How to Fail Miserably as a SaaS Company

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“How to Fail Miserably as a SaaS Company” – how’s that for an eye-catching title coming from the VP of Engineering at a SaaS enablement company!

To be honest, it was our marketing department that came up with it, but I’ll take credit anyway.

“How To Fail Miserably As A SaaS Company” was the topic of an event Apprenda sponsored in New York City last week. As SaaS adoption gains momentum, more and more vendors are looking to join the movement. Yet the problem is that many of them don’t understand the details of the game. They think that they can quickly get up and running as a SaaS provider by simply “putting their application in the cloud.”

Unfortunately this couldn’t be further from the truth. Without truly understanding the dynamics behind the SaaS delivery model, what they are really doing is simply delivering SoSaaS, or as some people call it: Same Old Software… as a Service.

The idea of offering software over the Internet certainly did not come along with the advent of SaaS. But properly delivering Software as a Service requires fundamental changes in the way software is written and the way business is run.

Simply “putting the application in the cloud” is not going to cut it.

I’ll outline a couple key mistakes that will surely lead to miserable failure as a SaaS company. If you’d like to fail, you can:

Misunderstand what’s happening to your business:
Avoid keeping pace with change:
Prevent adoption:
Ignore the importance of margins:
Be unreliable:
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Misunderstand what’s happening to your business:

This is probably the most important factor of becoming a SaaS company. You’ve always been a software company, but now you’re a service company as well.

It’s critical to understand that the culture of the company needs to change. The ongoing operational burden of the application is now your responsibility. You’ll find out that you need to win the same business month over month and that your customers become constant relationships instead of one time revenue streams.

Avoid keeping pace with change:

The days of build once and milk-the-heck-out-of-that-cow are over. Your customers are expecting the software to be updated frequently and to stay on top of current trends both in your industry as well as with general environmental events (Is there anyone who doesn’t integrate with Twitter now?).

In addition to staying on top of current trends, you have to realize that geography no longer isolates you from competition. So you can’t ignore any competitive pressures, whether from local companies or international ones.

Prevent adoption:

Make it hard for your customers to start using your software. Although you might not realize it at first, auxiliary systems like provisioning, billing, and on-boarding are just as important as your application itself.

If you can’t automate provisioning or have flexible pricing schemes, or grant no-obligation trials to your application, then you are setting yourself up for failure from the beginning.

It’s critical that your customers can start using your application with minimal to no friction at all. In the same way, if you make it hard for your customers to stop using your software you’ll also suffer. SaaS has changed the rules of the game and just as easily as customers can start using your application they should be able to stop using it.

That’s why it is critical for you to focus on winning their business every month. You do this by making sure that your customers want to stay with you and not that they have to stay with you because they are bound to a long-term contract and financial commitment.

Ignore the importance of margins:

As I’ve often advocated, SaaS is a game of numbers and the way to win the game is to focus on improving your numbers.

If you think that architecture doesn’t matter, you better think again. If you think that customer acquisition costs don’t matter, think again. If you think that you can worry about scaling issues down the road, think again.

Poor software architecture and operational agility will take you out of the game in a heartbeat. So don’t make the dumb mistake. Believe it or not your software engineers are making decisions that will directly play with your margin calculations!

Be unreliable:

Clearly having an unreliable service is going to make it hard for you to maintain customer loyalty every month. The important thing is to understand what will really impact the reliability of your application. Architecture, infrastructure, support mechanisms, and service providers all play a critical role in your reliability and therefore your success – so pay close attention to all of these.

If there is a single thing that you want to understand about SaaS it’s that bringing software and service together into a single product creates ripples throughout all aspects of your business.

There are a flurry of new ways to fail. There is also a great deal of potential upside and a lot of money to be made. So, be well informed as you approach your SaaS endeavors and “take off the blinders” with respect to the cloud buzz machine.

Understand exactly what you are getting into – and realize that it’s more than just relocating your software by “putting the application in the cloud.”

Abraham Sultan is VP of Engineering at Apprenda.

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