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Eight Keys to Enterprise ISV Success in the Cloud

By September 1, 2010Article

A great deal has been written about the challenges enterprise software vendors face when attempting to execute on a Software as a Service (SaaS) strategy. While a lot of companies are simply “cloud washing” (a term that according to Wikipedia was coined by Forrester’s Frank Gillette), in order to “date the fad,” there are some Independent Software Vendors (ISVs) that are going further and truly “marrying the trend” (an important distinction I first heard from MarkLogic’s CEO Dave Kellogg).

Having worked at both a start-up SaaS solution provider and enterprise software companies, I thought I would share the following eight keys to enterprise ISV success in the cloud.

1. Don’t treat SaaS as “just another product.” Many software executives seem to believe that creating an Amazon EC2 Machine Image (AMI) and offering a subscription pricing model is a cloud strategy. While there are cost-savings benefits to both private and public cloud hosting, a true SaaS solution requires not only business model changes, it requires you to change the way software is designed, developed, and delivered. As one former colleague of mine used to say, “SaaS is a mindset not a product.” To be successful, enterprise software vendors must be prepared to focus on delivering an on-demand service that is easy to set up, easy to use, and easy to buy.

2. Don’t underestimate the importance of executive commitment. It’s no secret that successful SaaS companies, such as, have required significant amounts of venture capital investment to gain traction in the market. It takes focus, resources, and time for any SaaS business to grow, and with the competing forces of an enterprise software company to contend with, a top-down commitment to long-term SaaS success is essential if the initiative is going to gain traction.

3. Figure out compensation early. The right compensation model must be in place if you expect your traditional enterprise software sales team to sell the new SaaS solution. Cannibalization concerns should not be ignored, but they also should not be a crutch to fall back on if the new business doesn’t immediately get off the ground. I’ve heard of software companies not paying sales management on SaaS sales, but rather paying the reps. The results are rarely surprising. Compensation drives sales behavior, so figure it out early and invest in proper training. Ensuring the SaaS solution meets the needs of a different buyer or market segment is also worth considering.

4. Encourage SaaS independence (but leverage your core technology). “Incubation” is the right way to think of a new SaaS business. Build a team with internal and external experiences and give them the autonomy they need. From a marketing perspective, new channels may be more appropriate (i.e., social media), new branding, a different website, etc. On the sales side, get up to speed on Sales 2.0 — an inside team is likely going to be the right approach with a strong lead qualification arm. And while independence is ideal for your go-to-market strategy, ensuring that your underlying technology takes advantage of and provides interoperability with your core technology and products will ensure that “proven, scalable, reliable and high performance” are part of your unique selling proposition.

5. Embrace multitenancy and Agile development. The expectation from organizations investing in a SaaS solution is that new releases will be available at least every three or four months and that new features will be delivered iteratively. Multitenancy means you and your customers will benefit from the cost savings and economies of scale that a shared infrastructure can deliver. Multitenancy will allow you to track actual adoption and usage while ensuring upgrades are seamless to the customer.

6. Establish the right partnerships. Early on, there will be a tendency to want to announce a series of new partnerships to help get the word out about your new SaaS product (or service). You’ll be much better served if you establish a few key partnerships that are actually meaningful, mutually beneficial, and result in real value for customers. For example, is often considered the partner of choice due to their AppExchange and Saas (and PaaS) friendly customer base. Just be sure you’re actually able to provide value to the joint customer and that your value proposition is aligned with the goals of your partners’ sales (and marketing) organization.

7. Know your metrics. The critical SaaS metrics are Annual Contract Value (ACV), Total Contract Value (TCV), and Monthly Recurring Revenue (MRR). But these are just the beginning. Establish a culture of analysis for your SaaS business and take time to determine what are the right sales, marketing, customer satisfaction, and operational metrics. Communicate these metrics with the broader management team early and often and establish monthly and quarterly objectives for the SaaS team.

8. Focus on customer success. It’s been written about at length by Marc Benioff and others, but customer success is king in the SaaS world. The subscription pricing model and the fact that purchases are typically operating — not capital expenses — changes the nature of the customer/vendor relationship. Establish a customer success team that is responsible for everything from on-boarding to renewals, build a community website, closely monitor usage patterns and ensure everyone on the SaaS team is talking — and listening — to customers every day.

Darren Cunningham is VP of product marketing for Informatica Cloud.

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