This article was originally published in The HotLine Magazine in August of 2007. It is one of the early discussions of the concept of Product-as-a-Relationship, a necessary aspect of the SaaS/subscription business model. It is now part of The HotLine Magazine Archive.
There has been a lot of talk over the past couple of years about corporate DNA in the SaaS ecosystem. In various ways, the point has been made that in order to truly succeed in the new model, you have to have SaaS-thinking embedded in the very DNA of everyone at all levels throughout the company. But what does SaaS-DNA look like? Under the traditional model, a company selling perpetual licenses to use a software application at a customer’s own premises is a software company. The employees describe themselves in terms of being a software manufacturer. Digging deeper, you’ll find that the company’s profits-realization model is front-loaded; the bulk of the profit from each customer is taken at the point of the first sale. SaaS companies, on the other hand, necessarily realize their profits incrementally from subscription income streams. It’s a much more stable scenario, but it also fundamentally changes the essential nature of the product being sold. Instead of selling a boxed product, SaaS companies are selling an ongoing relationship. Recognizing the meaning of this profound shift in product definition is the starting point of SaaS DNA.
SaaS and Hunter Sales
In the Sales department, there are some subtle but critically important differences between selling a boxed product and selling a relationship. It’s easy to see that compensation plans have to change, for there is no longer that large initial bulk of profit upon which to base a sales rep’s commission. What is not so easy to see is that revenue generation in a SaaS company covers everything between awareness and renewal. From the first moment that the customer hears of your company all the way through to where they sign the renewal contract year after year — that’s all in the domain of revenue generation.
Unfortunately, what happens in too many SaaS companies is that the organizational strategy hasn’t caught up with the truth that the true product is in fact the relationship. As a result, Sales tends to lose interest once the initial contract is signed.
It’s not hard to see that Sales people in general are hunters at heart; they live for the adventure of winning a new account. That basic human nature is not going to change, nor should it — there is still a need for people to go out and search for new opportunities. But the foundation of the company in the new SaaS era must shift from a transactional hunter-gatherer focus over to the more sustainable and predictable agrarian relationship model. New sales will still help to grow the company, but long term survival and prosperity will depend on the farmers who steadily increase the yields by ever-deepening the relationships. The farmer role takes a different DNA, and it’s rare to find a person that can be both hunter and farmer in equal measure. The next step in the SaaS organizational transformation, therefore, is to find the people with predominantly farmer DNA and to identify the most appropriate point in the revenue generation process at which to begin their role in earnest.
Support and Farming
Fortunately, there already exists another group within the company that is well suited to the farmer role. Typically endowed with a very strong “helper” instinct, the members of the Support team are natural farmers. They already have the requisite in-depth knowledge of both product and customer; all that is needed is to change their outdated Break / Fix orientation over to a consultative focus on enhancing the customers’ success and profitability. By regrouping the formerly separate departments of Support, Documentation, Training, Quality Assurance and especially Professional Services into a dynamic whole, the result will be a powerhouse ready and able to excel in the SaaS game. If your company is serious about winning, if you’re ready to complete your organizational transformation for the new SaaS ecosystem, we’re here to help.
The HotLine Magazine, August 7th, 2007