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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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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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In conversation with the Founder of RippleHire – Sudarsan Ravi, participant – @Intech50 2014.

RippleHire is a SaaS-based employee referral product.

Tell us about RippleHire – your journey so far…

We help companies automate their talent sourcing by leveraging their employee pool.

We spent our first year working with the ecosystem getting feedback and crowdsourcing problems on hiring. Only then did we begin our sales process and that too with the top global brands, so that we get the right folks to get the product experience and results right.

The journey has been challenging and exhilarating – full of the regular highs and lows that every entrepreneurial journey has, along with the crazy experiences and insights that come with building a global company.

RippleHireWhat challenges did you face during the course? Any learnings from that? 

It was initially tough for us to go after brands like Adobe, McAfee, Capgemini. Convincing them to be among your initial customers was not easy. People love social proof and we will be eternally grateful to our first set of customers who have co-created this innovation with us and helped provide the social proof.

If I were to do one thing differently, I would focus directly on global customers.

Do you think that getting access to/finding investors is difficult in India? 

I don’t think getting access to investors in India is difficult at all. We have always believed that investment is a by-product of building a good scalable business. Our focus as a team has been about building a product that adds value to our customers (the real proof came through when they paid).

I always recommend startups to not focus on building a business for investors but for customers. Do take the inputs that the investors give you on the space and the approach. Factor that in. However, build the business to add value to customers.

Our approach has meant that we have always received inbound interest from investors. So, I think getting access to investors is definitely easy if you focus on building a good business.

Why did you consider participating in InTech50? 

We wanted to get validation from Indian and Global CIO’s on our concept. It was wonderful to have multiple CIO’s stop by our booth post our presentation and share their hiring challenges.

It was a great way for us to get feedback on RippleHire. Not only that, it helped us bag customers too.

How has getting shortlisted for InTech50 helped you? 

Being recognized as one of the top 50 innovative software companies coming out of India helped us a lot from our sales standpoint. People in India, and globally, take you seriously especially when the validation for the software comes from CIO’s.

We have also grown by 10X in the past year.

Who were the people you connected with as a result of InTech50, and can you give us a few specific examples of what those introductions translated into? 

We were able to get feedback from multiple CIO’s and introductions to prospects like Happiest minds and Ascendum through this platform. Ascendum signed up RippleHire as a customer as well.

What advice would you give to other emerging companies as they plan their scaling up?

Every startup is different and has different challenges when it comes to scaling up. I think it is important to get the following right when it comes to scaling up –

  • Your customer support and product experience should be consistent. Think of a Pizza Hut. As they scale customers, it is important that the Pizza quality stays the same.
  • Scaling well is about putting the processes in place that the experience stays the same. Getting this in place requires thinking of your engineering, sales and support teams in the form of units. Once you get one unit right in your support engine, scaling is about replicating that unit.

One recommendation I would give out to the InTech50 participants this year is that – research the sectors that are of interest for you. Hiring in our case is sector agnostic. It would have helped us if we had picked three sectors and focused on attendees from that space.

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Pricing your SaaS Product and how we did it at Sosio

In case you aren’t updated on the current affairs, 2014 is shaping up to be a controversial year; and we’re not referring to Justin Bieber’s antics, Mr. Kejriwal’s dharnas or Mr. Modi’s development stories. Instead, a new contention is brewing in the annals for us which is every entrepreneur’s one of the worst nightmare: deciding how much to charge for your product 😉

Pricing is one of the most difficult things to get right. There are several questions that come to us, and its good if we can get an answer for each of them. Should my MVP be free? When should I start charging? How much should I charge? Will I lose my first customer, if I start charging higher? Will the freemium model work?

We get into these FUDs(fears, uncertainties, doubts) because whenever you ask for money, there is friction, which cannot be removed, it can only be minimized. The best way to overcome these objections is to prevent them from happening. Well, I tried to study, how other people, were addressing the same problem, and tried to come up with one for my own product. Its taken more than 6 months, and hours of brainstorming with few of the amazing folks for me to reach here. I will try and summarize few of them.

The trouble with software pricing

Pricing is a basic economics thing. Unlike traditional manufacturing products, where there is a fixed cost of raw material, labour, transportation etc. a cost price for each unit is pretty clear. On this objective value for each of the unit, the sales team, tries to create a perceived value of the product, based on reference points of competing products, and after a basic survey of the demand curve, a price point is generally arrived.

For softwares, the case is slightly different. After break even, the price of a new unit, tends to be negligible. So defining an objective value for each unit becomes tough. Chances may be, the product you are creating may not have a direct competitor, or if there is an alternative it might be free. In that case, extrapolating from a reference point becomes tough.

The price tag you put on your software, is one of the most challenging thing to get right. Not only, it keeps you in business, it also signals your branding and positioning. Iterating on the product, is far more easier than on the price. Lowering the price is generally easy and appreciated but it takes to be an Amazon to demonstrate it profitably. Increasing the price, is tough, because it adds to the churn. So doing the most you can, to get it right, generally accounts for a successful business in making.

Addressing few of the initial Questions

Should I charge for my MVP?

Despite validating the problem that I was solving, and clearly mentioning the price point during the customer interviews in my initial stages, I used to be afraid of asking money for the product, because I had a fear, the product is not ready, the Minimum Viable Product was minimal, I was not sure of the hidden bugs and I was not sure, how deeply have I solved the problem.

The two thought leaders Steve Blank and Sean Ellis had the following to offer –

Steve mentions pricing to be one of the important questions in your customer interview, this helps you validate that the product’s value proposition is compelling enough for them to pay, and the problem is worth solving. Once the MVP is built, Steve asks you to sell it to your early customers. There is no clearer customer validation than a sale.

Sean Ellis, removes pricing to the post-product/market fit stage:

“I think that it is easier to evolve toward product/market fit without a business model in place (users are free to try everything without worrying about price). As soon as you have enough users saying they would be very disappointed without your product, then it is critical to quickly implement a business model. And it will be much easier to map the business model to user perceived value.”

Well both of them have their own merits. So I did an A/B with my customers. I offered two of them, the software for free, and mentioned to the other that we will be charging. The folks who were given free product, did not use it and it got shelved, whereas the ones who were paying, had feature requests, reported few of the bugs they came across, solving these bugs, and responding pro-actively helped me develop better relations with them. The free users asked for additional features, whereas the paying users asked for improved features, which eventually meant a better product.

Personally, I align more towards Steve’s side, because, the best validation you can get for products value prop. is the customers’ bucks, and if it gets figured out initially, nothing like it.

Should I go for a freemium model?

Lincoln Murphy has a white paper on The Reality of Freemium in SaaS which covers many important aspects to weigh when considering Freemium, such as the concept of quid pro quo where even free users have to give something back. In services with high network effects, participation is enough. But most businesses don’t have high enough network effects and wrongly chase users versus customers. The notable point in the above paper is – “Freemium is a marketing tactic, not a business model.”

People have struggled with freemium, and dropped it, with few exceptions of Wufoo and FreshBooks. The conversion for free to paid accounts has been relatively low even for Pandora, Evernote, and MailChimp. 37signals has greatly deemphasized their free plans to almost being fine print on their pricing pages.

Its not impossible to launch successfully with a free plan but things can get easy, when we simplify freemium, not look at it as a business model, with the only objective for it being to get people using your product in a manner that makes them want to pay for more advanced features.

What should I consider while pricing my software?

There are a number of ways to approach this problem.

The amount of money a customer is willing to pay, primarily depends on the following two factors –

  1. Value extracted from use of the product
  2. Emotional Willingness to Pay, which is an after effect of perceived value of the product.

And hence, two of the most obvious pricing strategies are –

Pricing based on the value provided

This is customer-first strategy. The amount of value each customer gets out of using Sosio, corresponds with the amount they pay us. Tried doing it, but devising an excel sheet, where in we could go and show, that you used sosio for X, and it increased your value Y times, is something, we are yet to find.

Pricing based on cost

This strategy takes care of our engineering team, sales cost, server and other rentals. This is generally intuitive from an engineering perspective. Pricing based on the number of accounts, the amount of data that is processed and saved, give us a good number, as to how much we should charge.

But the above approach makes it a uni dimensional pricing strategy. Our product is not just the product, its the customer support, its the number of users, its the problem that we are attempting to solve. The Quality of Support we provide, the response time of the support, Email Support versus phone support versus in person support, number of support incidents, product features and depth of usage are other metrics are other dimensions to reflect upon while deciding the pricing.

There are several params, to consider, and you can go on complicating your pricing and creating complex tiers. Even, I was doing one, till I read this post by Dharmesh Shah, and how he randomly arrived at a price of USD 250. I could have gone for a ballpark of maybe 20k INR, but here is how I arrived at what I arrived – I had few features, which other softwares, were providing as well. I have tied down features, uniquely, but my software, as of now, lacks the depth that these enterprise softwares offer, primarily for 2 reasons –

  1. those features will add to the complexity of the product and cost.
  2. the customer segment, I am targeting, does not require such depth.

What I tried was, brutally trimmed the price 10 times, of each of the features, and talked to customers. They were not willing to pay that much, but because I wanted to get started, I reduced it 50% further, the ones who were, happy, continued, the rest were a good bye.

With subsequent improvisation of the product, the prices will increase, and we will keep iterating on it.

Another advice, I got, while I was discussing my pricing strategy with Prof. Prem was to charge for the service and strategy. Well I don’t want to go into the details of how, an analogy can be if you are selling Adobe Photoshop, reduce the price of software, and charge for educational offers. It is working for me, two of my customers are happy with it.

Deciding a pricing tier

The four things to be taken care of, while deciding on pricing are –

  1. The price tier should be simple(Mixergy just uses the names of the plans as calls to action)
  2. It should be easy to compare, with the competitors.
  3. You should help people choose a plan.
  4. Avoid giving, too many choices. (The paradox of Choice)

An easy way of arriving at the tier is, creating customer persona, and segregating them.Your pricing tiers are a visual representation of where your buyers fit in your business model, and each tier should align to one type of customer.

Tiers makes sense for a lot of startups. But as of now, we are doing without it. Because based on the 50 customers I talked to during the sales process, most of them, got stuck, while I was explaining them the pricing model. If you’re a startup (or any software company) consider if your customers really need the additional pricing levels.

To end it all –

“Although scientifically purer, it often doesn’t make sense to change a single variable at a time. Theoretically, you shouldn’t change the price of your product, your discounting strategy and the types of bundle that you sell, all at the same time. But practically, it can be the right thing to do. It’s more useful to fix the problem than to understand why it’s broken. When a scientist goes on a blind date that doesn’t work out then, in theory, he should fix one variable at a time, and re-run the date. first, he should change the partner but go to the same film and buy the same flowers. Next, he should keep the partner the same, vary the film and keep the flowers the same, and so forth. but the pragmatist in him will, or should, change the girl, the film, the flowers, and buy some new clothes and shave too. If it works, he might not understand why, but at least he’ll have girlfriend.” – Neil Davidson

And this awesome piece by Seth Godin –

Go ahead and act as if your decisions are temporary. Because they are. Be bold, make mistakes, learn a lesson and fix what doesn’t work. No sweat, no need to hyperventilate.”

Guest Post by Saket Bhushan, ADFL at Sosio Technologies

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Piracy and freemium killed the Indian software buyer

Nobody in India buys software.

If the above sentence draws your attention, read on! If you are based out of India, think of the last time you bought software (yes packaged products). Now think of all your friends and guess when they bought software. Now, here’s the clincher, “When was the last time you bought software made in India?”. 99% of the people, irrespective of their socio-economic status will respond in the negative. lr-processed-0399

Product evangelists will now talk about the cloud/SaaS and the subscription economy, and how it is the great leveler when it comes to software products. As an entrepreneur selling a SaaS software in India, let me be the first to tell you that it is really hard work. Most entrepreneurs have told me that the Indian customer is price sensitive, I say, a majority of them are insensitive. Now don’t get me wrong. I don’t wish to rant. I am trying to catalog and present reasons why selling SaaS software is hard. Here’s what I think it is:

Let’s talk a little bit about the Indian software market

In the last two decades, India has seen two revolutions which helped create a large software market. Firstly, the economic deregulation in the 90s which enabled a steady growth of the economy, disposable income and import of technology. Secondly, the telecom, and subsequently the PC and mobile revolution that has created a (supposedly) large software consumption market. PCs, Laptops and tablets are now commonplace in Urban and Semi-urban India and the latest numbers indicate 15 Million broadband and about 100 Million mobile internet users. A look at these gargantuan numbers and you might begin to assume a large consumption market, but to give you a sense of reality, let me ask you the same question one of my mentors asked me – “Name 5 large Indian software product brands selling in the Indian market”

Enterprise software is probably your best bet

If you are selling software, the enterprise market is probably your best bet. Bharat Goenka, co-founder of Tally solutions, said that “In developed economies, SMBs act like enterprises and in emerging economies, SMBs act like consumers“[2]. Many of our customers are SMBs who are looking to use technology to grow some component of their business. And most of the times, we don’t deal with the company, but with empowered employees. The ones who have a budget at their disposal and are forward looking in their outlook. What we found was that the same stigma that existed in the 70s and 80s in the US software markets exists in the Indian SME customers of today. A lot of them look at software as something that will displace them in the organization and are extremely defensive in the matters of adoption. But we all know how that worked out in the US and UK markets and I am hoping India follows a similar trend.

Oh wow! I never knew you could do this

A lot of people we have met have been genuinely surprised at what our product does. It’s tough to manage these customers because we spend a lot of our acquisition time on sensitizing them about the problem before we present the solution. Even if you are doing something radically new, it is easier to bucket yourself into a genre that is popular and accepted. For example, we are a customer conversations player, but it helps if we refer to ourselves as a Social CRM or a marketing insights product. Ignorance about a genre of products has a big pitfall – customers don’t know how much to pay for the solution. This is really tricky because it usually leads to a customer deliberating on paying for the solution.

“But we can do this for free on Google”

Freemium is both a good and bad thing. Almost every customer of ours expects a free trial for a few days. In the products eco-system it’s become a norm,  but a lot of productized service companies I know have been asked for a free trial on bespoke software. Most users don’t understand the price they are paying when using services like Google or Facebook and usually expect the same when we tell them about our “use on the browser” service. Usually this means we have to get into a lengthy explanation about  why our product costs so much. The best experience I have had was when a customer, who understood the online advertising economy, asked us if he could use an ad supported model of our service for free!

Freemium might be a viable option early on but when looking at growth and scale, I don’t believe freemium is a sustainable economic model. It is a marketing tactic at best!

“muHive crack codes”

One morning, while peering through our website analytics, we were surprised to find a search keyword “muHive crack codes” in the list. This was a good and a bad thing: good because some customer actually found our service good enough to look for a cracked edition, and bad because we knew this customer wouldn’t pay. And yes, if it’s crack worthy, then it is probably good software – that’s the Indian psyche. Industry estimates put the total value of pirated software used in India to be upwards of $50 Billion[3]. Why won’t we pay for software? That’s a long post in itself, but to be brief: piracy was not controlled in the early days of the PC revolution and hence the assumption that software is free. Also, cost of software has always been calculated based on the affordability and costs in developed markets. To illustrate my point, I will end this section with a question – If Microsoft Windows were to cost Rs 1000 instead of $149 (Rs 9000) would the piracy numbers be different?

The pricing slope

Researchers put the Indian middle class at earning $10/day or roughly $300/month. To give you an estimate of why this matters, the urban poverty line stands at $14/month – yes, a month. The Indian middle class is about 100 million people and $300 per month usually supports 2 to 3 people on an average. Now when you think in these terms, you can imagine what the cost of ownership of a $149 software sounds like. Add the fact that software is a non-tangible artifact and you understand why Indian customers are extremely cautious when it comes to software purchases.

Even with enterprise customers, your pricing strategy has to be “just right”. And you have to account for discounts. A majority of the Indian customers we meet ask for some form of special pricing. Now, this might not be a trait which is unique to the Indian market, but understanding the cultural and economic context of the demographic becomes very essential when it comes to pricing. Marketers talk about using tricks like prepaid accounts (India has a large prepaid mobile subscriber base), daily subscription and data based pricing but all of them have the underlying assumption that the customer is willing to pay and understands the cost of the solution.

In conclusion

All these are what we have found to be the issues with selling software in India. Even though we have good answers to some of the questions our customers pose, in my opinion, it will still take a long time for the Indian software buyer to evolve and for good product companies to make a mark. Rather than end on a dismal note, I will now list down what actually seems to be working for us, and also some insights from other producteers.

– Customer don’t mind paying for bundled software. Hardware, especially mobiles and tablets might actually help in software sales.

– Customers will pay for immediate utility. What someone referred to as “First order business” solutions; meaning something that can make them more money instantly. Example: Email and SMS marketing solutions. Customers don’t mind paying for advertising and reach.

– Customers usually pay when they feel they are missing out on revenue or an opportunity. A loss averse technique to selling is what we have seen work best.

References:

 

 

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Success Factor: Idea with Business Potential

Every engineer dreams of building his/her own product. Most ideas don’t progress any further, either because it was idle thinking, or on further reflection, they become less interesting. When a concept refuses to die, and you feel driven to explore it further, then some basic analysis must follow. What problem does it solve? Who benefits from the solution? Can you quantify its impact on the beneficiaries?

Ideas emanate in a number of ways. They can be a solution to problems that you observed at work or elsewhere. Perhaps you have spotted new opportunities arising from evolution or disruptive change in technology, environment or circumstances. For example, the advent of the PC, internet, and broadband connectivity over the past three decades, led to software that provided unique new functionality (e-mail, internet chat) or simply a new and better way of doing old things (online purchases).

Many companies have succeeded by catching a new technology curve early, and overcoming existing players (Microsoft with PC operating system, Novell with networking, Hotmail with internet mail, and recently SalesForce.com with SaaS).

Responsiveness to technology shifts is not an attribute of only small companies. IBM, for instance, has adapted to several generational changes in hardware and software. After its formal naming in 1924, IBM has seen competitors appear and fade away in the punched card, mainframe, minicomputer, PC, networking and the internet eras. Through them all, it has remained the No.1 technology company by re-inventing itself.

In comparison, here is what the CEO (Ken Olson) of Digital Equipment Corporation (DEC), a mini-computer vendor and strong IBM competitor, had to say in 1977, “There is no reason for any individual to have a computer in their home”.

Not surprisingly, DEC was eventually over-run by the PC revolution. IBM, on the other hand, launched its PC in 1981, and tied up with Intel and Micro- soft, to emerge stronger.

Your generic idea should be transformed into a rough product concept. Entrepreneurs should have sufficient domain and technical expertise to conceptualize how the idea, combined with its practical implementation, can address specific user or industry challenges. You can then, scope the problem and formulate a distinct and bounded solution.

The next step is to explore who your customers will be. At the most basic level, the product should provide a good solution to a known problem for a reasonably large set of people. The product may enhance a capability (what it can do), process (how to do it), performance (speed of doing it), or usability (ease of use) relative to the current methods. It must be reasonably unique and fairly difficult for someone else to quickly emulate.

Ideas don’t have to be unique to be successful. Excel overtook Lotus 1-2-3, the leading DOS spreadsheet, only because Lotus failed to make the transition to Windows quickly.

Sometimes, leaders don’t recognize disruptive changes. In a 1998 paper, Google’s founders described an innovative concept called PageRank, which took advantage of the Web’s link structure to produce a global importance ranking of every web page. This helped users quickly make sense of the vast heterogeneity of the World Wide Web. AltaVista, the leading search engine amongst 30+ others at the time, turned down the chance to buy Google for $1 million, saying spam would make PageRank useless. Yahoo also declined to purchase Google, supposedly because they didn’t want to focus on search, which they felt only sent users away from Yahoo.com.

Size also does not guarantee success. After their search engine and Gmail made Google into a challenger to Microsoft, they attempted to target Microsoft’s cash cow (MS-Office) with an online spreadsheet in 2006. Analysts expected this to eat into Excel (and Office) market share, but the latter continues to dominate. Still, in 2009, this competition forced Microsoft into announcing a future online, free version of MS-Office.

Ideas are like movie scripts. Most of them sound familiar. They are often a combination of previously seen sub-plots, with new twists added. Still, many of them become successful, especially if they have some novelty and are executed well. Even remakes succeed if presented differently. Very rarely do you see a hit movie with a truly unique script.

Reprinted from From Entrepreneurs to Leaders by permission of Tata McGraw-Hill Education Private Limited.

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“For a product business the product roadmap, customer segmentation and a delightful user experience are extremely crucial.”

Started in 2011 with only three employees, Emportant has grown to serve thousands of users with their cloud based end-to-end HR and Payroll products. Co-Founder and CEO, Emportant, Sandeep Todi says his company is focused to appeal to firms that would identify with its motto, ’Employees are Important’.  In an interview with ProductNation, he says his biggest learning is you must always take good care of your customers even as you keep expanding.

How would you describe the shifting paradigm from Outsourcing software to Software as a Service?

Software as a Service (SaaS) allows you to try business class software with ease and without being tied down with painful and expensive procurement and deployment cycles. With no upfront investment, it’s easy to try and buy SaaS products. In that sense, a SaaS network of products mimic the behavior of a ‘technology grid’ that you can tap into. In contrast, building custom software is like installing a captive power generation unit at prohibitive cost that is hardly justified when the grid is at your doorstep.

Companies have also realized that SaaS is not just amortizing costs over several years, but a new way of thinking. You are not selling a box, rather a product that’s constantly on the move. SaaS products see anything around 4-12 releases a year, are built on rapid release cycles. Moreover, customer feedback is acknowledged and incorporated in these rapid release iterations, something which is impossible in outsourced software or licensed software. The customer is therefore always on the latest release and does not suffer from “version fatigue”. Businesses are realizing this by adopting SaaS products with very little risk, tasting success and then quickly going on to embrace this new pedagogy.

In what way does this new model benefit users in terms of effectiveness, cost and support?

This SaaS apps-grid or ecosystem of apps that can co-exist with each other, is becoming more powerful by the day. No outsourced software is able to deliver this as elegantly and as cost effectively as SaaS product delivered over the cloud.

SaaS software is able to deliver benefits rapidly through new releases and eliminates risk of obsolescence. FUD (fear, uncertainty and doubt) has been used by traditional software vendors, scaring users about impending obsolescence. Having left with little choice, customers had to regardless opt for expensive upgrades and consulting efforts. A transparent SaaS business always keeps users on the latest version and ensures that this version works 100% with all customer environments. This dramatically lowers the cost of maintaining the product because you are no longer dealing with different versions that must be supported for different customers.

Tell us the story about your recently launched web based HRMS and Payroll software, Emportant? How did it happen?

We are in the HR software business for nine years now. Having sold our product PowerApps to several mid-to-large enterprises, we delivered mission critical and high performance HR/Payroll software to customers like Bank of Baroda, Ford, TI Group, ITC, L&T, GTL etc. In 2009, we wanted to adopt cloud computing in a big way and struggled for two years. It was then that we decided to carve out a separate company and a separate product for the cloud – this was the genesis of the birth of Emportant in 2011.

In creating Emportant we initially feared it would cannibalize our own product PowerApps. Thankfully, that did not happen and now both products have a good market presence of their own in two different customer segments.

Emportant.com drives every HR process with the Employee at the center. Every HR / Manager / Employee interaction can be initiated by the Employee and is available on a self-serve platform.

How easy or difficult is it to market a software product in India?

The going was pretty tough in 2011 as cloud was not very well accepted back then. Now it’s different, as CIOs are less wary about the cloud and more concerned about the stability of the vendor, maturity of the cloud product, etc.

Custom software is still viewed as a viable alternative primarily due to the inexpensive cost of hiring programmers. Moreover for a product sold to mid-market and large businesses, you have to traditionally sell one-to-one, engage in multiple meetings and convince customers about the solution fitment without landing into the trap of customization.

What are the factors that make a successful software product and the challenges faced in taking it to the market?

For a product business the product roadmap, customer segmentation and a delightful user experience are extremely crucial.

We have focused on how HR can be employee friendly and have a focus on achieving business results using software tools. The product’s benefits must be easily understood and should quickly demonstrate value. We have successfully kept bringing original thought and real customer feedback into our product, coming out with unique and uncomplicated ways of solving business problems.

Emportant drives HR administration in real time and moves away from the concept of HR software being only a system of record. This model of ours has led to a success rate of > 80% in converting prospects to customers.

We are now looking at stepping up our efforts on social media and on overseas customer acquisitions. Establishing credibility amongst large customers continues to pose interesting challenges and working with business partners means we have to convince them about long term value vs upfront margins.

What is the future of software products vis-a-vis services?

Software products and services will always have their own separate customer segments. I don’t think software products can solve every business problem out there and services have an important part to play. Customers are beginning to realize that service consumption burdens them with unreasonable costs of operation and in an increasingly competitive world they would rather adopt a product if one exists which can meet their requirements. The benefits of products to the customer in terms of cost, sustainability and continuous improvement are already well established.

Look at Dropbox’s recently announced Datastore API. They have just commoditized the offline storage market for independent app makers. In fact, storage is now being turned from a service into a product as will be any service which can be wrapped into a standardized and repeatable delivery.

What learning would you like to share with other product companies?

Every launch of a new version is a learning experience for us. We are faced with the challenge of what to build in the next version, how does it affect pricing and how does it affect our current customers. What we’ve learnt is that you must always take good care of your current customers even as you keep expanding. To ensure this, we reward existing customers with new features for free whenever we release new versions and keep them protected on price changes perpetually.

What role do you foresee ProductNation to play in nurturing the growth of software products?

The biggest obstacle to exponential growth of Indian products is the lack of access to experts in marketing, product growth and cutting edge technology. Too many companies face mortality because of an idea or execution gone wrong.

ProductNation will hopefully help overcome these hurdles quickly and open up the opportunity for Indian products to be recognized globally.

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5 Essentials of SaaS Revenue Models for Product Companies!

Enterprise as well as Consumer Software is moving fast towards a Software As A Service (SaaS) model. Who would not like paying a per user, per month charge as opposed to doling out huge amounts of money for licenses upfront and paying 16 to 20% Annual Maintenance Charges year after year! But the short history of SaaS companies is already full of companies that grew too quickly, or chose the wrong pricing or customer acquisition strategies, ran out of money and had to go out of business! The same revenue model for a SaaS product business can also become its Achilles Heel if it is not understood and managed properly!

Understanding SaaS Revenue Models in all their glory is key to building a sane, reliable and successful way to build a product company. There are a few venture capital companies that have had lots of practical experience building successful SaaS companies and can share with you a lot more detail. Like Matrix Partners’ David Skok who has written almost a thesis on SaaS economics – here is a sample –  The Saas Business Model – Drivers and Metrics. David has partnered with HubSpot and NetSuite for all of this exploration and they must know what they are talking about! Other good references are  Doubling SaaS Revenue by Changing the Pricing Model and SaaS Revenue Modeling: Details of the 7 Revenue Streams.

But for a start, here are 5 essentials of SaaS revenue and pricing models a product startup needs to remember for success:

1. Monthly Recurring Revenues Vs. Getting them to pay Annually:  Get your customers to pay annually if you could (depending on the nature of your product – enterprise or consumer facing). It’s a hassle for them and you to process these invoices every month and follow up on late payments, etc. It has a clear effect on the cash flow. Plus you may not have to worry about churn that much since they are not making that decision to pay you month after month where they could pause and decide to churn! If Annual billling does not work, try at least a quarter at a time. It may not be worth all the processing time doing it month after month.

2. Churn and Negative Churn:  Churn is the periodic turnover of your customers. Companies mentioned above have found that about 2.5% to 3% churn is OK. You need to be concerned if it goes beyond that. However with Up-selling and Cross-selling, you can actually make it positive churn too! This is when the marketing funnel that becomes narrow from the top becomes broader again with upselling and cross-selling. Which brings us to discussing more of the shape of the Marketing Funnel when it comes to SaaS Vs. non-SaaS product companies!

 

 

 

 

 

 

 

 

 

3. Marketing Funnel Economics: 

The marketing funnel on the left shows a typical one for non-SaaS product companies. The one on the right shows the one for SaaS product companies. The main difference is the top of the funnel is much wider and uses organic traffic, in-bound marketing, search engine marketing and optimization and prospects from other paid sources.

 

 

 

 

 

 

 

 

 

The relative sizes of the tops of the funnels also show the difference between how wide the top of the funnel needs to be for SaaS product companies!

3. Balancing Customer Acquisition Cost (CAC) vs. Customer Long Term Value (LTV):  There are only 8 hours in a day for selling. Traditional licensing models offer an initial large amount in a sale and annual maintenance fees of about 16 to 20% every year after that. SaaS models may offer a smaller initial set up fee and uniform cash flow month after month, year after year after that if you keep the customer. So you need to line up more clients in a SaaS model for reaching the same level of sales as when closing traditional licensing sales deals. So you need to necessarily reduce Customer Acquisition Costs (see the widened top of the marketing funnel in the figure above – that’s what that represents).  Some rules of thumb regarding CAC and LTV are that the Long Term Value of the customer needs to be greater than 3 times the Customer Acquisition Cost and the months to recover the Customer Acquisition Cost should be less than 12 months! This also makes a compelling case for designing and developing related products and do some effective cross-selling and up-selling enabling you to realize that Long Term Value even if your CAC is high! Also making sure that you get the Customer Acquisition Cost in less than a year takes care of the problem of churn and if they continue after a year, you have already made your money!

4. Repeatable Sales Model:   SaaS product companies rarely can afford the same direct sales model that non-SaaS models do. This is just given the smaller initial sales numbers even though the revenues are recurring rather than an initial large amount and 20% every year after that in maintenance fees in the non-SaaS traditional model. This makes it imperative that the SaaS sales model is easier, quicker and repeatable.

5. Scaling Pricing with Customer Value:  Many SaaS product companies shortchange themselves by improving their product so much that they provide much more customer value than they are charging them for. Scaling pricing by clustering value adding features together and packaging them and offering them as upgrade packages is key in ensuring that your pricing keeps up with the value your are providing.

These are only some basics. I highly recommend checking out the references I have earlier in this article. There is a treasure trove of experience and knowledge about how to make it work, all online and free!

In sales, a referral is the key to the door of resistance – Bo Bennett. 

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Cloud Services and Mobile Apps

In addition to vendors of traditional on-premise products that are shipped or downloaded via web, a different generation of providers is fast emerging. They are leveraging new technologies and business models, often interchangeably referred to as cloud services, Web 2.0 or SaaS (Software as a Service). (Not all SaaS products are truly cloud based but the differences are not relevant for this discussion.)

SaaS considerably simplifies application deployment and upgrade challenges. Software is hosted at one site (vendor’s own or through a provider). This reduces development cost since the deployment environment is controlled. There is no distribution expense, though deployment charges can become considerable to support a large base of users.

The SaaS model is important for India. Making geography irrelevant, it enables anywhere, anytime apps and services for a fl at world. Indian Web 2.0ventures can now reach out to the world market without the huge cost of sales that enterprise software companies have to bear. They can compete directly against global players.

Cloud services adoption will depend on resolution of a few major concerns. One is security of personal and corporate data in the cloud. Secondly, guaranteed near 100% uptime will be critical for mainstream enterprise apps to move to the cloud. Reliable access will be a big factor in India for a few years, despite the phenomenal growth in broadband connectivity. Uptime has been an issue even in US, with large players like Google and eBay facing major outages in their online services.

The most widely used cloud service is web-based e-mail such as Google’s  Gmail. The standard bearer for commercial SaaS apps is Salesforce.com, which crossed $1 billion in revenue in 2009 in just ten years. It provides web-based Customer Relationship Management (CRM) solution for sales, service, marketing and call center operations.

With over 1.5 billion people going online, SaaS offerings will only proliferate. Amazon.com, which started with selling books over the web to consumers, is now a full-service online merchandise store. Examples in India include IndianRailways.com (train bookings), MakeMyTrip.com (travel services), naukri.com (job related portal) and shaadi.com (matrimonial related).

Similar to cloud services, software apps on mobile phones are becoming more common, driven by the explosive growth in usage. In 2009, cell phone ownership had reached 3.5 billion worldwide and over 400 million in India. Cell phone growth is highest in India, with 10+ million being added each month, cutting across income barriers. The Indian mobile market is unusual in its extensive usage of texting (SMS) and multiplicity of languages. With its ubiquity, mobility and low cost, it is the ideal delivery platform for simple apps (and supporting middleware).

Though SaaS and mobile app vendors often look like a services rather than software firm, they are included in the book because software is the foundation and key differentiator for their business.

There is another reason. With its late liberalization, India largely skipped making huge investments in an entire generation of technology (land lines, minicomputers and even standalone software apps). This proved to be a boon in disguise, and led to rapid adoption of latest advances like broadband and mobile by a booming market. In similar fashion, consumers and businesses may take to this new breed of software products. Small and Medium Enterprises (SMEs) especially benefi t from SaaS by not having to invest upfront in IT infrastructure (servers, software licenses) and buying subscriptions only as required. Similarly, the hand-held is rapidly morphing into a highly integrated device, and is poised to become the key accessory for humans to interface with their environment. The vast majority of Indians will skip the PC and directly use an integrated
device at work and home.

Since the Indian psyche is different, entrepreneurs can build unconventional solutions that refl ect local reality for domestic users. The intersection of new technologies and India’s growth economy has opened a window of opportunity for new firms to leapfrog past existing players with exciting new products.

Reprinted from From Entrepreneurs to Leaders by permission of Tata McGraw-Hill Education Private Limited.

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Profit from Price, Always – The Bootstrapped Story of RateGain

This is part of our “Podcast with a Product Entrepreneur” series. Do check out the 30 minute podcast!

His first fling with business was a video game exchange, while at school. Coming from a family of entrepreneurs, the question was never about the “Why”; it was only about the “When”. A computer science and finance graduate, his stint with Deloitte saw him starting up with a technology consulting business that later led him to this technology product idea.

Meet Bhanu Chopra, the Founder and CEO of RateGain – a B2B price comparison SaaS product for the travel industry –  as he talks about starting up, go-to market strategies, the CNBC Award, challenges and some priceless advice for all software product entrepreneurs.

In business, Bhanu has demonstrated tremendous agility by making quick decisions. His initial idea of a price comparison website focused on the US market, quickly morphed into a B2B offering, given the challenge of marketing to US out of India. Then by licensing technology and acquiring a few beta customers, he not only validated the idea, quickly, but also generated revenues for reinvestment.

Bhanu advocates a Go-To market approach built on two parameters:-

  • Power of a Brand built on thought leadership, where Bhanu humbly accepts being “late in the game”
  • Sales Structure customized to the channel and prospective customer personas

 

[soundcloud url=”http://api.soundcloud.com/tracks/79810846″ params=”color=ff6600&auto_play=false&show_artwork=true” width=” 100%” height=”166″ iframe=”true” /]

 

Straddling across the hospitality value chain with RateGain, Bhanu sees tremendous opportunities for existing products as well as newer products on pricing optimization using Big Data and predictive analytics.

Also an angel investor, Bhanu recognizes the tremendous passion amongst product entrepreneurs but highlights the imperative to persevere and think about the global market. While the team is critical, he concedes that team building would always be a challenge for product companies in India, given the latency of IT services in influencing engineering talent.

We conclude the interview with Bhanu mentioning two of his favorite product companies – Google and ….. – an awesome data visualization company that is just about to IPO on NASDAQ. If you haven’t guessed the name, do listen to the podcast.

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Lessons on Pricing for Product Startups – Consumer and Enterprise!

Since the time Philip Kotler wrote his valuable tome on Marketing, technology has evolved so much that new pricing models like Freemium pricing are possible for both Consumer-oriented and Enterprise-oriented product startups. In addition, Free Trial pricing models and conversion to paid ones are common in both. In a price-conscious society like India, pricing can mean all the difference between a successful company and one that is not!

What have been some valuable lessons learned by companies in the recent past using all of these pricing models? If you were a product startup, what would be some of the pitfalls to watch out for?

Main lessons from using a Freemium Pricing Model for Consumer Internet Businesses

First, here are a few YouTube videos of Drew Houston presenting DropBox’s use of Freemium pricing with consumers, the lessons they have learned, and the pitfalls they encountered.

  • Use of SEO for lining up free users is very expensive
  • Affiliate Marketing is also expensive and does not work very well
  • Make sure that there are enough Paid Users that can support Free Users and you can still make money! Make sure that the Long Term Value (LTV) of Paid Users > Customer Acquisition Costs (CAC) of all users. Otherwise, the more users you line up, the more you lose!
  • Build as many tools that help your free and paid users do viral and word of mouth marketing for you as you are building features!
  • Once you have given something for free, it is very difficult to take it back! But it can be done, as the videos show!

Drew Houston : Freemium for Consumer Internet Businesses, Part 1

Drew Houston: Freemium for Consumer Internet Businesses, Part 2

Drew Houston: Freemium for Consumer Internet Businesses, Part 3

Main lessons from using a Freemium Pricing Model for Enterrprise Businesses

First here are a couple of YouTube videos of Aaron Levie presenting Box.Net’s use of Freemium pricing with an enterprise product, the lessons they have learned, and the pitfalls they encountered. Their product is an enterprise collaborative portal that competes with Microsoft Sharepoint Portal but is hosted by Box.Net.

  • Tomorrow’s Enterprise decisions are made by today’s free users. So keep them happy! They are your marketers inside the company.
  • Sell enterprise freemium models to end users, not IT.
  • Unlike other models, Inside Sales will be taking calls from already existing free users – no need to prospect them. They come already qualified!
  • Conversion is key and is harder in enterprise freemium. This is purely because of the sheer larger numbers in the consumer space as compared to enterprises.
  • Understanding the difference between a “Free Trial” customer and a “Freemium” customer! Freemium customers stay on long after Free Trial customers are gone because their trial period ran out!

Aaron Levie: Freemium and the Enterprise, Part 1

Aaron Levie: Freemium and the Enterprise, Part 2

Dumb Pricing Mistakes

Here is an interesting video on dumb mistakes that people make in pricing, especially multiple tiers with different sets of features. And how to fix them!

Pricing Strategies: The dumb pricing mistake people make (and how to fix it)

Price is what you pay. Value is what you get – Warren Buffett

 

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The little Spark with great promise – Inaugural #PNMeetup on Pricing for Enterprise Sales

When a bunch (around 45-50, I didn’t keep the count) of Product enthusiasts – with experience accumulating into decades – gather at a single place to share their learning on specific topic in a compact & well-moderated session of 2 hours, it’s worth every bit. That’s how I felt coming out of the inaugural session of #PNMeetup – Pricing for Enterprise Sales: Specific & Important Topic, Quality Participation, Richness of Experiences, and Quality Conversations.

The location, Hauz Khas Village in New Delhi, carries a constant buzz and energy. Very apt for a meet-up like this. Kunzum Travel Café (Thanks for being a great host for the event!), should be happy because participants used up every nook & corner of the place. Many of us had to settle down on the carpet with no more sitting or standing space left! Of course, the snacks & coffee was great too. But, that’s not what everyone coming in was specifically looking for (especially since the last 500 yards got harder to make with the traffic and parking situation ;-)).

We were looking for some great (practical, experience based, relevant) conversations and takeaways on Pricing. And, there was plenty of it, coming from speakers as well as from the participants. As much as is possible in 2 hours of time, that is, also thanks to some great moderating & counter-questioning by Arvind Jha during speaker sessions, and Rajat Garg & Vivek Agarwal in the un-conference session.

Tushar Bhatia, Founder of Saigun Technologies, set the tone for Enterprise Products Pricing by sharing his experiences on Pricing Strategies and Sales tactics. Tushar emphasized that Pricing is not a linear decision, but a complex process and subject to assessment from multiple parameters. He also differentiated the Pricing Strategy from Sales Process. Pricing, as per him (in the context set of Business Planning, Scalability, Consistency, Standardization, and a reflection of the Value Proposition) is a guide at broader level, while on sales tactics front, one should be willing to consider the customer & geographic circumstances as well. The decision matrix for Pricing decisions typically is pretty complex, and a product undergoes multiple iterations of pricing models

Pricing for Enterprise Sales
Pricing for Enterprise Sales – Tushar

before arriving at the sweet spot. However, various types of customers may need to be assessed in their own contexts when deciding on a deal pricing, especially in the traditional Enterprise Sales scenario.

Tushar also emphasized that the Enterprise Licensing deals should consider not only the product pricing, but also the other costs (such as, hardware) and provisions (such as, for Product Support). The considerations on TCO are critical, because the customers assess the products, not only functionally, but also very critically from an operational viability perspective in longer term. Tushar also laid out few questions that need to be answered while deciding the pricing model. The detailed presentation from Tushar on “Pricing for Enterprise Sales” can be found here.

The discussion, then, veered towards the product pricing strategies in areas such as Telcos, serving also as a cue for Tarun Anand (CTO & Co-founder at Semusi) to pitch in and provide his perspective. He shared his experiences in working with the big Telcos on working out product strategies and pricing models. They tried out various pricing models, in partnership with Telcos especially, and had mixed results over time before arriving at something that seemed to work. However, pricing remains a volatile when dealing with the larger partners and in more complex ecosystems, such as Telcos.

In Tarun’s experience, one needs to ascertain that the partners in the ecosystem are ready to take your product to the market if that is the expectation. It is also important to ensure that the pricing terms & conditions are clear, and you are able to hold the customers as well as partners accountable in the operational limits as much as you can. After all, you want to focus on running the business and do not want complications of financial & legal nature. In the context of Pricing and products strategy, in areas such as VAS, as per Tarun, one needs to be very careful. “VAS is dead” in his words! 🙂

Tarun also emphasized “there are takers for product at ANY price point”. One need to clearly understand whom one wants to target, and also understand that it’s not only a question of moving the pricing point up & down in inverse proportionality with the volume of customer base. There are various triggers for the pricing, one of which is the “premium value perception”, and also the fact that once you move into a market with a particular price point, increasing it later on is almost impossible without hurting your customer base and overall strategy.

App Pricing Tactics
App Pricing Tactics – Prashant

The heat in the Mobile Apps makes the App Pricing a very sought after topic, and that’s where Prashant Singh (Co-founder at Signals) came in and provided a good framework for the high level App pricing approach. There are two clear distinct possibilities – Free & Paid. Complete Free, as per Prashant, directly leads to an Ad based model for revenue that shouldn’t be a preferred model as such for most app developers. In fact the question is not whether to go Free or Paid. Question is when is the user ready for monetization. “You hit when the iron is hot, as simple as that”, Prashant says.

Prashant provided a high level framework to judge which approach should be adopted by the App Developers, based on the two parameters: “App Life Span” and “Time to Realization of Value”. Based on a combination of the two, one can decide on the high level strategy (Portfolio/Platform/Utility/Device Embedding/Brand Apps…) and Pricing model (Advertisement, Paid, Transaction based, Freemium, Development level, and so on). Check out this presentation – App Pricing Tactics for more details.

One key point that drew interest was around the Price Point for App at the launch time. Contrary to the normal belief, Prashant says, one needs to launch the app at a price point that is higher than the Median price point for the App store. That provides the App Store an incentive to showcase the App, and it is important since App Stores control the downloads more than the “content” or “quality”, at least until critical mass. Growth Curve of the app can be maintained around Median and depending on the value prop of the App, the baseline pricing can be used at sustenance phase. Another strong point of view from Prashant came around the Advertisement model, which as per him is the last to be considered. And if Ad model is considered, his advice is to “not” let the control away – “Always have your server in loop”.

While all the content and discussion, and few laughs in between, served well to our appetites, snacks were served amidst a quick “Unconference” session moderated by Rajat and Vivek. We discussed and debated on some great points. I’m finding it harder to capture every bit here and I don’t want to be partial to only what I remember right now! I hope that if you attended and are reading this, you would be able to add your takeaways in comments section! 🙂

Overall, I had a great time. The highlight of the session, for me at least, was the richness of experience and passion for products. And I met some really cool folks! Many of us hung out until later in the night and continued the conversations, which is a great sign. A small impetus can go a long way, and I’m very excited that Avinash has triggered this spark that all of us as a community have to fuel into a passionate ecosystem around products. Great initiative, ProductNation! Looking forward to the next edition on Jan 19th 2013!

PS 1: And, there was a cake-cutting for Avinash on his Birthday! Great gesture!

PS 2: Some Tweets from the session!

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BrightPod makes collaboration for digital marketers simpler and faster, much faster

Synage Software, more popularly known as the DeskAway guys, are on to their next thing and they are calling it BrightPod. Sticking to their expertise of developing collaboration software, BrightPod is a collaboration tool built specifically for digital marketers. I got an early peek into it and while the the product and the segment they are going after hold promise, it needs work on the interface and a big push on the adoption side.

Just like any other collaboration tool, you create a new pod (a fancier term for project) to get started. But that’s where the similarity ends. Now instead of adding individual tasks to it, you choose a workflow from the existing ones or you create your own (coming soon).

Most common marketing projects like an email marketing campaign, a Google Adwords campaign and a social media campaign are covered. Select the email marketing workflow and all the tasks that it needs are automatically added to the pod. Just assign a client, set deadlines, add team members and you are good to go. Digital agencies, who run the same kind of campaigns (at least structurally) for different clients will find this a huge time saver.

I tried two of the workflows – Google Adwords and email marketing. While the Google Adwords workflow was well defined, email marketing had me lost. The team would do well to reduce the number of tasks or mark the ones that not everyone bothers about as optional. Another challenge going ahead with the workflow would be that a large company works very differently from a startup, who would overlook a lot of the tasks to push the campaign out of the door as quickly as possible.

Moving on, BrightPod has another two more very interesting features. Focus and Round Up. Focus, as the name suggests, helps you focus only on key tasks and drown out the others. Temporarily from your mind, I mean. Marketing, unlike other functions in a company, is typically about a lot of small things coming together to form the complete piece. Star a task that is important, and it will appear in your Focus tab to allow you to, well, focus, on the task.

Before we get to Round Up, you need to get this. BrightPod is meant for marketers, with workflows and terminologies that marketers feel at home with. But marketing never functions in isolation. You have design involved, you have the web team involved, you might have other agencies involved and if you are an agency yourself, you need to get the client in on the project. This is where Round Up comes in. Just throw in the email address of the person you want involved in the conversation and they are in. They don’t have to get on to yet another app, they can just reply to that email and it will get added to the pod.

So far, so good. Now the things that BrightPod needs to improve. Simplicity is one of the main principles BrightPod is built on and while it delivers on certain counts, it doesn’t have the same kind of simplicity that Asana (something I have used extensively) or Trello (something that I have seen in use around) have.

The BrightPod dashboard, the first thing you will see each time you log in, has an activity stream of all the active pods. Every task added, every comment added, every milestone added, every task completed. For me, that was plain overwhelming, given how each workflow adds 20-30 tasks straightaway. When you log into your collaboration tool first thing in the morning, you want to see a list of the tasks that are due, the overall state of different projects and the important tasks for the day. While tasks due are presented in the dashboard, they are on this section on the right that doesn’t catch your eye first thing.

Also when you click on a pod to make additions and modifications, the navigation is different from that of the main screen, again leaving you a little lost. While these are small things that a user can get used to in a week of working with the app, these are things that typically come in the way of getting the buy-in of the whole team to move to a new application, or even earlier during the evaluation phase.

The biggest challenge BrightPod will face with adoption is getting companies used to the idea of having a specialized collaboration tool for marketers. Organizations like to have the same tool for everyone in the organization, so it would be interesting to see how the company solves this challenge.

All said and done, the product is still in alpha phase, so a lot of these things will get better with time. If you are digital marketer, go ahead, sign up for a BrightPod invite and let us (and the BrightPod team) know what you think.

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Dont Take Usage For Granted

Buying vs usage: I read a mention of usage rather than just purchase and it is a very valuable distinction. Let’s focus on that and go deeper in it.

Buying does not necessarily lead to usage and I’m being generic here, spanning genres of  products.  Let’s look at a simple and very common example of a purchase that seldom leads to usage.  It is the vacuum cleaner at residences.  All of us have a desire to keep our  homes clean and so when we see an ad or see a demo of how this gadget can contribute to a clean house, we buy it.  Touch your heart and answer “How many times have we used it  during its lifetime?”.  We in fact have two, one local and another of foreign origin bought when we were abroad.  Both of them are gathering dust (pun intended) in the loft.

Let’s look at another purchase of running shoes, bought with a very good intention of staying fit and healthy.  Branded ones like Reebok or Nike cost quite a bomb but we do not pay much attention to it.  To buy it is very easy but to use it calls for getting up early in the morning, cleaning up, wearing a suitable attire, wear the shoes and go for a jog or  for a run, all of which is quite tiresome even to think of, leave alone doing consistently.

Human beings are a creature of habit and we carry our personal tastes and preferences to our work as well.  So when we read about a productivity enhancement tool that appears relevant to us, we jump in anticipation of lesser work and more results.  Then we go in for a CRM or SFA with mobile modules as well in addition to other bells and whistles.  Mind you, I’m not talking of SaaS or non-SaaS in this context.

And then reality sinks in.  Most of us do not even have a decent database of our customers or an established sales process and so it takes a while to get them on and map them to the software.  Assuming, we do that diligently, it calls for Management focus and emphasis to keep it going on a daily basis.  I’ve worked with bosses for whom reviews mean only one thing: chewing up people whenever they feel like and I’m sure each one of us have had such superiors who had their own whims and fancies.  People need to be trained and re-trained.  And when it is month-end or quarter-end, all hell breaks loose and everything is given a go-by including the systems.  And by this time, the champion of the application would have left or moved elsewhere and then it dies a slow death.

Vendors like us have a big  role to play in getting our products used regularly and that starts with the ease of use within the application, training, support and hand-holding in the initial phases, regular follow-up, introduction of new facilities to name a few. Now the SaaS lobby will cry in joy and say that all that is inbuilt n SaaS and more so because our existence depends on people using our apps regularly.  While there is some merit in that argument, it presupposes that people stop subscribing if they do not use regularly, which is flawed inherently.

Look at the newspapers that we subscribe at home or office, the post paid connections for mobiles, broadband, cable TV or DTH connections for example.  If we look at the usage (which incidentally we never do), we would find that it is probably 10% or even worse but still we continue to subscribe to them, with a hope that we will do so sometime in the future, when we have the time and leisure (which we will never have).  And let us remember that it is our personal money that we are being so casual with. What to say about spending organizational resources which are anyway budgeted for?

There would be a review only when there is a calamity or a huge resource crunch and even then the cuts would be symbolic like replacing clean towels in the wash rooms with low quality unbranded tissues, reducing the number of coffee / tea per employee per day  or downgrading the transport facility from cabs to mini vans.  Rarely would someone do an audit of the usage of the on-demand apps and demand that the subscriptions be stopped.

So let us not be under the illusion that in-premise software is merely a sales or purchase transaction whereas the SaaS model is relationship-driven. The converse is also true because it is about the philosophy of the vendor not the delivery model.

I’ve worn my pads and abdomen guards in anticipation of a mounted attack!!

Post Contributed by Badri Narayanan V S, NRich Software

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Should I outsource the sales function at my technology startup?

I am thinking of writing a series on technology sales, given that selling is my first functional love and I enjoy it more than anything else. (There, I admit it, and yes, more than development even though I am an “engineer” by education). So the next few posts will be focused exclusively on selling for entrepreneurs.

Yesterday I had a friend who came over to get some advice on his startup. 6 years into the business he’d built a $200K+ annual consulting company and had over 30 customers for whom he’d implemented various projects. The average sale was about $20K and since the company was fairly small, (15 people) the CEO and founder was the primary sales person.

Most of their lead generation was relegated to speaking at important conferences and events, after which they’d get a few interested people who were keen to leverage their expertise for implementing a project.

His question was around a proposal he got from another company, which was founded by a big-company sales person who’d built a good network of customers and prospects. The company was offering to help my friend outsource his sales and generate customers. In exchange they were asking for 30% (starting point) of the sale as their commission.

To my friend this seemed on the high side. He’d heard numbers like 10% or even 15%, but 30% seemed large.

So his question was “Is this the right number? Or should I negotiate a lower commission”?

We had an hour to chat about it. I was most surprised he never asked me the question “Should I outsource my sales”? Since I have been running the Microsoft accelerator for the last few months, I have refrained from answering questions I think entrepreneurs should ask, instead narrowly focusing on their specific question and giving them options they should consider or a framework they should look, at to evaluate their options.

Lets do some simple math, I told him. If you are looking to make $200K a year from a sales person, given that your ASP (Average selling price) is about $20K, you will need 10 (roughly) deals for them to make their quota. Since the projects they were selling were fairly complex in nature, the sales person they needed to hire would have to be someone who understood both the customer’s industry, the value of technology to that industry and build good relationships within that industry. So, a fresh out of school grad going for $10K – $15K (in India thats what they make annually) wont cut it.

He needed to hire someone who was a consultative sales person who could not only do the lead generation and selling but also some amount of initial “scoping” of the project. In India most of these people make about $40K annually. These folks would have about 8-10 years of experience (or more) and would have implemented several projects or performed the role of “solution architect”, at their previous role. About 60% of the annual pay of the sales person would be paid as base salary and 40% of it as commission on sale.

Since most of my friend’s customers were in India and primarily in the south, customer travel was going to be fairly minimal, which would cost about $2.5K annually at the high end. Assuming that 50% of his customers were outside the city he lived in and the average customer took 2 trips to close and some trips required 2 people (including my friend who would also help with the sales), the cost of travel was about $2.5K we determined.

To generate leads in a consistent manner, the sales person would have to supplement the speaking engagements my friend was using for lead generation with some events, and a few other techniques, which we estimated would cost another $2.5K.

So in total to generate $200K in business, my friend would have to spend about $45K in hiring, managing and helping his sales person.

Now these numbers are unique to India, but the model holds for the US as well. You might have to multiply each number by 5 to get to the US equivalent, but that’s the norm. Approximately 22.5% of his target or sales was going towards the sales person.

Realistically, the outsourced sales person asking for 30% seemed fairly reasonable.

Of course, I warned that my friend would still have to be deeply involved in the process so the “transparent costs” of the sale would increase the paid commission.

There are a few numbers that can change this equation dramatically. One is the average selling price, second the annual salary the sales person makes and third the target (quota), but by and large this is in the ballpark.