SAAS BUSINESS TRANSFORMATION WHITEPAPER
This report by Delta Channel Services assesses the SaaS business transformation
progress of software vendor organisations by analysing 20 Critical Success Factors
and compiling resultant industry average data
April 2014
Top 20 Critical
Success Factors
Delta Channel Services © May 2014
Executive Summary
Without doubt the IT Industry is entering the biggest transformation in both its technology base and the way it transacts business for more
than 30 years – this is being driven for once not by the industry hyping new technologies looking for a market (who remembers the .com
boom, Y2K, the ASP model and many more) but by customers who want, even demand and like the new flexible approach brought by SaaS
and the Cloud.
This report focus on some of the practical realities for software vendor companies on this journey and, like it or not, all are going to be
impacted. We attempt to help companies answer some basic questions – what are the critical areas that need to transform? How far along
that journey are they today? And how do they compare to the overall industry averages on this journey?
The report is based on our experiences working and assessing SaaS/Cloud transformation progress of a range of IT companies across EMEA
albeit the majority are UK based. They include some small start-ups of less than 20 employees, through to larger PLCs with 20,000 plus
customers. An interesting by product of the transformation is that conventional business models and labels such as ISV, VAD and VAR are
also changing. The business issues and opportunities they face are remarkably similar irrespective of the technology or hosting platforms -
participants include those working on or with SAP, Oracle, HP, Microsoft, AWS, IBM, Progress and many more – the objective is not to
highlight the differences or comment on the relative performance of these but on the business development impacts.
The report focuses on the 20 critical transformation factors and the validity of these to your organisation will of course vary and will need
customisation – in our experience the majority will be valid and from many on this journey we have heard the expression from CEOs “We
do not know what we do not know”. A brief run through will at least ensure that you have or will address all of these Critical Success Factors.
Delta Channel Services © May 2014
About this report
From Mid 2012 Delta have been engaged on numerous consulting projects to assist IT organisations in their SaaS/Cloud transformation journey. It
quickbecame apparent that there was little best practice or benchmark data to use. In the mid 1990’s Delta had developed a worldwide survey to
assesthperformance of the then
out the man not the issues. Behind the base data points often are more detailed reasons and justifications behind a rating
What then are the main outcomes for busy Execs to take away?
Firstly, most organisations do not have fully joined up technology and business development plans ( <47% complete).
Secondly many are aware of the “Cash Flow Valley of Death” but have not developed robust strategies to determine the depth and
breadth.
Thirdly it will take longer than you think – most who have transformed have typically taken 3 years.
The typical B2B sales cycle over the last three decades has been changed little – leads from telemarketing/email, field sales visits, demo,
perhaps a pilot, proposals executed by with an expensive field sales force. The new SaaS/Cloud model given the need for lower touch, lower
cost of sales, faster sales cycles will require a root and branch re-engineering.
Most companies in the assessments have recognised the need for sales channel transformation (75%) but few have a detailed plan
place as to how to execute (35%)
We hope you find this report stimulating. It is based on a mix of survey assessments and empirical data. We can suggest two further sources
of additional information. The first is to participate in the transformation assessment yourselves – we have a simple online tool which you
can use to rate your own progress against the 20 factors in this report. This will give you both a snapshot of where you are today and if you
wish we can then tell you how you compare to industry averages.
Companies who recognise the need for
Sales Channel transformation 75%
Companies who have a detailed plan to
achieve Sales Channel transformation 38%
Delta Channel Services © May 2014
Secondly our US partner Montclare Inc. research and produce the SaaS Global 250 Report©. This profiles the leading 250 SaaS and Hybrid
organisations against a wide range of performance criteria complete with deep dive profiles. The 2014 report is due for publication later in Q2 2014.
Wherever you are on the journey if you can fully embrace the opportunity and avoid the common pitfalls – the resultant new business may not last 30
years – but will drive new strategic asset values.
From Mid-2012, Delta has been engaged on numerous consulting projects to assist IT organisations in their SaaS/Cloud transformation journey. It
quickly became apparent that there was little best practice or benchmark data to use. In the mid 1990’s Delta had developed a worldwide survey to
assess the performance of the then new Partner sales channels. This approach lead to 1000s of Partners and 1000s of vendors providing key data points
over many years.
This approach has now been applied to SaaS/Cloud organisations. Participators include CEOs, CFOs, CTOs, Heads of Development, Sales, Marketing,
Channels, Services and Support – simply because all will be both impacted and engaged by the transformation. No weighting has been given to their
views as often for example the sales teams view may differ from say development but does not make it any less valid. It does often uncover at the least
communication issues between functional groups. To this point when discussing results we do not identify individuals as “They said what” leads to
taking out the individual and not the issues. Behind the base data points there are often are more detailed reasons and justifications behind a rating.
Delta consultants and researchers do validate the assessment data to ensure that they are as accurate as possible and we often find that participants
are both realistic and conservative in their evaluation. Based on the accumulated data of hundreds of data inputs the averages have been calculated.
Clearly some companies have already made some significant progress whilst others are new to the game – nonetheless the averages are remarkable
consistent.
About This Report
Delta Channel Services © May 2014
For many vendors and Partners the Cloud and SaaS presents first and foremost a technology development challenge. Secondary considerations
often follow later around finance and sales. The SaaS and Cloud transformation also provides some new and unique issues to address – from data
security, export sales and legacy data to churn rates.
Often these are approached in a piecemeal way by each functional group or in a sequential step at a time – each is fraught with problems. Delta has
been working with SaaS and Cloud companies now for a number of years. However the roots date back over 10 years ago a number of companies
such as Bentley Systems were already moving to subscription licence models.
We were also early investors in some SaaS businesses – notably a SAP development environment organisation called SID – which although
overcoming huge technology hurdles – reducing the hardware footprint by a factor of 10, enabling on line fast on-line provisioning and on-line
payments and reaching a global audience of enthusiastic customers ultimately failed commercially. The hardest lessons are the ones that hit your
own pockets. We have seen other glorious failures – such as Unthink – who dared to develop a competitor to Facebook but then to fail within weeks
of launch.
Equally there are many who have not got it right first time – three years ago we helped a global vendor launch an SaaS App for the SME Market that
in theory could do it all – but in reality could not adequately handle legacy data and was compared with modern SaaS Apps – “feature free”. They
regrouped, bought in technology and experience and are now making rapid progress
And of course the increasing numbers of success stories of double digit growth, low churn rates, a small start-up Swiss company selling SaaS to
China, new consumption based licence models, reduced sales cycle times and more. For reasons of commercial advantage and confidentiality we do
not name individual organisations but share their progress with you.
So how do you compare? The report will firstly detail the top 20 criteria that we have selected based on both this experience and the assessment
data points we have collected.
Introduction
Delta Channel Services © May 2014
Conclusion
Disclaimer
This report is a snap shot of where a cross section of vendors is on the transformation journey today against the Top 20 Critical Success Factors. The major conclusions
are clear to see – most companies do not have holistic transformation plans is place. This, coupled with the concerns about the availability and accuracy of financial
models and cash flow impact should send alarm bells ringing. This also clearly underlines the strategic investment nature of moving to SaaS or Subscription models.
Indeed one of the pioneers in the SaaS HCM market Workday has shown impressive customer and revenue growth but have yet to make a profit. They are now
arranging another round of financing to bridge this cash burn gap.
The other major conclusions highlight the need to re-engineer the sales channel – conventional direct sales models are just too expensive and inflexible. The selection of
platform partners and effective SLAs is also a hot issue. More vendors are taking on board the mantra we have been repeating over the last 3 years – focus on your IPR
and outsource everything else. We have seen too many software vendors wanting to develop parts of the delivery platforms including data centres, billing and
provisioning. This is a whole new ball game; the competition and pricing is fierce now and will only intensify.
We hope that this report, along with other data benchmarks such as the Montclare Global SaaS 250 Report© will help you confirm and compare your status. If you
would like to undertake an assessment we can provide you with online tools or if you have some of the above factors to overcome we have a range of consulting
services to provide you with advice, data and tools.
This document has been prepared in good faith on the basis of information available at the date of publication without any independent verification. Delta does not
guarantee or warrant the accuracy, reliability, completeness or currency of the information in this publication nor its usefulness in achieving any purpose. Readers are
responsible for assessing the relevance and accuracy of the content of this publication. Delta will not be liable for any loss, damage, cost or expense incurred or arising
by reason of any person using or relying on information in this publication.
Delta Channel Services © May 2014
Is your
business and
technical
transformation
plan in place?
Delta
Assessment
Industry Average
47%
Many software companies have detailed software development roadmaps in place... Our survey has found that most do have plans in place that are either documented or cover all the areas for development. This includes large PLCs with 10,000s customers to smaller ISVs with less than 50 staff. It is essential to have a concurrent and interlocked business transition plan in place
for the end to end process from marketing, sales, services and support to contracts
and sales administration.
Have you
profiled your
customers for
SaaS
potential?
Delta
Assessment
Industry Average
56%
It is good practice to profile both your current and prospect customers for SaaS/Cloud
potential.
For organisations migrating from On-Premise the triangle of functionality, pricing and
timing needs to accurately model based on this real customer data. For new SaaS
applications research of the potential and competitive bases are vital - too many
revenue growth curves are based on desire and not market data and sales admin.
Have you
benchmarked
winning SaaS
organisation?
Delta
Assessment
Industry Average
46%
The market, especially in the US, is 2 or 3 years ahead of the UK- from early leaders
such as Salesforce they are creating markets, defining customer buying behaviour and
developing new streamline operations to drive down costs of sales.
A good source of key performance and financial data of the market leaders and fast
emerging players is the Montclare Global SaaS 250© report.
Delta Channel Services © May 2014
Have you
defined what
type of SaaS
business
model you
want?
Delta
Assessment
Industry Average
57%
Start with internal clarity and definition- Is it an On-Premise, Subscription payment, Cloud hosted, SaaS Annual, SaaS Monthly model? We find often that in the early days of transformation there terms are used interchangeably. This results in much confusion not just for development and sales but for your customers too. Key questions to answer are - What model do you want in three years? What do your services and support operations need to look like?
Have you
defined your
80:20 function
/ values
ratios?
Delta
Assessment
Industry Average
39%
As with most applications, most users only actually use 20% of the total functionality of a product. In the old perpetual licence world that was the customer’s loss not the vendors. Now customers are much more savvy to paying for the functions they use – most SaaS models have Bronze, Silver Gold type steps and often start with a free version. It is very important for any SaaS application to understand which functions your
users most value and will use. With metering built into your application you can
monitor this usage. It is important because it will help you determine the correct
pricing points and provide a great tool for upselling.
Delta Channel Services © May 2014
Is your SaaS
finance model
built and
tested?
Delta
Assessment
Industry Average
49%
Many organisations are going to experience cash flow issues either as a new SaaS application entering the market or a transition from On Premise models. A detailed and accurate model is required of revenue growth curve, development, cost of sales and resultant cash flow. Acid test - If you make half the sales in twice the time can you survive? A whole new set of metrics is required from Total Contract Value, to Cost of Customer Acquisition and Churn rates.
Have you
reviewed
resource
matrix skills,
sourced and
trained?
Delta
Assessment
Industry Average
41%
SaaS Applications will require a different blend of resources and skills across the whole business. The biggest initial costs will be for App Development – many SaaS organisation use a successful blend of Offshore and Subcontracted resources – due to availability of specialty resources. The biggest area for resource change is likely to be the sales channels – conventional filed sales teams are very expensive and cannot meet the new cost of sales required – so a new blend of marketing and Inside sales resources are required again either new hires or outsourced.
Does your SaaS
App have
development /
testing / support
plans have costs
and timings?
Delta
Assessment
Industry Average
65%
Many SaaS development plans are well detailed - but testing and support plans tend to be more vague and lack detail. The services and support plans are vital to both the cost, retention rates and long term margins. One of the reasons for the lack of clarity is that often new sales channels have to be developed that result in new services opportunities and methods for delivery. Classic examples are web based support and training.
Delta Channel Services © May 2014
Is your SaaS
solution
compliant
with ISO27000
from the
beginning?
Delta
Assessment
Industry Average
33%
The first reason why ISO27K is important is if you intend to sell to the Public Sector -
especially in the UK through G Cloud.
The second is that the one of the biggest objections to moving to SaaS and Cloud is
around data security. If you are ISO27K compliant you will remove many of these
obstacles.
Have you
defined your
Cloud data
and legacy
plan?
Delta
Assessment
Industry Average
53%
This can be a show stopper as several global players have found out . Without
everywhere mobile access to cloud data and integration of legacy data you will
severely restrict your market opportunity.
Issues such as security and data sovereignty (in which country is your data stored) are
still real but increasingly hosting partners can offer a range of solutions which
minimise these issues.
Is your
metering
usage of
application
functions
developed?
Delta
Assessment
Industry Average
61%
There are a range of tools and methods to build in metering to your applications. This allows you to see exactly who is using which part of your solution and how often. This linked with the 80:20 value function/values is a great upsell and cross sell tool for generating sales leads. Many SaaS apps track IP addresses, which functions are used, how often and combined with pay for what you use are driving a new generation of consumption usage.
Delta Channel Services © May 2014
Have you
selected a
Hosting / IaaS
provider on
the new SLA?
Delta
Assessment
Industry Average
72%
The selection of the right Partner for you is vital - key considerations: are they right in both development and roll out phases? Remember to focus on your core application IPR - do not reinvent provisioning, billing engines etc. What level of support do they offer, what happens in the SLA if it goes wrong? Are they a good strategic fit can they assist you with your business development?
Have you
defined a time
to market and
a 'Plan B'?
Delta
Assessment
Industry Average
38%
Time to Market (TTM) is vital for any software launch but especially with SaaS where
cash burn is longer and deeper.
There will be obstacles on the way so it is important to have a Plan B, flexibility to
respond to resource or finance issues and do not forget a new contingency and DR
plan.
Have you
defined your
plans for new
SaaS Export
markets?
Delta
Assessment
Industry Average
31%
The ability to more easily export is one of the biggest benefits of SaaS and Cloud. It means a higher volume of sales and ability to sell globally. We have seen small companies based in New Zealand come into the UK market, a Swiss start up go straight to China, Finnish companies to US. For the first time in several years we are seeing many US VC backed organisations coming to Europe looking for rapid growth. The barriers are lower but the basics are still needed in market research and the
merits of having a local sales/support partner – which is often faster than organic
growth.
Delta Channel Services © May 2014
Have you
revised your 3
step SaaS
sales
commission
plans?
Delta
Assessment
Industry Average
50%
Selling SaaS through a conventional sales force who are accustomed to commission on-premise perpetual licence is a very different model. They need to be incentivised to sell SaaS but also need to ensure incentives are in place to "Land and Expand" and reduce churn rates. They will be the first to calculate the impact on OTE and if also selling perpetual licences a balance needs to be struck to prevent selling all of one and none of the other.
Have you
defined your
new killer
SaaS value
proposition?
Delta
Assessment
Industry Average
49%
Too many SaaS value propositions are based on flexibility, scalability and lower costs - these are now very generic and you need to define your real USP and the value that they deliver to your customers - does it pass the "so what" test? This means working with your existing customers, prospects and partners to get objective feedback on the actual value that they perceive from your SaaS solution and messaging.
Have you
defined your
new killer
SaaS value
proposition?
Delta
Assessment
Industry Average
49%
Too many SaaS value propositions are based on flexibility, scalability and lower costs - these are now very generic and you need to define your real USP and the value that they deliver to your customers - does it pass the "so what" test? This means working with your existing customers, prospects and partners to get objective feedback on the actual value that they perceive from your messaging.
Delta Channel Services © May 2014
Have you
Have you
revised your
marketing mix
to match SaaS
needs?
Delta
Assessment
Industry Average
35%
Many new marketing techniques are being used to integrate conventional with contemporary - this include effective Social Media and Viral campaigns. Most companies that we have assessed have made some good basic changes in their marketing mix. Research indicates that most prospects are using digital media to find and research potential solutions and coupled with the need to reduce the Customer Acquisition Cost (CAC). This has an impact on the entire marketing and sales processes and a root and branch review is required not just re-arranging the shop window.
How much progress have you made on
transforming existing or
developing new sales? channels –
reseller or alliances?
Delta
Assessment
Industry Average
38%
It is important that the mix of old and new customers required is planned. A fast migration of legacy customers can lead to "cannibalisation" effect on your base and cash flow. The acquisition rate of new customers in home and export markets needs to be planned and tested to ensure both cash flow and support services can match. Some companies go on a journey from perpetual models, to subscription to full SaaS.
Migrating customers across even with proactive promotions and incentives can take 3
years or more.
Have you
defined new and
existing
customer sales
and marketing
plans?
Delta
Assessment
Industry Average
43%
If you have a direct sales model based on field sales executives then most SaaS channels will need a review to see is they are sustainable. Frequently a combination of Inside Sales and revised sales cycle processes are needed to reach volumes of new customers at the right CAC level. SaaS Applications are also generating new types of Partners from MSPs, to specialist SaaS
sales partners - models vary across EMEA and AP but they are an important part of export
market opportunities.
Delta Channel Services © May 2014
Do you have sources of help and
networking in place?
Delta Assessment
Industry Average
20%
You are not alone on this journey - many other ISVs and Application Developers are also looking at transformation. Identify what you are good at - e.g. code development, sector expertise and consider outsourcing everything else. There are many good Infrastructure as a Service partners who can also for example provide off the shelf billing, provisioning and data security solutions. Equally, custom solutions using standard hosting and e-commerce components can be readily built. With code development, testing and support consider developing your own offshore resource centre - it is now viable with Cloud and IaaS for teams as small as 4 people. There are many sources of help and information. A good place to start is to review the Montclare Global 250 Report* which profiles both large and fast growing SaaS or Hybrid companies. Of course we at Delta can help – with advice, data, planning and execution – and if we cannot help we likely know someone that does through our worldwide network of specialist Partners and Associate consultants . The SaaS/Cloud transformation is the most exciting and challenging to face the IT industry for vendors and buyers alike for decades. Adoption rates are increasing with even Germany and the Nordics ahead of the UK. We hope you found this whitepaper stimulating and wish you well on your journey.
Delta Assessment Industry
Average – Overall readiness
46%
How do you
compare?
Contact [email protected] and complete your confidential and
complimentary SaaS readiness assessment. Delta will then construct a custom report
of your progress and recommended next steps.