The Three Main Functional Categories for B2B SaaS Apps

When analyzing B2B SaaS opportunities, I like to think through things like nice-to-have vs must-have, market size, point on the lifecycle adoption curve, etc. There’s another area that I like to bucket SaaS apps: functional categories. Functional categories are a big, general way to think about what the app does and how it fits in with the user.

Here are the three main functional categories for B2B SaaS apps:

  • Major Job Function – This is for apps where the app is one of the top three apps used daily by the person (e.g. SalesLoft and Gmail would be the main apps for an SDR).
  • Specialized Job Function – This is for apps where the app is used at least weekly to accomplish a function but aren’t an app that the end user “lives” in daily (e.g. Calendly for automating meeting scheduling).
  • Utility – This is for apps that are always running in the background acting as a utility for a specific function (e.g. Rigor for performance monitoring).

Look at the public SaaS companies and you’ll be able to easily categorize each one into one of the three main functional categories for SaaS apps. Also of note is that the largest SaaS companies by revenue are all major job function apps (there are plenty of successful specialized job function and utility apps as well, but they aren’t nearly as large as the major job function apps).

What else? What are some more thoughts on the three main functional SaaS app categories?

Today’s Business Ideas That Weren’t Possible 10 Years Ago

One of the ways I like to think about business ideas is in the context of what can we do today that we couldn’t have done 10 years ago. As an example, when we started Pardot in early 2007, we could build a web application quickly using open source software, run it on commodity web hosting, and deliver B2B marketing automation with analytics, campaign execution, and insights in a cost effective manner to SMB customers. 10 years prior it would have been 100x more to build it, 100x more to host it, and the market wasn’t ready for it (being too earlier is still a failure).

Here are a few things to think about when considering ideas that weren’t possible 10 years ago:

  • What new ideas are possible because we have a super computer in our pocket (e.g. iPhones didn’t even exist 10 years ago)?
  • How can we use cloud computing and big data tools like Hadoop to unlock insights we never knew about before?
  • How do advances in technology in one industry help another one (e.g. GPU advancements helping self-driving cars, cell phone miniaturization helping a number of other devices, etc.)?
  • What ideas were good before but the timing wasn’t right (e.g. limited broadband penetration, GPS adoption, independent contractor availability, etc.)?

The next time you’re considering a business idea, ask the question why wasn’t this done 10 years ago and see what you come up with. Some ideas weren’t even possible and some ideas were just before their time.

What else? What are some more thoughts on thinking about business ideas in the context of what wasn’t possible 10 years ago?

The Most Successful B2B Apps are Must-Haves

One area I see a number of entrepreneurs struggle with is building a product that is truly a must-have for their customer. While it’s true that every spreadsheet is another SaaS app, the reality is that if what the app does is only slightly better than the spreadsheet, it’s going to be a nice-to-have and not a must-have. Why? Because spreadsheets are commonplace, well understood, and people don’t like change. The most successful B2B apps are must-haves.

Here are a few ideas for assessing if an app is a must-have:

  • Customers say things like “I don’t know how I did my job before XYZ” and “I can’t run my business without XYZ”
  • If the app goes down, customers are calling immediately (as opposed to shrugging their shoulders and not caring)
  • Customers use the app multiple times per week, if not daily, to accomplish something important
  • Is the app clearly in the path of revenue?
  • The results (value delivered) are not possible without specialized software (e.g. the data isn’t available without the system capturing it, the data size is too large to process it in spreadsheets, the data is too siloed, the data is too large to be actionable without automations, etc.)

Building a B2B app is easy. Building a must-have B2B app that hundreds or thousands of customers use is incredibly hard. Build a must-have B2B app whenever possible.

What else? What are some more thoughts on the idea that the most successful B2B apps are must-haves?

In the Path of Revenue

Earlier this week I was talking to an entrepreneur and we were debating why some SaaS startups are more successful than others. He then commented that business models that are more in the path of revenue do better, in general, all else being equal. Basically, the idea is that products that clearly help companies make more money, as opposed to saving money or making things more efficient, are easier to sell and build a business around.

Here are a few thoughts about products that are in the path of revenue:

  • Products that can unequivocally show they make money are the strongest in the path of revenue (e.g. Pardot with marketing automation or Shopify with ecommerce)
  • Products that are related to the revenue cycle, but not directly in the path of revenue, can be valuable but have to spend more time convincing buyers of their value
  • Many tech companies have ROI calculators on their website in an attempt to connect their product to revenue, but it’s often a sign that it’s less directly in the path

There’s no requirement that successful products be in the path of revenue, and most aren’t. But, for the ones that are, it’s amazing to see how fast they grow and the size of the opportunity.

What else? What are some more thoughts on this idea of evaluating where products are in the path of revenue?

Why Didn’t Salesforce.com Get Into Marketing Automation Sooner?

Back in late 2009 we pitched dozens of VCs in an effort to raise money for Pardot. When asked the common question “who are your likely acquirers?” we’d always answer that Salesforce.com was perfect — the market leader with 100,000+ B2B CRM customers needed a complementary B2B marketing automation platform. Then, of course, we’d get the expected follow up question: why doesn’t Salesforce.com just build a marketing automation product now and compete directly?

Immediately, we’d respond with the answer every entrepreneur should give when asked why doesn’t big company ‘X’ get into their market: it’s not worth their time. Of course, this is a confusing response. As entrepreneurs trying to raise money, we’re arguing that marketing automation is a great market worthy of millions of dollars of investment. Yet, we’re also arguing that the most logical player to get into the market shouldn’t do it because it’s not worth their time. Well, what is it?

Here are the two reasons why Salesforce.com didn’t get into marketing automation sooner:

  • Strong Core Business Growth – When the main business is growing at high double digits, it doesn’t make sense to take resources away from it to address a related market. As long as the core business is experiencing major growth, stay the course.
  • Market Too Small, For Now – Startups often help create new markets that are small but fast growing. Marketing automation back in 2009 was too small for anyone to care about, especially Salesforce.com with their amazing growth. Put another way, if the related market can’t immediately add substantial revenue (e.g. > 5% of current company revenue), it isn’t worth their time.

Salesforce.com was smart not to get into marketing automation 7+ years ago as their core business was growing fast and marketing automation was too small a market. Eventually, it became clear that marketing automation was a bigger market than expected with growth much greater than the CRM market, making the acquisition of ExactTarget + Pardot a strong strategic move.

What else? What are some more reasons Salesforce.com didn’t get into marketing automation sooner?

7 Elements of a SaaS Platform Company

Within the B2B SaaS world, one of the common entrepreneurial aspirations is to build a platform company. A platform company, like it sounds, is one that achieves a level of success and market penetration such that a number of other companies build add-ons or integrations to programmatically interact with the platform. Salesforce.com (owner of Pardot) is the most well known SaaS example.

Here are seven elements of a SaaS platform company:

  • Large, fast growing customer base (thousands of customers)
  • Publicly available API
  • Mature partner program with hundreds of integrations
  • Major annual user conference and regional conferences
  • Continued thought leadership and innovation
  • Category definer
  • Often publicly traded

For SaaS entrepreneurs, building a platform company means a tremendous level of success. While there’s no single definition of a platform company, these seven elements are often a good indicator.

What else? What are some more elements of a SaaS platform company?

Moving from General Tools to Prescriptive Solutions

One of the biggest trends for SaaS over the next five years is new products that offer prescriptive solutions in place of general tools. What I mean is that there are a number of well-defined categories like CRM and ERP that are essentially customizable front-ends to specialized databases (e.g. CRMs are mostly contact management databases). These new products are still going to have the specialized database behind the scenes, but the front-end is more of a business process management system that actually tells the user what to do next.

Let’s take a look at SalesLoft (disclosure: I’m an investor) as an example of a prescriptive solution:

  • Configure a multi-step cadence that outlines the business process (e.g. flow of emails, phone calls, social outreach, etc. over a period of time)
  • Based on the sales rep’s role, the cadence tells them exactly what to do and feeds up the next activity for them to perform (e.g. call this person now and it has an auto-dialer to dial the phone for them — the software holds their hand)
  • Activities are constantly analyzed in an effort to improve the process and make the sales reps more successful

Now, compare the prescriptive solution to a standard contact management tool. Contact management tools have the specialized database with contact info, lists of people, etc. but they are merely databases where the user has to figure what to do and how to best interface with it, not business process engines. Look for more prescriptive solutions to emerge that make people much more productive at specific functions.

What else? What are some more thoughts on moving from general tools to prescriptive solutions?