Bored to 3.4 Billion Tears

In a sequence of events over the last few days, the best and the worst of the software culture and innovation were highlighted. SAP announce a pending acquisition of SuccessFactors for $3.4 billion, and TechCrunch, declared that this event was too boring to bother writing about.

This was fascinating to watch. As a SaaS entrepreneur, this is the culmination of a phenomenal – anything but boring – SaaS success story. SuccessFactors did what most of us in the market are working hard to do: build something that solves a real market need, deliver it to customers, make them successful with it and add real value to their business, and claim a piece of that value in the form of revenue.

SuccessFactors did this well, to the tune of projected revenues of around $330M in 2011.

And they did it as a real business. They operated the business fairly close to break even, pouring their own money back into growing their business at just over 50% per year. To generate that kind of business success, you need to deliver real value for real customers…year after year.

Large players have woken up to the reality that SaaS has an important advantage in continually delivering innovation to customers and driving real value for their businesses. It’s difficult to do well.

SAP realized this, and wrote a check for $3.4 billion in order to acquire not just the business, but the expertise in SaaS. SuccessFactors’s investment in innovation just realized a great return.

Steve Woods

But, here’s the challenge, summed up so clearly in TechCrunch’s dismissive article. Solving real business problems, faced by hundreds of thousands of real businesses, is often not the shiny new thing. Was this the latest and greatest location-based, social-gaming, big-data iPhone App?

No, it wasn’t. But, many of those latest-and-greatest apps struggle to solve real business problems.

So why is it considered more “exciting” to chase the new-new thing than it is to discover inventive ways to tackle real problems?

To understand the TechCrunch perspective, I suspect one needs to look no further than the reality TV shows of SharkTank or Dragon’s Den. These shows tend to put the idea of raising money (from VCs or angel investors) as the ultimate metric of success.

For that, you need to show your idea is capable of being next new-new thing. It should be dressed in buzzwords like location, social and gaming. Do this and someone might decide you deserve a venture investment.

Making this – the funding raise – a celebrated milestone, misses the point entirely.

Raising money is not success. It’s a boost that helps an idea get off the ground. If you can turn that idea into something that drives real value, claim a piece of that value as your own in the form of revenue, and do so at a cost that is less than the revenue, then you’re on your way toward success.

Taking this path means caring more about customers than the VC community. It means measuring customer satisfaction and renewals, rather than new logos. It means building products that meet the detailed needs of customers’ businesses, rather than just demoing well. It means a culture that celebrates customers’ successes more than being on the latest “List” to be published.

That, to the writers at TechCrunch, is apparently boring. To me, the challenge this path represents is thrilling.

Call me out of touch, but I’m raising a glass to SuccessFactors for their accomplishments…even though it bored TechCrunch to 3.4 billion tears.