David Cummings on Startups

Category: SaaS

  • Software Contracts and Traditional Business Practices

    As an investor, I like seeing portfolio companies have their customers sign annual (or multi-year!) contracts and get the benefit of cash flow predictability (including prepayment) and customer commitment. In exchange for doing a longer customer contract, the vendor company can invest more in the customer acquisition process, the on-boarding/implementation process, and on-going customer success and support.

    As a buyer, I dislike contracts as the needs of the business can change (need to cancel or downgrade — not possible), the vendor can provide poor service or a poor product experience for a period of time and there’s no recourse, and product usage can fluctuate (Slack is famous for only charging for users that actually use the product, not all users in the system). No contracts and more flexibility to adjust spending (specifically, spending less during certain months) is more customer-friendly.

    Over time, as more next generation SaaS companies emerge, and there’s more comparable competition in the market, I believe we’re going to see more SMB software vendors not require contracts and have more flexible business practices that better align with how users want to buy. This will be a slow transition but expect it to be mainstream in the next 5 – 10 years.

    What else? Do you think SMB vendors requiring annual contracts will be continue to be the norm?

  • Workflow App or Persistent Background Service for SaaS Success

    Continuing with Characteristics of Successful SaaS Products, a friend pointed out that while workflow apps are the most common type of successful SaaS app, there’s another category of successful SaaS app: persistent background services. Persistent background services are a class of SaaS apps that once configured run automatically with little to no on-going human interaction, often via API calls.

    Here are some example persistent background services:

    • Calendly – Scheduling service overlaid on Google Calendar, Office 365, and iCloud to make it easy to schedule meetings with professionals.
    • SendGrid – Email delivery as a service for bulk and transactional email messages (e.g. API to send lost password emails, customer email receipts, etc.).
    • Twilio – Telephony in the cloud to trigger phone calls, text messages, video chat, and more via API (e.g. click to call from a CRM, text messages for two factor authentication, etc.).

    Add persistent background services as another class of successful SaaS app to go along with the workflow apps (the characteristics of successful SaaS apps are still applicable).

    What else? What are some more thoughts on persistent background services as another type of successful SaaS apps?

  • Characteristics of Successful SaaS Products

    Recently I was having a conversation with an entrepreneur about the most common characteristics of successful SaaS products. Thinking about some of the largest SaaS companies, including Salesforce.com, NetSuite, HubSpot, MailChimp, WorkDay, and Zendesk, there are a number of similar product attributes:

    • Workflow System – End-users use the app on a daily basis and “live” in the product to do their job. Daily active users are key.
    • Clear ROI – The product’s value is inextricably tied to a return on investment making it a must-have and not a nice-to-have.
    • Multiple Markets – The product is applicable to a wide range of companies in multiple markets. Typically, it starts out more niche, gains traction, and then expands into adjacent markets.
    • Account Expansion – Upsells and account expansion outweigh churn. Product value grows as usage grows (e.g. more seats/users, more transactions, etc.).

    The most successful SaaS products have these four characteristics. When evaluating product ideas, consider these attributes and assess the potential.

    What else? What are some more characteristics of successful SaaS products?

  • 4 Types of SaaS Trial Experiences

    Continuing the next generation SaaS discussion, I believe we’ll see more apps incorporate free trials and other mechanisms to experience the app before buying. As mentioned before, it continues with the consumerization of IT where people want their business apps to feel like their consumer apps, and trying something out is no different. Only, when it comes to trials and qualifying prospects, there are several ways to do it.

    Here are four ways to qualify SaaS trial prospects:

    • Free Edition – As part of the freemium model, the free edition is free for life and includes a limited number of features or module uses. Free editions are great for products that have a B2B viral component like scheduling and email.
    • Demo Account – Some products are more complicated and need to have dummy data preloaded to get a good feel for the app such that it’s a demo account that is testable but not real. Demo accounts are great for products that need complex data to test like accounting and enterprise resource planning.
    • Proof of Concept Pilot – Another trial approach is to require that the customer provide a credit card and sign an agreement to get access to a full instance that isn’t charged for some number of days (e.g. use the product for free for the first 14 days), and then upon completion of the free period, the credit card is automatically billed unless the vendor is notified of not moving forward. Proof of concept pilots are great when there’s some level of manual setup and integration required to make the product usable for trial requiring effort on behalf of the vendor.
    • Free Trial – Many SaaS apps are easy to get going and provide a free trial that gives the user full access for some period of time before disabling the account if they don’t convert into a paid customer. Free trials are great for self-service apps that are easy to experience.

    Not all free trials are the same and there are a number of ways to deliver an experience similar to a free trial. Consider the style and approach best suited to the customer experience and experiment with different approaches.

    What else? What are some more variations on the SaaS trial experience?

  • In-App On-Boarding, Upgrading, and Downgrading in Next Gen SaaS

    Continuing with ideas on next generation SaaS success like integrations and APIs, there’s another important component about the self-service nature: they’ll all have in-app on-boarding, upgrading, and downgrading. Much like the consumerization of IT has affected the B2B user interfaces and experiences, buyers of SaaS products want that experience to extend to all aspects of the product.

    Right now, too many SaaS products don’t have a strong in-app on-boarding process and instead resort to support sites and quick start guides combined with helpful people. Instead, the buyer wants to be able to jump in and go through a structured process where they can have as much or as little automated hand-holding. Think of a series of steps with specific instructions, tasks, and videos to watch. The best form of service is self service that’s comprehensive.

    After in-app on-boarding, the next area next generation SaaS products will all have is in-app upgrading and downgrading. Much like Slack is famous for only charging for active users (see their pricing), too many SaaS apps require reaching out to a customer success manager to upgrade, and don’t allow downgrading until the contract is up for renewal. Needs change and users should be able to upgrade and downgrade in the application immediately — it’s a much better user experience.

    Look for in-app on-boarding along with easy upgrading and downgrading as part of the next generation of successful SaaS products.

    What else? What are some more thoughts on in-app on-boarding, upgrading, and downgrading as part of SaaS apps?

  • Integrations as Key for Next Generation SaaS Success

    Continuing the thoughts on next generation SaaS with posts on Intercom as the Next Mainstream CRM after Salesforce.com, The API Economy, and The Next Generation Competitor to Every Public SaaS Company, one of the biggest challenges for upstarts is the lack of third-party integrations. One of the strongest network effects for SaaS platforms happens when hundreds of other products build integrations to connect data and processes (see Atlanta’s MailChimp). The more integrations a customer uses, the harder it is to switch vendors.

    As expected, there are SaaS products that specialize in integrating other SaaS and installed products:

    • MuleSoft – Enterprise strength integration platform that’s heavily customizable. $2.8 billion market cap (NYSE:MULE). See notes from the MuleSoft S-1 IPO filing.
    • Zapier – Huge breadth of integrations in a do-it-yourself fashion. This should be the starting point for most people looking to connect apps.
    • Cloud Elements – Write once, connect to many middleware that’s a huge timesaver for more sophisticated custom integrations.

    Look for cloud integration middleware to be a key part of the solution for next generation SaaS apps.

    What else? What are some more thoughts on integrations as critical for next generation SaaS?

  • Intercom as the Next Mainstream CRM after Salesforce.com

    Four years ago I offered up the idea that HubSpot would introduce a CRM and be in a great position to capture CRM marketshare in the post HubSpot as the Next Mainstream CRM. HubSpot has continued to execute well, is approaching a $400 million run-rate (NYSE:HUBS), and launched an excellent free CRM. Originally, I thought a tangential product in the marketing space would be in the best position to enter the CRM market as opposed to one of the solid CRM upstarts like Pipedrive and Insightly.

    Now, after talking to a number of companies over the last year, I believe Intercom is in the best position to succeed Salesforce.com as the next mainstream CRM (see Quick Notes on Fast-Growing SaaS Startup Intercom from earlier this year). Intercom is growing at an incredible rate, going from $1M to $50M in three years. More importantly, the product is a customer communication platform to manage functions like live chat, in-app messages, email triggers, and usage analytics. Of course, customer communication platform and customer relationship management have one critical word in common: customer.

    Look for Intercom to continue their torrid growth rate for several more years and introduce functionality to manage the entire customer lifecycle, including CRM. Salesforce.com will be paying close attention to Intercom.

    What else? What are some more thoughts on Intercom as the next mainstream CRM after Salesforce.com.

  • Signs of an Last Generation SaaS Product

    Continuing with the post The Next Generation Competitor to Every Public SaaS Company, one of the questions that came up is how to identify when a SaaS product has entered “incumbent mode” and shows signs that there’s room for new upstarts. Good question. We’ve all used a product that’s solid, but unchanged for many years, and know that it’s a last generation product.

    Here are a few signs of a last generation SaaS product:

    • Pace of Innovation – New features come to a halt. Product polishing continues but substantial new features are rare. The focus is on profitably scaling sales and marketing.
    • User Interface / User Experience – Interface changes are disruptive and avoided. Newer UI/UX conventions, and tools like an Angular/React, aren’t a priority.
    • Contract Terms / Flexibility – Longer term contracts are required. Renewal details aren’t negotiable. The position of strength is flexed.

    A last generation product readily shows its age. Staying up-to-date with a modern UI/UX and feature set is much harder than it looks. As companies grow and scale, continuing what’s proven takes precedence over innovation.

    What else? What are some other signs of a last generation SaaS product?

  • The API Economy

    Continuing with yesterday’s post The Next Generation Competitor to Every Public SaaS Company, there’s a key component of modern SaaS apps that changes the market dynamic compared to 10 years ago: APIs. Application Programming Interfaces (APIs) are how cloud applications “talk” with other cloud applications. Think about exchanging data, triggering features in remote applications, and generally interacting in an automated fashion — all made possible by APIs.

    Now that most apps have usable APIs, connecting apps is far more common, and more importantly, the major apps don’t have to include the full breadth of modules natively. Instead, apps are more specialized and focused. Lock-in becomes less of an issue and there’s more competition throughout.

    The API economy is at the core of another round of disruption. Look for this to play out in the next several years.

    What else? What are some more thoughts on the API economy?

  • The Next Generation Competitor to Every Public SaaS Company

    Yesterday I was talking to a very successful SaaS entrepreneur and the topic came up of when the next generation NetSuite replacement is going to emerge. NetSuite, an enterprise resource planning platform (think accounting, inventory, etc.), is incredibly powerful, but has an interface unchanged for 10 years along with a very difficult customization process. Taking the idea one step further, every public SaaS company already has several next generation upstart competitors building a product that is better, faster, or cheaper (pick two).

    Here’s what every next generation SaaS winner will have:

    • API-First – In lieu of a slow, cumbersome API, the next generation has fast, elegant REST APIs that make connecting to quick and easy.
    • Rich, Responsive UI – In lieu of basic web interfaces, the next generation has rich, responsive interfaces that feel like a native app.
    • Approachable Pricing – In lieu of cryptic, talk-to-a-salesperson-only pricing, the next generation has straightforward, readily understandable pricing (see Zoom).
    • Modularized Platform – In lieu of a large, monolithic platform, the next generation is built on micro-services that allow for much more rapid development and cloud-native scalability.

    Technology innovation goes in waves every 15-20 years and SaaS is no different. The next generation winners are already out there, just give it a few years and you’ll start to notice them.

    What else? What are some more thoughts on the idea that the next generation competitor to every public SaaS company is already out there and building momentum?