David Cummings on Startups

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  • SaaS 2.0 Companies Often Resegment an Existing Market

    Continuing with yesterday’s post Examples of SaaS 2.0 Companies, there’s an important point that requires more explanation: SaaS 2.0 companies often resegment an existing market. Meaning, they go into a market that has plenty of credible incumbents (like Calendly with scheduling software) and offer a novel approach to a known opportunity (better user experience, better product modularity, better pricing flexibility, better integrations, better APIs, etc.).

    Critically, this is best executed in existing markets. If it’s a new, unproven market, SaaS 2.0 often doesn’t work because new markets need armies of sales people to get the new type of product in front of a buyer that’s never used it before. One of the key benefits of sales people is that they help orchestrate the sale and initiate the change management in the customer’s organization. Change management is hard and sales people help create the urgency to make it happen.

    SaaS 2.0 products, typically being self-service, are best resegmenting an existing market where the value is known and the incumbents deliver an outdated customer experience.

    What else? What are some more thoughts on the idea that SaaS 2.0 companies often resegment an existing market?

  • Examples of SaaS 2.0 Companies

    After talking about the The Next Generation Competitor to Every Public SaaS Company, it’s clear a better name for it is SaaS 2.0 companies. SaaS 2.0 companies are API-first, have rich, responsive UIs that are more conversational in tone, have approachable pricing models that are more flexible than the incumbents, and have a modularized platform so that customers can purchase only the features they need. With this definition in place, several people have asked for examples of SaaS 2.0 companies:

    • Intercom – Customer communications platform that’s one of the fastest SaaS companies to go from $0 to $50 million in revenue (see notes on Intercom’s growth)
    • Groove – Simple help desk software with a passionate following (read their blog)
    • Calendly – Schedule meetings without the back-and-forth emails (an amazing product!)
    • CallRail – Call tracking for data-driven marketers
    • MailChimp – Beautiful email marketing

    Look for more SaaS 2.0 companies to emerge that reimagine the entire experience in a new, more personal approach.

    What else? What are some more examples of SaaS 2.0 companies?

  • Software Contracts in the Age of SaaS 2.0

    Continuing with yesterday’s post Software Contracts and Traditional Business Practices, a friend was skeptical that contracts would be less common in 5 – 10 years as so many software company business models are dependent on it. Yes, most existing companies that require them now won’t make the shift, but plenty of next generation upstarts will. Software contracts won’t go away but more options like the following will be offered:

    • Annual Prepay – Pay for a full year in advance and get a 10 – 20% discount off the monthly price. This is effectively an annual contract with an incentive attached to it.
    • Month-to-Month with Setup Fee – Instead of a long term commitment, vendors will offer the option of a setup fee that helps recoup some of the customer acquisition and on-boarding costs.
    • Annual Contract with 90-Day Out Clause – While this is still a contract, the customer has the option to leave within the first 90 days of signing, providing more flexibility to ensure it’s the right fit.

    Look for more pricing and term flexibility from SaaS 2.0 startups. SMB customers will come to expect it as part of the next generation experience.

    What else? What are some more thoughts on software contracts in the age of SaaS 2.0?

  • 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?

  • Video of the Week: Jeff Bezos 1997 Interview

    For our video of the week, watch the Jeff Bezos 1997 Interview. It’s great to see his passion, share the importance of the long tail of book inventory, and articulate the benefits of online ads over offline ads (proven ROI). Enjoy!

    From YouTube:
    Published on Dec 22, 2013. This is an interview with Jeff Bezos – the founder of Amazon in 1997. It is very clear that Jeff is already on the right track in 1997 (three years after the introduction of NCSA Mosaic). While his words seem obvious now 15+ years later – in 1997 – he was way ahead of his time. The book “Long Tail” by Chris Anderson was published in 2006 (9 years later).

  • Investment Failure as an Angel

    Last week I was catching up with a friend and he said he could never be an angel investor as he’s too worried the investment would fail and be worthless. I offered up that most angel investments fail and it’s better viewed as charity that helps entrepreneurs. Thinking more about it, investment failure doesn’t bother me for several reasons:

    • What Could Be – Investing is a leap of faith that there’s an opportunity to build a great company.
    • Opportunity to Learn – Every deal is different. Every market is different. Every entrepreneur is different. There’s so much learning with each investment.
    • Paying it Forward – Helping entrepreneurs is a core value for me. It’s what I enjoy doing.
    • Upside > Downside – If we succeed, the return could be 10x or 100x the original investment. If we lose, the downside is only the original investment.

    Investment failure as an angel is never fun but the enjoyment and potential upside outweighs the risks.

    What else? What are some more thoughts on investment failure as an angel?

  • 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?