Alacrity’s 5 Tips for Converting your Business Model to SaaS
As the world moves to being more familiar and comfortable with subscription oriented business plans, traditional technology companies have a tough decision to make: they can either jump on the subscription bandwagon and go through the initial pain to feel future growth, or they can sit on the sidelines and continue to sell the way they have been for the last 30 years (with the very real possibility of stagnating and dying).
An example of a business in the middle of this type of transition is Mitel. For the last 40 years, Mitel has sold business communication systems that involve a one time purchase and a small recurring maintenance fee. Now, however, Mitel is evolving to offer their solutions as a service, making it easier for their customers to consume these services when and as they need them. In this instance, their business is shifting to offer Unified Communications as a Service (UCaaS) and other ‘as-a-service’ solutions.
As technology and the way in which it is sold evolves, companies like Mitel are being driven to alter their service offering to more customer friendly and modern ways. These often include subscription services per user. As you can appreciate, shifting from a traditional business to a SaaS business requires a lot of internal and external changes, most of which is supported by strong internal communication and even stronger external communication with customers and partners.
We’ve prepared some hints and tips based on a few things we’ve learned across the nearly 70 companies in our portfolio selling their solutions via as-a-Service models.
Go all in
Companies and employees that are accustomed to selling their product via one time purchases can feel reluctant to switch to a subscription sales model. Most people default to what they know and can doubt the process. But once you’ve decided that you’re making the switch, go all in! Solace, a enterprise grade messaging service, has been selling a high performance message router to customers such as NASA, the New York Stock Exchange, and some of the largest banks on the planet for the past ten years. The nature of their product meant that Solace was accustomed to selling hardware devices to customers and have greatly benefited from large capital purchases. Even so, they are now further elevating their growth by switching to offering their product via the cloud. The future looks bright at Solace as now, more than ever, their customers can more easily consume and leverage Solace’s massively scalable platform.
Communicate with your customers clearly
The relationship between SaaS companies and customers is an interesting one. Many offerings are available worldwide, meaning that your customer base is global and your communication therefore must be global as well. Addressing your entire customer base and providing a unified message across your company’s various channels can go a long way in getting your existing users to stay on through the shift to SaaS.
Marketing communications should reflect the changes being made clearly and they should also make your customers excited for what’s to come. This includes making sure that any company clearly articulates the value of moving to cloud and over emphasizes the ‘what’s in it for the customer’ message. In almost every case its about reducing friction between the vendor and the client by making services more accessible, more easy to consume, less risky to roll out, and less costly up front.
Pick your moment
Once the decision has been made to shift to SaaS, picking an opportune moment to announce it can make a significant difference to how the change is received by customers. Using a new feature or product release to continue to provide value while introducing the potential upcoming changes can give customers a positive association with the shift. It also provides them with an opportunity to give feedback and decide whether or not they want to stick it out through the transition. UpChain, a Toronto based L-Spark company, that provides supply chain management software to the automotive manufacturing sector, scheduled the announcement of their shift to SaaS with the release of a cloud-based solution which extended the capabilities of their platform to more partners.
Scheduling a new product release that provides value to your customers (and in this case your customers customers) helps you earn the right to ask them to accommodate your business model change and prove that you still care and will continue to deliver.
Walk the talk
Companies who have worked hard to build up a customer base will find the thought of customers leaving daunting. Still, don’t take more than a quarter to switch over to a subscription model. If you’ve made the choice to go all in, go all in and suffer through the initial changes to reap the rewards later.
One tip is to switch your sales commissions structure to only pay on subscription sales, and incentivize your non-sales team members through bonus structures focused on subscription conversion and activation. Mobilizing your internal team in this way will do wonders to mobilize your external customers.
Learn to focus on a different set of metrics
A business model transformation will take a few years to make its way through the financial statements. Identifying metrics that give an accurate overview of customer engagement and active usage is key to understanding whether or not the SaaS model works for the offering. Avoid focusing on profits and loss and instead monitor your cash, deferred revenue and key SaaS metrics instead. These are what will indicate success.
Adjusting the metrics you’re tracking while shifting to SaaS will be an important step in being able to understand and explain to your board and executive team how this change will impact the bottom line. As investors, and in some cases where we act on the management team of our portfolio companies, we focus on 4 key metrics: MRR, Month-over-Month growth, Customer Acquisition Cost, Lifetime Value (LTV) or Customer Lifetime Value (CLV) and Churn.
Transitioning to a SaaS business model can be a daunting task, but it can also be one that’s incredibly beneficial to a company. The most important part of the shift will be to go all in, communicate with your staff and customers, pick a good time to announce the change, and to learn to focus on a different set of metrics while your company goes through the transformation.
Ultimately, if the shift to SaaS makes sense for your business, communicating that clearly to each stakeholder, both internally and externally, in the terms that matter most for each of them will help you transition and keep moving onwards and upwards successfully.
And, be sure to remember that in a world where buyers vote with their wallet, a subscription service model business has to earn the trust of its users every month.
For more articles like these, sign up for Alacrity Global’s monthly newsletter.
Interview with Vinny Pujji of Insight Partners
Today's episode of Between 2 Term Sheets brings us a conversation between host Owen Matthews and Vinny Pujji, Senior Investment Associate at Insight Partners.…
Never Split the Difference – Interview with FBI Hostage Negotiator and Author Chris Voss
Episode 2 of Season 2 brings us a conversation between host Owen Matthews and Chris Voss, former FBI hostage negotiator, CEO of The Black Swan…
Techstars & Alacrity Canada – Between 2 Term Sheets Season 2 Episode 1
Welcome to season 2 of Alacrity Canada’s podcast: Between 2 Term Sheets. Episode 1 features an inquiry-answering conversation between host Owen Matthews, and Tariq Haddadin,…