Turning a software from a product into a service will bring big changes. The business model. The organisational model. The financial model. The culture. If SaaS is a true service all will be different. SaaS leaders need to understand why a service is different. And build a company which supports these principles. This applies to SaaS for SMEs and right up to enterprise scale. Now is the time to get ahead of the field.
I worked for the world’s leading professional services organisation for 30 years. The leadership of the firm invested much effort to try to turn services into products. There was a belief that so called repeatable solutions would be more profitable and easier to sell than customised services. On the front line dealing with clients every day my partners and I knew the truth. The companies we served did not want a product. They wanted a professional service. Bought from people they knew and trusted. Delivered with care to high standards. Designed to solve their problem and only their problem.
In those markets products could not replace services. Now I am providing world class small business consulting to SaaS startups. I spend my time helping companies that want to turn a product into a service. The difference is SaaS is succeeding.
Service Is Not Just A Different Way Of Charging For Product
SaaS is a service. The acronym stands for software as a SERVICE. This may seem obvious. But it is not well understood in the software industry. Both established players and startups are entrenched in a product mentality. The mindset seems to be that SaaS is just a different way of charging for a product. The billing changes but everything else remains the same.
B2B Services are not products. Behind the revenue model the way we sell, create and deliver services is different. Service organisations talk of partners and colleagues not managers and workers. Execution is by methods and approaches not by processes. We provide services to clients not customers. The whole culture is different.
4 Principles For Great B2B Service
The software industry is in transition between a product mentality and a service culture. If you run a B2B SaaS business you need to know what makes a great service:
How Will The Financial Model Change?
SaaS will transform as these principles become part of the business model. This will affect the financial picture as well as the operations. The outcome on the finance side could be interesting. Services are lower margin than software. On the other hand they are higher than most typical product industries. As competition increases in SaaS there is bound to be an impact on margins. Most analysts today argue that professional services are low margin. The advice is keep them to a minimum. But could the service approach be the key to retaining strong margins in the long run?
SaaS For SMEs
All this applies to SaaS for SMEs as much as enterprise players. Remember the hairdresser example. Just because your client is small does not mean they don’t expect service. In fact it applies more for an SME. A large company has the resources to adapt to a new IT system. An SME needs things that work just they way they want.
The hairdresser example is useful in another way. Many of the component of your service can be the same for everyone. But you need to figure out where the tailoring takes place and how your SaaS delivers it.
The SaaS business model will evolve and mature. This will change organisations, job titles and the way software is sold. The SaaS recurring revenue model will also change as business alters and competition intensifies. When SaaS dominates the software industry it will be transformed from the nascent form we see now.
If you have a SaaS startup now is the time to get ahead of the field. To get the best SaaS thinking and advice, sign up for our regular newsletter. And watch out for our tools and guides coming soon.
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.