How to make money from SaaS #2

This is the second part in a series on how to make money from SaaS. If you missed it, here is Part 1 (It also appeared on Cloudave here)

Step 4 – Create a plan

This is the critical step in the metamorphosis from idea to actual start up. Why? Because it's the bit that describes the "how", and that information is really really important to investors.

No matter what your product does, you are going to need money to make it real. If you can articulate the process by which you are going to build and operate the product. How you are going to sell and market the product, how the business is going to run, and hence how you are going to turn a profit, you are in a good position to get funding. IPO, private Equity or Angel…. understand which is best for you and go with it.

The plan will also help you focus your staff, there should be one clear message that you can tease out of the planning process. 'Get Big Fast' (Amazon) or 'A PC in every home' (Microsoft) are good examples.

Step 5 – SaaS companies should buy SaaS

For goodness sake use your own software, and take SaaS every other way you can, bar one application (and I'll get to that). You have to live and breathe this, experience the highs and lows from a customer point of view. That way you keep your upfront costs down, know first hand what a pain in the butt an outage is, and understand interoperation and single sign on from a customer point of view. I repeat Live and breathe it.

But, keep one on premises application. For a similar reason, so that you'll understand the highs and the lows and have a balanced view. Your sales people can use this… "we deliberately kept our XYZ application on premise so we'd remember…"

Step 6 – Think long and hard about how you will build your service

Sinclair Schuller of SaaS Blogs (and CEO of PaaS provider Apprenda) wrote an excellent dissertation on the many acronyms of cloud computing platforms. The key here is speed, economics and reliability.

I refer you to point 5 above. Be a SaaS company. In my opinion, there is no way you should build every element of your service, that would be fiscally irresponsible given the plethora of platform offerings available today.

This opinion is especially true of the underlying infrastructure that delivers your service. Think about what goes into building a geographically diverse, robust operating environment. You also need to think about how and where you are connected to the internet because it can significantly affect the end user experience. All of this costs and absorbs time. Why even do it? A good PaaS provider has also thought through such things as billing, API interoperation (Salesforce.com and Amazon) etc. All very important, and sometimes easily forgotten.

If you are going to build stuff you have a lot of different choices depending on what you have as a service

  • Build it all in house – do this in a proprietary system or opensource
  • Go PaaS and only build the 'special sauce' part.
  • Go IaaS, build the OSS/BSS layers plus the special sauce

Any approach you take is going to have its pros and cons. To me the most critical part is to understand your costs and cash burn rate. Then look really hard at the numbers and seriously, in your heart of hearts, ask…. can we make money doing it this way. If the answer comes back positive go for it, if the answer is negative or marginal, consider the alternatives above.

 

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