How SaaSy Is Your Sales Model?

SaaS has become all the rage of businesses these days.  Of course it’s attractive when we see the number of SaaS unicorns or when we read of the high growth rates of SaaS companies (though a 100% growth rate of a young $1M SaaS company is very different than the 5% growth rate of a $1B company.)  But there’s a lot of sex and sizzle behind these business models, with everyone wanting to jump on board–giving rise to Everything as a Service.

Inevitably, there’s a lot of confusion as companies try and many fail to emulate what they see in these SaaS companies.  I think it’s because of a lack of understanding of the business and sales models–and how they fit our target customers with how they want to buy.

Without going deeply into these, I wanted to try to provide some clarity about the models, where they fit, and whether we can/should exploit them.

While I’ll refer to SaaS, the basic selling models exist in all sorts of industries and markets–not just software.

SaaS as an implementation model:  This is probably more relevant to software companies, but this really has to do with how the product/service is delivered.  SaaS companies talk about the cloud, that means they host, maintain, and deliver the service, rather than having your own IT department do this.  It’s not a new model, though wrapped in cool technology, it seems new.  Basically it’s a variety of outsourcing and we’ve had these models for decades, if not longer.  Many companies no longer manufacture or service their own products, having companies do this for them.  Virtually every part of a company can be outsourced (even sales–think of channel partners and other forms of outsourcing).  It’s critical to maintain service/quality levels/reliability levels in those relationships.  As sales people, our customers will be concerned about our ability to manage those.

SaaS as a payment model:  This is where a lot of excitement occurs.  Imagine changing from a one time purchase to a recurring revenue model that can go on for many years.  Sales people and customers like it because it lowers the cost (perhaps not the risk) of entry.  If we are looking at “renting” something the cost is significantly lower than buying it outright.  A lot of SaaS companies, at least in the early days, said “try it for a while, if you don’t like it, you can always cancel.”  As we look at current models, with SaaS contracts going up to 3 years, the financial decision may be different.  But, of course, this is not new.  As consumers, with many “big ticket” items, we’ve always had the alternatives of rent/lease/purchase.  Even in B2B we’ve had a variety of rental/lease/purchase/off balance sheet financing models.  Customers and sales people (with strong financial acumen) have used these for decades to overcome cashflow, capital budget and other challenges.

The combination of the SaaS implementation and payment models have created “new” B2B customers.  This is where much of the excitement and new opportunity around SaaS as a sales model.  It is very exciting and an opportunity that every organization should explore.  Traditionally, B2B sales had been about getting the entire organization to commit to a single solution.  We’re familiar with that–the complex decisionmaking process, longer sales cycles, and so forth.

With the SaaS implementation and payment models, we have a new B2B buyer, the individual or small department.  Rather than getting the entire organization to commit to a solution, we only have to reach and convince individuals and small departments.  Rather than getting everyone aligned in the corporation, getting them committed to a multimillion investment (perhaps paid in small amounts over years), we could reach out to individuals, getting them to make a commitment to pay perhaps $25-125 per month.  And if we could reach a lot of individuals, very quickly, we could quickly scale revenue.

This converted a very long complex sales cycle into much shorter, more predictable sales cycles.  In this, the sale is to an individual, the buying/sales process focuses on the individual, is much shorter and not complex.   This gave rise to the SaaS selling model — high volume, high velocity, and because we are dealing with large numbers of small things, much more predictable.  Most of the models and lessons for this sales model come straight out of consumer packaged goods and retail sales methods.  Strong marketing, strong product awareness/visibility, the ability for the customer to self educate, great merchandising/point of sale, creating a great buying experience, making it very easy for the customer to buy are all tenets of great retailing.  Leveraging the web as the virtual storefront and going after individual or small department buyers is very powerful.

In retailing (at least years ago), you could grow very rapidly by adding more retail outlets.  Every retailer had it’s own models of how many stores of what format could be supported by a population/demographic (I’ve spent some time with McDonalds and Starbucks looking at these models and they are quite rich, very predictable).  Likewise, in the SaaS sales models, we can predict growth very easily, knowing how much and when a new sales person is likely to produce revenue.

I think every B2B sales organization should reassess their sales strategies, asking themselves the questions, “Is our customer the enterprise or can it be individuals/departments within the enterprise?”

It’s in this question, we start to look at the fundamental issues of our sales deployment strategies–both SaaS and other companies need to address this in developing their sales deployment models.  The answer may be both!  But then this requires different approaches to the market.

For example, traditional B2B sellers may find the ability to restructure their offerings, focusing them on helping individuals or small department rather than the enterprise.  The buying/sales process shifts from being a long complex cycle involving many people across the organization to a short/predictable cycle to lots of individuals.

Likewise, we are seeing traditional SaaS companies restructure their approaches moving from the individual/small department to the enterprise.  Here they face the reverse challenge in moving from thousands of highly predictable transactions with individuals to smaller numbers of opportunities with groups making a complex enterprise wide decision.

Now here’s where we start seeing some problems with the sales deployment strategies many organizations are trying to put in place.

First, they confuse the implementation and payment approach with the sales model.  Just because you have an offering that is cloud based and paid for monthly, doesn’t mean you should have a SaaS-high volume/high velocity sales model.

The most fundamental question we have to look at in our sales strategies is “What problem(s) are we helping our customers solve?”  If they are enterprise wide problems, the only sales strategy is the complex sales strategy.  For example, each individual in the organization cannot have their own financial reporting system.  The company has to have a single financial reporting system, consequently many people in the organization, who are impacted by financial reporting systems, will have to be involved in making that decision.  Likewise a manufacturing process control system, a building/facility, are all enterprise wide problems.  In the case where we are not solving the problem that an individual or small department faces, but rather a problem that impacts multiple people/functions in the organization and for which there must be a single solution–the high volume/velocity sales model doesn’t fit.  The customer must make a decision to solve a very complex problem.

Recently, I’ve been involved with a number of “SaaS” companies (or organizations trying to implement a “SaaS” sales model that are failing.  The problem is, the customer problems they are solving are enterprise wide problems, not problems of individuals or small departments.  So their efforts to drive a high volume/velocity model, much of their marketing/content/web strategy is oriented to the wrong “problem/customer.”

Second, sometimes changing the way we and the customer view the problem can change our sales model or approach.  For example, many of the traditional SaaS companies leveraging high volume/velocity approaches reach their limits in effectiveness/efficiency.  For example, if the maximum productivity of a sales person is $1M  (they can’t handle any more calls/demos/volume), it’s pretty easy to see that we need 5 sales people for $5M, 10 for $10M, and so forth (that’s why it’s called predictable).  At some point however, we have to consider, “can we achieve the same revenue with fewer people, by driving an enterprise approach?”  For example, could one person manage enough complex deals to produce $2.5 M, so to produce $5M, I need 2 sales people and to produce $10M I need 4.  Even if each of those sales people were twice as expensive, the cost of selling is still significantly lower.

Of course we can’t do this if our customers view the “problem they are solving” as something left to each individual in the organization.  But if the problem the customer can solve can be defined as an “enterprise” decision, it may be much more effective and efficient to organize our selling approach to be an enterprise approach, rather than a high volume/velocity approach.

Why is all this important to sales executives?

First, our approach to the market has to be based on the problems we help our customers solve and how the customer views those problems.  Are they problems of the enterprise, are they problems for individuals within the enterprise?

Second, sometimes the definition of the “problem” and who has the problem changes.  It can move from problems individuals have to those of the enterprise or a much larger group.  Then we have to change our sales model.

Third, the skills, programs, systems, tools, people, training, metrics are different for each approach.  We have to make sure we are recruiting the right people/managers and putting the right things in place to maximize their performance.

Fourth, no sales model is forever.  Sometimes what served us well in the past, needs to change because our customers and how they buy are changing.

Fifth, sometimes multiple models have to coexist within an organization, yet each must focus on their sweet spot.  Note, I’ve completely ignored channels, partners, ecommerce and other models.  Evaluating which of these and which combination we might use requires careful evaluation.

Common to all of these is clear definition of “Who are our customers?  What problems do they have, how do they want to solve their problems?  How do they want to buy?  How do we organize ourselves to most effectively and efficiently solve their problems and grow our own business?”