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Freemium Model for SaaS – The Good, The Bad, and The In-between

In 1999, Vistaprint, a four-year-old French startup, launched its internet-based printing services in the highly competitive US market.

Going against the popular advice to target the bigger companies (who would spend more money on printing), the Vistaprint team went for the micro businesses (who were then considered as a terrible market, as they were close to impossible to reach).

To tackle that, the Vistaprint team came up with a direct marketing strategy, which turned out to be a runaway success, becoming their core acquisition flywheel in no time.

And, it’s simpler than you think.

Basically, this was their offer: Customers could get 250 full-color business cards (that were being sold for about $85 online and about $200 to $300 offline, in those days) printed for free, and pay just a nominal charge of $5.67 for shipping and processing.

They could place this order as many times as they wanted, and Vistaprint would fulfil it for them, under a few conditions:

● The free cards will be printed only using one of a set of 40 designs

● It will take three weeks to deliver them

The customers who wanted a different card design, or wanted to get their cards delivered faster, would have to pay a premium price.

This strategy, that worked wonders for the printing company (which had about 17 million people individually buy from them by 2009), lies behind the freemium model in the present-day lexicon.

(Note: If you’re new to the freemium concept, head over to this post that outlines what the freemium model is and how it works, and then get back here. We’ll wait for you.)

However, all is not perfect in the freemium fields.

Even though a plethora of SaaS success stories including SurveyMonkey, FreshBooks, and Prezi have managed to make the model dance to their tunes, we can quote an equal number of accounts where businesses have fallen prey to its deceptive allure – Baremetrics, Ning, and Bidsketch, to name a few.

So what’s the deal with this elusive model? What does it take to win over it?

When does the freemium model go wrong?

VistaPrint already had a full-fledged card publishing and manufacturing technology in place, when they started providing business cards for free. Thanks to the economies of scale, the more cards they printed, the lower their manufacturing cost.

As you’d probably know by now, the basic premise that the freemium business model operates on is this:

Several hundred thousands of users sign up for the freemium plan, and then a good cohort of them will convert into paying customers.

“The easiest way to get 1 million people paying is to get 1 billion people using.” – Phil Libin, CEO of Evernote

So for the freemium model to work out, one specific product attribute must already be in place – low marginal distribution and production cost. Only if you can keep the cost as low as possible, an additional free user will cost you nothing more than a database entry.

SourceMicrosoft, in one of their whitepapers, showing how the cost plummets with quantity

Although this is an inherent characteristic of SaaS products (as shown above), if you’re not careful enough, your freemium pricing can still go completely awry.

The number road to failure is pretty straightforward: Keep investing in more and more infrastructure to handle new users, without generating additional revenue (or having a backup plan) to offset the growing cost.

A majority of websites that sell downloadable content fall under this category. These businesses don’t charge their freemium customers and rely solely on ads for revenue. So when they can’t make enough money from the ads, every new freemium user will exert a bit more strain on their existing infrastructure, to ease which, they will have no other option but to augment their resources.

About 11 weeks after having launched their free plan, things were looking positive for the Baremetrics team – over a 1000 free accounts had been created, of which the eligible paying customers sported a conversion rate of about 11.5%.

And over a period of two years, their free users outnumbered their paid customers, and they found themselves grappling with increasing server and performance issues. The result? More dissatisfied customers began leaving them, because of the “down time, delayed data and inaccurate metrics”.

Source“Our free plan was causing our business to slowly implode.” – Josh Pigford, Founder, Baremetrics

Countless such services have gone under because they weren’t able to bear the weight of the overwhelming scale of operations, both financial and infrastructural.1

But, that isn’t the only reason that leads SaaS businesses to succumb to the dark side of the freemium model and shut shop (or pivot, if they’re smart).

Had the Baremetrics team restricted the data import/export for the free users, they could’ve saved up on the server usage, and have in turn strengthened the reason to upgrade.

Here’s our next SaaS example, Bidsketch’s free to paid conversion rate over the weeks:

SourceFrom “Great!” to “Grmph.” to “Grrrr!”

What’s happened here is a textbook example of how the different kinds of adopters operate as per the “Diffusion of innovations” theory.

The real game begins after you move past the Early Majority adopters

Once the Early Majority customers have moved up the pricing ladder, the conversion rate starts tapering down, as the Late Majority and Laggards are more averse to change. The trick is to keep innovating and adding more value to your premium plan, thereby nudging them down the conversion funnel.

Summarizing this section, the main reasons that contributed to the failure of the freemium model in these businesses are:

● Not having a business model that’s cut out for freemium, where every new user puts more pressure on the existing resources. Adding to that – under such circumstances – not having been equipped with a solid strategy to accommodate the growing load.

● Not striking the right balance between your freemium and premium offerings – if the freemium plan isn’t attractive enough, then you won’t attract new users, and if the freemium plan is too heavy, then the new users won’t move to the premium plan.

● Not communicating well to the free users, a straightforward and solid benefit of upgrading to a paid plan.

● Not constantly hitting on the innovation pedal and making your premium product more and more lucrative, to convince the users in the Late Majority and Laggards categories to upgrade.

When does the freemium model pay off?

1. A DIY product/service, where the cost of servicing a new customer is close to nil. These are the businesses that are designed for the freemium model by default.

SaaS examples: Massive Open Online Courses (MOOCs), Webflow.

This business model accommodates the main ingredients that were missing in the previous section – economies of scale, and low marginal cost.

While MOOCs incur an initial significant fixed cost on course development, contrary to a regular classroom, they don’t have a restriction on the number of students. So a $500,000 fixed cost will be brought down to about $5 per student, if 100,000 students enroll for the course.

Also, the marginal cost of serving an additional student can also be brought down to $1 per student, as there’s no personalization of the service, the product doesn’t have a steep learning curve, and a community-based support will suffice.

The premium plans usually consist of certificates from reputed universities, and according to Daphne Koller, Coursera’s co-founder, they’re able to monetize around 20% of the total registrations.

Moreover, a majority of the students drop out mid-way, thus lowering their streaming cost (their biggest marginal cost). Only around 10-20% students make it to the final exam, and they are the ones who will most likely be interested in paying for certificates.

Now these aspects aside, the other deciding factor for the success of your freemium plan is your value metric.

Check out Webflow’s pricing for instance.

An attractive freemium plan + an even more appealing paid offering = a very satisfied cash register + an even more satisfied customer

These guys have nailed it in coming up with a super compelling reason to upgrade – they have used the collaboration feature (they call it the Team Dashboard) – one of the fundamental activities of website building – as the value metric.

This ingenious move set them up for success, and it wasn’t as easy as you think it was.

Only when you have a crystal clear idea about your customers’ Jobs to be Done (JTBD), will you be able to pinpoint the exact feature that will deliver the ultimate value for the price that you’re charging them.

So if they get a freelancer web developer on board, Webflow can either have them in the freemium plan, or they can make a decent sum of money in the Professional plan, and the moment the freelancer grows into a company of at least 2 members, they directly take them to the Team plan and charge them $78 per month.

The product is designed in such a way that it keeps track of the IP addresses; you can’t log in with the same ID more than once, and you won’t be allowed to view the same folder. For a user who is thoroughly impressed with the product, and is looking to collaborate, these enforcements act as a natural motivator to upgrade to the higher tier.

Which highlights the next factor: it all comes down to how irrefutable your offering is to the customer, and how effectively it gets their job done.

2. Businesses which deliberately try to assimilate and absorb the cost of operations, support, and service, to have a freemium model up and running.

Now why would anyone do that, you ask? Well, for one or more of the following reasons:

● When you’re having your freemium plan as a differentiator in the market.

About 75 startups were already operating in the American market when VistaPrint set foot on it. Millions of dollars were being raised by e-printing companies, and the competition was cut-throat. And they counted on their strategy to target a different market and to offer a freemium deal to give them a spotlight.

SaaS example: SALESManago.

This Polish marketing automation startup knows what it’s up against – giants like HubSpot, Pardot, and Eloqua. And that’s precisely why they double downed on nailing their pricing strategy, to stand out from the crowd of Goliaths.

Notice how the 0’s stand out in the collage of screenshots with numbers strewn all over them? There you go.

And they seem to have done a great job at it. This February, they have raised about $6 million, following a 200% growth over the previous year,  2015.

Let’s examine their pricing plans for a moment – clearly segmented free plans, each with their own specific set of benefits, and the introduction of a premium plan only when the customer’s business grows large enough to integrate and automate the marketing activities. Just like Webflow, it is evident that the SALESManago team has a thorough knowledge of their customers’ JTBDs and pain points that they’re solving.

The result? The customers get an offer that they can’t refuse.

● When you’re employing your freemium plan as a free branding tool.

Wait. The VistaPrint team didn’t have just two conditions attached to their freemium offering. There was one more. Apologies for missing it in the introduction.

Yet another tactic of theirs is that all their free cards will have “Business Cards are FREE at VistaPrint.com!” printed in small fonts at the backside bottom. Those customers who wanted to get the line removed, will have to pay.

SourceViral branding at zero cost – Check.

SaaS examples: Zendesk and Typeform

At the time when they had just launched, Twitter was Zendesk’s highest referrer. Zendesk had a freemium tier back then, where they’d brand the Help Center’s URL. So everyone who was on Twitter and had to get in touch with the support team had to do so via twitter.zendesk.com. Easy, free, referral program to earn new customers!

Typeform does that at present. With the “Powered by Typeform” signature on the bottom right corner of the free forms.

SourceWant to replace Typeform’s brand with yours? Become a PRO!

If just by including a line at the bottom or by adding your brand name to the URL, you’re able to generate ample volume of new users through your existing customers, why would you mind giving it away for free? The cost that you incur because of the freemium plan can then be brought down under your marketing costs.

● When you’re having your freemium product to market your paid product

VistaPrint’s objective was clear. They wanted to sell anything and everything that will help their customers to brand their own businesses – brochures, presentation folders, stationery, apparel etc, and printing business cards was the starting point to get there. Give away business cards for free, and use them to market/sell your other paid products.

Even though this particular category doesn’t fit the textbook definition of the freemium model, the underlying intent is very much aligned to that of the model. And the SaaS world has a name for this: Side Projects.

SaaS examples: Crew and Intercom

When the Crew team was running low on money and were desperate to turn the tables, they created Unsplash, a website that curates and gives away hi-resolution stock photographs for free. The results? Unsplash was (and still is) the number one referral source to Crew, that brought in around 5 million unique visitors.

Mikael Cho, Crew’s founder, quotes Jay Baer to back his faith in side projects (they have since developed a truckload of free side projects – 13 to be precise).

“Due to enormous shifts in technology and consumer behavior, customers want a new approach that cuts through the clutter: marketing that is truly, inherently useful.” – Jay Baer, Youtility

Intercom does that too. Their free product? A customer intelligence platform.

In short, businesses that belong to these three categories, spend those extra dollars to sustain their freemium product, because they know that the free users are paying through one medium or the other –

● They will either use the product and allow it to become a part of their workflow, thus pay for it with their mindshare, or

● They will pay for it by marketing the product

How to find out if the freemium model is right for you?

There’s one school of thought that argues that freemium is dead and gone, and businesses must shift to the next big thing to stay afloat. Then there’s another side that vouches for the abundance mindset, where websites like Craigslist let people post ads for free, and still manage to earn $400 million. Both make sense, and both are equally right.

Vistaprint entered the US market just after the infamous dot-com crash, as a result of which they weren’t able to raise much money compared to the other bubble companies. And its founder believes that that situation, in fact, saved them; because they weren’t able to pool in investments, they had to operate leaner, come up with better strategies, and work harder to make a profit. And that set them apart from the rest of the venture-backed companies.

This is also the reason why they were able to go big with free products and over-the-top distribution strategies, which backfired for most of those latter companies; Vistaprint was clear about its customers and what they wanted, and in turn, the right fodder that will fuel its growth.

Ultimately, it all comes down to how well you understand the value that you’re bringing forth to the market, and how well it aligns with the freemium model.

Dan Martell sums it up in four crisp points, and says that you’ll have to get 3 of them right, to evaluate if the freemium model will work for you:

  1. The number of potential users in your market: The more, the better – remember, only around 5% of the free users will eventually end up paying you
  2. The specific market advantage required to win: What do you want the freemium model to win for your business? Is it a competitive advantage? Is it free distribution? Is it getting more referrals? And how realistic is this goal?
  3. The max complexity of your product and how it works: How simple and straightforward is your product? Does your offering set itself apart from the din around? Is it lucrative enough for your customers to ascend the pricing tiers?
  4. The specific cost each additional user can have: Is the marginal cost of serving an additional customer negligible? Can you ramp up your operations without shooting up your cost? Do you have the capacity to handle the exponential escalation in scale?

MailChimp launched their freemium plan after about 8 years of building a “powerful, affordable, profitable, self-serve product,” and after gathering and analyzing “tons of pricing data”, to justify the 10:1 ratio of free to paid users of the freemium model.

“The question to ask yourself is whether or not your “one” is big enough to pay your bills yet. For eight years, our company never thought about freemium. We didn’t even know the concept existed. For eight loooong years, we were focused on nothing but growing profits… … In other words, we’ve been laser-focused on the “1” side of that 10:1 ratio. We’d never consider freemium until our “1” was big enough. Enough to pay for 70+ employees, their health benefits, stash some cash for the future, etc.” Ben Chestnut, Co-founder of MailChimp

Guest post by Sadhana Balaji, ChargeBee. The blog was originally published here

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Google Analytics For Particularly Curious SaaS People

You are what you measure.

This is especially true for SaaS businesses. Our goals and endeavors center on user growth, delivering consistent value, and profitability. This again depends on the efficiency with which customers can be earned, and nurtured.

All this begs a question: how do you know and measure the most crucial KPIs to achieve said goals?

Well, I know this is subjective. Because it depends on where you stand and where your focus lies at any given point in time.

That being said, Google Analytics comes in handy no matter where you are as a company. And that’s precisely what we’ve set out to explore with the help of Dave McClure’s AARRR framework in an in-depth slide deck.

If you are at the helm of a small to medium sized business, Google Analytics just works, as it is a free/standard analytics tool that is easy to configure and maintain.

Although, when I was introduced to Google Analytics, I found it to be quite irksome to grasp for the following reasons:

1) There is a lot of generic material about Google Analytics on the internet, and its scope of use for a SaaS application is difficult to pin down.

2) Lack of actionable resources (what I really required wasn’t just a frame to understand the tool, but real lessons that I could put to test at my end).

Hence, with that in mind, I’ve put together a deck with things that I’ve learned over the last few months, that’ll (hopefully) give beginners a broad perspective on the use of Google Analytics for a SaaS business, and at the same time provide some actionables to get started.

Now, let’s dive into the deck.

Guest Post by By Preethi Shreeya, ChargeBee

Going from $1,000 to $100,000 MRR #SaaS – PlaybookRT by Krish Subramanian, Chargebee.

SaaS PlayBookYou have built your global SaaS Product and validated with some early customers and your first few thousand dollars in revenue.

You may no longer have the comfort of selling person and need to designate your website as your first salesperson to make the visitor give their identity and try your product.

What early experiments could you try to build a steady stream of website visitors?

What are the various aspects of setting up your conversion funnel all the way from website, through the trial and subsequently activation? What are some of the lessons from fellow entrepreneurs? Why is pricing an important filter and a factor for conversion?

Why is customer context so important through these early stage experiments to discover product-market fit?
And which experiments have worked or which experiments to ignore, through these early stage customer acquisition?
In this round table, we will discuss the importance of getting the basics right and the various levers available to accelerate growth while you continue to discover more and more about your Customers.
Apply for this playbook by 12th May and we will confirm your participation

The Playbook roundtable is a format of event organized by iSPiRT (an association for Product Startups in India) that picks a specific topic that is vague or requires indepth understanding, anchors a few key entrepreneurs who have key insights on that topic, and invites hand-picked entrepreneurs who would benefit the most from the conversation for the roundtable. Each roundtable is no more than 12 participants. The anchor(s) kickstart the discussion, which evolves to a conversational format around best practices and key insights around the topic. Each session lasts approximately six hours. The insights arerecorded, and shared as Playbooks to the community.
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It Was a “SaaS”y Day at Chennai: Chapter 1#SaaSx3

The April sun wasn’t evident at the beach side locale, near the historic town of Mamallapuram, which hold relics of exceptional beauty on its rocks sculpted under the patronage of the Pallava kings. Had it been the early part of last century, in all probability, we could have reached this place in passenger boats sailing through the Buckingham Canal, now condemned to history. It was using this canal route that the national poet Subramanya Bharatiar escaped to Pondicherry to prevent an imminent arrest by the British to endow us with memorable literary gifts in Tamil.

By favourable alignment of choicest factors, Chennai is home to successful SaaS enterprises. To say SaaS is the preserve of Chennai is surely an overstatement. To put it in perspective, it is a worldwide phenomenon and Chennai has made a mark in India. Undoubtedly, the success of Girish Mathrubootham (Freshdesk) has a lot to do with Chennai hailed as the SaaS capital of India, with Suresh Sambandam (KissFlow), Sanjay Parthasarathy (Indix), Krish Subramanian (Chargebee) and Lux (Unmetric) in the elite SaaS league giving an aura to Chennai, not to forget that it was Zoho that made it to the big SaaS league, taking on Salesforce, from Chennai.

At SaaSx3 it was a day filled with peer-to-peer learning, some fun, and a super-duper end. Playbook roundtables, One Thing Series, Product Teardown, and a presentation of “superscaling” (my term!) by Girish as the grand finale completed the agenda. Pallav Nadhani of Fusion Charts and Krish Subramanian of Chargebee (in partnership with Suresh Sambandam of KissFlow) engaged select SaaS startups on a roundtable each. iSPIRT’s agenda of peer-to-peer learning and networking, with the intention of forming a vibrant community of product entrepreneurs, took the form of playbook roundtables where the successful entrepreneurs share the secret of their product success with the product startups. The focus of both the roundtables, where I spent some time in each, was on the product. While Krish focused on taking the product from 0 to $1 million, Pallav chose the marketing as a tool for product’s success.

Find out why the customer chooses your product

Krish spent a considerable time in explaining the key to product success – understanding the persona of the buyer. “Product-market fit is constantly evolving,” he said. The process doesn’t stop with customer acquisition and onboarding but continues with retention of the customer, on what is now called the customer success. Acquiring the customer is a tedious process for which several methods and processes come in handy. The important take-away from this session was understanding the customer’s intent to buy the product. Krish liberally quoted from Chargebee’s experience to explain his perspective – their assumption of why the customer bought Chargebee flipped on its head when they saw the real data on why they did. How to find out? It is best to ask – first through a non-intrusive e-mail followed up by conversations and further e-mail exchanges.

The whole point of the discussion hovered around the 10% conversion rate – of prospects into buyers. But Suresh clarified that it is a benchmark for large enterprises, but the real numbers that convert is the key rather than the percentage if the customers are SMBs.

Krish said that the choice between free trial vs freemium is loaded in favour of freemium. But what usually happens is that the free trial users pump up the numbers (the customer count) but largely the free trial customers don’t turn buyers. The truth is freemium works well but free trial also works. The real answer is it all depends on the product. What also works is adding a “powered by *product logo*.” This has worked WebEngage and Freshdesk. WebEngage had a “powered by *logo*” on its product design (for a cheaper priced version) so that it gets more prospects into the funnel. If the customer is not paying, at least he can be used as a channel for prospecting. Freshdesk used the “powered by *logo*” on all its customer support e-mails (which is actually generated by Freshdesk) sent by the free user in its forever free product.

Another important aspect touched upon was making the pricing transparent and known, especially if the target customers are SMBs in the case of self-servicing SaaS products. If the customer base is large enterprises, the price conversation can happen offline and it is not necessary to provide price information on the website.

Constantly evaluate your customers and look for influencers

When I entered the conversation, Pallav was focusing on why, how and what of the product. He defined customer cohorts as influencers, buyers and users. Pallav’s proposition was a lot deeper – a good product markets itself. But you also ask deeper questions – even the reason why you (your product) exist to answer the other defining aspects of why the product sells (Pallav’s recommendation: view Simon Sinek’s Golden Circle video on why, how, what). The why exists converts simply into what problem is the product solving. But identifying the customer is a continuous evaluation process. Only if you know why you exist can you target the most appropriate buyers for your product so that your solution is aligned to their needs. For targeting customers at the right time, you must understand the customer behaviour a bit deeply. Pallav gave examples of how customer habits can be known from data. His marketing pitch was a bit philosophical quoting Seth Godin, who said, “The valuable forms of marketing are consumed voluntarily” (read Three Changes of Marketing). The network effect is powerful, as Avilesh Singh of WebEngage explained using his product marketing strategy. He said how changing his focus from marketing execs to developers as customers reaped rich dividends.

But, beyond all this, remember the most essential aspect is the product itself, which should be flawless from the customer experience point of view. Then other aspects are built on top of it.

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SaaS-y marketing with Nuns: How @ChargeBee used guerilla marketing to promote an unsexy B2B product.

This is the story of how we spiced up our marketing campaign, brought a lot of smiles and drew attention during the recent SaaStr Annual event.

Background

The objective is to create the largest Enterprise Software company from India. This can be accomplished if top entrepreneurs can learn each other and then pass the learning to others.

When doing your job right involves going unnoticed, how do people find out about your product? Managing subscriptions and recurring billing for Software as a Service (SaaS) companies places us in this category. This is the story of our latest efforts to get the word out about Chargebee.

“This is a revolution, there will be a Before Chargebee (B.C.) and an After Disruption (A.D.), in the industry!”

“O.K. but how do we get people’s attention?”

“We play on the B.C. and A.D. theme; this is year 0 for subscription management.”

“O.K. but HOW do we get people’s attention?”

“Let’s have people dressed as evangelists hand-out flyers.”

“Why not sexy nuns?”

“Hmm, na, company image? We’re a billing company, we must stay somewhat serious. ”

“OK, regular nuns? Nuns handing out the 10 Commandments of SaaS?”

“Might work! But how do we go about it?”

Guerilla Marketing Nuns

SaaStr annual would be full of attendees from our target audience; it was approaching fast. We had just a couple weeks to write out the 10 Commandments of SaaS, get our design team to run its magic, print the mini tablets, and find the nuns!

On opening day, we were struck by divine luck, the SaaStr Annual was being held across the street from a Cathedral!! It was meant to be.

Our plan was to distribute the “10 Commandments of SaaS” as flyers. We included the hashtag #SaaS10 hoping this would become a little social media event. As it turned out, we were violating the event regulations by distributing marketing materials without sponsoring the event. We were gently warned by SaaStr folks to keep it out of the venue. In all fairness, they were right and we moved to corner of street to distribute.

But we then ran into another problem; the building’s agreement with the city forbids distribution of materials in front of the venue. We were however, told the sister could stand in the area in front of the conference entrance if we weren’t distributing anything. We had to regroup.

“Let’s print this tablet size?”

“You mean like the actual 10 Commandments?”

On the second day, the sisters were holding tablet sized commandments. And the result was surprising!

When the sisters had been trying to distribute flyers, people thought they were authentic nuns protesting the conference.

By having them hold big tablet sized SaaS Commandments, people realized this was just good fun, and started asking the nuns to take pictures with them. The social media fall-out was much stronger than the first day!

We brought a lot of smiles. More pictures and even more Tweets.

Plus we landed a 90 second interview. 🙂

Prior to the event we were a bit worried that doing something edgy to spread the word about us might affect our corporate image.

As it turns out, this had a hugely positive impact and we had a lot of fun doing it. Your smiles and pictures made us so happy! Thank You!

Here is a quick run-down of the operation :

  • $400 number of dollars spent for costume, printing.
  • A few hours of planning, design & execution.
  • Finding people for the sister act
  • 5000 SaaStr attendees.
  • 3-4 hours of exposure when most folks are walking in.
  • 2000 views. 100 likes. 25 retweets.

And the 10 Commandments :

Be My Valentine

Feeling the buzz from this event’s success, we had 24 hours to complete another marketing tactic if we were to be in time for Valentine’s Day.

Earlier in the month, we had decided we wanted to occupy mind-space. We decided to send a Valentine’s Day card (yes an actual paper card) to 200 start-up C.E.O.s, to grab their attention, and hopefully make them smile.

We created this :

Chargebee-Valentine

We spent the better part of the afternoon stuffing envelopes, finding mailing addresses, licking stamps, and placing a heart sticker on the back so these wouldn’t be considered “junk mail”.

We managed to ship them all out in time….the only problem is that we have no way to trace the effectiveness of this method. No “open, click-through” stats for snail-mail.

Our next step is to reach out to the 200 people via an email about this blog post to see what the response is. Fingers crossed!

We’re happy to share our tactics but remember the 10th Commandment of SaaS : “Thou shalt not covet thy neighbor’s growth hacks.” 😉

If you think managing recurring revenue, subscriptions and invoicing is a pain in the SaaS, let us help you

Starting-up ? Check out our Launch Plan !

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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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How to Incorporate in the USA: US Inc. as a Subsidiary – v2.0

Setting up your headquarters in the US and a subsidiary in India is a tested model. Here’s a blog post by Girish Mathrubootham – founder of Freshdesk, very clearly articulating the process.

Well then, what’s this all about?

The setup we follow at Kissflow is the model in reverse.

Kissflow is headquartered in India, with a subsidiary in the US.

I couldn’t find much information on this model, and thought this might be something worth considering as an option for lots of startups that operate from India. This is not a post on the pros and cons of setting up your headquarters in the USA. That is a complex question and calls for another blog by itself.

This model gives you the option to retain the Intellectual Property (IP) outside of USA and still take advantage of the flexibility that comes with having a US Delaware C-Corp entity.

Also, you will be paying income taxes in line with income in both the countries. In the other model where the HQ is in the US and the subsidiary in India, you may set up the subsidiary as a service company with a transfer pricing model that requires you to have a profit margin of 12% to 15% in line with the services industry. And you will be paying 30% taxes, in the case of India, on that “perceived profit”.

So, here is an alternate model for your consideration that is compliant with the laws of the land in both the countries of operation.

The basics of setting up a company in the US remain the same:

1. Incorporating in USA as a Delaware, C-Corp.

You don’t have to be present in the USA for the incorporation. Instead, you can use one of the many service providers.

Here are a few recommended ones:

The cost for this would be approximately $1000, but you can pick and choose packages depending on the services you would require. I would highly recommend that you complete the entire documentation at a stretch including the formation documents, share allocation, etc.

Leaving out some of these may seem cheaper initially but might hurt you in the long run. So complete the entire procedure as part of the incorporation package to get the basic setup done right. You know what they say about being penny wise and …

2. Getting an EIN

This is similar to the Social Security Number. Each business has a unique tax ID number called Employer Identification Number that you will have to register for.

Ask for this service to be included as part of your incorporation, or, with your legal firm’s guidance complete this step immediately. Having an EIN is essential to deal with banks and pretty much everything else in the USA.

3. Getting a US Address

To receive business documents, it is mandatory that you have a US Address.

You can use a service like virtualpostmail.com which starts at $20 each month to collect the receipt of letters via emails; they scan and upload documents for your review and also ship them to any part of the world, if required, for an additional cost.

Besides this utility, it also serves as your local billing address for your credit/debit cards, etc., which becomes essential when you start paying for services with a US bank account.

We use Regus for this service. They provide a bunch of secretarial services including physical mail scanning and emailing among others. You can choose a package that is appropriate for your business. It is very important for your finance/admin team in India to know if there are any statutory mails from the government, bank, etc. and a service like Regus helps you achieve that.

4. Getting a US Bank Account

You would require a bank that allows remote processing of account opening and operations. We use the services of Chase Bank. Silicon Valley Bank (svb.com) is also an alternative, but requires a reference and a minimum balance of 25k USD. Chase Bank doesn’t have any minimum balance requirement.

Before applying for a bank account, it’s mandatory you have an EIN.

5. Getting a Merchant Account / Payment Gateway

Apply for a Stripe or Braintree account. The fee may be on the higher side, but the increased transparency in pricing, support, and the ease of doing business with them makes up for it.

6. Acquiring a Business Credit Card

It is harder to get a regular business credit card without building a credit history. You can use the debit card for all transactions to start with, until you have enough money in bank to get a secure credit card.

A secure credit card is nothing but a credit card with a spend limit secured by the money in your bank account / deposit.

7. Getting a US Phone Number

You can get a toll free number from any of the service providers like phone.com, Google Voice, or Skype.

That was a quick checklist of things you need to get started with the US company.

Once you have your company set up in the US, here’s how the relationship between the two companies (your Indian HQ and the US subsidiary) would work:

1. Distributor License

Make your US company the exclusive worldwide master distributor of your SaaS product. Set up a distributor license agreement that assigns an exclusive license to the US company, to host and sell your products in the USA. The Indian entity now holds the entire Intellectual Property (IP), by providing a hosting and distribution license to US companies for a 20% price cut per customer. If you look at it, 20% margin is a fair market value even if you had to engage a third party for this service.  Also, the US company has to cover all its expenses related to hosting, sales & marketing, and other operations.

2. Terms of Service

The terms of service of your website and product has to be owned by the US entity, as a distributor of your software. Preferably, all the legal recourse should be made available with your US entity.

3. Earnings and transfer of money

If you are just starting up, my best wishes to you for ramping up your revenue faster. 🙂

You can retain 20% of the revenue earned by the US entity and transfer 80% of the revenue back to your parent company as license fee.

When you start making enough money, you will be liable to pay taxes on the profit made on the 20% margin after all the operational costs are subtracted. Note that you will be paying other taxes such as franchise tax, State tax, etc., which have to be paid anyway to operate a company regardless of whether or not you make profits.

That’s pretty much it.

Statutory warning: As mentioned earlier, do not consider this as legal advice. Just sharing an alternate model than following the traditional model of US HQ. You should definitely consult a lawyer and an accountant to ensure that you stay compliant with all the laws in all the countries that you operate in.

Good luck with your startup and feel free to drop a note to suresh-at-kissflow.com to say “Hello”.

This blog was first published on the ChargeBee blog.

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Announcing the first 25 successful companies attending #PNgrowth

Right. So the first batch of #PNgrowth companies is here. It has been a slog for us going through all the applications we received, and we have made sure that we are extremely fair in the way we are allocating places for our already over-subscribed program.

If you don’t know what this is about, you go here, and if you want to apply, here, better late than never.
                                25-founders-collage-1
We are going to announce the companies finalised as we go along, so they can start preparing for what will possible be a non-stop knowledge ride.
So here we go, the first 25 companies for the inaugural #PNgrowth program
    1. Ahimanikya Satapathy of Docengage,  Healthcare CRM
    2. Akshat Choudary of Blogvault, WordPress backup service
    3. Anand Krushnan of Exclusife, offers app
    4. Ankit Oberoi of Adpushup, online ad optimizer
    5. Arastu Zakia of Collegebol, education/students forum
    6. Ashwin Ramaswamy of ContractIQ,B2B Outsourcing Marketplace
    7. Dhruv Gupta of Valuehire.com, recruitment software
    8. Elvis D’Souza of Sensara, TV search app
    9. Jaineel Agarwal of Planet Superheroes, Superhero merchandise store
    10. Jofin Joseph of Hello Vibe, contact management app
    11. Koushik Shee of Effia Soft , cloud ERP
    12. Krish Subramanian of Chargebee , billing software
    13. Kumar Abhishek of ToneTag, payment app
    14. Laxman Papineni of AppVirality, growth toolkit
    15. Mrigank Tripathi of Qustn, training and assessment company
    16. Nityananda Rao of Actouch Technologies Pvt Ltd, accounting software
    17. Pritesh Vora of Uninstall.io, app analytics provider
    18. Priyanka Agarwal of Wishberry, crowdfunding platform
    19. Rahul Bhalla of Zenatix, energy hardware company
    20. Rohit Bagaria of Budli.in, used gadgets marketplace
    21. Sanjay Sahani of Optimizory, management tool
    22. Shameel Abdulla of Jiffstore, grocery supermarket
    23. Sonal Goyal of NubeTechnologies,data analytics company
    24. Srikanth Adiga of Open Specimen, biobanking informatics
    25. Vijay Mane of Albumizer , album designer
Congratulations to the startups who made it. They will receive further information in their mailboxes.
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Jump Start Your SaaS Business by Selling to US Market: Learn the Nuts and Bolts from Whodunnit

jumpstart-guid-1Are you a first time SaaS entrepreneur targeting the US market? Learn it from the masters through the Jump Start Guide to Desk Marketing and Selling for SaaS put together by Krish Subramaniam (Chargebee), Niraj Ranjan Rout (GrexIt), Sahil Parikh (Brightpod), and Suresh Sambandam (KiSSFLOW). Aaron Ross launched the guide during the first SaaSx event in Chennai put together by iSPIRT, attended by more than 100 SaaS entrepreneurs.

The following are the take-aways. Use the guide to understand in-depth and develop your strategy to hit $100 million in sales. All the very best!

Marketing

  • There are four different strategies employed by Indian entrepreneurs for customer acquisition: Learn from Wingify, KiSSFLOW, GrexIt, Freshdesk.
  • Free trials don’t work for higher sales value. And prices are not listed publicly by most companies.
  • What is the right pricing? There is no one sutra to it. But get it right before you push your sales pitch. Learn strategies from the hackers who did it before.
  • Have a team in place to handle marketing efforts with clear segmentation of the team: marketing/product/sales. Have clear-cut roles as they often blur.
  • Understand the 10 recommended activities before you start marketing.
  • Focus on building the trust of the customer visiting your product website for the first time. To make it attractive, for example, think of a “Benefits” page instead of listing “Features.”
  • Learn how to build content around long tail keywords for effective SEO.
  • Marketing based on content generation (content marketing) has many dimensions to it. Use all of them for maximum benefits.
  • Social channels ensure better outreach. Make your presence felt on social pages.
  • Retarget your customers who just dropped by your website.
  • You can innovatively market using your product itself.
  • Get a marketing team in place.
  • There are some sales channels you must ignore before starting the SaaS company.

Selling

  • Learn what catching, coaching, and closing mean.
  • Winning the first few customers is the founder’s job.
  • Learn what tools to use for customer development.
  • Develop an effective funnel.
  • Facilitate self-selection and build engagement with the customers.
  • Collect key information during the engagement process.
  • Post-trial offers work for closing the customer.
  • Learn the customer closure techniques to use.
  • Structure your sales team clearly.
  • Doing a great customer service after sales is essential to retaining the customers. Learn the tips.

Download the guide here{link}.

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Growth Hackers Will Share Their Secrets at SaaSx Chennai

This Thursday evening will witness the largest gathering of SaaS founders in India. In the event conceived by iSPIRT called SaaSx Chennai, more than 100 people, largely SaaS founders, apart from a few handful of product industry influencers, will brainstorm on various aspects of a SaaS business, especially taking the SaaS organization from a $10 million revenue to a $100 million revenue.

Girish Mathrubootham, CEO of Freshdesk, talks of Aaron Ross, the author of Predictable Revenue, as the brain behind Salesforce.com’s recurring $100 million revenue year on year. He initially started a company, raised $5 million, burnt the whole cash, and shut down the company. Then he joined Salesforce.com as a cold caller. Finding cold calling to be a bit arduous in winning customers, he conceived what Girish calls Cold Calling 2.0. His idea was to first interact with the customer on email and then establish a rapport, before calling the customer. The idea behind this exercise to first zeroing in on the most suitable customer for your product. This turns the prospect into a paying customer quickly.

SaaSx_headerAt SaaSx Chennai, Aaron Ross will deliver the keynote as SaaSx via video and will release the Jump Start Guide Desk Marketing and Selling for SaaS, co-authored by Suresh Sambandam, founder of KissFlow, Krish Subramaniam, co-founder of ChargeBee, Niraj Ranjan Rout, founder of GrexIt, and Sahil Parikh, founder of BrightPod.

jumpstart-guid-1Suresh says the event was conceived on the lines of SaaStr Conference, hosted by Jason Lemkin. He attended the event in San Francisco this February. Buoyed by the 300 to 400 founders coming together from all over the world in SaaSter, he wanted to bring together the SaaS founders in India. SaaS companies are witnessing phenomenal growth all over the world, and India is also seeing an uptick in this sector. Chennai is emerging as the SaaS hub of India, thanks to six big companies that are running their operations here. There are startups emerging as well. “Just two days after we announced the event, 65 signups happened and SaaS founders were excited by the idea,” says Suresh.

“In a focused event, founders can discuss real problems,” says Girish. A conference of a general nature does not give a beneficial take-away for an entrepreneur. “The idea is to bring similar people at similar stages of growth and discuss their pain points,” says Krish of Chargebee. He says cross-learning from each other will be useful in solving many problems the SaaS entrepreneurs face. “Even before the event, many one-on-one meetings are happening among SaaS entrepreneurs,” says Krish.

The event will have four parts. A My Story session with three SaaS founders, followed by an open house on Anything and Everything on SaaS moderated by Girish, aided by Suresh and Krish.

Aaron Ross will deliver the keynote then and finally, the Jumpstart Guide will be released

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Processes in Start-ups! Can’t live with them! Can’t live without them! Seven ways to address this!

Processes in start-ups are like the proverbial Men or Women – “You can’t Live with them! You can’t live without them!”.

Striking the right balance between having processes and not having them is an Art, not a Science. Getting them right in a start-up means all the difference between a surviving and thriving one, and one that chokes on itself either through chaos or rigidity!

When it is just the founding team and a small, tightly knit team working closely together, you don’t need a whole lot of processes. Everything just gets done informally by someone picking up the slack and doing it. It is when you reach a critical mass of 20 or more employees, fast growth or rising revenues that you suddenly need processes for everything. Not having them brings chaos, confusion, loss of goodwill with critical early employees, clients or customers!

At the same time, I have seen start-ups emulate large corporations too soon, and load up on process in the beginning, become rigid, and drive away good employees, valuable clients and customers. Right in the beginning when things looked so promising, and that’s not good either!

Whether it is Software Development Methodologies, Sales or Marketing, Customer Support or Human Resource management, processes become necessary with size. Keeping processes in control and making them work for you, rather than you working for them is the key!

,chickenprocess

 

 

 

 

 

 

 

 

 

 

 

 

Forms are the first signs of processes that show up and they are the bane of most start-ups! Like a form designed for an impromptu conversation proposal above!

Pixton_Comic_6_Reasons_Processes_Fail_by_OperationsBlog2Processes fail for various reasons. Start-ups cannot afford to have processes fail! In large corporations, there is enough margins and cash flow, ( Of course, when they are doing well) that they can afford to absorb all kinds of process experiments, and failures before something works correctly! Start-ups need to get them right the first time! The margin for process failures is very thin! You cannot afford to waste any money, especially when you are on your way to revenues, and you are burning angel investments or hard-to-come-by venture money!

Luckily technology provides software product start-ups with various tools that can be leveraged. They can have the cake and eat it too! Here are seven such technologies that every start-up needs to look at seriously in rolling out processes smoothly and inexpensively, for the most part!

  1. The Internet: Web portals have enabled organizations business processes from order entry to logistics to customer service to be performed from anywhere, anytime by their employees. In some cases, these organizations are making these portals available even for their end-customers on an around-the-clock basis, making it very convenient. A good question to ask in any start-up while rolling out any process “Is there a way, the Internet can increase the process cycle efficiency for this business process?”. There are no excuses for not leveraging all kinds of Software As A Service (SaaS) sites from Software Development management to Customer Support and Service! Zoho, ChargeBee, Explara, FreshDesk, BaseCamp, etc., are all companies that any software start-up should explore and integrate in their processes!
  2. Wireless Connectivity: Can we wireless enable the people that form part any process?  Can that delivery guy record that delivery using an application and data connectivity through his smartphone?
  3. Automated Workflow Systems: Automated workflow systems cut down the time, work items wait in a queue for processing. Many business processes suffer from wasteful physical movement of paper from desk to desk. When a piece of paper reaches the next destination, it waits behind other work items that arrived before it. Automated workflow systems can keep the work items moving, raising alerts if work items have been waiting for too long a time, re-routing themselves to others if someone is busy, etc. They also provide visibility into exactly where the bottlenecks may be in a business process, enabling sane Lean process improvement efforts to smooth these out. At a time when cloud-enabled workflow systems like Orangescape are available locally in India, there is simply no excuse!
  4. Scanning and Digitization: Computing and computer storage have become so inexpensive that many organizations scan and digitize most official documents that come in as paper. These may be legal documents or invoices from vendors of services, supplies, or raw material. Thereafter, it enables the circulation of these digital versions of these documents rather than wasteful movement of physical paper across the company. Digitization also enables processes to move geographically long distances effortlessly, enabling employees from geographically dispersed office locations to participate in the same workflow, for example.
  5. Service-Oriented Architectures: If an organization is using the most up-to-date transportation companies to handle its shipping needs, it can initiate a delivery from it own corporate applications seamlessly. These shipping companies have made their backend software systems accessible to any organizations’ software systems using service-oriented architectures (SOA). The SOA technology enables software systems in the same or disparate organizations talk to each other and exchange information automatically, without any human intervention. Many large corporations have realized enormous gains in process cycle efficiency in their supply chain business processes by allowing suppliers’ and customers’ software talk to their backend software systems using SOA. By enabling automatic exchange of data between organizations’ computers in an electronic form, SOA eliminates wasteful and time-consuming exchange of paper and redundant entry of data in to multiple computer applications.Checking out your local logistics vendor and seeing if you could integrate your order management system with their logistics systems over the Internet is something to be explored early on!
  6. Document Management Systems: Document management systems allow an organization to execute business processes that require collaboration across geographies, and even continents. They allow two people in different cities or countries to work collaboratively on a business process by making sure the changes they make are done in an orderly fashion and nothing is lost during the collaboration. Document management systems allow the check-out of documents for editing and require checking them back in once they are done. Thus changes made by different people on the same document are not lost. In many business processes, this has the potential of eliminating waste due to motion and most importantly the quality of the collaboration involved. In the absence of such systems, more time may be expended in sending documents back and forth by e-mail and coordinating changes made to the same documents by different people.
  7. Online CRM Systems/Self-Service FAQ Systems: Many organizations have placed customer relationship management (CRM) systems online as part of their web site. A customer can login and create a trouble ticket online for a support or service request instead of talking to a customer support representative on the telephone. Many organizations are using self-service frequently asked questions (FAQ) sections on their web sites where customers can see if their problem has been faced by other customers, and what the solution was, in those cases. These systems enable the speed up of customer service and support processes. FAQ sections on company web sites may even eliminate service or support calls if they answered their questions or solved their service or support problem. They are convenient for end customers since they are available on the Internet, around the clock, providing even better service than when done manually by telephone. Make the client/customer do the work! Many times they may not mind since they can do it 24/7 in their pajamas and don’t need to reach a human being to serve themselves!

sugai_slide2

 

Processes in start-ups can only be rolled out after a great deal of thought, especially, “is it absolutely necessary?”. But once it is deemed necessary, these days technologies and especially inexpensive, SaaS based offerings make it easy for them to implement them and make them work very effectively!

You can live with them, after all, if you know what you are doing and find the easiest, most effective way of doing them!

Excellence is a continuous process and not an accident – A.P.J.Abdul Kalam.

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Bootstrap vs. Venture funded route? Lessons from Kiln vs. Trello #SaaS

I am a big fan of Joel On Software blog & FogCreek Software.

Yesterday Joel announced that, Trello, their visual Project Management product, is now an independent venture funded entity, spun off FogCreek Software. One of the comments in HackerNews caught my attention and got me thinking about an issue — how do you decide if your product idea needs external funding or not?.

“I am no longer a Fog Creek employee (I left to join an education startup a bit ago), so this is not an official opinion, but anyway: Joel wants Trello to grow a lot faster than Fog Creek could bootstrap it. In my personal opinion, a big reason why Copilot and Kiln never quite made it was that we didn’t have the developer resources to dominate the market when we were in a good position to do so. Because we insisted on bootstrapping, we necessarily had very small teams, meaning that competitors, who were willing to go into debt to have larger teams, were able to come from behind and surpass us in both marketing and features. In other words, while both products are successful and profitable, they likely could’ve been a lot more successful and profitable if Fog Creek had thrown a lot more resources onto them back at the beginning.”

How do you decide if you should bootstrap to profitability or raise funds at the beginning?

There is always an ongoing debate of raising venture funds vs. bootstrapping your way to profitability and sustained growth.

There is 37signals and Zoho school of thought to bootstrap your way to success. And then there is SalesForce at the other extreme. There is no generalized right or wrong answer to this question and very often you find startups challenging these norms.

There are a few aspects like competitive landscape, market trends and the adoption curve of product itself, that can guide you to make this decision. So, what are those?

Bootstrapped model: If you are in an established (read commoditized) market with lots of competitors it makes sense to build your way to profitability by bootstrapping. If you are building yet another Mailchimp competitor, solving “bulk emailing” for a niche ignored by them, and solving it elegantly while building your way to profitability may be the best approach.

Venture funded model: If you are in a new market with lots of business model or technology innovation happening around it, you should try to build / grow as fast as you can. At Chargebee, we are in this category with a fast changing Subscription business model that is disrupting the way you think about customers & sales, and creating new growth opportunities across sectors.

In the case of applications like CRM, you always evaluate something like SalesForce though you may like a Close.io or a Pipedrive. And you tend to hear opposing voices within your team, advising you to choose an established solution because “it can scale”. By scale, they mean feature richness, integrations, small aspects of product features that makes every day life easy — the benefits of being in market for years & having fixed nagging issues for customers (ex: SalesForce automatically creates follow-up tasks based on rules. It is a simple thing, but I have repeatedly seen this being a reason for sales managers to choose this because it is important for them).

Though you can get funded as a new player in the CRM space, it takes years to challenge the established player unless you are complimented by market forces. Ex: Cloud + Behavioral Analytics + Inside Sales could be a game changer & could leave SalesForce behind. Let me explain. If behavioral analytics becomes the key to doing sales in SaaS (like it is now), established products like SalesForce can be challenged by players like Intercom that provides a totally different dimension to doing online sales and they can dominate that market. Everybody else in CRM space, playing by established rules is trying to play catch with the leader and not disrupting in a big way. This is one category.

Another category is one in which the market leaders are not well established, yet. The market itself is being defined by new way of doing things, across several verticals and products are still maturing. The early mover is even probably at a disadvantage making mistakes along the way, building & rebuilding stuff while lots of new players are emerging building better solutions (this is the space we believe we operate in with Subscriptions).

The comment in HackerNews resonates well here with the second category explained above — the opportunity probably missed by Kiln & Copilot, when they could have totally dominated the market. Github totally dominates the market. Kiln probably missed the bus by not moving fast with Git & SaaS model. If they had deep pockets, they could have been the market leader taking on Github.

And they sensed the opportunity early with StackExchange and now Trello, and have spun them off into separate entities off FogCreek, so they can thrive on their own.

Both these models work and there are always exceptions (isn’t that exactly why we startups exist, to buck the trend?). Choose whichever suits your style. But if you are in second bucket, we should be aware that competitors may take the market further away from you, if you don’t do justice to your startup with right resources at the right stage.

Guest Post by Krish Subramaniam, Co-Founder & CEO, ChargeBee 

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Scale Hacking at #PNCamp: What To Expect on Day 2 (Dec 5)

It’s a conference….it’s a summit….it’s a camp! Being a startup ourselves, we constantly listen to  our customers (who are startups as well!) and try and come up with initiatives that solve their problems and address their pain points.

In that regard, the genesis and the program design of the ProductNation Camp has come from what we’ve been hearing from you – the Indian product startup community. Sandeep has very nicely elucidated the need for a Product Bootcamp for Product entrepreneurs and laid out the broad agenda of the #PNCamp.

#PNCamp is expected to be a very intense, highly curated and focused two-day event with two tracks – Discovery Hacking (on Dec 4) and Scale Hacking (on Dec 5). For a product entrepreneur, getting the first set of customers is mighty important from multiple perspectives – validating the need for the product in the market, generating the first rupees (or dollars!) in revenue  and grow the startup from a buzz in the head to a live organism. While 2013 is expected to end with a Dhoom for Bollywood fans, it’s the same for product entrepreneurs attending #PNCamp. Rather than an ending, we hope it’ll be a new beginning for them to grow their startups to greater heights in the coming year. One of the producers of the product startup community’s Dhoom, Sai unveiled the first look of #PNCamp and gave us a glimpse of what’s in store for attendees of the Discovery Hacking track on Day 1.

It is said that well begun is half done. Let’s stay the tough part, that of beginning well has been taken care of and you are now staring at the tougher part – of growing your startup across multiple dimensions. That is when the startup is in the happy-confused state and there are a lot of questions on your mind.  Sales cures most ills, but how do you sell? This will be the primary thrust of the morning sessions which is mandatory. Here, we will have separate tracks for those who are selling to a global audience and those who are selling domestically. The challenges, hiring, operations, etc are completely different. In the afternoon, we have various exciting sessions on how to understand and communicate with customers and how to pick the right product direction when you have scarce resources to spread amongst several promising ones. Choice in an uncertain world is not easy and while we promise no silver bullets for your problems, we do promise to ignite enough fire in the belly (and in the heads!) for you to go back and navigate your way into scaling your startup. We also have specific “Oh, Oh, How do I do that?” sessions on specific topisc you’ve always wanted to know..

So specifically, what do we have to offer to you on the Scale Hacking Day:

We will have around 75 chosen participants for the Scale Hacking Day divided into cohorts of 15-20 people each. There are mandatory sessions which all participants will attend and then the cohorts will attend the optional sessions depending on the stage of the company and their interest.

The Mandatory Sessions

“Great Indian Street Fight or Selling In India”

No wonder most of the selling in India happens through ‘feet on street’. And when you’re out there on the streets, it’s always a fight. Fight against time to sign-up customers, fight against a thousand other things to get the customers’ attention, fight for receiving payments on time and just fight for survival!

You have probably got your first set of customers, but you want to scale now. What are the different ways to do that? Does the Channel Partner route work and what are the pros and cons of taking that approach? How do you reach out to your next set of potential customers in an effective manner? Should you now start considering mainstream media for advertising or scale up your digital marketing efforts? More importantly, how do you plan for scale and put together the right team to execute your plans? How to hire the right people and fire the ones that don’t work out well?

Dhiraj Kacker, who has built Cavera into the leading destination for customized printed merchandize and an e-commerce solutions provider for photographers, will facilitate this session. Dhiraj along with Canvera’s Co-Founder Peeyush was recognized as amongst the top-10 Most Influential People in Photography in India by Asian Photography magazine. So he surely knows what clicks with his customers!

“Dancing with Elephant/Winging in the new flat world or Selling to Global Customers”

If IT services companies made the world flat, Saas product companies have made it even flatter!

While Zoho remains the pioneer, we have seen many SaaS companies FreshDesk, WebEngage, Wingify, Capillary Technologies, ChargeBee among others whose products are proudly Indian and that are selling to customers from across the globe. What does it take to build a global SaaS company out of India? More importantly, what does it take to sell to customers you haven’t met or even spoken to? How do you price your product so that customers from across geographies can buy it? How do you take care of the differences in the customers expectations, time zones, languages, even customs and culture across different regions? After all, every product has a personality. What about providing support to global customers?

Samir Palnitkar (ShopSocially, AirTight Networks) & Girish Mathrubootham (FreshDesk, Zoho) will facilitate this session. You wouldn’t want to miss this session unless you want to see your dollar dreams go sour!

The Optional Sessions

“Customers Buy Features, Not Benefits or How To Think Customer First?”

Here’s a quick question – which is the Indian brand that has grown the fastest in recent times and its identity (hint, hint!) transcends all barriers of language, region and religion? What’s more, it is very much an Indian tech startup! Yes, you guessed it right. It is Aadhar. Meet Shankar Maruwada, who gave the Aadhar its brand name and developed its identity and made it into the household brand it is today. Get to know how to place yourself inside the customers’ heads, try and understand what factors play in their decision-making and how you can approach your customers better by anticipating what’s possibly on their minds.

If you want to get a sense of what’s in store for you, watch this video

http://www.youtube.com/watch?v=cTNVTaPXfqI#t=58

Well, you wouldn’t want to be that fish which can’t understand how people live without water!

“How to get featured in TechCrunch, spending $0”

It’s true that media coverage alone isn’t the true barometer of success of a startup. But hey, when has positive media attention, especially from a top global publication like TechCrunch hurt any startup? That is of course, assuming that the product is a good one!

For a lot of product entrepreneurs, getting featured on TechCrunch is a dream and considered as a good means to be visible in front of a lot of people – customers, investors, partners among others. So what does it take to get featured in TechCrunch? Considering they’d be getting hundreds of requests each day, do the writers and editors there even read such emails? Do you need to hire a high-profile PR agency and spend a lot of money?  Or should you just build something meaningful and the coverage will happen by itself?

Valorie Wagoner, Founder of ZipDial, has done that and been there (on TechCrunch). ZipDial is one of the fastest growing global startups emerging from India and Valerie will share her experiences of getting covered in global tech blogs and tell you how your startup can also get featured with no money spent!

“Positioning for Getting Acquired”

So you think acquisition only when you have reached a certain level and scale of business? Well, that’s what a lot of entrepreneurs in Bangalore thought before they attended this round table. How do you know if the time is ripe for your company getting acquired? How do you choose between multiple suitors you may have? What are some of the key things one should keep in mind so that all the stakeholders have a favourable outcome? While an acquisition is a regular business transaction in the US, do we Indians get (needlessly?) emotional about it?

Jay Pullur, Founder and CEO of Pramati Technologies and Sanat Rao, Director, Corporate Business Development (Emerging Markets) at Intel will facilitate this session. iSPIRT has a very active M&A initiative with Jay and Sanat actively leading the M&A Connect. You’d surely not want to miss this opportunity to understand how you can set yourself up for a nice acquisition.

“The Forum or Where You Can Bring Out Your Worst Fears!”

Every CEO needs somewhere to turn for the insight and perspective only trusted peers can provide. When such peers meet together in a setting where there is an atmosphere of confidentiality, respect and trust, it can become a supreme sounding board. We will call such a setting a “Forum”. Such a forum can become most valued asset for the members, because the maxim holds true: it can be lonely at the top, but it doesn’t have to be.

At #PNCamp, we want to experiment, for the first time, with building such a Forum by forming a small group of peers who meet regularly to exchange ideas, thoughts and experiences on the issues that matter most to them. During the first meeting at the PNCamp, this group will be taught effective forum techniques, a set of protocols and a shared language that creates immediate and meaningful connections among members.

We expect that once created, the Forum group will periodically meet either in person or online with the following agenda:

1- Update each other by looking back since the last meeting and looking forward

2- Identify, discuss and park business issues that are typically Important but not Urgent

3- Make presentations around these issues and get non-judgmental feedback from the fellow members

I’ll end this post with a quote from the very inspirational movie, The Shawshank Redemption.

Dear Red, If you’re reading this, you’ve gotten out. And if you’ve come this far, maybe you’re willing to come a little further. You remember the name of the town, don’t you?

Of course, you remember the name of the town. It’s Pune and we look forward to see you in Pune on Dec 4 and Dec 5 for #PNCamp.

PS. After all this if you haven’t still applied for #PNCamp yet, we’re afraid you may be a little late. Apply Now here!