Any B2B SaaS needs to demonstrate a clear source of sustainable competitive advantage. Sometimes you will see this called barriers to entry. Warren Buffet likes to talk about “defensive moats”.
Whatever the jargon, its essential.
Both to your strategy and to any business plan or investment pitch. Yet its an area surrounded in myth and misconception.
A changing world
My attention was drawn to this subject by a handful of well argued and fascinating articles.
Christoph Janz takes a different view of the shift by arguing that there is a dissonance between SaaS and the VC model.
I won’t try to draw out all the arguments. You can read the detail for yourself or take it from me these are all smart people with good points to make.
The general theme is clear. The source of competitive advantage in B2B SaaS is changing. Moving from network effects and economies of scale to a new paradigm based on artificial intelligence. Or at least smarter, more algorithm driven automation.
Practical options for your SaaS
At an abstract level, these arguments make sense. The technology will pull the market in the direction of more intelligent applications.
Yet we are still only scratching the surface of the opportunities SaaS offers to drive business change. And in any case, one trend will not be the only source of competitive advantage for a whole industry. So where will the edge be for B2B SaaS?
Great customer value is always first.
Keep demonstrating that your customers love your product and your service. And track the value they derive from your SaaS.
Customer lifetime is not just a bit of maths based on churn. Its the whole of your business.
Build great team is the best foundation.
There is no route to business success that does not require a team of great people. No amount of AI will change that. And its a prime source of competitive advantage.
Just think about Accountants or Lawyers. There are thousands of firms. All offering the same services and using the same business model. All the big 4 and the magic circle offer is great teams. People transform them from one man bands into multi billion dollar giants.
Helping your customers change is the key to growth.
This is the biggest barrier to the adoption of B2B SaaS. A business only realises the value of new technology through change. No amount of clever hardware or software is sufficient in isolation.
There is a huge amount of business value out in the SaaS marketplaces today. But too many businesses can’t see it or don’t know how to get it. Make this happen and you will win.
Mining and using data taps an unexploited resource.
Look back at Sarah Guo’s slide. Its deceptively simple. Get access to data no-one else has or find better insights from data.
Its not as easy as it sounds but the potential is huge. Businesses of all shapes and sizes are drowning in information. The prevailing mood is that its all too much. More of a threat than an opportunity. This is the wrong way to look at it.
Find a smart way to use data and build from there.
The IP elephant in the room
This by no stretch of the imagination a complete list. Every business needs to find its own unique competitive advantage. These are just some suggestions about where to look. There is one deliberate omission - intellectual property.
I spend a disturbing part of my life listening to debates about IP.
Who owns it? What rights is the University seeking? How far does the patent extend? How much can be shared in an investment pitch?
Its one of the biggest areas of friction in the company growth here in Scotland.
Patentable IP is not a source of competitive advantage in software.
Like very rule there will be exceptions to this but they will be once in a generation rare. In reality a focus on IP and patents is a disadvantage in starting or growing a SaaS business. There are three reasons for this:
Trademarks, copyright and the unregistered skill and talent of your people (or know how as the lawyers describe it) are all worth having. Chasing patents or arguing over ownership of formal IP are not. They have the effect of strangling your business at birth.
Software is not the place for this kind of IP.
The Chairman's View
Customers and a great founding team are essential to create any business. Building on and protecting these requires a clear and sustainable competitive advantage.
This will be unique to each company. And B2B SaaS offers a world of opportunity to identify that edge. Make sure it is clear and realistic. Focus but remember its a fast changing landscape.
Nothing lasts forever and a bunch of smarter people than me have described the future. Be aware of this but don’t be afraid. And don’t fall into the trap of fixed and defined IP.
I leave you with a different way of thinking. Jason Cohen asks a great question. How would you gain competitive advantage if you build everything in public?
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.