SaaS Marketing isn’t all about talking; It’s more about listening

If you’ve ever sat through a marketing agency’s pitch or seen an episode of Mad Men, you’d think that marketing is all about talking – pushing out clever messages so that people will buy whatever it is that you’re selling.

Not exactly.

You’re right that there’s plenty of delivering messages through email, blog posts, paid adwords, Twitter, TV, radio, or print ads or whatever media reaches the buyer.

But there’s more to it than catchy taglines, ads, or social media campaigns.

For any of that talking to work, there needs to a lot of listening, too.

What should you be listening for?

When you’re marketing and selling, you’re obviously keenly alert to a few magic phrases, along the lines of “Yes, I’ll buy it!”

But there are a few other things to listen for as well:

  • Who’s making the buying decision?
  • What problem are they trying to solve?
  • How painful is that problem?
  • Why is their existing solution failing?

Asking these questions, you’ll hear a lot about who’s buying and why.

But you can also listen for how they’re buying:

  • Where are they looking for solutions?
  • What are the selection criteria?
  • What other solutions are they considering?

How should you be listening?

There are plenty of ways to listen to prospects and customers, from broad-based surveys to small, focus groups.  Vendors selling software-as-a-service (SaaS) solution have the particular advantage of gathering input from customers directly within the product.

I’ve found that monthly, one-on-one interviews with several new customers are one particularly effective way of listening.  The evaluation process is still fresh in their minds, and an open-ended conversation can reveal useful insights that might not surface in a survey. 

Companies can conduct these interviews themselves, though there are certain advantages of having an outside party handle them.  Customers don’t think you’re trying to sell them anything, and they might be more candid about what they liked or didn’t like when evaluating your solution.  (I’d be happy to talk with you more about my experience with these one-on-one interviews.)

Listening isn’t a one-and-done process

Don’t confine your listening to an annual event.  Relying on a periodic snapshot or using a single mechanism to learn what’s on the minds of prospects and customers means you’ll probably miss a lot.  Markets change: different buyers emerge, new competitors come to market, evaluation criteria change, and new channels to reach buyers become important. 

Whatever techniques you use, you should always be listening. 

What do you do with all this listening?

The insights you glean from this listening should factor into what you say and where you say it.  It should guide your messages and how you explain your value, and it should inform what channels and media you use to get in front of buyers.

In fact, a marketing plan that isn’t built on this kind of solid foundation – without a firm grasp on who’s buying, why, and how – is likely to fail.  Marketing without listening is a big mistake.   

 

 

 

Bad customers can kill your SaaS business

Everybody’s got a story about bad customers.  In case you can’t get your fill, a Google search on “customers from hell” fetched 33,100,000 results.

These customers can be infuriating, frustrating, and just plain rude.

But if you’re a software-as-a-service (SaaS) company, bad customers can be much worse than that.  They can be downright dangerous.

No way to recover your costs

For one thing, these bad customers are likely to cost you money, not make you money. 

They may be more difficult right from the start, so they’ll cost you a lot of extra sales time and resources to close them.  They’ll ask for yet another demo, another extension on the free trial, another presentation, another reference, another something or other that will tie up your team.

But soon after the extra effort to finally close the deal, many of these difficult customers will find they’re really not satisfied with the solution.  For whatever reason – functionality, support, price, etc. – they’ll drop their subscription.

And they’ll drop it way too soon for you to recover your higher acquisition costs.  If you paid $1000 to win them, and they only stuck around to pay $100 in subscription fees… well, that’s not a formula for SaaS success. 

Drag you away from a standard product

The other dangerous thing bad customers will do is to drag you away from a single, standard SaaS solution.

  • They’ll ask for additional features that may not be on your product development roadmap.
  • They’ll ask for special support terms.
  • They’ll ask for non-standard deployment efforts.

That’s not how SaaS works… or at least not how it works successfully.  You need to develop, market, sell, and support a relatively standard solution.

There’s no problem configuring the solution to fit a particular customer.  But “customization,” altering the core product and practices, is a bad word in the SaaS world.

Deviating from the standard means problems and extra costs for development, marketing, sales, deployment, training, and support.

Avoiding bad customers

 I wish could provide a surefire way to avoid bad customers entirely.  Sorry, no can do.

But I will offer a couple recommendations that should help.

Be clear in your message.  You should make it as plain as possible who your solution is for and what problem it solves.  Prospects should have a crystal-clear understanding of how you can help… or not. 

And the more consistently and plainly you can convey this, the less likely the “wrong” prospect will want to engage with you.      

Identify the outliers early on.  The earlier in the sales process you’re able to identify people that won’t be a good fit for your solution, the better.  However it is that you assess prospects – web forms, phone calls, in-person meetings, etc. – have your radar tuned to those that fall outside your target market. 

Of course, you’re most eager to find areas where you can help the prospect and eventually sell them something.  But it’s just as important to quickly recognize those you can’t help. 

Those that aren’t a good fit just aren’t worth pursuing.

Listen to what your competitors say, not just what they do

I assume that somebody in your company pays attention to what your competitors are doing.

You might even have prepared a comprehensive grid that shows every feature and function the competitors offer in their solution vs. every feature and function you offer.  If it’s something you show on your website, the idea is to show off: “My list is longer than their list.”

I have nothing against bragging per se.  Hey if you’ve got it, flaunt it

But sometimes this narrow focus on features and functions – our list is longer than their list – isn’t helpful. 

Customers care about more than features

Prospective customers are often paying more attention to other things, such as:

  • Is this solution a good fit for my business?
  • Does this vendor know anything about my business and my market?
  • Do they understand the problem we're trying to solve?
  • Can I work with this vendor and trust them to help with a critical responsibility?

Your most effective competitors are addressing these bigger concerns.  They're not just talking about their features.

They make it crystal clear who their solution is built for and what business problems it’s meant to solve.  They convey a deep understanding of the prospect’s challenges, and they establish themselves as a trustworthy partner.

Competitors try to label you

In fact, if they’re really good at this, a competitor will try to position you as falling short on these issues, and they’ll try to stick a label on you.  When they're talking to prospects, they may say things like this:

  • “XYZ (your company) builds a good solution, but it’s really not built for companies like yours.”
  • “XYZ’s product was built by people with strong technology skills, but they don’t really understand this industry.”
  • “XYZ is too small and doesn’t have the resources to meet your needs,” or “XYZ is too large to pay attention to your needs.”

Features matter less in SaaS

How a competitor positions you matters, especially in the world of software-as-a-service (SaaS). 

For one, the label they try to stick on you will probably persist longer than any feature advantage or disadvantage.  Remember that in the SaaS model, vendors can be rolling out enhancements all the time, so holding on to a particular feature advantage for any amount of time is tough. 

But if a competitor can label you “too small,” “too big,” “not knowledgeable,” or “a bad fit,” that has more staying power, and you’ll find it’s a tougher perception to shed.

Second, customers evaluating SaaS solutions are probably paying special attention to you as a trusted vendor.  After all, they’re buying into a long-term relationship.  They need to trust that you'll deliver as promised over the life of the subscription.  If they don’t trust you – and if a competitor is able to sow doubts – your feature set won’t really matter.

Getting beat… before your features get a chance

I do know the adage, “Pay attention to what they do, not what they say,” and sometimes it makes sense.  But when it comes to tracking your SaaS competitors, it’s doesn’t. 

If all you’re looking at is your feature set vs. their feature set, you’re missing a lot.  Your competitors may have stuck an unfavorable label on you.  Or they’ve build a more favorable perception of themselves. 

And you're getting bounced out of consideration before the prospect even sees your long list of features.

Sometimes Prospects Just Aren't Ready to Buy

I get it:  For marketers, it’s all about “conversion.”  

The marketer’s job is to convert visitors into leads, convert leads into a qualified opportunities, and convert qualified opportunities into paying customers.  The job is to shepherd as many prospective customers through this process as possible cost-effectively, and quickly.

But what the marketer needs to do and the prospective customer wants to do aren’t always in sync.

Just because a prospect attended a webinar or downloaded a paper this morning, does not mean they’re ready to buy this afternoon.  

No matter how many follow-up emails you send or phone messages you leave, they’re just not ready - not ready to buy and maybe not even ready to talk.

Delays and interruptions are to be expected

Sometimes these prospects are just at the beginning of the evaluation process.  They’re not sure what a SaaS solution could do for them, or they’re not sure how to evaluate a solution. 

In fact, they may not even be sure that they need to replace their existing system at all. 

It’s also possible that these prospects have been interrupted by other priorities.  Remember, most of the time these people have day jobs (See "Your prospect has a day job."). 

They run HR or Finance or Marketing or some other vital function in the company; they’re not assigned full-time to evaluate SaaS solutions.  When more urgent issues pop-up, they put the evaluation on hold.

Moving the process along

OK, I realize that I can’t just tell you, “Be patient.”  I’ve spent most of my career in marketing, so I know that’s not so helpful.  You need to be doing something to push more prospects through the pipeline and to do it faster.

A few tactics may help:

Be helpful; don’t just sell.  For people still near the beginning of their evaluation, they’re trying to learn more about automated solutions.  Instead of just touting your solution’s features, you can help educate them.   

An offer to attend a webinar or read a white paper on “Five Keys to Effectively Deploying an [HR/Finance/Marketing/Sales] Automation Solution”  will probably be better received than another “Did you get my last email?” email.     

Establish your credibility as a trusted expert.  Before they entrust some vital function of their business to an outside vendor, prospects need to trust you.  Sharing examples of successful customers or talking about your experience in the market may overcome their reluctance to move ahead.   

Create a sense of urgency.  Prospective customers only have time to focus on a handful of priorities at any one time.  You can try to push one task - “evaluate my solution” - toward the top of their priority list.  (See "You're biggest competitor may be "doing nothing."

Point out that every quarter, every month, every week that the prospect tries to stumble along without a new system is costing them money, losing customers, adding risk, or otherwise hurting their business.

Stay on the radar screen.  Sometimes prospects do go “radio silent.”  It doesn’t mean they’re not going to buy at some point, but for now at least, other priorities have gotten in the way.  Sending along helpful educational material is a way to stay in front of them; when they are ready to move ahead, you’ll be top-of-mind.  

Check for gaps and bottlenecks.  For most enterprise solutions, your prospects are navigating a multi-step evaluation process.  It’s not an impulse buy.  You should be tracking prospects’ progress through the entire process: from visitor to lead to qualified opportunity to paying customer, measuring conversions and yields from one stage to the next.  You might find that prospects are getting stuck somewhere in the pipeline.

You can and you should try to accelerate the purchase process and boost conversions.  But do keep this thought in mind:  Prospects will act when they are ready to buy, not when you are ready to sell.

 

 

SaaS Marketing is Not a Numbers Game

"If we just dump enough names in the top of the funnel, some paying customers are bound to come out at the bottom of the funnel!"

Wrong.

This approach to customer acquisition - sucking in as many suspects as possible - is costly and inefficient.  In other words, it's a very bad fit for software-as-a-service (SaaS) companies.

For one thing, collecting all those names isn't free.  Adword campaigns, website optimization, list purchases, or any other tactics you might use to attract possible leads cost money.

And then cultivating those contacts - qualifying and nurturing them into legitimate opportunities - costs even more money. 

Working on bad leads actually costs money; it doesn't make money.  (See "When Lead Generation is a Bad Thing.")

Low yield doesn't work for SaaS

This "strategy" - pull in as many names as possible and then hope that at least a small percentage of them eventually convert to paying customers - creates a tremendous strain on the SaaS business model.

On the expense side of the equation, it means substantial sales and marketing costs that are incurred up front.

On the revenue side, it means small and uncertain income collected over a period of time.

Relative to expenses, revenues are too low and too slow.

Timing vs. quantity

The goal is not to get as many names into the top of the funnel as possible. 

Instead, companies should be trying to get the right names into the funnel and move them through it as quickly as possible.

SaaS success requires turning "suspects" into paying customers as quickly and efficiently as possible.  The goal is to shorten the conversion cycle.

SaaS customer acquisition is actually a timing game, not a numbers game.

Accelerating the SaaS Purchase Process

Inbound marketing can be very cost-effective, but it can also be slow.

Inbound marketing relies on prospective customers making contact with vendors.  That's the other way around from traditional marketing, where vendors try to make contact with potential customers.

What that means is that by the time the vendor engages with a prospective customer, that prospect is already fairly far along in the evaluation process.  They're already familiar with the vendor and the solution.  In other words, they've qualified themselves.

That’s perfect for software-as-a service (SaaS) vendors.  They can focus their sales and marketing activity on well-qualified prospects.  

That fits well with the SaaS business model which demands that companies spend their sales and marketing resources wisely.  (See"SaaS companies can't afford to sell")

Finding customers in the short term

But it’s not so perfect for SaaS vendors in a hurry.

While inbound marketing makes sense - and the process usually works over time - it can be a long journey.  The prospective customers move at their own pace, not the vendor's pace. 

If you're a SaaS vendor that needs to close business in the short term, you need to add in some other tactics.  Inbound marketing may not have the instant impact you need.

Friends & family

There’s a reason most vendors’ early sales are to friends & family.  These folks already have some connection to the vendor.  They might be a previous employer, an investor, or former colleagues, for example. 

Vendors looking to quickly sign on some early customers should focus their efforts on these friends & family. 

These folks are already familiar with the vendor, which means they’ve already passed through the early stage of the evaluation and purchase process.  They're more likely to buy the solution in the short term.

The early adopters

In most markets, there is usually a cadre of early adopters, folks that are actively looking for innovative solutions. To gain a competitive advantage and bolster their credentials as market leaders, they are more willing to try technology solutions before they become mainstream. 

If you're looking to close business in the short term, seek out these early adopters.

Where do you find them?  Look at the press announcements for vendors selling solutions that are complementary to yours.  See who’s speaking at relevant conferences.  Find out who's publishing a blog that describes their experience using new technologies.   

Leverage the early adopters

One of the reasons early adopters want to be out front is that they like being known as innovators.  They want others to take their advice and follow their lead. 

So once you've secured one of these folks as a customer, enlist their help to find others.  They tend to have a wide sphere of influence.  They post, they speak, they network.  And they’re often willing to help.

Don’t abandon inbound marketing

Do keep one thing in mind:  While you’re focused on closing a few deals in the short term, don’t forget about inbound marketing.  That's what you'll need to attract the prospects that will fill your sales pipeline over the medium and long-term. 

These are the customers that will get you “across the chasm” and help you establish a sustainable revenue stream. 

Yes, it may take them some time for these prospects to get to know you, assess their needs, and evaluate how well your solution fits their requirements and budget.  (See "Winning SaaS customers requires patience.")

But when they do eventually get there, they’ll be well-qualified and ready to seriously evaluate your solution.  You just can’t rush the process.

What makes junk mail junky?


The junk email I get about replacement windows, oil change coupons, and life insurance doesn’t really bother me.

Somehow I got on a list of millions of people who own a house, own a car, and can still fog a mirror. 

These emails go out in bulk and luckily my spam filter traps most of them. 
 
Are you talking to me?  Really?

What does bother me though is the inappropriate email I get that isn't sent out by the millions.  It's the ones that come out from a real person who somehow thinks I'd really be interested.

I get several of these every week from PR people who want me to talk with their client who’s been named “something or other of the year,” or who thinks I ought to do a blog post on “Promotional Products Work! Week,” whatever that is. 

A few weeks ago, someone sent me a press announcement about changes to tax law in Idaho.  Huh?

These emails are friendly enough, and I’m certain that a new tax law in Idaho is very interesting to someone… but not to me.

Anyone who's spent any time trying to figure out what I would really be interested in would know that.

I’m not asking folks to do a lot of work here.  Thirty seconds on my website or LinkedIn profile will tell you everything you need to know.

Junk email is bad for SaaS marketing

So other than a rant about junk email that finds its way to my inbox, what does this have to do with software-as-a-service (SaaS) marketing?

For one thing, this kind of inaccurate marketing costs time and money.

Some marketing or PR person spent at least a little bit of time putting together the note... though obviously not enough time to figure out whether I’d really care about whatever it is they're promoting.

And if they follow up the note with a phone call, it’s even more time-consuming and more expensive.

If you're using poorly targeted email to market a SaaS solution, you're wasting time and money.  And the SaaS business model doesn’t leave much room for that. (See "SaaS customer acquisition: Feed it or starve it?")


Junk mail costs trust

The bigger cost though is credibility and trust.  And for SaaS businesses, that means a lot.  

Remember, SaaS marketers are selling a promise, not a product.  They are promising to deliver some benefit over the life of the subscription. 

Before they buy anything, the prospective customer needs to trust that the vendor will deliver on that promise.  (See "Winning customer trust.")

Establishing that kind of trust first requires that the vendor spend a little bit of time finding out about the prospective customer.
  • What kind of tasks are they responsible for?  
  • What challenges do they face?  
  • What kind of solution might help them succeed? 
How do you find that out?  Ask.  (See "Listen to your SaaS customers," March 2014)

Wrong mail to the wrong person = wrong result

When a SaaS marketer sends out an email to a prospect before they know anything about the prospect, they’re off to a bad start.  It’s tough to start a relationship with someone when you haven’t bothered to find out anything about them.

All you’re likely to do is waste time and money and annoy the prospective customer. 

Rather than respond to your email, the prospect is likely to wonder:  “What in the world was this person thinking?!”

Winning SaaS customers requires patience

"Eighty percent of success is showing up."  — Woody Allen.


For most companies, buying a software-as-a-service (SaaS) solution to address a critical business need isn't a decision they take lightly.

Evaluating a solution to support HR, CRM, finance, marketing, or any other important part of the business takes a good amount of deliberation.  It could involve a demo or a trial.  There might be several people involved in the decision.  It could require a series of meetings or presentations.  In other words, it takes time.

And time is in short supply.  Prospective customers don't have a lot of it.

What's urgent for you isn't necessarily urgent for the customer

While you, a SaaS vendor, thinks your solution is the most important priority, the customer has other items on their to-do list.  And the particular problem your solution is addressing just might not be at the top of the list right now.

That doesn't mean they don't have a problem that you can solve.  It doesn't mean they don't like your solution or your company.  And it doesn't mean they've already bought a solution from some other vendor.

It just means they're not ready to evaluate your solution and make a purchase decision right now.

Two options:  Push or Wait

So what's a SaaS vendor to do?

One option is to push.  That is, try to move the problem and your solution higher up on the priority list.

Create a greater sense of urgency and convince the prospective customer that every day they delay, they're losing money, losing customers, exposing themselves to risk, or some other bad outcome.  (See Practical Advice on SaaS Marketing newsletter: "Turn 'nice to have' into 'need to have.'")

Another option is to wait.

But waiting doesn't mean sitting on your hands and doing nothing. It means staying in front of the prospect, so that when they are ready and able to spend the time to evaluate solutions, you'll be there.

Guidelines for waiting

Waiting isn't easy, especially when your company has sales goals to meet.  But there are a few guidelines to doing it effectively.

Be consistent:  Staying in front of a prospective customer requires a long term commitment.  It can easily take a prospect many months before they fully engage on an evaluation of your solution.  And you'll probably not know precisely when that moment arrives.

That means you need be in front of them consistently... maybe not once every week, but certainly at least once every month.  A "one and done" approach won't work.

Educate your prospect:  The most effective way to stay in front of prospects is to provide something useful for them.  Publishing an insightful white paper, a blog post, benchmark data, or some other valuable content reinforces your credibility and makes a positive impression.

By the way, keep in mind that just because someone's on your contact list isn't an invitation to harass them.  A high "opt-out" rate will tell you've crossed into "spammer" territory.

Keep costs low: All of this effort to stay in front of prospects while you wait patiently isn't free.  It's part of the customer acquisition costs that make the SaaS business model so challenging.  (See "How to cut customer acquisition costs.")

But there are ways to keep the costs under control.  Email newsletters, white papers, and blog posts, for example, are fairly inexpensive to distribute.  On the other hand, on-site visits from sales executives are expensive and probably not the most efficient way to stay in touch with prospects who are not yet ready to fully engage.

This stuff does work

I recall work I did with one particular vendor to assess whether this "stay in front of prospects" strategy really works.  We looked at the deals we had won and worked backwards to examine the entire life of the relationship with the customer.

In most cases, we found that the process extended over many months and involved at least ten "touches" with marketing material.   That is, we got in front of the prospect ten times over the period: sent a white paper, invited them to a webinar, delivered a blog post, etc.  All that activity happened before the customer seriously engaged in an evaluation of the solution and began working closely with a sales person.

Believe me, I know patience isn't always easy.  But if you're selling important solutions to enterprises, plan for it.  It's just the way the process works.





How SaaS Marketing has Changed

Over the 10 years since salesforce.com went public, a few things have changed in the way we market software-as-a-service (SaaS) solutions.

For one, companies are getting more comfortable with the idea of running critical business functions in the cloud.

Not too long ago, people marketing SaaS solutions spent a lot of time trying to convince prospective customers that putting key applications and data on the cloud was OK.

We put together plenty of documents - white papers, fact sheets, policy and procedures documents, and more - explaining that SaaS solutions were reliable and sensitive information stored there would be safe.

Fewer concerns about "the cloud"

I don’t hear many of these concerns anymore. 

Companies have grown more comfortable with the idea. 

Maybe the hosting companies have earned more trust, building a solid record of security and high-availability over the years. 

Or maybe the benefits of cloud-based solutions now simply overwhelm the possible downsides.

Of course when companies evaluate SaaS solutions, the IT professionals still care about security, performance, and integration issues.  They need to do their due diligence and ask the tough questions.  And solution providers need to have solid answers.  (For more on addressing these concerns, see "SaaS Security:  Don't Ignore It.")

Smarter buyers

As the SaaS market has matured, buyers have become more knowledgeable.  In some markets, they are now on the second or third generation of solutions.  These companies are often replacing existing systems, not adopting automation for the first time.


With this experience, buyers have a much better idea of what features and functions they really need, and what they’re willing to pay for.

To package and promote their solution effectively, SaaS marketers need a much better understanding of these more sophisticated buyers. There's no point in highlighting features and benefits that prospective customers don't really care about and aren't willing to pay for.

“SaaS” by itself isn’t a selling point

In many markets such as HR or CRM software being “SaaS” doesn’t, by itself, distinguish one solution from others anymore.  The benefits - faster deployment, no local servers, access from anywhere, regular enhancements, lower cost, etc. - are now simply “check box” items for prospective customers.  They expect them from all the solutions they’re considering.

Of course, vendors should include the benefits of SaaS in their marketing messages, but it may not make sense to put them at the top of the list. 

(A brief commercial interruption:  Contact me if you need help understanding your prospects and preparing your marketing messages.)

Some things stay the same

Though there have been some changes, some of the challenges of marketing SaaS solutions have stayed the same.

When a company’s evaluating a SaaS solution, there’s still a broad mix of folks involved in the process.  Along with IT and procurement, there’s the business owner, the department head, and the end user.  In fact, it’s often the department head - the executive responsible for Sales, Marketing, or HR, for example - that initiates the process. 

We folks marketing SaaS solutions need to reach each of these audiences and address their particular concerns.  The head of HR or the head of sales needs to hear different messages than the IT executive.


SaaS marketing is still expensive

Another constant is the high cost of acquiring customers.

In its most recent financial statement, salesforce.com reported it spent 53 percent of annual revenues on sales and marketing.  By far its largest single expense, sales and marketing costs have kept it from net profitability.  And this is for a SaaS company that is already well-known and well-established.

Yes, there are ways that SaaS companies can keep their customer acquisition costs under control - inbound marketing tactics, low-touch sales models, etc. - but sales and marketing is still going to be a substantial expense.  (See "Customer Acquisition Spending: Lessons from Workday")


It takes a lot of work and money to build visibility and credibility, generate leads, nurture leads into qualified opportunities, convert them into paying customers, and then retain and up-sell those customers.

That's an effort and an expense that hasn't changed for SaaS companies.

Listen to your SaaS customers

Companies get more from software-as-a-service (SaaS) solutions than just lower cost.

So says a recent study conducted by IBM.  It reveals that companies find that the greatest benefits from SaaS solutions are more collaboration, a better customer experience, and faster time-to-market.

For anyone that’s been marketing SaaS solutions for any amount of time, those finding aren’t terribly surprising. 

What is remarkable is that IBM actually asked customers about their SaaS experience.  Companies
don't do that often.  For some reason or another, many just don’t get around to asking their customers why they bought their solution.

Too bad.  You can hear a lot just by listening. 

I know that sounds remarkably simple (and like something Yogi Berra would come out with.)  But it’s true.  

Why do people buy your solution?

I work with many companies to help them figure out why people buy their solution.  At the risk of giving away a trade secret, here’s how I pry that information out of customers:

I ask.  And then I listen carefully.

Here are the kind of things you can learn:
  • What problem were these people trying to solve?
  • How big or costly was the problem?
  • Where did they look for solutions?
  • What alternatives did they consider?
  • What’s been their experience with the solution?  
  • Were the original problems resolved?

It takes some practice, and there are advantages to having an outsider ask the questions.  People know I’m not trying to sell them something.  And they say things that they might not share directly with the solution provider.

Don't waste money pushing out the wrong message

Without this kind of information, it’s difficult - no, make that impossible - to develop a compelling value proposition and messages.  How can a SaaS provider tell a prospective customer that they have a solution that the customer needs... if they don’t really know what the customer needs?

And without a compelling value proposition, SaaS companies can waste a lot of money on marketing campaigns that don’t work.  Given the way the SaaS business model works, that’s money most can’t afford to waste.

SaaS Marketing Requires Focus

There's a guy in my town who advertises himself as "The Bulkhead Man."  What he does is install the entryways that go from the outside of a house into a basement.  Most are heavy steel doors that are mounted onto the concrete foundation.  Here's a photo of mine, partially obscured by a very healthy holly bush.


I assume "The Bulkhead Man" could probably handle a lot of other construction projects around the house: build a deck, hang new cabinets, replace siding, whatever.  He could rightly call himself a "contractor" or "handyman." 

But that would be a bad idea.

Then he'd be just another guy in the long list of other "contractors" and "handymen" who advertise in my local paper.  His ad would be stuck in with about two dozen others, instead of being the one and only "bulkhead man."  

Companies want solutions for their particular problems

If I needed a new bulkhead, believe me, "The Bulkhead Man" is the guy I'd call.

And I'm probably like most people in that way.  Most of the time when we're looking to fix something, we're looking for someone with particular expertise, a specialist in delivering just exactly what we need.

This same logic applies to people searching for business solutions.  They're usually not looking for something that can "do anything for anybody."  They're looking for a solution to their particular problem.

How can software-as-a-service (SaaS) companies can take advantage of that logic?  One word:  Focus. 

Focus lets companies build visibility and a reputation as experts in their particular niche.  It lets them distinguish themselves from the pack.

When someone searches for solutions like theirs, they rank at the top of the list.  When someone sees them at a show or receives an email from the company, they pay attention.  "Hey, these folks have something that's exactly what I'm looking for!"

Focus on a problem, a customer, a geography, something

A SaaS company can focus on a particular problem or task.  For example, "our solution is specifically designed to help eCommerce companies more quickly and accurately update the inventory they present online."

Or it can claim that its solution is developed for a particular kind of customer, as in "this product is built for companies with teams of 5-40 customer support reps."

A company could even claim a specific geographic specialty.  For example, "our solution is designed to help public school administrators meet the unique reporting requirements of the State of Florida."

If you think about it carefully, you may find other ways to identify your particular market segment.  Contact me if you need help.

Focus isn't easy

Believe me, I know it's difficult to narrow in on a specialty and there's lots of temptation to present yourself as "we can do anything for anybody." 

I talk with a lot of companies that are rightly very proud of what they've built, all the things it can do, and all the markets it can serve.  "Yes, it solves that one problem well... but wait.  It does so much more."

My advice in most cases: focus.  Or at least take on a carefully selected handful of well-defined segments.

Focus is especially important if you're competing in an established market with a few 800-lb gorillas.  In the market for CRM solutions, for example, if you get head-to-head with companies like salesforce.com, they'll easily out-spend you with their vast marketing and sales budget.  You'll be buried.

Focus is essential to the SaaS business model

The key to survival in the SaaS world is getting your money's worth from what you spend on customer acquisition.  (See "Marketing Spend;  How Much is Enough?") Once you've spent money on developing your product, sales and marketing expenses are likely to be among your largest on-going expenses.   For your business to thrive, the return on that spending - the long-term customer value - must exceed the acquisition costs.

With focus, a company can distinguish itself from competitors, make itself easier to find, attract more leads, and close more business.

What does that means in terms of the "customer acquisition cost (CAC)/ long term customer value" (LCV) formula?  If the company spends $1 on sales and marketing, it's got a better chance at earning back much more than that in long-term customer value.


Don't just be another company that does everything that everybody else does.  Be the one and only "bulkhead man."




 
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How not to waste $30,000 on marketing

An entrepreneur who's just been accepted into a start-up accelerator that provides cash for young companies asks:

"How would you spend a $30,000 budget for marketing an SMB software-as-a-service (SaaS) application?" 

He's selling into "a huge but highly competitive market."  Based on feedback from about 10 active users, he explains, "I feel confident my application is ready to go to market."

Now it's just a matter of where to spend the $30,000.

Don't spend a dime yet

My advice:  Put the checkbook away.

Sure, the company could try several marketing tactics that might be helpful and reasonably cost-effective:  search engine optimization (SEO), Google adwords, PR, and others.

But in a highly competitive market, $30,000 won't go far.  The company could easily spend that amount on adwords in a single month, and good SEO or PR professionals need to get paid.

Before it spends any money on specific lead generation activities, the company should first figure out why anyone would buy its product.  And in a highly competitive market, why would they buy it from them?

If the company is facing well-established and well-funded competitors, it'll need to articulate a significant advantage over these other solutions.  A few extra features aren't nearly enough.

A new solution can't just be better; it needs to be a lot better.   

Don't promote before you know what you're promoting 

There's a lesson in here for all SaaS companies:

Don't spend money on search engine marketing, PR, or any other channel, until you have a
compelling message to promote.

Once the solution is built is not the time to start marketing.  Companies should think through these messages and their value proposition much earlier in the process.

If you're interested in building a viable business, developing a compelling value proposition is just as important as developing a sound technology solution.  Marketing and messaging are not after-thoughts. 

If you don't know who should buy your solution, what problem it solves, and why it's better than anything else out in the market, no amount of money - not $30,000, not $300,000, not $3 million - will help much.

Customers don't care about you

Sorry to break this news to you, but customers don't really care about you.

Even when they ask about you, it's really about them:

  • "What problems can you solve for me?" 
  • "What experience do you have with companies like mine?" 
  • "What do you know about my business, my market, my product?" 
  • "How can you help me?"

You may have a broad range of expertise.  You might have solved problems for all kinds of different companies in all kinds of different industries.  You might know a lot about a lot of different markets.

It doesn't matter. 

Prospective customers really only care about themselves. What do you know about their market?  What can you do for their business.

There's no problem with that.  After all, it's their business and their money.

Present yourself as an expert

So what does that mean for software-as-a-service (SaaS) marketers?  What does it mean for your messages and how you present yourselves?

Look at it from the prospective customer's point of view.  They'll be relying on your SaaS solution to support a key part of their business - customer management, finance, ERP, HR, whatever. 

They need to trust you.  They need to feel confident that you understand their particular needs. 

You need to present yourselves as experts at solving their unique challenges.  You need to focus, to specialize. (See "Don't market to the wrong people," Practical Advice Newsletter, April 2013.)  

For example:

  • "Our billing management system is focused on the meeting the special needs of veterinarians in the US"
  • "We deliver an HR recruiting solution built specifically for K-12 public school administrators"
  • "We've built an inventory management system based on our deep understanding of the food service industry."

You can specialize by industry, by geography, or by company size.  Those are fairly common. 

Or the focus could be on a particular kind of problem.  For example:

  • "We've built a solution for companies that need to coordinate long sales cycles that include multiple decision makers throughout a large enterprise"
  • "We're ideal for small companies struggling to attract software developers"
  • "Our solution eliminates the paperwork from tracking warranties and processing claims."  
That is, you could stake a claim to having the perfect solution to one special need which may be common to multiple industries.

SaaS is about a relationship, not a transaction

Of course your company probably knows a lot about other industries and other markets.  And it might be easy to configure your SaaS solution to work in a variety of environments to solve a whole slew of problems. 

But your prospective customer usually doesn't care about what you can do for other companies in other industries with different challenges.  They care about themselves.

Remember, SaaS means a relationship, not a transaction.  And customers want a relationship with someone that they are convinced knows their market, their business, their problems.  Someone they can trust.


 
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Spend first, think later: Bad idea

When it comes to putting together a marketing plan, there are lots of reasons to spend first and think later. 

The "spending" I'm talking about is spending on marketing programs like PR, events or collateral. 

And the "thinking" is about developing a compelling value proposition and messages. 

One reason why marketers spend first and think later… it's more fun.

Spending money on a clever promotional video, a tradeshow party, or a new ad campaign...  that can be fun.

But thinking about a value proposition… that's not fun.  That's hard work. 

Eat your broccoli first

Spending before thinking is more fun... but it's backwards

You need the value proposition in place before you can do any of the fun stuff. 

It's like you need to eat your broccoli before you eat dessert.

You need to know who you're selling to, what problem they're trying to solve, and why they would buy a solution from you instead of somebody else.


And you need to express that value proposition clearly, concisely, and consistently. 

You need to do the hard work to answer these fundamental questions before you start spending on marketing programs.  (Or you can hire someone like me to help.)

Because until you have a well-articulated value proposition in place, it's difficult to get much value from the other stuff.

You can spend lots of money on programs to deliver your messages:  PR, search engine marketing, videos, a website, tradeshows, etc.

But it won't buy you much unless you have a compelling message to deliver.

For software-as-a-service (SaaS) companies in particular, that's money wasted… money that you can't afford to waste.  (See "SaaS customer acquisition:  Feed it or starve it?"

Eat your broccoli first, then you can have the pineapple pie!





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Making free trials work: 3 tips

Lots of software-as-a-service (SaaS) companies offer free trials.  But in even the best cases, only about a modest portion of the free trialers actually convert into paying customers.

In fact, many times the free trialers don't even try the free stuff.

People download the trial, but then they get distracted.

Or they don't have the time to use it.

Or they don't have the data they need to get started.

Or they decide it's a hassle.

Or they lose interest.

Or whatever.

Totango calls these folks "accidental trialers:"  prospective customers who sign up for a free trial and then do nothing.

After a few weeks, the trial expires - a complete flop for both the prospective customer and the SaaS provider:

The prospect gains little experience with the product and misses the opportunity to see how it might be helpful.

The provider has little opportunity to convert the free trialer into a paying customer.   They've invested in finding and cultivating a prospect, but they can't close the deal.

How can SaaS providers avoid this?  How can they get prospects to actually try the free trial?

Tip 1:  Don't make the trialer work too hard

Just because your solution is free doesn't mean your prospective customer's time is free.  If you ask them to do lots of work - track down data, configure forms, set-up work flows - they're likely to bail out.

Instead provide completed templates, default settings and benchmark data already filled in.  The trialer, of course, can make changes, but they're not starting from a blank page.

Tip 2:  Don't overwhelm the trialer

You're proud of your solution - every bell and whistle of it.  And your paying customers may grow to love every bell and whistle too - eventually.  But your free trialers probably aren't yet ready to see every single feature and function, and they may be overwhelmed by a walk-through of the entire product.

At this stage, it's better to focus the prospect on accomplishing a few simple, common tasks.  Show them how easy the solution is to use and how quickly they can achieve worthwhile results.  Get them as soon as possible to an "Aha!" moment.

Tip 3:  Offer help

Even with the simplest, most intuitive solutions, the prospect might need some guidance.  These folks aren't dense; they're just busy.

Give them a guided tour through the trial, a step-by-step guidebook, a recorded tutorial, or one-on-one coaching.

Yes, helping free trialers can be expensive.  But remember, you've already spent time and money to get prospects this far in the purchase process.

Spending more to push them one final step - and convert them from trialers to buyers - might be a worthwhile investment.



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Customer Acquisition Spending: Lessons from Workday


According to a business adage, you need to spend money to make money.

According to a SaaS business adage, you need to spend a lot of money to make money.

Workday recently made public its S-1 filing in advance of an initial public offering. The document reveals what it takes to succeed in a market dominated by Oracle and SAP. Specifically, it illustrates the need for software-as-a-service (SaaS) companies to spend money - lots of it - on customer acquisition.

In its early years, Workday spent well in excess of its annual revenues on sales and marketing. In 2008, it spent 2.5 times more on customer acquisition than annual revenues, and in 2007 it spent nearly 18 times more than annual revenues.


With only $455,000 in revenues in 2007, Workday funded a direct sales force and a professional marketing effort costing more than $8 million. I saw first-hand the company's significant presence at that year's HR Technology conference, where the company's booth and a front stage presentation by co-founder Dave Duffield made for an impressive coming out party.

Sales & marketing costs still represent the single largest expense for Workday. It's selling a critical solution via an expensive direct sales force to large enterprises, and usually competing against well-entrenched competitors. A typical sales cycle can extend over 6-9 months.

Though the cost of customer acquisition relative to annual revenues has declined steadily, on-going customer acquisition expenses will continue to keep Workday in the red for some time. According to the S-1, "we do not expect to be profitable for the foreseeable future."

So what is Workday getting for its money?

What's the payoff from this significant and on-going investment in sales and marketing?


High growth: Workday's revenues grew at a compound annual growth rate in excess of 300 percent from 2007 through 2011. The company has attracted about 325 customers over that period, mostly large enterprises with thousands of employees.

Strong customer lifetime revenues: Most of Workday's customers are on 3-5 year contracts. And in addition to the subscription fees, many pay for implementation, training and other professional services. (It would be helpful to calculate the average customer acquisition cost relative to customer lifetime revenue, but the S-1 filling doesn't appear to provide the required data.)

Visibility and credibility: Its high marketing spend has established Workday as a leader among SaaS ERM providers. When large enterprises consider potential solutions, Workday is usually on the short list.

Success requires funding, courage and patience

Here's one important lesson we can all take away from Workday's experience:

SaaS companies that want to grow need to spend money, sometimes a lot of it, on customer acquisition.

Often SaaS companies will need to commit to high sales & marketing costs even at the expense of profitability, at least in the short or medium term. Companies with an effective customer acquisition plan in place, however, can generate high, sustainable, and eventually profitable growth.

To put a sharper point on this lesson:

SaaS companies without the funds, courage or patience to pay for a well-functioning customer acquisition effort over a sustained period will have a difficult time growing their business.


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SaaS acquisitions: It's about money and genes

Another week, another software-as-a-service (SaaS) acquisition.

To be more accurate, it's really "another week, another four SaaS acquisitions." Software Equity Group reports that in the first quarter of 2012, 64 SaaS companies were acquired.

Among the more prominent purchases, Oracle bought Vitrue, following its acquisitions of Taleo and RightNow.

Keeping pace, SAP purchased Ariba for $4.3 billion, while it's still digesting its earlier multi-billion acquisition of SuccessFactors.

Besides the usual suspects - CRM and talent management solutions - the purchased companies offer anything from cloud-based education and engineering solutions to security and web analytics.

What are they buying?

When they purchase SaaS companies, part of what the buyer gets is a revenue stream. Better yet, it's a consistent revenue stream, driven by subscriptions. It's one of the more attractive features of the SaaS business model.

Buying DNA

In addition to the revenue stream, though, the acquiring companies are getting an infusion of SaaS experience and knowledge. They're buying a different perspective on how to run a software company. They're getting the benefit of people who understand how the SaaS business differs from the on-premise model... people with "SaaS genes."

This SaaS DNA applies across every function of the business:

Development: People with SaaS genes know how to run a product development group that delivers frequent enhancements to the solution. They understand the need for a solution that's easy to learn and easy to use.

Operations: People with SaaS genes know how to run an operation that ensures that the solution is secure and reliable, capable of supporting many users with heavy usage at peak hours.

Customer support: They know that customer support goes beyond providing help; It's critical to renewals, upsets and retention. (See "Customer Support is Actually Marketing")

Marketing: These people in the acquired company understand the unique challenges of marketing a SaaS solution - the faster pace, the different target markets and messages, and the need for ultra-efficiency. (See "SaaS Marketing Essentials")

Finance and Legal: People with SaaS genes understand the particular financial and legal requirements of the SaaS model. (See "Getting Deals Unstuck from Legal and Procurement.")

As traditional on-premise software application providers move toward offering a SaaS solution, they will need an infusion of these SaaS genes. They will need to quickly absorb the notion that SaaS requires a new approach across the entire business, and they need people who know how to think and act like SaaS people.



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Don't waste marketing money: all thought, no action

I pulled up behind a step van at a stop light and read on the back door, "Need a spark? Call Mark. Mark Olsen, Electrician"

OK, it's not Shakespeare. It's not even Ogden Nash, but kinda catchy. I thought it could work for other tradesmen too. "Sprung a leak? Call Dominique." "Need concrete? Call on Pete."

(OK, it was a long light.)

The silly tagline did part of its job. It got me to think.

What it didn't do is get me to act.

Why not?

There was no phone number. No 1-800-SPARK-ME, no 1-800-POWER-UP, no nothing.

Here I've been invited to "call Mark," but haven't been given an easy way to actually do that. He got me to think, but not do. Mark the Electrician never closed the circuit. (Sorry.)

SaaS marketers can't afford to waste time and money

SaaS marketers sometimes make the same mistake - not closing the circuit, not connecting thinking to doing. And for SaaS companies, where maximizing the impact of every marketing and sales effort is critical, this kind of mistake wastes precious time and money.

We pay good money to reach the right prospects - execute a search engine marketing program, run an email campaign, host a webinar.

We successfully capture the attention of a prospective user, present a compelling value proposition, invite them to contact us.

Missing the next step

But then after all the up-front work and expense, we miss the next step.

We don't offer a clear path for the prospect to do something: call us, sign up for a free trial, download a paper, subscribe to our newsletter, whatever.

That's money wasted, prospects squandered, revenues lost.

The problem often comes from forgetting about the overall goal of the customer acquisition process, namely to acquire customers. (See "SaaS marketing, baseball and the batting order.")

Instead we fixate on a single portion of the process: build a beautiful website, host an inspiring webinar, deliver a clever tagline.

But that's just part of the process. They get prospects to think.

Now we need to make it easy for them to act.



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SaaS profits: who cares

There's a story about accounting that wouldn't really pass as funny - even by accountants' standards- but it is instructive.

A CEO was interviewing two candidates for an accounting position. He provided each with the company's most recent financial data and asked each of them: "What would you report for our company's profit?"

The first candidate pored over the numbers, pencil and calculator at hand, carefully constructing an accurate income statement. After that protracted exercise, he dutifully walked the CEO through his arithmetic, subtracting expenses from revenues. The remainder, he proclaimed, would be the company's reported profit.

The second candidate kept his pencil and calculator in his briefcase and, in fact, never even glanced at the numbers. He looked at the CEO and said, "The company's profit is whatever you want it to be."

So much for the unassailable truth of whatever is reported as "profit." Calculating it and interpreting it can be much more elusive than the cold, hard numbers would suggest.

"Profit" isn't especially meaningful, in particular for SaaS companies

Interpreting "profit" is even more elusive when assessing software-as-a-service (SaaS) companies. The problem is timing. Profit is calculated by subtracting costs incurred during a given period from revenues generated during that same period.

For most SaaS companies, though, they incur expenses in the current period, but the revenues are realized over many periods in the future. Costs now yield revenues... but not until later. (See "SaaS market consolidation: Blame Wimpy.")

The largest of those costs tend to be for customer acquisition. Sales and marketing expenses in a given period can often exceed 50% of revenues during the same period. Adding in support, operations, development, general & administrative costs, and other expenses, there's not a lot left for profit. In fact, a reported loss is far more common.

If not "profit," what really matters?

So if profit isn't a useful measure of success for SaaS companies, what is?

Metrics like "cost of customer acquisition/customer lifetime revenues"(CAC/CLV) can give a much better picture of a SaaS company's performance. For every dollar that the company invests in sales and marketing, how many dollars in revenue are earned? And how long does it take to earn them? (See Joel York's "SaaS Metrics Guide for SaaS Financial Performance" or David Skok's "SaaS Metrics" for additional metrics appropriate for evaluating SaaS companies.)

To amend the story about the CEO and the accountants, the best answer to the question "What would you report for our company's profit" wouldn't be "revenues less costs," or even "whatever you want it to be."

For a SaaS company, the best answer might be, "Who cares?"


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SaaS acquisitions can be tricky

Having lived through several acquisitions during my career in technology companies, I have some idea of what the folks at SuccessFactors (acquired by SAP last year) and Taleo (acquired by Oracle a few weeks ago) are going through. Some of these combinations go well, others not so well.

One reason behind the acquisitions of software-as-a-service (SaaS) companies is the high cost of sales and marketing. In essence, it helps to be bigger and richer.

Under the SaaS business model, companies pay for sales and marketing now, but don't collect revenues until later. I call it the Wimpy effect, after the cartoon character who promises "I'll gladly pay you on Tuesday for a hamburger today. (See "SaaS market consolidation. Blame Wimpy.")

Early in its life, for example, SuccessFactors actually spent more for sales and marketing than its entire annual revenues. Even well-established SaaS companies typically pay 40 percent or more of their annual revenue on customer acquisition.

The need to make that kind of large investment over a long period favors companies with deep pockets (as well as strong stomachs.) Hence the advantages of being acquired by a much larger, richer company.

The unique challenge of marketing both SaaS and on-premise solutions

From what I've seen, all tech company mergers and acquisitions run into speed bumps of one kind or another - departure of key people, cultural clashes, loss of focus, and other glitches.

When established companies buy SaaS companies, it's even trickier. They need to figure out how to sell and market the newly acquired SaaS solution alongside the existing on-premise solution.

It is possible for one company to sell both on-premise and SaaS solutions simultaneously. Lots of companies do it, and in many cases it makes good business sense.

For one thing, keeping two horses in the race means there's no need make an abrupt switch from on-premise to SaaS. That kind of switch can be painful. Some brave companies like Concur have done it, even as a public company, and they have come through it successfully, but I don't imagine it was easy.

Second, companies often prefer to sell both on-premise and SaaS in order to offer their customers a choice. "Choice" is so much more attractive to customers than "my way or the highway."

But offering customers a choice doesn't come without a price for the solution provider.

In some ways, offering two different solutions - an on-premise solution and a SaaS solution - means running two different companies.

The differences span the entire business: finance, operations, support, development, sales and, of course, marketing. (See "The Ten Essentials of Software-as-a-Service Solutions Marketing.")

Different audiences, messages, & processes

For SaaS marketers, we may be talking to different audiences. For example, while we may not have paid much attention to existing customers for on-premise solutions, those folks and their continued renewals are vital to our SaaS business.

The messages we deliver about the SaaS solution may differ as well. Unlike an on-premise solution, we're not just talking about the features that are delivered at the time you buy; we're talking about the on-going stream of functionality that the customer will get over the life of the subscription. And we're talking about the entire experience - reliability, security, deployment, upgrades, etc. - not just product functions.

Even the marketing processes for SaaS solutions may be different. We may be delivering enhancements more often, which means we'll need a way to keep our marketing material up to date. And we'll need to be super-efficient. Not that we can spend carelessly to market on-premise apps, but we need to be especially careful to get our money's worth when we market SaaS solutions.

I'm sure we'll see lots more acquisitions of SaaS companies, and there's lots of speculation about which companies will be bought next. Just as interesting is what will happen after they're bought.



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