of this, a few things have changed:

  • The average deal size has increased from $x00 to $x0000
  • The quality of free-trial signups matters as much as the quantity
  • A large amount of revenue comes from payments made through bank-transfers and other offline methods
  • “New MRR” is now more important than “new customers”

Because of all these changes, Google Analytics isn’t important anymore. Instead, the big decision are made after looking at reports in the CRM and our database, where all lead/deal/customer/revenue data sits. Through this shift I observed how when businesses evolve, the metrics that matter to them change, and this has a domino effect on the SaaS products that fall in and out of favor.

Now here’s another interesting anecdote: VWO has a large number of ecommerce customers. For the majority of these businesses, Google Analytics is the “source of truth”, so we simply had to build an integration with GA. In fact, we once lost a big customer because their VWO test reports didn’t agree with their GA data (completely possible and for good reasons, read this to understand why). The internal VWO champion tried to fight it out and explain the difference to management, but we lost the customer after some time.

So my point is this… it is well worth your while to build capabilities that will be used to make the important decisions, and if that’s not possible, then align your product with the primary reporting tool used by your target market.

Products that give results with minimal effort after initial setup

Some of these are:

  • Lead generation pop-ups, sidebars
  • Landing page software (specially when tied to on-going PPC campaigns or SEO keywords)
  • Retargeting software, like Perfect Audience and AdRoll
  • Exit intent pop-ups, almost always tied to lead generation
  • Personalization and behavioral targeting
  • Email automation like Vero and Intercom

While you’re building a product that keeps producing results with minimal interference, give a thought to how you can add public branding for that little bit of ‘virality’.

It’s also important to note that products tied to performance will quickly be removed when that performance isn’t enough. In this case, the product itself may be great, but it is dependent on something else working. For example, landing page software gets abandoned when the Adwords campaigns it was used for aren’t working out.

Products that monitor and provide reports and alerts on a recurring basis without needing additional effort

Few that come to mind are

  • Mention (social mention tracking, we’ve had it on for at least a couple years… rarely log in but open almost every daily email report)
  • Server Density (server monitoring)
  • SEOKeywordRanking (SEO keyword rank tracking; old school interface and not updated in a long time, but am sure its creator Will Reinhardt doesn’t need to work anymore)

While building your product, talk to users about the data they find most useful and want to look at everyday, or see what parts of your reports are accessed most often, then send that data out as daily/weekly emails. It becomes a part of users’ morning routine to check the emails and note/discuss/alert if something’s going right or wrong.

Products that enable data flow between different systems

Think Zapier, PipeMonk, Jitterbit and Informatica. Admittedly, data integration is more of an enterprise problem, but the good thing is that once put in, they’re very difficult to remove. That’s because they’re usually implemented after someone high enough has identified the need to have all the various data silos talking to each other, and that robust decisions can’t be made without a complete picture of the issue at hand.

Case study: Hubspot
  • Processes are based around the product? Yes, for marketing and sales
  • There’s someone almost always logged in? Yes, marketing
  • Managers use the product to report on performance? Yes, primarily marketing qualified leads, then customers and revenue
  • Product collects and retains valuable data that customers are not comfortable losing? Yes
  • Has components that produce results without needing on-going effort? Yes, lead-gen landing pages, website personalization, automated rule-based emails
  • Components that monitor and alert automatically? Yes, primarily alerts to sales owners about lead activity, and other alerts around social media, monthly/quarterly goals, etc.
  • Components that enable data flow between different systems? A well maintained and documented Salesforce connector, otherwise they have a platform for developers

As you can see, Hubspot is doing pretty well in minimizing churn. It seems to me that would be the case with most large, successful SaaS products. In fact, understanding the reasons why organizations keep paying for products is why large successful software are large and successful, as compared to just large.

I hope you’re able to use this post as a framework to think about what makes products stick, and apply those principles to the products you’re managing or building. Also, do you have anything else I can add to this? For some reason it seems to me the list is incomplete.

A Few Pointers About Affiliate Marketing in SaaS

Generally speaking, affiliate marketing in B2B SaaS depends on

  1. how you want to incentivize the partner
  2. your average ticket size from one referred sale
  3. how fast your product is selling
  4. the cost of acquiring one customer
  5. how much post-sale training and support is required by the customer
  6. who provides this training and support
  7. the cost of this training and support

Here are some general rules of thumb

  1. If your product is flying off the shelves and is primarily DIY, then you can have a 10 to 15% monthly commission for the lifetime of the customer and you’ll have affiliates queuing up to sell.
  2. If the product is not selling, is not well known, or has a bad reputation, then you’ll have to significantly increase the commission (and therefore, your CAC) to get affiliates interested. If your average deal size is less than $150 you’ll find it extremely difficult to find long-term, committed partners.
  3. If you have annual contract values in the $xx or $xxx thousands, then you’ll rarely have affiliates. Instead, you’ll go for strategic partners who will work with you pre and post sale (like Salesforce or Radian6) and the deal will be more complex than a 15% commission. In such cases, it might go up to 60% where the partner provides lifetime support and training to the customer, while you make a sale and get out of the way.
  4. If you’re on MRR and churn is more than 2% monthly (meaning it’s easy for customers to switch or stop using your product), pay the partner their commission for the lifetime of the customer. If you pay for only a year, then the partner has every incentive to ask the customer to switch to a competitor after one year, or simply stop caring. If you’re paying commission for the lifetime, then the partner has some incentive to keep the customer with you.
  5. Don’t be cheap. In SaaS, a good LTV:CAC is 3:1 so try and pay handsomely for performance. Eg. if a customer stays for more than 6 months then the partner gets 20% monthly (from month 7 onwards), if the customer stays for more than a year then go ahead and pay 25% monthly.

End of the day – partners are not invested in your growth, they’re invested in theirs. So you will have to show them potential returns. Which is why referral and affiliate partnerships work best AFTER you’re a name in the market and are already selling a lot on your own.

Hope this helps!