The Seven Habits of Highly Successful Enterprise SaaS Companies
March 28, 2018
Yes, another of those “keys to success” articles. I’m even using the magic number 7, as so many how-to books and articles have done in the past in emulation of Stephen Covey, whose wildly successful Seven Habits books have influenced millions of readers including myself. I hope Covey wouldn’t have minded the implied tribute here, along with so many others over the years.
This particular piece has been inspired by the struggles that I witness on a daily basis among management teams and boards of Saas/Cloud companies as they increasingly gravitate toward enterprise organizations. Partly because so many of them were “born in the SMB marketplace”, they are generally not resourced or organized to serve the demands of enterprise organizations effectively. It doesn’t help that their investors draw many of their measurement criteria from the world of consumer marketing. But some leading Saas companies such as Salesforce, ServiceNow, Splunk, Mulesoft, and Docusign, have implemented some of the principles and practices outlined below, even if not always as consistently or thoroughly as their customers would like.
Now that enterprise customers are at long last adopting the cloud for mission-critical applications in much greater numbers, Saas companies that don’t develop enterprise-grade capabilities in both product functionality and, more importantly, high-value pre- and post-sale services (besides their expected implementation and support services) will suffer the consequences in the form of slowing or faltering growth. Far too many companies are still focused on landing new logos to the detriment of expanding penetration among different departments or divisions of their existing customers. And enterprise customers do not tolerate for long working with vendors that exhibit what feels to them like flighty behavior.
Which brings me to this list of Seven Habits that I believe the very best companies are beginning to adopt and even institutionalize on an increasing scale.
The Seven Habits
Think Customer-in, not Company-out. This is a fundamental point, especially for young businesses with disruptive value propositions that provoke very different adoption behavior from visionary buyers as opposed to pragmatic and conservative ones. Start every strategy review or brainstorm by asking what problems your customers and prospects are experiencing that they would give their right arms to have solved by your company, if only you were willing to design your solutions from their perspective in rather than from the perspective of “what we make or offer” and “what we’re willing and able to provide”. To paraphrase president Kennedy’s famous exhortation, ask not what your customers can do for you, but what you can do for your customers. Until customer-in becomes a fixed way of thinking throughout your company or your department, you are unlikely to do much more than talk the talk but not walk the walk – something that 95% of tech companies today are still very guilty of.
Operating in the data-poor environment of the pre-mainstream market requires different thinking. By definition, discontinuous innovations aim to change how their customers think and operate, and how work gets done. For this reason, they demand a different mindset from the one needed to market established products and services such as conventional automobiles or household goods. That said, discontinuous innovation is happening in all three of these categories thanks to innovative mobility and automotive technologies (Tesla and other EVs), the internet of things and machine learning (Nest, smart refrigerators, etc.), and other modern innovations. Since there is never sufficient data to indicate how to gain widespread adoption of unfamiliar products and services that in some way threaten the status quo, conceptual frameworks and new insight are required to supplement the lack of data and practical evidence in order to enable CEOs and management teams to make sound, actionable decisions.
What business are you really in? Almost invariably I find that the companies whose management teams define their businesses more in terms of the problems that they help customers to solve than merely by the products they make or the services that they deliver quickly become more successful than their competitors. In fact, I’ll go further and assert that any tech company that wishes to make a real impact on the success of its enterprise customers in deploying your products and services needs to mimic the business expertise and methodology of a consulting firm in its customer engagement activities. How many companies have we seen over time that arguably had a superior product but didn’t win the war? Enterprise customers are no pining for more startups to sprout up to add to the dizzying array of vendors to choose from; their dearest wish is to cut through the noise and be guided by experts who have taken the time and trouble to understand the business issues that they are struggling to deal with. This implies fielding domain experts who are intimately familiar with your customer’s processes and problems, and being able to relate to them in their language. It’s not enough just to fake it by talking some of their lingo, you need to deploy people – whether employees, contractors, and/or partners – who have sufficient gravitas to engage effectively with executives and business users besides the technical buyers with whom most companies are more comfortable interacting.
Go broad or go narrow – horizontal or vertical…? Whether your category is in the early market, the chasm, or beginning to gain mainstream adoption, you should resist at all costs the temptation to go too broad. Breadth and volume are the anti-metrics of these early adoption stages, in part because they stretch your resources too thinly to make a real impact anywhere; having some share in half a dozen markets impresses nobody, as evidenced by poor valuation multiples. In contrast, gaining leading to dominant share in just one visible market segment – say, gaining substantive business with 20 customers out of 50 in a targeted sub-segment of a major vertical such as airlines, automotive, telco, or banking can result in a rapidly multiplying market cap very quickly, in as short a time as 4-8 quarters. Thus the critical success factor at this stage is to stay narrow and go DEEP. For this you must deploy deep domain expertise in the customer’s business problem, hence my earlier comment about mimicking a consulting firm. There are far too many tech companies today with wildly out-of-balance resource allocation – 60% engineers, 30% sales, and 10% on everything else just to extrapolate. My sense of the right proportion of resources is more like 40:20:20:20 in terms of engineering to sales to high-value services to everyone else. A key lesson here is to resist the tendency of your board (especially the VC contingent on it) to egg you on to “go big fast”, which in the enterprise game is usually a very poor move.
Marketing a Platform. Be very careful when you decide to market a “platform” before it has been widely adopted. The tech marketplace today is horribly over-crowded with platform companies, especially marketplace platforms influenced by the extraordinary consumer success of Airbnb and Uber. In fact, throwing the term platform around can be suicidal. Nobody wants your damned platform until… they want your platform. And they won’t want your platform until someone, preferably you, has taken the initiative to deliver a solution to a broken business process and obtained significant adoption from one or more sets of customers. Think Salesforce in the business sphere, or Amazon in the consumer commerce sphere: How successful do you think Salesforce would have been if it had started off by marketing Force.com, the platform on which its sales management application was written? Or, how successful would Amazon have been if they had begun by marketing their public cloud infrastructure-as-a-service instead of the first application that they built on that platform, which was the Amazon bookselling e-commerce application? Not only would they have not had a glimmer of the same impact, but starting with an application to solve for a critical use case enabled them to refine their platforms to the point where, once formally launched into the market as a well-tested though still rapidly-evolving offer, they were already the most differentiated and sophisticated among many pretenders. Thus, the lessons about platforms is that they need to first become pervasive, then they need to engender some kind of network effect, and finally they must enable other players (including customers) to develop applications on the platform. At which point, you can start talking more about the power of your platform.
Strategic Alliances – the Chicken vs the Pig. When partnering with large and so-called “strategic” companies, make sure you know if you’re the chicken or the pig. Most often, the smaller company is the pig, sacrificing itself to provide the bacon for breakfast, while the (much) larger partner, be they an IBM, a Microsoft, a Cisco, or an AWS, is almost always the fickle chicken, willing only to lay an egg or two to make the same breakfast. Miscalculations in this arena are always painful and often fatal to one or other party. This is because, among other factors, the pig is often operating in an extremely urgent time-frame whereas the chicken is more often than not experimenting with a bunch of pigs at the same time, and taking their time to do so in order to see which ones have staying power. The key here if you are the pig is to make an outsized contribution as thought leaders of any proposed or launched joint market initiative. In other words, if you;re the pig and after due consideration you believe the alliance is worth pursuing, make sure that you bring critical insights to the partnership table about the cusotmer problem to be solved and the approach to solving it, that you bring top-quality resources into play even if you’re the ones to hore or contract them, and demand equivalent resource investment from your partner before over-committing yourself to the alliance. Too many younger or smaller partners are so ecstatic to have attracted the senior partner’s attention that they quickly become enamored and fail to ask the tough questions.
Customer success. If you’re going to talk about Customer Success, make sure you walk the talk. I’ve said in prior articles that Customer Success is a business strategy, not a sales tactic. Most companies populate this role with earnest but under-qualified customer support managers, and deploy them at reactively or mainly at contract renewal time. Instead, forward-thinking Saas companies hire or contract qualified and experienced customer success advisors (CSAs). These individuals ideally have the profile of a seasoned business consultant, able to appreciate the ins and outs of their product offerings but expert in how corporate executives and managers think and operate, schooled in business processes and workflow change management. They are able to walk the halls of your customer organizations, on the lookout for new problems to solve and new use cases to address. These are eminently billable resources; in fact, they should be billable at 60-70% of the time at top market rates of USD$300-$400 per hour. For much of the 30%-40% when they aren’t billing their time out, they are involved early in each significant customer engagement opportunity, mostly on your company’s nickel, well before the first deal to Land a new customer has been structured and closed.
Behind these Seven Habits is a vital principle that I believe guides leading companies, even if they don’t practice it formally or think of their cause in life this way. This is a bi-modal approach that I refer to under the mantra “Play for Power not just Performance”. Perhaps the most important mandate for young companies hoping to embark on exciting growth is to “play for Power, not just Performance”. Balancing these two modes of operation requires considerable management discipline and intestinal fortitude but the payoff can be hugely beneficial to the company as well as fair to your customers.
Ideally the CEO, supported by their board and investors, uses all of their entrepreneurial conviction and managerial persuasiveness to bring the organization along with them on a two-part journey. One part involves combines placing a big bet on a strategy to win most of the deals that you decide to bid on in a specific target market segment – this playing for power strategy requires, among other things, rigorous qualification. In parallel, you opportunistically pursue business in other market segments where you realize that you can only achieve a more limited outcome, whereby you probably won’t win anything like as large a percentage of the deals you compete for – this is what playing for performance is about. Taken together, these two approaches, the strategic and the opportunistic, help you to not only make your numbers but exceed them while boosting your growth rate.
Just to be clear, playing for Power means doubling down on a high-risk, high-reward initiative which only pays off in the midterm while simultaneously running an opportunistic run-rate business that will help to pay the bills in the meantime. Not for the faint-hearted, but massively rewarding if executed only half-right. I have seen companies multiply their market cap by a factor of 10 or 20 in 2-3 years, and many achieve 3x-4x outcomes.
You might well ask what fate might befall companies that for one reason or another fail to heed this advice? In my three plus decades of working on this problem, first as a software company founder/CEO struggling to “cross the chasm” (we made it, but in three times the time it should have taken) and later as an adviser to dozens of startups and growth companies, getting to the promised land will either take considerably longer, or just not happen. Either way, it’s usually too costly in terms of lost opportunity or actual time and money spent.
There is a middle way, however, that avoids outright failure but never quite feels successful, and this is a very common default choice. Without ever taking the trouble to make an explicit power play, many CEOs and management teams muddle their way through, allowing the more proactive types in the organization to figure out their own recipe for success. But this is the hero model so familiar to the tech world, and unfortunately, as many before me have acknowledged, it just isn’t scalable. Worse still, today’s hero inevitably becomes tomorrow’s villain. Mention of the term “scalable” reminds me to say that in future articles I hope to address some of the critical “scale-up” challenge that bedevil so many young and not-so-young companies that have successfully navigated their first stage of growth, proven product-market fit, and started to generate some revenue, but are struggling mightily to evolve to the next, more predictable stages of growth.