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SaaS Pricing and Value Metrics – Lessons from the Top Seeds

Two libraries. One charges you based on the number of books that you pick, while for the other, the rental period forms the basis of its prices.

Now, which one would you prefer to get your books from?

There’s no right or wrong answer in this scenario. What matters here is how you were able to make your choice, with a single criteria.

Both libraries cater to the same audience, with the same service, and the single element that tells them apart (besides their librarians’ temperaments) is their pricing strategy. And this one aspect is enough to determine if the libraries will make a fortune or fall headlong.

Your pricing model and strategy could make-or-break your SaaS business; apart from the tangible monetary consequences, it is one of those intangible yardsticks that have a major share of influence on your customer’s/prospect’s perception of your business.

An article published by the Harvard Business Review in 1992 states that a 1% improvement in pricing leads to a whopping 11.1% hike in the operating profit.

”..in SaaS, pricing is tightly coupled to the product itself, which is different from other types of software and non-tech products where the price is decoupled from the product.” – Lincoln Murphy, Customer Success Evangelist

It is that one thread that’s intertwined with every other facet of your business, right from the product, the marketing strategy, the sales strategy, to the company’s bottom line.

Many SaaS ventures who’ve acknowledged its worth have taken the reins to constantly innovate, experiment, and uncover the ideal pricing strategy for their business models. And among the many differentingredients that they employ in putting together a SaaS pricing model, is the “Value Metric”, which is also the protagonist of this post.

Why it’s worth talking about (and why you should keep reading further):

A value metric (also called a pricing dimension or a pricing axis) is basically the foundation of your pricing model – it is the metric depending on which you set your prices. In our earlier illustration of the two libraries, the number of books and the rental period are the metrics of the corresponding libraries.

Looks effortless, huh? There’s more to it than meets the eye.

The value metric literally decides your pricing strategy. It conveys the value each plan proposes to offer your customers, and gives them a valid reason to fork out money for your product. According to Patrick Campbell (the CEO and co-founder of Price Intelligently), the perfect metric should align with your customers’ needs, grow with them and be easy to wrap one’s mind around.

Select the wrong metric and you risk devaluing your offering. Opt for the right one – your customers would actually be happy to upgrade to the next level, as they understand the value that they’ll be receiving by doing so.

“If you are running a SaaS business (or any other kind of software business), it pays to spend some time thinking about your pricing axes. This represents one of the very powerful levers that are available to you to grow your business. (I am surprised by how often I find this has been ignored.)” – David Skok, five-time entrepreneur and General Partner at Matrix Partners

So let’s give this factor the importance that it deserves, and learn a few tricks from these SaaS guys who got it right.

Lesson 1- The Deceptively Simple Pricing Model:

Take a look at Hubspot’s pricing for instance.

They have segmented their plans according to the number of contacts – a deceptively simple move.

This is why. The metric they’ve resorted to is simple and straightforward – no ifs and buts; no little asterisk marks that point to a list of conditions. And yet, the way it works is nowhere close to simple.

Think about it – with its pricing, Hubspot brings more1 value to its customers (who are essentially marketers and salespeople – leads/contacts are the bread and butter for these folks) by letting them manage more contacts, and in the process, it gets a share of the value generated. Even if a customer doesn’t want to upgrade, their growth still benefits Hubspot through the overage charges (based on the extra contacts). In essence, this model allows for a smooth transition of customers from one pricing level to a higher one.

The customer receives value for what they’re paying, a value that the product had promised to give them in the first place. So for a customer, paying more translates to handling more contacts and making more conversions. Hubspot grows, as the customer’s business grows. A win-win!

Lesson 2 – The Aspirational Quotient and the Unambiguous Metric:

Here’s what Freshdesk’s pricing looks like:

Basically, they have a user-based pricing, “users” referring to customer support agents. And they start with a freemium tier, which encompasses almost all the basic features, but with a tiny tweak.

If you look closer, you’ll notice that the freemium plan limits the number of users to 3. This means that a customer who initially signs up for the free scheme would automatically be moved to a paid plan as soon as their user count goes beyond 3. A changeover that’s as smooth as silk.

Another point to make note of, is how they’ve infused an aspirational quotient in their pricing, so that a lower-tier user looks at the higher tiers with an “I want that!” gaze in their eyes.

Let’s say a startup founder signs up for the Sprout plan, a good place to begin with. Once their customer base starts to scale, they start receiving more support questions, and consequently their help desk requirements start increasing as well.

The first demand would obviously be to accommodate more than 3 support staffs. Apart from that, they would also realise the necessity of certain plan-exclusive features. For example the “Agent Collision Detection” feature (which shows a support agent if another agent is working on a ticket) plays a major role in avoiding embarrassment in front of your customers, and in turn improves the team’s efficiency. So in an effort to equip their customer support soldiers with the best possible ammo, the company automatically moves to the pricier plan.

As you can see, Freshdesk has worked out a simple approach to show the users what they’re missing out on and how they would be gaining more from an upgrade.

Another common value metric for customer support and help desk softwares is the number of support tickets. A customer would never be able to pinpoint the exact number of tickets that would be generated for a given period, and they wouldn’t really be pleased to pay for a metric that’s ambiguous.

The key is to have a pricing strategy that works in the interest of the customers as well as that of the business. Groove’s pricing experimentvalidates this fact. They initially grouped their pricing bundles based on the ticket count (with no limit on users), and it clearly didn’t turn out well. They finally settled with the simplest per user pricing model, and this time, they were right with their strategy.

“If our uniqueness comes from being the simplest, easiest app, then our pricing has to reflect that, too.” – Alex Turnbull, CEO & Founder of Groove

Lesson 3 – The Multi-dimensional pricing and the Choice Paradox:

A similar pattern can be found in the Electronic Signature Software segment as well. There’s Adobe’s eSign, where the pricing is hinged on the number of “seats”, or “users” in the common tongue.

Then there’s DocuSign, which bases its pricing bundles on the number of users and at the same time, restricts the number of documents for the two smaller plans. This way, the customer will move up the pricing ladder when the number of documents exceeds the specified limit. And that’s where the deceptively simple pricing comes into play.

Also, both of these pricing slabs have one other common characteristic: plan-specific features. What’s going on here, is that they’ve added another “dimension” or value metric to their pricing model. Freshdesk’s model belongs to this category as well – by making their plans both user and volume driven, they flaunt a multi-dimensional pricing model.

In a one-dimensional model, by focussing on a single dimension, you’re only narrowing your scope, rendering the other differentiating dimensions useless. In other words, you fail to unearth the full revenue potential of your product.

Chargebee’s earlier pricing model was established on just the number of invoices, with all the features available for all the plans. We then realised the flaw in our approach, and what we were losing out on because of this. Subsequently, we’re working on making certain prominent features exclusive for specific packages, and thus making our pricing model a multi-dimensional one.

A word of caution: Multi-dimensional pricing is good. But overdoing it and incorporating a lot of value metrics in your pricing strategy would only backfire, leading to a “Choice Paradox”, where the prospect gets too confused to decide. Use dimensions that are clear, concise and comprehensible, and know where to stop – keep in mind that the buyer’s decision process has to be as frictionless as possible. David Skok recommends a maximum of 3 pricing axes and suggests 2 axes to be the optimal choice.

Lesson 4 – A few other short pointers:

Among the umpteen slip-ups that companies make while arriving at a pricing strategy, is the fixing on the wrong metric(s); this is one error that could lead to critical damage. A research conducted by PWC showed that SaaS pricing leaders have two things in common when it came to their pricing strategy:

  • Their value metrics are derived from their customers’ perceptions
  • Their strategy is easily intelligible, measurable, and workable

In one of our previous posts, we delved deep into the enigmatic question of “What is the right approach to SaaS pricing?”, which led us to some rather interesting conclusions. This was one of them:

There are two interesting rules to SaaS pricing –

  • NEVER break your promises, stick to what you’ve committed.
  • No pricing strategy is perfect. Always be testing.

An inference from that second point right there – “There’s no one-size-fits-all pricing strategy”.

So there you have it.

Choose the metric that would mean something to your customers, and would justify the price that you’re charging them.

Choose the metric that is tied to the core value of your entire offering/promise.

Choose the metric that would set the scene for a win-win situation. Evaluate, rinse, repeat.

Maybe your best possible value metric (and pricing strategy) is just a turn away.

Guest Post by , ChargeBee

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Startup India: What Can You Do?

At the Startup India event, our honourable PM shared that government’s impact is highest when it decides, intentionally, to stay away, and I agree with him. But we, as the citizens of India, can play a huge role. And we must.

But as a co-founder of NowFloats, a startup, here are some of my asks to you, my fellow citizens, and you may fall under multiple categories:

To Consumers: Sincerely, kindly adjust.

Like most of you, I have cursed Ola/Uber as much when the driver cannot read the GPS. Many of NowFloats’ over 200,000 customers escalate to me directly. All this is a part of the startup journey. We learn from this and hopefully act fast enough on it. So, please crib to us (speaking for all startups here), act obnoxious, throw a fit, expect the best-in-the-world quality, but don’t give up on us! Because we will fix things, once we get that next round of capital or find more efficient ways to train the drivers or the sales people.

To Enterprises: Startups are a feature, not a bug.

When a startup comes calling, please keep aside your desire to be an entrepreneur. That is a parallel process and highly encouraged, because it will make you adopt the new technology or product. If you are unable to do this, you may be unable to do that startup either (#harsh), where you are required to be a new person every single day (#think). So when a startup approaches you, it’s an opportunity to understand the latest technology, perhaps even get feedback on your own business plan. It’s not the time to feel left-out or ask questions that make you go ‘I could have done this so much better’. BTW, almost all startups are happy to discount their product (or even make it free), if you just agree to adopt (#hint).

To Investors: Stay true to your investment thesis and stage.

An angel investor is (and should be) very different from an institutional seed, and this should be very different from a Series A and so on. Only the wearer knows where the shoe pinches, and therefore only the stage-walla investor knows what the entrepreneur needs. Angels will typically give money based on trust and that’s all they should be bothered about. Blume Ventures (for example) is a seed stage investor and they understand their thesis and stage well. They don’t ask for monthly, 10-page reports from all companies but watch out for the ones who are sending these pro-actively. Their support and help is different for each and they will spend significant resources to deliver ‘personalized’ mentoring to each startup. This will not be the case at Series B, when the startup has its resources (now) to find (read pay) for external support. Our Series A investors, Omidyar Network, puts the next stage of pressure on us, helping us with higher growth and velocity.

To Government: Stay hungry, stay away.

In my opinion, the government has already done something that even they don’t realize it, yet! While some of the policy changes expected by startups remain open (refer my pre-event opinion in Mint & iSPIRT’s 34 point asks), but many were awesome starts. And by doing what the government did, they have unleashed a (wonderful) monster. They made the world (to borrow from them), stand-up and take note. This aircraft has taken off and it’s not landing anytime soon, supported by mid-air refuelling of new and relevant policies in future. Things will just have to happen given the velocity on the numbers and stuff we see every single day (see Digital Desh) (#no #choice).

To Family: Stay.

The real entrepreneurs are the families of entrepreneurs’, even though this was forced on them. To them I have to say only two things: Thank you and please stay the course. Pass or fail, this experience is going to change your family for generations. Just take my word, send your partner that home-made food (to save money and health) and… Stay! (#rockstars)

About Me

I am Jasminder Singh Gulati (@GulatiSinghJ), worked at global corporates for over 18 years, including 12 years at Microsoft before co-founding NowFloats in 2012 with Ronak Kumar Samantray, Nitin Jain, and Neeraj Sabharwal. NowFloats helps local businesses get a meaningful digital presence that connects the business with local consumers, resulting in higher revenue & profits. Over the past 3 years, NowFloats has over acquired over 200,000 customers (90% of them in India) and drives over 6M consumers to them every month. NowFloats has 6 patents, all ‘Made in India’.

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Top 10 Mistakes Startups Can Avoid

Being a consultant and a coach for companies both large and small gives me the opportunity to learn of challenges first hand at several places, situations and from talking to colleagues. I also have been dedicating a part of my time in mentoring startups in India. I have participated in several mentoring sessions organized by Google Launchpad, TiE Boot Camp, TLabs here in Bangalore over the past few years. Many of the startups have tremendous opportunity ahead. However, due to various reasons including their background or skill set or lack of exposure to business, they tend to carry baggage that slow down the speed of growth. After working with several startups and discussing with fellow practitioners, there seems to be a common set of problems that keep coming up from time to time. Here are the top 10 mistakes early stage startups can easily avoid. These are common mistakes that one can easily watch out for and may even serve as a ready made checklist for early stage startups to determine their course and take corrective measures.

Here they are:

1. Not enough understanding of the business model

Several startups have found their original idea is not big enough or not exciting enough anymore or will not scale or will not work for various reasons and now they are looking for direction literally on what to do with their startup and where to go next. It’s a big predicament because their current product is not bad but either they are operating in a mature market or the technology has become a commodity diluting their original value proposition. They had the grit and guts to set sail from the land but now they are adrift in the open sea with not a sea gull in sight. Now what? There are only 3 options – to double down on your current business model, pivot or close down. But the bigger question, how can we avoid getting to this space? It’s a really tough one as you will find convincing cases of success on either sides of the debate.

I will share my perspective of evaluating market opportunity more from user demand initially. What most marketers forget to consider is something that I call “user fatigue”. User fatigue is what users go through while fulfilling their goals with the currently available solutions. For e.g. job search, house search, school search etc. If your solution is not 10x better than currently available methods, then you are not moving the needle on user fatigue. Hence even if it’s marginally better with a different UI or UX but still saddled with the incumbencies of marketplace dynamics, you will soon face saturation. I found this situation commonly in markets where they were mature with lot of players already entrenched in the market or the value proposition was not strong enough.

A good starting point would be to flush out the business model using Alex Osterwalder’s original business model canvas or Ash Maurya’s Lean Canvas. If you need a link to any of the above or a copy of my adapted canvas, let me know.

 2. Doing everything your first big client says

This is a major issue with several startups that struggle to get their first big break and still find their two feet to stand. Startups need to get smart at how to handle their first big client. Even though the startup may be dealing with a large brand, you have to look at the visibility of your offering in your prospect’s organization. The key thing to watch out for and push back is the tendency of investing too much into a proof of concept. If the conversation is not yielding good results with a quick show down of your value proposition, understand why and make future bets. Opening up your technology platform to changing scope in the hope of getting a contract without explicitly having a pricing agreement is very risky.

This is also one of a mindset issue where we confuse requirements from a prospect with willingness to buy. As a product vendor, remember it’s still your prerogative of what to build, for whom, why and when. There are two aspects to this situation; first, the eagerness to close the deal and generate revenues and second, understanding whether your value proposition is resonating with your first prospect. The pressure to generate revenues is so high that we tend to entertain splitting the current business model into services and products, in an instant. As a result, when the prospect says “what you have is nice, but can you do this, this and this?” we jump on it and agree to everything. Is this really necessary? Building custom solution is like playing devil in the product’s world. Yes, you are thinking, sometimes a known devil is better than no revenues (read salaries and food on the table). It’s a tough call to make. Whether you consciously build custom solutions or not, if you want to build a product what you need to do is to understand why your prospect is interested and estimate the size of the market or aggregate need for each request coming in. Then take a call to build it or defer it or trash it.

3. Going for the big launch without any real customer input

There are several startups that are going for the big launch without any customer input. “The product is not ready for customers yet” is an oft-heard phrase. What we need to shoot for is a good enough product that builds on the core value proposition as layers. And, with so many online services for creating landing pages (e.g. instapage.com) and A/B experimentation (e.g. wingify), it would be very risky and expensive to launch before seeking real customer input. There is also an aspect of maturity in how we handle rejections from customers. Just being open to their feedback and working on it will result in wonders than trying to assume our limited understanding of any customer. It’s a natural tendency to make up requirements sitting in our offices, assuming we know our customers. I love the quote “Answers don’t lie in the building”. Doesn’t matter if we are a consumer or an enterprise shop, talking to customers and getting their inputs with an open mind should be a top priority for any organization.

 4. That is one helluva MVP!

Minimum Viable Product or MVP has become a buzzword and also a highly misinterpreted and abused term. Everyone has their own definition on what is a MVP. MVP comes from Lean Methodology where it actually began to describe the first version of the product that tests the most important assumption of the idea with minimal effort for maximum validation. Other variations based on MVP I have heard are Minimum Compelling Product, Minimum Desirable Product, Minimum Sellable Product. I guess there is a lot of confusion around first what we mean by VIABLE. As a result there are several features added to the first few versions but still gets referred to as MVP. Doesn’t matter what you call your product version. There are two simple things you need to consider. First, validate your problem statement; Second, validate your solution to the problem so you can achieve problem/solution fit. To validate the problem statement, you don’t need to write a single line of code. To validate the solution, you need to demonstrate how the product could work and hence need to build something minimal so you can get maximum and quick validation. Once you achieved problem/solution fit, go out and build the rest of the product.

5. That is one helluva MVP – Reloaded

A common situation is to know when to stop calling the product MVP. The reason is we are not sure what to call the product beyond MVP. For some reason, we like to use the term MVP even if our product versions are at 3.0 or 4.0. If you look at the stages of a startup, they go from problem/solution fit to product/market fit and then start scaling. What lies between problem/solution fit and product/market fit? I’d like to combine frameworks at this point to bridge the missing piece. Geoffrey Moore’s framework of Core product and Whole Product is very interesting.

The Core Product demonstrates core value proposition. The Whole Product makes the product available for customers. A very simple example is the automobile. Nobody buys an automobile without warranty and most don’t buy without financing. In software, often the core value proposition is the algorithm. The whole product consists of user interface, user experience, delivery channels, API for partners, communities, ecosystems etc. After the MVP, it’s time to think about and build the whole product towards achieving product/market fit.

6. Designed for yourselves

Design has taken center stage. It’s suicidal to compromise on user experience design even in the first version of the product.  Especially in mobile if the user finds your app confusing to use for some reason he/she is not going to come back. Most startups when feeling the crunch for good designers tend to design themselves. Similar to making up requirements, designing without the user in mind is disastrous. We need to unbox our minds and step in to the user’s shoes. Coming up with personas and understanding user behaviour through ethnographic studies can be very useful here.

 7. Going after too many things

When you are a startup, you are open to a lot of opportunities and many of them are right around your original vision. It is very enticing and sometimes tiring to entertain these various possibilities because at the end of the day, you have limited resources and time. So, instead of going after too many things that may spread the focus too thin, the top management needs to develop a continuous process of evaluating business ideas and arriving at quick decisions whether to pursue, defer or trash. Using the business model canvas is a good way of doing due diligence for every opportunity. Trying to open up multiple lines of the already cash starved business in the hopes of hedging can be counter-productive if you are a startup. It may work for large companies since they may need to diversify to grow. Even then, remember what Steve Jobs said on what he is proud of. He is proud of the 95 things out of 100 that he had to say no to than the 5 things he said yes to.

8.  Not having a real vision

I ask a lot of startups what is their vision and most of them give me a roadmap. Very few get what a vision is. A very simple way to describe your product vision is to imagine how the world would look like after everybody on this planet who could use your product is using your product. What would that world look like? It takes time to develop a strong and real vision, sometimes going beyond your original target segment. For example, my design consultancy’s vision is to “Live in a Thoughtful World”. And how are we going to achieve that vision? By helping our clients with designing thoughtful experiences!

9. Not having a clear monetization strategy

While it is true that if you are a consumer startup you will spend a lot of time, money and energy on building the user base before monetizing on them, it does not and should not preclude one from having a good idea about how you will monetize and from when. If your value proposition is so compelling that the customers would be willing to pay, you should go ahead and charge them from day one. If you are an enterprise startup, it is imperative to begin with a revenue model and a few well tested pricing plans before reaching out to your customer segment. A recent survey indicated that the more your web site visitors spent time on your pricing plan page, the more they are likely to convert.

 10. Not measuring product usage

It’s disappointing to see several startups not tracking product usage; especially when there are free and powerful services like Google Analytics.  The old adage “that which you cannot measure, you cannot manage” applies to every business. Knowing how your customers are using the product is critical. The other part that startups need to strongly consider is get serious on measuring customer satisfaction routinely. Customer satisfaction scores should be part of the executive dashboard that the top management should look at every day. The success metrics of a product should be defined and measurable goals set before launch of the product. This reinforces the belief in the product. If the success metrics and goals are transparent and exciting for the whole product team, it makes a lot of difference!

Hope this helps build powerful and thoughtful products!

Season’s greetings and wishing success in the years to come!

Good luck.

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Open Source and SAAS

While open source software is a fairly well understood in concept, I am always surprised how little it is understood in practice. At a round table of young product companies last month, there were a lot of raised eyebrows and questions when I explained our open source way of working.

Jordan Hubbard, co-creator of FreeBSD and open source veteran, spoke on this topic at this year’s ERPNext Conference, and he basically said this, open source business is all about people. Since the product is free, you sell services around the product, which is your people. This is mostly true for the very large majority of businesses that have mushroomed around open source projects, providing installation, hosting, customization, maintenance and other services around the product.

But there is now a new variable in the equation, SAAS (or Software-as-a-Service). It has been already accepted that SAAS is the way software is sold today. Listed companies like SalesForce, Xero, Zendesk, Workday, NetSuite, Hubspot, Shopify are testimony to the success of SAAS products and the billions of dollars that get spent on SAAS products each year. What does the future hold?

As on-premise is slowly moving into SAAS, I believe that SAAS itself will move into open source. Since the unevenly spread future is already here, there are companies already successfully doing open source + SAAS like WordPress, Ghost CMS, Magento, ERPNext (disclaimer: that’s us).

Open source + SAAS makes a great combination.

Benefits to the user:

  1. Open source products allow virtually unlimited possibilities to deeply integrate the product.
  2. There is a lot more risk in a closed platform, like price increase and slow pace of development.
  3. There is no vendor lock-in
  4. Free!

Benefits to the publisher:

  1. Not everyone wants to host their own infrastructure, this opens up opportunity to build a SAAS platform
  2. Provides word-of-mouth marketing
  3. Vibrant community attracts more users
  4. Community contributes by providing feedback, support, features, fixes, integration, testing, documentation
  5. A lot more incentive to write good code and documentation
  6. Much easier to find and on-board new developers to your team

Going open source is not easy. Business are built on the premise of transactions, and in open source, you have to be very open to giving and communicating without expecting immediate results. But once you cross a certain threshold, community participation can be extremely rewarding.

I am not advocating you open source your product today, but as Wikipedia has shown us, its only a matter of time before someone builds a mature open source product that might replace you.

Then there is no going back.

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Traction Trumps Everything – How to get traction for your SaaS product

A wise and successful entrepreneur once said, “Traction trumps everything”.

Indeed, traction is the only thing that brings you customers, VCs, and energy to keep going.

iSPIRT in partnership with PuneConnect & SEAP organized a playbook roundtable on “Getting traction for your product startup”. It was focused on peer to peer learning and taking away real feedback, rather than just typical “general gyaan”. The playbook roundtable was moderated by two very successful SaaS product entrepreneurs Niraj Rout of Hiver (earlier known as GrexIt), and Rushabh Mehta of ERPNext. Both are building highly successful SaaS products bringing very different approaches/strategies yet finding great synergy in their thought processes. Hiver is a simple-to-use product for business workflows, fast growing, young, funded and profitable startup whereas ERPNext is a highly complex, very stable, bootstrapped, profitable, world’s second opensource Saas ERP product.

The RT discussion was attended by founders building SaaS products in Innovation, eCommerce, business communication, personal customer loyalty, education, personal finance, recruitment, fashion and technology domain.

SaaS Valley of Death: Rushabh got our attention right away by asking “Do you know SaaS Valley of Death?” Its like your product is complex to use and cheap at price. Its very very difficult to sale. You can be either very simple to use and cheap or you can be highly complicated and pricey. You can’t be cheap and complicated. But ERPNext falls in that category. Rushabh briefly shared his long haul journey of 8 years of building a product out of his own need and making it open source for people to use/modify it. ERPNext gives it at fairly low price to host it and charges additional for product consultancy.

Open-Source strategy: Rushabh realised that if such a complex product has to have innovation, then hiring talent is quite difficult. Instead making it open-source brings immediate advantages such as your users brings innovation, it is easy to hire from the developers community which already knows your product code, less efforts needed to support the product as your community is your biggest support structure. Recently, this trend has started by major tech companies like facebook, google and others by making their api’s open-source for community to play around and bring true innovation. Also interesting to say here that open source is more than a marketing strategy, you have to believe in it to work. Also companies are open sourcing not just APIs but also entire projects (Apple just joined with Swift)

User Onboarding:  It is very easy to get signups, but what happens after signup is the crucial one. The real game begins from sign up onwards. Rushabh at ERPNext created a great user onboarding workflow for various categories of users. At signup, ERPNext asks its user several questions to understand user and his/her needs. Accordingly, it customises the rest of the onboarding flow. This “personalized” flow helps user to connect and understand ERPNext quite easily. There are several videos created for user to educate about product features and uncover true benefits. “Founding/Core team has to take product to a initial revenue level, until then one should not make a mistake of hiring a sales person”, insisted Rushabh. This helps you build and quickly tweak/change onboarding flow as your know your users better. This also helps in positioning and marketing the product better.

Product Market fit:  Niraj of Hiver (GrexIt) shared his journey of conceptualising the product as knowledge management place (for enterprises) to pivoting to tap a SME segment where quick workflow matters. Its all about finding a product-market fit. On a lean methodology which suggests to work with your customers and tune the product, Niraj shared a good observation. If you talk to your customers, they will always suggest small incremental improvements/suggestions, customers can never give you extraordinary (or 10X) innovation. Its your vision that defines what your product could actually do. However it’s essential to understand how users are using the product and what key activities they are doing repeatedly.

Buyer’s mindset:  For a product, you have to understand whether it helps user generate money or save money. Does your product falls into cost center or revenue center, accordingly you have to create your marketing campaigns and positioning.

Simple Growth hacks:  Startups don’t have big pockets to spend on marketing/sales. Simple techniques like Your domain specific keywords, Search Engine Optimization, Influential bloggers write about your product, your customers talking and referring your product are a few simple growth hacks every startup can try. Always get real customer’s/brand’s testimonials and showcase them on key pages.

Critical choices:  In the initial days when you don’t have traction, its an important call whether you want to give it to a few people and learn and tweak the product or you just throw it in the space for thousands to use and let them figure out. Both have their own pros-cons.

Post Lunch session, Niraj and Rushabh encouraged every startup to showcase their product’s landing page and quick onboarding workflow. Duo and other founders provided critical feedback to individual founders with immediate actionable takeaway. It was a great peer-to-peer learning exercise. Below is a summary of what came out of the discussion that generically applies to most SaaS product startups.

Landing page:  Product’s landing page is the most critical real estate. Be innovative and build it wisely with new/current trends. A few examples of well designed landing pages were discussed. Products from 37Signals (Basecamp and KnowYourCompany) were highlighted for their innovative approaches. Like Steve Jobs once said, “Good artists copy, great artists steal”, you need not to always reinvent the wheel, just see the best products in your category and steal (find inspiration)!

A few tips for a well designed landing page –

1) The main image and punchline should be appropriate for user to understand your product quickly. Thats where user decides whether I should scroll down (to know more).

2) Always talk about benefits user will get, nobody cares about features.

3) More than 3-4 scroll is overdone. Have only essential information upfront so that user is not overwhelmed with information overdose.

4) Testimonials from real user/brands works great, people feel more comfortable.

5) Less verbose, more visual is always better.

After Signup (User onboarding):  Engaging with user for first few days and making personalized communication helps build rapport as well as improve stickiness.

1) Build a user friendly Quick tour with an option to quit and restart

2) Let user experience your product as quickly as possible

3) Videos or user guides “How to” are essential and helpful

4) Website and user behavior analytics tools like Google analytics, KissMetrics, Mixpanel provide good data know your users better and make appropriate changes in your product

5) Intercom like products helps you build user behavioral based engagement

6) Provide triggers/incentives to appeal user to perform certain actions. Nir Eyal’s HOOK framework  (Trigger, Action, Reward, Investment) was briefly mentioned to emphasise the point.

7) Your product is a leaky bucket, user may fall off anytime. Identify such holes and fill them up with creative solutions

7) You don’t have to be too generous with free plan. Start asking for money (plan upgrade) for valuable/exclusive features

8) Track analytics daily to know traffic to trial to paid customers journey

9) Always do A/B testing of every change/tweak you make to understand how its working.

10) Understand, there is always a churn. Account for that

11) Always promote long term (annual payment) plans, it gives you better visibility on your revenue. 

As traction book says, “Almost every failed startup has a product, what failed products don’t have are enough customers (traction)” and “Traction is growth. The pursuit of traction is what defines the startup”.

This playbook RT was first of its kind where only real stuff was discussed and critical feedback was provided to every startup on their product traction leaky bucket. All startup founders walked out with several actionable takeaways.

There are great SaaS product startups coming from India. The successful entrepreneurs like Niraj and Rushabh have vigor to share their learnings and help budding entrepreneurs to avoid mistakes and leapfrog their journey. This is a movement to build a product nation, one roundtable at a time.

Guest post by Abhijit Mhetre founder at Canvazify – a structured innovation platform for teams to collect, brainstorm, and act on ideas. Abhijit is passionate about startups and collaborative innovation. Follow Abhijit @abmhetre

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So how do you measure the health of your business?

Business model & “LTV” – Life time value

  • Develop the business model that is “realistic” by clearly defining revenue sources, keeping the interest of customers and shareholders
  • Match pricing consistent with revenue streams/goals
  • Define what kind of promotions/discounts are needed and for how long
  • Consider how this leads into recurring revenue streams (for SaaS businesses) or repeat/new orders for traditional businesses
  • Develop a  “model” for customer LTV that is comprehensive (includes cumulative profits and not just simple revenues)
  • Show how LTV will evolve both short and long term

LTV defined – what is the “Value” of an acquired customer?

  • In early stages probably first year Profit could be computed as expected revenues minus expenses (to develop the business)
  • The second and third year it needs to be more realistic with real revenues plugged into the numerator
  • The CC (Cost of Capital) is an estimate of what it costs venture firms to invest in a business. The rate ranges from 35 to 75 based on the risk profile of the entrepreneur(s).
  • The “t” is the denominator indicates # of years as in year 1, 2,3 etc.

GTM (Go-to-market) & CoCA defined

  •  Develop a CoCA or some call it CAC (Cost of customer acquisition) model for your product/service. Its different than LTV.
  • The GTM should include model of lead generation and closing sales (choice of models like direct, indirect, use of outsourcers, online etc.)
  • Map the sales process (sales funnel) to the different people/parties involved from lead generation to closing to collection of money. This might vastly vary based on the type of business you develop.
  • State clearly assumptions you make as the leads move through the “sales funnel”. Its important to get “hunters” involved in the early stage of the business
  •  For the CoCA calculations use – marketing and sales costs, make reasonable assumptions of life of customer, retention rates, and closure rates. Exclude COGS and other fixed costs
  • Map how GTM will evolve over time – short, medium and long term
  • Explore and define where the use of word of mouth (WOM) falls (if any) in the overall GTM. Very important.

CoCA Calculations:

How do you figure if the business is “viable” via CoCA/LTV?


Courtesy: HubSpot

  • SaaS businesses LTV:CoCA ratio needs to be atleast 3:1 and time to CoCA recovery less than 12 months for it to be a viable business.
  • For SaaS businesses the CoCA needs to be anywhere between $1 – $3 per customer
  • As regards unit economics – customer churn should be between 3.5% to 1.5%

What do you track particularly for SaaS businesses?

  • For SaaS businesses – track LTV, CAC, LTV:CAC ratio, CAC recovery etc.
  • The are many more parameters to track. More later…..
  • Importantly track revenue churn vs. customer churn. Why are they different?

Imagine customers paying per month $10 for “basic” services and $100 for “bundled” services (upsell) & you had 5 of each in the early stages. If you lost 2 customers after couple of months, the customer churn would be 2. Imagine losing both customers in the basic category, then your churn is only $20. But if both are from the bundled category, your churn is $200. Big difference.

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When we learned to crack US sales from India

October 24, 2015. A Saturday after Dussehra, and 59th roundtable of awesomeness in lively office of Zapty.

Not only Sanjay (founder of Zapty) was great, offices of Zapty welcomed us with a lot of natural light. Then, introductions happened and people started to get comfortable around each other.

It was Samir, founder of Shop Socially, who flew from Pune a day before, was going to share the things that worked (and didn’t work) for him at ShopSocially when they built a team to sell to US companies from India.

PS: He also has sales people in US, but we will get into that as well.

We were scheduled to start at 11:00 AM, but kinda waited till 11:15 to start. I call this Bangalore Standard Time (not really late, but a little late)

Then I clarified certain things about Round Table and set the context to make sure everyone understands it’s more like a discussion than a lecture session. Also, it was clarified that its a safe place to share and nothing that is sensitive will leave the walls of that room. That made everyone attending it comfortable and also people were ready with their discussion hats on.

Then Samir shared some great processes which he has developed over 20+ years of experience.

Ohh man, if I could only describe it in words, you should have been there to feel the transparency we saw in an Entrepreneur. The goal of each function inside organization was clear, more like crystal clear. Tons and tons of questions were asked and we all shared some great insights.

Well, here is my attempt to put some of the learnings we had in words:

    • Marketing is Lead Generation: From beginning, Samir made it clear. In his business, marketing is Lead Gen. Branding is a byproduct of marketing, but marketing is for one thing and one thing only, Lead Generation. So, all efforts are measured on this parameter.
    • A simple Motto – Get conversations going: Samir pointed this out multiple times during discussion, getting conversation going is the single most important step in a sales cycle. Do whatever it takes to get conversation going, if your prospective customer is not responding to product/service/problem A, show them B, then C. Do anything to get conversation going.
    • 5 min callback to warm leads: So, this is a 2 part lesson. Number one “define” as clearly as you can, what is a “warm” lead. And then making sure 5 minute callback to warm lead. Now, both of these tasks are important, and success of your “sales” department depends on this. You can define “warm” leads too loosely and your sales team would end up wasting a lot of their time. Or you could end up defining your “warm” lead to tightly, and end up leaving a lot of money on the table. So, constant feedback is super necessary and should be part of the process.
    • For a product, IT HAS TO LOOK STUNNING..PERIOD: I don’t think this needs any explanation, but when he said this, he was really clear on one thing. No compromise on this, its HAS to look stunning.
    • Where to start? Email List: We spent quite some time on how to do this in a scalable way and what are great do’s and don’t around it.  
    • Quora and LinkedIn Pulse are great places to start for B2B sales. If you can get one of your articles on LinkedIn Pulse, that can do some wonders in early stages.
    • For inside sales – warm leads only: Samir was very clear on another thing, how anyone in the team spends their time. And inside sales team should be spending their time on “warm” leads only.
    • Text only emails are best: You can surely try more formats, but whole group agreed on this, as pretty much everyone had experience with sending a lot of emails.
    • For calling, make a script: If you get a chance to get on a call with customer, don’t go without a script. It’s like going to war without a plan..don’t do it. Make a script and rehearse it.
    • Optimize lower end of funnel first: Samir made this super clear that it’s super expensive to lose sales at lower end of the funnel, so if you are optimizing start from bottom of the funnel.
    • Case studies, no…Stunning Case Studies, YES: We according to Samir, anything that you put in front of potential customer (PPT’s, Case studies etc.) has to look great, nothing less than “stunning”.
    • Retargeting – FOR EVERYONE: It doesn’t matter what kind of product you are selling, retargeting ads are for everyone..
    • Video testimonials: If you can get video testimonials, they are the best. You can even put them on landing pages..they are expensive, but might be worth it

Tools / Service companies that we discussed:

  • BuiltWith
  • Datanyze
  • DataCall (a company in Bangalore)
  • Benchmark
  • Yesware
  • Pipedrive
  • Localphone
  • Ringo
  • Express Writers – Bangalore
  • Discover.org
  • AgileCRM

Now, it’s quite possible that you want to know more about the process we learned in the RT, but may be that’s the reason you should attend next Round Table in your city..

PS: Here is another post about Samir’s round table in Pune..

Guest Post Contributed by Natwar, Around.Io

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SaaS India struggles with Inbound Lead Response

As Indian SAAS companies are aspiring to make a global footprint, the sales growth can make or break their goals. Companies who respond fastest as compared to competitors always have first mover advantage to close sales. According to the Harvard Business Review, companies that try to contact potential customers within an hour of receiving queries are nearly 7 times as likely to have meaningful conversations with key decision makers as firms that try to contact prospects even an hour later.

We surveyed 90 funded SAAS companies; the observations were quite shocking as far as their inbound lead response is concerned. Only 26% companies (24 out of 90) companies cared to respond to inbound leads. Given the kind of investment companies make in their digital marketing, money goes down the drain if the inbound leads are not tapped efficiently. Even if the leads are contacted, the time to respond makes all the difference.

Inbound Digital Marketing – A must for Generating Leads!

Organizations rely significantly on inbound digital marketing for their businesses. B2B companies invest from $25 to $500 for generating an inbound lead while B2C companies invest from $5 to $25 for the same. The money spent goes down the drain if inbound leads are not responded in an efficient way. The important questions for you to answer are – How many of your inbound leads are never contacted as they get lost during data transfer to sales team? How many inbound leads are loosely passed on to Sales reps to contact with incomplete or wrong information? How many of them are contacted when the prospect have lost interest in you or chosen a competitor?

The answers to these questions will define the ROI of your inbound marketing efforts. However, the good news is that if you are effective in inbound lead response management you are on the top of your business as chances are pegged on higher side in converting inbound sales leads rather than outbound leads for which investments are even on a much higher side.

Time is all what makes a difference!

We (Texo Team) conducted a research on funded B2B SAAS companies in India to analyse the inbound sales readiness. 90 SAAS companies were identified as funded. Web forms on the websites of the identified companies were filled and the responses were logged. We made an analysis on the data and have come out with an interesting insight on the current state of inbound sales processes in these companies or any other B2B company which may be used as a reference point for improvement through process, people and/ or technology.

We found that 8 companies choose to directly call the prospects and 4 companies choose to directly send personalized emails without sending an auto response. 4 companies sent personalized emails along with an auto response. Overall, only 26% companies (24 out of 90) responded to inbound leads out of which 67% (16) adopted calls as the mode of contact and 33% (8) used email as the mode of communication.

Only 4 out of 90 companies responded in less than 10 minutes. And only 7 companies responded in an hour. Click here to download TEXO SAAS Inbound Lead Response Report- 2015 for free and get deeper insights of the research report including the best SAAS companies in India who scored high in lead response research.

Way to Efficiently Manage your Inbound Leads

Inbound Leads are the prospects who have shown any kind of interest in your products/services by making a contact at any of the buyer stage. Marketers and sales reps have to align their engagement strategies with respect to the buyer stage. But what can they do about the 70% of the buyer’s journey that they’re missing out on? They are not able to correctly judge the prospect’s buying stage when they make a contact and hence not able to employ an effective engagement strategy.

And how can a tool like Sales Engagement Hub integrated with Marketing Automation Tools help marketers and sales reps keep pace with their buyers? The level of interest may vary depending on the buying stage the prospect is in, and hence different prospects need to be addressed differently. Factors to be considered for engaging with inbound leads are Response Time, Mode of Communication, Information to be shared, and Frequency of follow-ups and so on. A prospect in the consideration stage would prefer information about products, solutions, services, and case studies, and would need longer follow ups over email (preferably) or call. However, a prospect in the decision stage would be more interested in having information on solutions and pricing, and would need consistent follow-ups (shorter) over call (preferably) or email. Sales Engagement Hub integrated with marketing automation tools help the sales reps and marketers in effectively engaging with prospects.

 

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Funding Game – The rules and the hacks via @skirani & @BKartRed

The weather in Chennai was finally getting kinder & more pleasant in tune with the time of the year, much like the funding climate which has been less testing on the entrepreneur in general. Depending on whether you ask a consumer product entrepreneur or a B2B SaaS product entrepreneur, the level of optimism could vary, but it’s optimism all around.

As a pre-event runup to SaaSx2, we met at Freshdesk’s office in Chennai, for the Roundtable on “What it takes to fund a SaaS company?”.

Shekhar Kirani from Accel and Karthik Reddy from Blume, joined by Girish Mathrubootham from Freshdesk, anchored the conversations.

IMG_1198

Shekhar and Karthik started the round table, with some pretty interesting nuances about what numbers ought to add up, for their investment to make the returns they promised to their limited partners. The conversation touched upon what it takes to get funded at the early stages (upto Series A) and what it takes to be on that path, beyond Series A. Girish chipped in with personal examples of how Freshdesk got funded and his first-hand insight into looking at early stage startups that get funded (or not)!

Here are some bite-sized insights from the conversation that lasted for 3 hours:

On the options for the entrepreneur

  1. Indian B2B entrepreneurs have bootstrapped their startups remarkably well that it’s not an exception. If you are a B2B entrepreneur bootstrap or do more with less. Wait for the right strategic opportunity to scale. With numbers backing you up, raise for growth.

2015-10-07 11.12.22On what drives investors’ decisions

  1. Don’t get discouraged with ‘No’ from a partner of a VC firm. They have their biases and baggages. It’s the partner who has a view and not the firm. Find your champion.
  2. Most investors don’t like it if the outcome has a cap to it — there’s a maximum that you can do in the market and that sets a pretty hard ceiling to crack. In such cases, you’ve to out-execute everyone else and that’s a hard ploy and makes less exciting for the investor. Example: Would you start another CRM company now and if so why would you do what the rest of the 1600 have not done. Even if you execute well, what market share can you capture?
  3. VC firms pitch to Limited Partners (wealthy individuals, family offices, pension funds etc.) more than startups do to investors. They’ve the same issue of having to convince an LP that a certain startup that’s pre-revenue will get an exit worth $100M in 7 years. To do that in India, when there was no such exit till recently, made it even less credible.
  4. Most funds last for 10 years. 3 years to invest and 7 years to grow and nurture those investments towards exit events.
  5. Among the top quartile or decile of startups in a portfolio, one company returns the entire fund. Top 5 companies return 90% of the capital.
  6. Each startup has to be a prospect for a $500M exit, for the fund to meet its “Return on Capital Employed” goals.

On what investors look for in a startup?

  1. In a SaaS startup, front loaded costs are high. So your first two rounds are not about revenue or profitability but more about Product-Market fit and elimination of business model risks.
  2. Integrity, smartness and hard working ethics of the team are important but not sufficient. There has to be a potential for $500M exit for that startup for investors’ math to work. Anything less is already a sub-par outcome.
  3. It’s the job of the entrepreneur to make the VC look and realize how big the market is. They see a 1000 pitches a month and carry stereotypes. Help them make the context switch.
  4. Integrity cannot be stressed enough — Questions about India’s professional ethics do come up.). Indian LPs too find it hard to fathom that it’s possible to legally generate a 25x outcome from a startup, given where they come from and what they’ve seen.

2015-10-07 11.12.37On how to negotiate investment terms

  1. Clauses are there to protect the downsides for an investor. If you understand why they are there it’s easy to have a conversation around them.
  2. Most dissonance that an entrepreneur feels is because s/he does not understand the responsibilities the investor has to his/her fund and their LPs.
  3. Clauses such as liquidation preferences are there to protect the downside of the investments. So long as you cover the down-sides as an entrepreneur, your negotiation leverage for not carrying over these clauses to subsequent rounds is high — Don’t get it yet? Ask entrepreneurs who’ve raised several rounds, on how to negotiate.
  4. Drag along clause is there so that an investor can get the fund its returns as the fund comes to the end of life. If that goal conflicts with your startup’s, look for funds that are early in their life, to take money from and thereby give yourself a better runway.
  5. Everything is negotiable if your numbers are good. All downside protections kick in only during the bad times. So the best way to stay on top of the negotiations is to execute well.

Contributed by Ashwin Ramasamy, ContractIQ

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India B2B Software Products Industry Clocks Solid Growth from 2014 to 2015

India’s B2B software product industry has grown nicely since we published the first edition of this index in November 2014 – the top 30 companies are valued at $10.25 billion (₹65,500 crores) and employ over 21,000 people.  The index has grown 20% in USD terms and 28% in INR terms from October 30, 2014 to June 30, 2015.

There has been an acceleration since 2010 in the pace of creation of B2B companies.  Vertically-focused offerings in retail, travel, financial services, media have reached scale and we are likely to see some larger exits in terms of IPOs or M&A over the next couple of years. In parallel, we are seeing horizontal offerings targeting global markets emerge and start to breakout of India into the US and other global markets – we are starting to see not only India-based venture funds backing these companies but also Silicon Valley funds coming in once there is initial customer adoption in the US.

A new set of founders are coming into the B2B software products ecosystem. These include an increasing proportion who have worked at consumer and B2B startups that have scaled in India and who have identified problems that they can solve with software automation.  We are also seeing continued venture creation from founding teams that have backgrounds from established enterprise software companies and some from IT services companies.

In terms of target markets, fast-growth Indian companies (in sectors such as organized retail, organized healthcare services and technology startups in product commerce and services commerce i.e. online-to-offline) are starting to purchase software from Indian B2B software product startups and have globally-aligned requirements, helping these startups get closer to product-market fit before or in parallel to starting to sell globally. We are also seeing many startups go global from day-one through a desk-selling model, as evidenced by many of the companies in the index. And finally, several startups have moved founders to the US and are succeeding in direct selling models there.

Some of the numbers: 80% of companies have global customer bases, while the rest are India-focused.  67% of companies are domiciled in India, with the rest principally in Singapore and the US.  Bangalore and NCR account for half the companies’ principal city of operations with Chennai and Pune as key secondary hubs – there is a trend to newer companies starting up in Bangalore, Chennai and Pune and away from NCR.  Average enterprise value per employee is climbing toward Silicon Valley levels – the index currently nets out to $480k per employee.

The top 30 companies in alphabetical order are:

Here’s the report in its entirety:

Thanks to all the volunteers at iSPIRT who worked on this project as well as Professor Sharique Hasan of Stanford Graduate School of Business, Stanford University; Professor Rishi Krishnan of IIM-Indore; as well as Signal Hill for providing public market valuation comparables and Rakesh Mondal  for designing the document..

We will publish an updated iSPIxB2B index every year starting with the next one in June 2016 – please do click here to submit names of companies you think should make this list.

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Three Things To Do Before You Launch Your SaaS Startup To Get InBound Leads

There are 3 items you should do quickly, if you are going to launch your SaaS startup or a new product that caters to a new audience.

First, get listed on SaaS marketplaces, Cloud Brokerage Services and Cloud listing providers.

There are over 120 SaaS marketplaces from telcos – AT&T,  T-Mobile and others, to large Cloud Service Providers (AWS, Google, Microsoft, etc.) and other large technology companies (Samsung, DELL, etc.) I would spend at least a few days making sure your SaaS solution gets listed in all these marketplaces under the right categories.

There are between 30 to 40 Cloud Brokerage Services, including Appia, App Carousel, AppDirect, Jamcracker, Appirio, Cloud Nation. Here is a more comprehensive list.

Then ensure that you list on Cloud listing providers such as Capterra, G2Crowd, GetApp, etc. Here is a comprehensive list of Cloud Listing Providers.

Second, focus on Marketplace Listing Optimization (MLO). Like SEO (Search Engine Optimization) and App Store Optimization (ASO), MLO will help you rank higher, which drives leads.

How do you Optimize for marketplace listing: Get real customers to review your products, ensure that you are listed in the right categories, Use the right keywords in your description, show screen shots of your application and showcase a good video for demos. I will detail this more in tomorrow’s post.

Third, optimize your customer on-boarding process for these providers. Find out their rake, the incentive cut-off structure and renewal discount rate. Ensure that a customer coming from these solutions is able to be measured, can setup their account quickly and can easily get the first few “tasks”done on your platform.

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5 tips to build a global start-up

I run Corporate360, an international bootstrapped start-up and here are some tips for taking your start-up international from our experience.

Growing any business is no mean feat, and for many setting up abroad can be a significant milestone in the growth of their business. In different countries and markets, regulation and style of business can all differ significantly. For example, in Singapore we give each other business cards with two hands. It is simply common etiquette known by anyone with specific market knowledge of business in the region. However, not knowing this could be a serious hindrance to expansion in the market.

When looking to grow internationally, I believe there are five things you need to get right:

1. Pursue clients with an international portfolio

Working with clients with an international portfolio can be a great means for businesses to get themselves introduced to a foreign market. From a B2B perspective, if you manage to sell your product to a company in your home country, and they also have an international presence, selling to them abroad will be easier. When moving into a new market, you may already have a customer, ensuring that the expansion does not have to be solely funded from your other business operations.

2. Secure market experience

Whenever any business expands into a new location, market experience on the ground is critical. Knowing the simple things like business etiquette, taxes and competitors is essential, and having someone on the ground with experience in these matters is critical. In the US for example, businesses importing products need to pay certain taxes and duties, which will need to be factored into product costs. Equally as a business leader or owner, you cannot be in two places at once. No matter how committed you are to your business, you will need leadership and oversight support, whether that is at home or abroad. One of the most difficult issues many entrepreneurs face is giving away responsibility and letting other people lead your business, but this is necessary to growth. Nobody can make every decision in a business growing globally, especially in technology where the pace is so fast.

3. Pursue new markets with big opportunities

The most valuable markets are always the biggest, but often more difficult to crack. Identifying the best target audience to market products and services too is critical as these can often vary based on country. Think big. It was recently predicted by eMarketer that by 2016, India is expected to overtake the US as the largest web user. This therefore makes India a key target for any budding technology entrepreneur looking to expand internationally.

4. Pursue opportunities where there is a lack of innovation internationally

Innovation is a word that has been used the world over, but remaining innovative could not be more critical to international expansion. It is no use having a so called ‘innovative’ product selling in one country that someone else has already set-up in another. Taking this product international will be much more difficult as you could face stiff competition against an already established supplier. If you have a business idea or product that is innovative, and completely different to anything else on the market worldwide, there is little excuse to not taking it global. When I set up Corporate360 this was very much in my mind. I saw a market gap which needed filling, not just in Singapore, but worldwide.

5. Ensure funding is available before you start

There is nothing more upsetting for any entrepreneur than failure. It seems to be programmed into our psyche, the determination to succeed. Maximizing your probability to succeed is essential, and you would not want to fall at the first hurdle. It is therefore critical to have enough funds to startup and some more to back yourself up. The costs of marketing, taxes and legal fees of expanding abroad can quickly rack up, making having enough bank in your war chest critical.

Taking your business to that next level is never particularly easy, but knowing what to expect and being ready will make it a whole lot easier. In my experience, business leaders simply need to be brave and bold. There is nothing wrong with taking your time over it, getting business plans right, and ensuring you have the right team ready to support your expansion. Remember, every business is different, and so is every market, the important bit is making your business fit.

To sum it all, you have to understand your customers, what they’re trying to accomplish, and then deliver products and solutions that can enable their success.

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The single most frequent mistake #entrepreneurs make during the #customer #development process

There are many assumptions we make about the product or the customer problem, which makes us develop solutions that may be really more complicated than required.

A friend and fellow entrepreneur I met on Friday was showing me a prototype (HML mock up with transitions, with some simple functions implemented) of this SaaS application. He had used a developer on hire at UpWork to develop the initial version. After speaking to and confirming the mockup (wireframes) with 10 different users he was off to develop and deliver the MVP. Overall he had spent about $8000 in design and development and had taken about 13 weeks to develop the MVP. Most of the time was spent back and forth with the design team for the HTML / CSS and the development team for confirming features and transitions.

Of the 13 weeks, his development team spent 2 weeks just implementing a sign up process, a user cancellation process, a payment process, a refund process, a login process, a password retrieval process, etc. Which he did not realize was the tax of developing a SaaS solution. Instead he took the 5 step approach to building a SaaS application and followed it religiously.

The critical mistake during customer development that most entrepreneurs make is to lead with the solution or product instead of spending time learning about the current solutions.

When he was showing it to potential customers, he found that most of them liked the product and said they’d use it and pay for it, if they could find value in 2-3 weeks. He was pretty happy given that most users were ready to pay for the product, which he did believe would solve a critical problem for them.

After developing the MVP and letting his users know about the product, he followed up by asking them to start to use the application. The first two days were great, with lots of feedback and improvements that they gave him about the product.

Then for the next 3 days there was radio silence. Even after his prodding and cajoling, most users were not using the application.

Instead of talking to users face to face, he instead decided to spend time with them (3 hours each user), shadowing them to understand why they were not using the application.

Turns out most of the users needed his product, but either A) did not remember it existed or B) were used to using their workaround – largely using a combination of email and cut and paste into Slack.

The biggest barrier to his adoption and usage was their existing process (although inefficient) was something they were used to and so were able to “optimize” it to make it quick and “fast” for their own usage. So much that they felt that using his product (which I can assure you would be vastly superior) would slow them down.

He then pivoted his product (not idea) to implement the one feature they all wanted as a Chrome plugin. Which worked like a charm.

He then had to remove the top 3 features and undo all the user login and management, infrastructure code and other remaining features, just to support the user behavior for their existing process.

The big takeaway for him was that when you have a hammer, everything seems like a nail.

The biggest takeaway for his wife (who is his cofounder) was not over engineer the solution.

The big takeaway for me was the failed customer development process. With all our biases (which all of us have) – we always tend to lead with the solution (“let me show you a demo”), instead of understanding the problem better to focus on delivering the one feature that matters, without all the bells and whistles.

Image From:  http://www.ritholtz.com/blog/2010/05/the-visual-guide-to-cognitive-biases/

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What is a good sales target for a sales person in SaaS in India?

Unfortunately there is no fixed answer. Problem with SaaS is that there are too many moving variables. LTV,Churn,ARR,ARPU etc. So its really hard to come up with one fixed number. So based on our experience and our product the following is a number we have come up with to set targets for our sales organization.

0.8x(x is the sales person’s salary)

So, a sales person should pull in 0.8x worth of MRR every month. Or 9.6x worth of annual contract values every month. This is the number from which they start getting incentives.So for example a sales rep getting around 18 lakhs salary should pull in around Rs.1,20,000 MRR every month. If he pulls in 30,000 MRR(0.2X) he will be just covering his base salary. If he pulls in 75,000(0.5X) he will be covering the organization costs. And only if he pulls in anything above that will the company move towards profitability. And only when the company is profitable will the sales get an incentive.

Obviously there are a lot of assumptions made to arrive at this number. We are assuming the LTV to be around a year and churn is also very low. You can find a spreadsheet with some numbers here. You can modify the variables to fit for your organization.Just open SaaS Sales Targets and play around with the values to see the numbers. You can also download it and modify it as you see fit.

Since we started a sales organization a couple of years ago we have been experimenting with different variables and this is a good rule of thumb to follow for setting sales targets. Please comment on what your experience has been. Is our model too tough on sales guys or too easy. Hopefully we can all come out with a comprehensive model for sales in SaaS in India.

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The first 5 steps to building your own SaaS application

This post is for non developer founders who want to build a SaaS application.

Software as a Service (SaaS) is a relatively small market – at $19 Billion in total revenues, it seems large, but compared to $250 Billion of the overall software market it seems minuscule. It has grown from nothing to this large number in the last 10 years. Similar to the eCommerce market, which seems large but is less than 15% of overall retail, the opportunities will start to be in the niches is my prediction.

The big question is when and how will it grow and where are the opportunities. While there are many specialist firms focusing on SaaS alone, the incumbent software companies (the largest of who are Microsoft, SAP, Oracle, etc.) are also making their own investments to move their businesses from selling licensed software to services.

One of the key opportunities I see is that ability for smaller, niche markets to be targeted using SaaS. Since the deployment model, time to value and cost are so much lower now than 10 years ago,  it is easy to build a niche product that can gain rapid fan following among the target customers and *if that customer base* does grow and end up having more budget it can be a lucrative market.

I do get the question often about the steps to build a SaaS business. Even if you dont intend to build a Venture funded business, the economics of SaaS are determined by cost of customer acquisition (CAC) and cost of servicing the customer (developing, operating and maintaining the software).

What I am increasingly starting to see is that most prototypes are either built by a developer founder, or outsourced (by a non technical founder) to “prove that the market exists“.

1. The first step I’d recommend before you start development, is to sign up 15-20 beta customers. Target people you know well who will stick through your crappy alpha, beta and version 1, so you can convince them that the value does exist when you iterate quickly.

For early beta customers, there are many techniques you can use including: a) setting up a launch page and promoting that launch page on social media b) setting up a launch page and buying Google adwords to drive signups and following up with signups via email c) blogging about the topic to share what you know about that market d) interviewing influential users before you launch or e) setup an email newsletter of great content for that industry and have many potential users subscribe to that newsletter.

2. The next step is to create an activity model and user flows.

This step is to ensure that you can know exactly what are the top 3 features you need to implement first which will make your product “must have” to solve the problem for your users.

In fact if you can identify the top feature (just one) that people will come back and use everyday, you should be good to go to the next step. Validate the top feature with your beta customer list, so you are building what they will use.

3. The next step is to create a mockup using wireframes. These are typically good to show the screens your user will go through and the experience as well. I would get a lot of feedback on the list of steps and screens before I build the prototype.

Typically in your first pass stick to under 7 screens would be my suggestion. That’s enough for a 45 second to 1 min “demo” and should give your users a feel for what the app will do. If they ask you for “one” feature that matters more to them than the ones you have, dont mock it up yet, but put it on your list until you have enough users interested.

4. Design your database schema. A database schema is good to share with your developers entities that exist in your application and what their relationship are. I tend to use DB Schema or just Freemind to show to fields without the datatypes.

5. Understand and select your “stack”. Even if you want to outsource your application development I’d recommend you talk to a few developer friends who can educate you on the stacks they use – what the front end languages and libraries would be, what the back end language would be and the database options. You will be more confident when you talk to your outsourcing company and also be able to help make tradeoffs when you need them.