There’s no denying that SaaS (what I generally refer to as “Something as a Service”) is a hot trend that’s growing and one that appears here to stay. What I don’t believe many organizations who are transitioning to or contemplating the shift to SaaS appreciate are the far reaching implications of culture, organization and processes this change entails. By far, the most common mistake I see when making this transition is assuming the only demonstrable difference is simply a change in “payment terms.” The selling organization can continue selling the same way, to the same customer contacts, and manage the account after the sale just like they have in the past. This general assumption leads to many challenges and pitfalls and I’ll try to summarize the key ones here.
First, consider that shifting to a subscription model has significant financial implications. Not only does the organization have to focus on new terminology such as ARR (MRR), churn, customer acquisition costs, etc., but most subscription businesses do not start to turn a profit on a given customer until sometime between year 1 and 2. Certainly this has implications on salesforce compensation. Because most services are cloud based, the ease of onboarding a customer has a flip side of the coin which translates into their ease of off-boarding you should they decide to switch. Just a few points of additional churn can significantly negatively impact the growth prospects, cash flows and thus value of an organization. So what are the key challenges an organization must be prepared to address?
Selling Value versus Products or Services
You would think by now this would not be an issue, but there are so many bad habits that are ingrained as well as pressures to produce in the short term that cause “value selling” to be one of the first casualties. And yet, when this is missed then the odds of actually delivering the value and thus keeping (much less growing) a customer drop dramatically. SaaS organizations must become adept at value discovery and then create that potential for value in the mind of the customer. As I’ve previously written, determining value means determining “why” a customer is buying. This means determining what are the outcomes they want to achieve and the metrics for success for this is how they will measure value.
Determining who cares about the outcomes will inform the sales rep as to whom he/she should be calling on. This is typically not the technical teams they’ve spoken to in the past but rather their internal customers such as the business or even external customers. In short, determining the why means having a different conversation with different people about “what” they want to buy. Thus SaaS selling organizations must be prepared to sell business outcomes to business people as well as explain product features and functions to the technical team.
Connect the Dots to the “Right Deal”
As mentioned above, selling value necessarily means selling to customer outcomes versus selling to a short term or tactical deal. Thus acting transactional and “forcing” deals on a reluctant customer with the standard “blue light specials” of cost concessions and giveaways at the end of a quarter will spell doom for the subscription business model. And yet, the SaaS organization must first close a deal before they can deliver the outcome. What is the right deal to close? I’ve defined the “right deal” as the one that contains the appropriate products and services mix and volume to equip the selling organization with the tools to deliver the promised value. And the SaaS selling organization must “connect the dots” between the outcomes and their offer so the customer understands what they are buying and why each item is important to them. This is often a big miss with most legacy selling processes.
Recouple Legacy Service Offerings
Another issue to tackle is the legacy silos between product and service offerings. For many companies, legacy services such as consulting, implementation services, and customer training and after the sale support are separate cost or profit centers. Often they are not considered the core offering such as software licenses or hardware and thus are not compensated at the same level. Many times the sales organization will give them away as an incentive in order to close the deal for the “core” offering they are paid the most to sell. Note that the operative word in SaaS is Service! Organizations transitioning to a SaaS model must remove the decoupling and silos of legacy services both internally as well as how they are positioned to customers. For herein lies the opportunity to sell larger and more lucrative service deals that produce enhanced customer outcomes—and thus value.
For instance, if a customer outcome is to remain up to date on their security, wouldn’t they want an enhanced offering that provides periodic internal health checks or perhaps sharing of the latest external threat environment? If an industry is in a rapid state of flux, would sharing of the latest benchmarking data on a periodic basis be of value to a customer? In short, legacy service offerings must be integrated with the new subscription service and often they will provide the ongoing value and prominence in the customer’s eyes.
Don’t Drop the Baton After the Sale
It’s the legacy silos of sales, products, implementation and support that lead to the greatest challenge facing the would-be SaaS company. The “baton” I refer to is the original “why” or value based outcomes the customer was trying to achieve when they agreed to buy the service. Too often after booking the deal, the sales rep is now formally or informally disengaged from the account, for their job is to sell not manage accounts. However, who will own the actual delivery of the value? The implementation and support teams certainly know what the customer bought, but how often do internal systems and processes track, inform and monitor why the customer bought the service and what outcomes they expect to achieve?
I’ve written extensively about value delivery plans and don’t want to repeat myself here. However, the SaaS organization must have a mutually developed (with the customer) scorecard to self-report on the status of value delivery as well as a communications plan for when these business review meetings will occur—and who will attend.
Each of these challenges above has implications for corporate culture (it must be a culture of customer success—not simply satisfaction), business organization (how to best organize to deliver success), sales (it’s all about the customer outcomes and not our products / services), as well as compensation (must align with customer success and cash flows). Organizations that grasp that a subscription SaaS offering is much more than different payment terms will have a big leg up in making the transition.
Tags: #SaaS, #Value