Sunday, 20 November 2011

Software Vendors - How to Build a Cloud Business

So what is the secret of success for companies like I mean, they upstarted a few years ago as SaaS CRM specialists in a world dominated by the likes of Siebel, Goldmine and ACT - all perfectly good examples of decent CRM packages as traditional software.

At the time, I was a greenhorn to SaaS and was starting PlaceWare's European business alongside Webex in the online collaboration space. I was learning that SaaS was not an easy sell. It wasn't just trying to prove the application was neat, it was overcoming all the fear factors of the internet - and at that time availability was the biggest fear.

Two things made Salesforce successful, in my opinion: 1) The application zoned in on how salespeople worked as a CRM application which turned the concept of CRM on its head and 2) used an evangelistic type of salesperson.

Anyone who has used and other packages knows what I am talking about when I say the software tuned into salespeople. was a mobile application by its design and that's what salespeople are. There were tons of other things that make the software superb but that was fighting a feature war - the fact it was mobile made it fly. 

Then came the salespeople. Most SaaS salespeople came from traditional backgrounds and for all of us it was a voyage of discovery which wasn't simple. The first thing you had to do was to look at they way you earned money - it meant working a different way. The second was to forget all you knew about how to sell. Evangelising was very different to selling traditional software - you not only had to know your arguments but you had to believe 1000% in what you sold. and PlaceWare benefitted by the fact they were companies born in the web at the height of Web 1.0. They had a good supply of cash, good backers and a driven management. Interestingly, at PlaceWare we used SAP and Siebel, traditional software as our main systems to sell SaaS and it was awful. Daily updates on Siebel could take hours extending the working day while the clunkiness of the package made it difficult to use as a salesperson. But we only had a web solution to sell and this made us hungry and we clamoured to get at as many customers as we could.

Success came from selling small amounts to lots of people. We held masses of online demonstrations, some group ones but mostly one to ones, then onsite surgeries. We had a free viral version and we also did events to ease people in. It was a real numbers game - the more you demo'd to, the more seemed interested and the more bought. It was a very disciplined approach and the vast majority of customers were sold to over the phone. In fact, the very first sale I had was a $50,000 deal to the CEO of a company in Norway who, to this day, I have never met in person. That was the way we sold - looking back we had the fear and logic taken out of us as all my old instincts said I had to press flesh to gets a sale of that size.

Eventually bigger sales came along and we needed to visit and the deals came in - some with the likes of BT, Dell, KPN, St Gobain and BOC. But what really made the business fly was how we worked after each sale. You see, with SaaS or Cloud, the sale is only the start of the journey. The real work is in driving adoption and making sure the software is used. For this we had a 'roll out' mentality and held regular online surgeries, worked other departments on a reference basis and then upsold as hard as we could. Come renewal time, we limited churn due to lack of usage and we had a knack of increasing seat sales. We achieved an accelerated, stepwise sales graph and that's the beauty of SaaS - year one looks dreadful but by the end of year two the graphs look very enticing and by year three it has a momentum all of its own. 

It's why small sales early on are crucial as they are the acorns of the future.

Applying this logic for companies coming from the traditional software market is hard because inevitably it means a slow start. If this is at the cost of traditional revenue then it's a tough pill to swallow. And then there is the internal sceptics - those that question the potential of the Cloud, who have a million and one good reasons why it won't take off. Then there are those who think by having a dual Cloud and traditional strategy will hedge bets and probably Cloud will pull through sales of mature products.

Such strategies are doomed. proves the point as did PlaceWare and Webex amongst rafts of others. If you don't have a true, 100% focus on Cloud then the business model is flawed. Companies have to have a pure strategy for the Cloud and not fear cannibalisation by its own Cloud products. Fear of the future and change is the biggest barrier that traditional software companies face. If they don't overcome it, they threaten their own future.

Vendors making their moves in Cloud need to learn these lessons. It starts at the product level. Design up with the web as the platform rather than designing something not born into the web down. There is no logical fit the other way around. My strongest advice to vendors is to go back to the drawing board and design something new and innovative and listen to the market.

Here's a clue. Small companies don't buy SAP. You can chop and dumb it down but all it is a smaller version of a product for big companies. Small companies want something that is tuned to their needs, that's nimble and adaptable. They want products that don't hold them back as they grow and they want products that give them a competitive edge. The same can be said of Microsoft Office, and MS Office 365 is a classical example of lack of innovation and clever thinking to try and condition users to accept the status quo when small businesses want something innovative and in line with their needs. 

But Microsoft and other traditional software companies are sceptics at heart. When a senior VP stands up and tells partners to sell Cloud as it will pull through more traditional sales at their annual event then you know what is in the minds of the staff. And that's the problem traditional software companies have. They will never succeed in the Cloud until they believe - 100% and purely.

The only way is to design new product, set it up in a new business structure and staff it with people who are prepared not only to evangelise but sell against the mother product if need be and get rewarded for it.

There are few companies who have really embraced that yet it's so clear from the models that companies like had in order to succeed. If had a premise based traditional product too, SaaS would never have got off the ground.

The silly thing is that vendors now question the value of channel. They look at Salesforce and think that the trick is to get margins high, use your own salesforce and sell in small chunks. Yet the reason why Salesforce did not use channel was not because they didn't think it could work but because they knew they would be fighting for mindshare against traditional software. They wanted pure minds and not have to compete for sales twice - once in the reseller and once with the user.

But it's different now. For companies like Google, they need to beat Microsoft in a tough fight. On the web, Google has the big advantage - it owns search and advertising and so it has untold reach. Yet at the end user side, Microsoft has an army of trusted advisors calling daily. So what does Microsoft do?

Well, go see for yourself. But they are not the only traditional software company trying to work out how to slam a square peg in a round hole.

What software companies need is purity of thought, total belief and the courage to kill their old business. For every software vendor out there they will be a huge long tail of small customers who bought once and never again - no upgrades, no support revenue rolls in. They are the first place the competition will go to to win sales. So better you win your own customers over a second time than to leave them to chance.

It isn't rocket science. In a new competitive world it is better to sell your old, small customers a new product of your own making than to leave them prey to the competition. And to do that, you need a whole new outlook on sales - indeed a different business altogether.

That's the first step in winning in the new Cloud market. For traditional software companies, they risk, at best, delaying their success in the Cloud and, at worst, killing their opportunity and risking their entire business.

Calx Europe is a Business Acceleration company specialising in the Cloud. For further information, call +44 (0) 207 193 2356.

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