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Reducing the Cost of SaaS Implementations

By December 13, 2011Article

In the on-premise enterprise software world, I have seen many software implementations go awry despite ballooning implementation expenditures. Customers never see their return on investment (ROI) until many years into the implementation, by which time they are so deep into upgrades, manpower turnover, shrinking IT budgets, IT organizational fiefdom – you get the picture – that ROI is the last thing on their mind.
As the customer struggles, the software vendor bears very little risk. The company has pocketed the license dollars and issued the press release on the customer acquisition.
With software as a service (SaaS,) the tables are turned. The SaaS software vendors (to their own detriment) have perpetuated this notion that, with SaaS, implementation will be effortless. But as we all know, enterprise software implementation is much more than just installing the software. Vendors must work harder to reduce deployment cost and improve ROI for their customers. Here’s how.
The high cost of implementation
I met with a CEO friend of mine who runs a late-stage SaaS company that sells an industry-specific business process automation software. The company is currently going through the infancy-to-adulthood transition. They have a great product and an excellent customer base, but the downturn and reluctance on the part of customers to sign checks has made them look for efficiencies in other places. During our conversation about the general business environment and challenges faced by companies, naturally we delved into the topic of managing the cost of customer acquisition, implementation costs, maintaining profits, etc. Most companies are in the same boat – managing their operations efficiently cutting costs, reducing the burn and maintaining the margins.
To really get to that state of customers doing their own implementations and onward to use the application, the vendor has to invest a lot in creating guided implementation tools, migration tools and WYSIWIG integration tools. If you look at the current stable of SaaS vendors, very few have that kind of maturity.
Most smaller SaaS companies operate more in the Software+Services model than pure software model. I think this is a flawed strategy. As a startup you are much better off building a product that is simple to implement by the customer themselves with guided implementation wizards, etc. and focusing all your energies on building a great product. Selling a product is tough enough, then to add a service fee on top of that for implementation will only result in additional approvals and prolong the sales cycle. Nevertheless, the reasons companies go with this strategy are usually twofold:

  • First, the technology they are building is still evolving so there are only a few people beyond the employees of the company who can implement and guide customers through this process. That way, working closely with customers, the companies can understand the gaps better and manage the bumps on the road much better.
  • Second, and more importantly, being small, startup companies can ill afford to lose the revenue that comes via the services arm. The services revenue helps in augmenting the minuscule subscription revenue when the product footprint is small.

In the eagerness to close the deals, companies try to sign customers to deals where they underestimate the effort involved in implementation. Unlike in a license deal, the subscription fees that make up the MRR include all cost of sales and cost of operations. As a SaaS vendor, while you can charge customer for actuals in implementation, if you overshoot the implementation cycle, you are doing it on your own dime, as most of the implementations are typically fixed price.
Five ways to lower implementation costs
Considering this dichotomy, I’ve created a list of five things a SaaS vendor can do to acquire customers without giving a sticker shock (of the initial implementation costs) while maintaining your margins.
1. Map-gap analysis
As anyone who has done software implementations will attest, the most challenging part of implementation is the part where you need to define the business process. You can spend a lot of time just capturing all the information about the business process from the numerous pockets in a company. If you have an implementation deal that is a fixed price – one week – $10,000 dollars, for instance – you might spend a lot of time in honing in on the business process. To mitigate this, you should define business process blueprints (like workflows diagrams) and have the customer map their current process to it even before you quote an implementation price. This way you will be much closer to the actual implementation scenario than uncovering the facts as part of a pre-costed implementation.
2. Best-practice templates
Unless you are one of those companies that does not clearly know where you fit in, you should exactly know your customer demographics across target industry segments. Based on that, you should go ahead and create best-practice configuration templates. Here are things I would include as part of the templates:

  • Standard business proces
  • Workflow
  • Set-up dat
  • Roles and responsibilitie
  • Metadat
  • Labels, instructions and error messages.

While it is a one-time thing for you, you can reap the rewards over and over across multiple implementations. This will allow you great latitude to aggressively price the implementations. As you tailor specific customer needs over and above the best-practice templates, you can keep dovetailing those needs back into the blueprints and revving them up. This also will be a significant competitive advantage in terms of total cost of ownership (TCO) and creating mind share.
3. Crowdsourcing collaboration
One of the great things of the times we are in is companies and individuals in those companies are opening up to the concept of sharing and reaping the benefits of collaboration. Collaboration, when done properly, can create value for all the parties involved. When you are a SaaS startup, you want to keep the operations lean and optimize all the activities. One such way is to leverage your existing customer base to help you get better. As you incorporate your learnings from one customer implementation to another, it makes for a more compelling story if it is actually being told by the customer impacted by it. Not to mention that your next customer coming from the same industry can relate to them much better than you portraying the scenario.
Most companies invariably sell to customers that might be die-hard rivals in their own industry. So it is easy for a technology vendor to wonder if it would be wise to connect two such customers and if they would be open to such propositions. Also factor into it is the fear that the two customers might end up discussing the parameters of the deal for the software and the sweat-heart deal you gave to one might become the standard deal for all. But I am here to tell you, that no matter what you do, that information will end up getting shared.
So instead of worrying about those things, think of all the value it generates when two leaders in an industry collaborate on your software platform. They might just end up helping you define your future product strategy. I think that is a great problem to have. Getting customers into a collaborative self-help community might go a long way in reducing the bumps along the implementation path and reducing your cost of implementation.
4. Implement in phases
It is always tempting and sometimes seems easier to do a big-bang implementation than to do it in phases. To me, if you are not able to recommend logical phases of implementation, it indicates a software vendor trying to make things easy for themselves. As with any software, implementing the entire product invariably involves multiple stakeholders, teams at the customer site and sometimes multiple locations. This is where the implementation can end up ballooning.
As a software vendor and trusted adviser, it is incumbent upon me to define the logical phases and impress upon the customer the value of doing so. I like to call it “peeling the onion.” Always keep at the forefront and highlight the ROI that can be achieved in each phase and it will be an easy thing to explain. It also allows you do a soft landing when it comes to the implementation costs.
5. Smell the roses
In the initial stages it is a difficult thing to do things for free, but you will have to bite the bullet. The customer pays for something that is fully functional, but your solution might be far from it. They don’t understand the intricacies of software implementation. So at times, be benevolent and let some of the costs go as it is in your interest to make those early or critical customers happy. Also look at it this way: the customer is ready to take a chance on your incomplete product and let you bake it on their stove (and dime). So all along the way enjoy the experience and don’t make the fact that you are incurring a small loss spoil the experience.
The market for SaaS products is growing and changing quickly. As vendors mature, addressing the need for improved implementation will only serve to grow the market even further.
Subraya Mallya is a principal at FOYOPA Inc where he helps SaaS companies with Technology and Marketing. He blogs actively on PrudentCloud. As Chief Strategy Officer at Siterra, a SaaS software company, he led their strategy, product management and IT. Before that he was a Director at Oracle leading products in the CRM, Procurement and CPG space.

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