7 Considerations for Transitioning to SaaS

“Beware of missing chances; otherwise it may be altogether too late some day” - Franz Liszt

Not there yet?
We are nearing the end of 2012 and there still are thousands of ISVs that have not yet transitioned to the Cloud. For some, the effort might be too big and they fear it will mean an optional death. For others, they might have a steady, captive audience, and their customer base is still strong – perhaps not growing, but enough to sustain them for the short term. What I am certain of, is that no ISV is oblivious to the Cloud revolution, and not thinking of the implications and next steps.

I have been advising ISVs on this process since 2004 and have developed a program that I implement at my customers who went through the process. Some decided to postpone, others have launched successfully. Following are considerations that are the cornerstone of my methodology.

1.    Motivation
There are many compelling reasons to transition from the on-premise model to the Cloud, but many companies do it for the wrong reasons.
I believe that the vast majority of ISVs will transition to SaaS, or cease to exist, so don’t get me wrong – the transition is necessary, but it is also very important for the company to understand why they are doing it. The transition is a Strategic Business Model change, and don’t fool yourself otherwise.

The fact that Everyone Else is Doing It should pop the questions ‘So What’? Fashion alone is not a reason to change your business model. If you are going to be a ‘me too’ company, or put a little cloud on your logo hoping that it will appease your customers, it will not bring you success. Are you losing your customer base, are your customers demanding a web solution? Are you doing it to capture new markets, new geographies, or expand services within your space?
These questions are critical to define your strategy.

2.    Define Goals. Market and Offering
This seems almost too obvious, but one would be surprised at how little this is practiced. At many companies, the drive to offer a SaaS service is driven by a customer request, an initiative of a product manager, or a ‘me too’ attitude. Hence, they decide to play it safe and to first "test the water" by starting the SaaS initiative by offering “something” in order to watch the market’s response. They think that once the motivation is clear, the target market will be better understood, and the offering could be defined. This is a pretty sure fire way not to succeed.
The strategic goals must be defined prior to the transition:  Are you reaching out to the same customer base with improved services? Are you reaching out to smaller customers that were previously below the radar? Will you be offering the same product or a simplified version to smaller customers? Could you expand to new geographies that were out of reach because of the previous need to establish costly local operations?

3.    Go-To-Market
The go-to-market strategy is very much a derivative of goals, product and target market, but it is important to understand the relationship between them all. Think of the possibilities. Will you be going after your own customer base with the old school, of elephant hunters and wining and dining and 18 months sales cycles? Will you go after a wider audience with inbound marketing and a low-touch approach? Will you place your service on a market place (e.g. AppExchange, ApplicationMarketPlace) with a zero-touch approach? What would be the role of the Channel in the new service?

These decisions will weigh heavily on the design of the product and most probably on the technology, not to mention the support, sales and marketing functions within the company.

4.    Think outside of the Box
SaaS is not just another way to reach a larger market with your existing product – the Cloud offers so many new opportunities that were not possible before. The idea is not just to recreate your client-server application on the web, but use the web as fertile ground for stuff you could not do before. Just think of all the usage data you have now - the ability to understand what your customers are using and how, share that knowledge with the community, or sell the benchmarking data as a service or add features and modules to your service that you were not able to provide before. Since everything is available in the Cloud, you can integrate value added services without the need for a scary, time consuming PS project.
Drive a brainstorming session and ask the employees what they think can can be done in the Cloud. You would be surprised at how many fresh, original ideas will surface.

5.    Understand the Pain
As I have written in numerous occasions – the move to SaaS is not expanding through another channel – it is a total paradigm shift and it will affect every silo within the organization. If you do not grasp the enormity of the shift, there is a good chance that you will either fail in the process, or come out on the other side weakened and exhausted. You must understand the effects it will have on every group and the implications, and by "every group" I mean Product, R&D, QA, Support, Marketing, Sales, Finance, Legal, Professional Services and Operations.
If your strategic sessions lead you to conclude that the shift to SaaS is inevitable, you must enhance your chances of success by first understanding the impact, identifying the problem areas and tackling them through buy-in, education and sometimes, yes, the need to let people go.

6.    Spawn Out the Cloud Service
Because of the paradigm shift that comes with switching from a product-centric model to a service-centric one, and because it will affect the way things are done in every department, one must consider a near complete separation between the on-premise and SaaS teams. Whether by spawning out a satellite company, or creating a new division, it is necessary for the success of the SaaS offering without trashing the old customer base. Having the same team working on both models, (whether product, engineering, QA, Marketing, Support or Sales), will, at best, make things difficult, create conflict of interest and will risk the success of the new endeavor.

You should definitely create this new team from your best existing employees and perhaps strengthen it with a few outside recruits. You could begin with a product manager and a small team of young (in spirit) developers, those that thrive on new technology. Challenge them to deliver a new Cloud offering in record time – you would be surprised to find out how much can be achieved in a very short time. (When I started out, over a decade ago, there were so few tools and environments available – one had to build everything from scratch. Now the Cloud provides hosting and eco-systems that allows one to build full-fledged services with billing, integration, monitoring and BI almost out-of-the-box.) Make sure that they report to a C-level in the company that will take this initiative as a personal goal.

7.    Vision & Leadership
There are numerous examples of companies that succeeded in the transition, despite the hardships and challenges. (Concur being the ultimate example) The common thread was the executive leadership's belief that they are doing the right thing and their ability to carry their enthusiasm to their employees.
There are also quite a few examples of companies that failed in the process. Some of them paid dearly for that move (Mercado as an example of a very promising company that depleted itself through the process, and basically evaporated). I believe that the common trait of these failures was a lack of leadership and/or understanding of the managerial and strategic resources needed for the transition. Either the process was carried out by an enthusiastic director who got a mandate to "test out the water" as a sideline project, or that the Sales team stepped in and bungled the attempt as they perceived it contrary to their agenda, or the company tried to run both models in parallel with the same teams.
It is not enough that the CEO believes in the model. She must make sure that the board of directors is behind her and that every C-level is on the team, understands the issues, the opportunities and the difficulties, and propagates the enthusiasm all the way down to the entry-level employee. Bring the sales team on-board at an early stage and get them excited. They have the most to lose in the short term and they can be a royal pain in the backside if they chose to.

And yes, listen to your customers – one of the downsides of on-premise software is that you don’t really know if and how your software is being used.

There is a lot of misunderstanding about Cloud; too much hype has been thrown around. It is important to educate the staff and create a common vocabulary, to facilitate effective discussions in the board room and next to the coffee machine. Make sure that the most junior level worker has a clear understanding of the goals and the path to achieve them and get them excited about the prospects.