Saturday, November 13, 2010

SaaS, Scalability and the Three Little Pigs

“We have the wolf by the ears, and we can neither hold him, nor safely let him go” - Thomas Jefferson
A few days ago I gave a talk at a SaaS Business Challenges conference and I would like to share the main theme with my readers.

It’s the Service, Dummy!

When SaaS burst upon the scene about ten years ago, the first consumers were of two types: Those that used on-demand as an ideology, having foreseen the cloud revolution early on, and those that had no choice, because the other option was an expensive, time consuming and complex solution.
Back then, there were few SaaS application or service choices, so customers had to be very forgiving about the service levels and were willing to put up with reduced functionality, outages and low response times. SLAs, if they even existed, were non- binding and lacked both depth and breadth.
These days, however, when there are dozens of SaaS applications for every need, the differentiator is no longer the functionality. Most SaaS applications offer a similar set of capabilities, and as applications change on a bi-weekly or monthly basis, features are added on an on-going basis.
Even if one comes up with a revolutionary solution and provides the only SaaS offering of its kind, it is safe to say that within a year, three new SaaS companies will offer the same, or an improved set of capabilities.

So what differentiates one SaaS offering from another? It’s the Service, dummy!

Features don’t make a loyal customer – outstanding service does.


There aren’t many SaaS companies out there that service a few dozen Fortune 200 companies while keeping the profitability high. The general rule is that margins are small and that profitability is achieved through hundreds or thousands of customers.
Giving great service to 20 or 30 customers is a no-brainer. Just throw more bodies at the problem and you will achieve a highly satisfied customer base.
But what happens when these numbers multiply rapidly? You’ll soon find out that what worked for a few dozens might collapse at the next order of magnitude.
When I approach SaaS companies at the stage when they already have a growing customer base and warn them about the perils of scaling up, the usual response I get is:
“I wish I will have to deal with that problem”, meaning that they would love to have 200 hundred customers that cause strain on the infrastructure and operations and deal with those ‘good’ problems then. It is only human to postpone these issues when they are not burning your behind.
To those CEOs I would say: “Pack your stuff, return the money to your investors and go look for another job elsewhere”.
Your investors did not give you their hard earned dollars for a proof of concept.
They invested in you because they believed that you will bring in thousands of customers.
My best clients are SaaS companies that come to me when they are in pain. They start loosing customers because they did not build an operation capable of handling the scale which they had wished for.
As I have stated time and again – SaaS companies usually consist of outstanding, creative developers that build great technology, but they don’t have the IT and/or operational experience. They lack the know-how and especially the methodology for building a successful, scalable operation.

Building Operations for Scalability

I have written much about these issues and they can all be found in previous blog postings.
Suffice to say that the setup you need to build for a scalable service operations includes:
· Methodology – the framework of practices, templates, workflows and tools
· Operations Support Systems – everything else your engineering team left out of the product.
· Executive buy-in and awareness -define the metrics, and provide tools to capture and analyze those metrics.

Can a Huff and Puff Blow Your House Down?

So what has all this to do with the Three Little Pigs?
The first little pig built a house of straw, since he didn't have time to invest in operational infrastructure and wanted to make a quick exit. He ended his career as wolf poop.
The second little pig invested in a better infrastructure but did not pay attention to the practices and processes. He lasted longer in his wooden structure but was huffed and puffed and blown away by the competition.
The third little pig took his time and invested executive attention in doing it right from the start. He lived happily ever after.
So even if you cannot afford a brick house from day one, you should have the blueprints ready and the determination to add the bricks when they become available.
By the time the Scalability Wolf arrives, you should have a sturdy enough structure and react quickly to threats, to survive and prosper.

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