The most exciting news for me in the last couple of weeks was the announcement of a new partnership between Appointedd and ABCN. For any reader that does not know I am an investor in Appointedd and I also sit on the board. I am incredibly proud of CEO Leah Hutcheon and the whole team for pulling this deal off. They have built a great product and are growing a fantastic business. This is a huge step forward.
You can read full details about the way the deal works here. It offers a useful spotlight on a big picture trend that is important in B2B SaaS. Distribution has been seen as a choice been online signups and direct sales. A different model built on networks and partnerships is emerging. This should be good for growing B2B SaaS startups. And for their customers and investors.
The seductive illusion of online sales
The online only model is one of the great attractions of SaaS for any entrepreneur. If you have the technology skills you can build a business with little or no sales and marketing cost. Google and Facebook ads plus various forms of inbound marketing will bring in potential customers. The software will do the rest.
With gross margins in the 80-90% range this looks like a great business model. No expensive sales force. Limited customer service and support. Get the conversion metrics and the cost of acquisition under control and watch the money roll in.
The real world doesn’t quite work like this. Online only sales are fine for SMBs. But these customers offer low revenues and short(ish) customer lives. And the cost of acquisition in the big bad world of online ads is hard to control. Then the conversion rates are never quite good enough.
Moving your SaaS upmarket
Before long the numbers start to look tough. Yet there is a still a route to success. Move up the scale and look for those enterprise sales. Bigger initial revenues. Lots of opportunity for upsell. More customer loyalty reduces churn. With a bit of traction this is the route to success.
The solution is to build up a sales team. Hire proven professionals and design the right incentives to drive revenue growth. These sales are complex and the upsell is vital. So you add a customer success team. Careful organisation structure and well managed revenue and retention metrics drive everything. And provide the basis for strong management. Sales ops are the final piece of this jigsaw.
Creating this structure is expensive. Yet with a good founding team, a sound product and some traction you can raise investment. All those metrics build into a convincing business plan. Enough volume and the right performance from your extended team will get you there.
The long road to B2B SaaS success
In truth both these approaches work. Study any of the flagship success stories of the SaaS world and you will see elements of one or both. Tom Tunguz wrote an excellent pair of articles explaining the strengths and weaknesses. The Innovator’s Dilemma and The Innovator’s Solution.
But it is a long road. Another thought leader in the SaaS world Jason Lemkin explains why in It Takes at Least Seven Years in SaaS. Jason and Tom have done as much anyone to create the SaaS explosion of recent years. And both are realistic. Success is a long hard road.
There are lots of reasons for this. Two stand out for me:
A better model for B2B saaS
I am not sure what percentage of startup investment dollars not goes on sales and marketing. I would bet it is close to 80%. This is not efficient. Being honest, it is not even real investment. Money circulates without generating any asset of substance.
B2B SaaS needs a better distribution model. By which I just mean a more efficient and effective way of reaching customers. And new improved distribution channels are starting to appear.
One category is the marketplaces operated by leading SaaS players. Salesforce.com and Xero have both established networks. Through the Salesforce AppExchange or the Xero App Marketplace smaller SaaS players can reach out to the customer base of these giants.
The Appointedd/ ABCN deal represents a different type of distribution. ABCN is a successful company with a loyal B2B customer base. Like any great business they want to keep offering better value to those customers. Appointedd’s business scheduling software and unique time zone function are just right.
The advantages of better distribution work both ways:
Linking together in this way also allows both companies to focus on what they are good at. As a result, customer enjoy better software, better service and achieve greater benefits.
No shortcut to SaaS success
There is no silver bullet here. Great B2B SaaS companies will still take time to build and Jason’s 7 years may well prove to be accurate. He has far more experience than I have.
Yet I think entrepreneurs, investors and customers will benefit from a better distribution model. The market will be more efficient. Probably in two ways. Better return for investment dollars and faster exposure of failure. The best companies will be more integrated and more focused. And as a buyer, less consumer style marketing of B2B products will be welcome!
ABCN and Appointedd have a great deal that will work well for both parties. The launch is an exciting time. And the hard work starts now.
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.