I’ve seen a lot of different “roadmaps” for SaaS products lately. Some of them are good guides for specific questions. Some are simply misleading or poorly focused. But only a few of us are talking about the two guiding thoughts behind a realistic roadmap that are critical to success:

1. Developing a product that customers want, will pay for and will advocate
2. Finding and scaling an economically viable business model without wasted time or money

These two points form the basis for a slowly building consensus among founders of successful (and some failed) SaaS companies and those of us who have been involved in multiple projects over time. If you haven’t come across them, you will if you need to go for funding of any kind or show a business model these days. These folks are in the business of making money from the SaaS business model and developing companies with a worth that is many times their investment.

People who are unfamiliar with the Lean concept often think that it means developing a product that is at best, minimal and at worst, a product that is too basic and that no one will actually want. We’re used to the idea that it can easily require a two-year development cycle to get a fully-featured product to market. So, when someone says, “We can develop a SaaS product in six months or less!” there is a tendency to dismiss them as novice product managers or marketers.

If this has been your thought, I don’t blame you.  You should question what is behind that type of claim. If it is just the size of the development team that can be brought to bear on the project, I would remind you of the old joke in production engineering:

“While we know that it is true a woman can produce a baby in nine months, this does not mean it is also true nine women can produce a baby in one month.”

For our own part, we’ve developed our concept of lean product development based on careful analysis of what we could provide to our customers to help them be successful. Rather than repeat the entire mantra – let me call out some leading references you should be familiar with for evaluating your roadmap:

• Bessemer Cloud Computing Law #1 – Less is More! Leverage the cloud. Don’t spend money to build features that don’t provide direct value to the end user.  Go into the market and “rent” services. Services allow you to concentrate your resources (time, talent and money) on your core value. They will in fact be richer and more cost effective than anything you can afford to develop.
• Steve Blank – Perfection by Subtraction – Having a clear, tight vision helps to keep development scope down, but it isn’t the key to the “minimum viable product” often mentioned in discussions about product development.  The key is to get a product in front of customers who can understand the vision and who can become evangelists for it because – They have a problem your vision will solve. They understand they have the problem. They have been actively looking for a solution. They have put together some parts of a solution themselves. They have or can get a budget for something that solves the problem.  These customers can validate the vision and will actively pull it into the shape that fits their context. With them behind you – you can develop a beta product that is much closer to what the market needs.  This is also part of Bessemer’s Law #5 – Build Employee Software – which talks about the “consumerization of software” that SaaS has enabled.
• David Skok – Why Startups Fail – The business model is just as important as the feature set in the end. We’ve all heard of great products that never sold enough to return their investment before failing. Learning if you have a market fit, if you can actually scale your operations profitably, if the cost of acquiring a customer (CAC) is less than the average lifetime value (LTV), and if you are going to have enough cash when it comes time to hit the marketing accelerator pedal – these are differences between success and crash and burn. They come down to having a roadmap that gets you into the market early, allows you to test your business model and your product before you have burned all your cash.
• Eric Reis – The Promise of the Lean Startup – Leverage the Agile methodology and philosophy to develop progressively based on customer pull rather than a miracle of market anticipation. We’d all like to be Apple, but we’re not – and getting there is a lot harder and more expensive than we need to expend ourselves on.  The SaaS multi-tenant model allows incremental releases and fixes, usage monitoring, and real feedback-driven products that customers pay for. Eric has a very good presentation with the difference between two companies he was with – that brought him into Lean thinking.
• And finally – Evangelous Simoudis – Criteria for Determining a Company’s SaaSyness – This brings all the previous ideas together with having a successful business model and product BEFORE you go for funding. This puts funding when it will do the most good – when you can use the extra acceleration to get the proven product in the market and when in the classic hockey stick market model, it will be easier to get cash with attractive terms.

But – that means having a roadmap that allows you to make these things happen with a reasonable investment. It means signing up customers and getting cashflow before you reach what you might otherwise think was a full-featured product. It means a company with a product in a licensed model will have to think a little differently than a startup to retain their existing customers, but the larger picture should remain stable.

So, coming back to the premise of this article – a realistic roadmap for SaaS should allow you to -

• Validate your vision with early adopter/evangelist customers as soon as you can show them your the core of your product’s business value.
• Test your marketing, sales and operations during a beta that is still less than a full-market version, but allows you to show your vision to the broader market and get further feedback.
• Leverage services and products that allow you to focus on developing the core value and keep your choices in line with business outcomes – lower initial cost and faster time to market.
• Keep your investment to a reasonable level, particularly in advance of breakeven, and allow high power funding to come when it can do the most good – when you have a proven product and customers.
• Allow early cashflow by having a product driven by paid customer demand.
• Be Agile and flexible in both your product development and your business model.

At Scio – we have used these points to come up with a general roadmap that we customize for each customer’s situation.

Our choice of methodologies, tools and technologies is similarly aligned to ensure we can execute successfully at each stage. Every outsourcing company will decide where they need to focus but for us this means:

• Using the .NET framework as our core techology base. This allows us to apply common skills across a variety of devices and applications and to tap into a much larger commercial resource pool for staffing. It also keeps costs low because we can focus on building best practices and development patterns while leveraging a large pool of libraries that are available for .Net.
• Building on a SaaS application server – SaaSGrid – that lowers the total cost of development and provides the common SaaS monitoring and operational needs. Sticking to one “best of breed” application server that we understand the internals of lowers risk and “discovery” associated with learning new development patterns and allows us to focus on the problem of delivering business value to end users.
• Leveraging Agile and Lean methodologies internally to allow us to deliver useable software early with feedback from customers and operate with high efficiency.
• Use a Nearshore model to put us in closer contact with our customer base and to better enable the promise of collaborative software development embodied in Agile.
• A production model that can apply consistent approaches and learning across engagements rather than approaching each project as a “one-time shot.”
• And finally – a business model that not coincidentally has a lot in parallel with the concepts we expect our customers to embrace.

That is just the choices we’ve made.  Making these choices is a lot like we ask our customers to do when picking a feature set. We purposely left “opportunistic” approaches off the table that would mean we had to spread ourselves a lot thinner to support them at the same level as our core. It also means we can concentrate on improving our core value set without compromising the services we deliver.  We concentrate on our core – developing successful SaaS products repeatably, economically, and quickly – and let our customers do the same for their clients.

So what is your roadmap? Does it align with the ideas we and others have offered in recent articles on developing Internet-based products? It’s all about using the delivery technology that underlies SaaS products to your best advantage in the end.  Whether you develop your product in house or with a product developer like Scio – I strongly suggest you consider your roadmap and the driving vision behind it. It can save you a great deal and lower your risk greatly.  Worth considering…

When you develop products in a repeatable, production fashion, you have to step back occasionally and take the long view so you can properly discuss the process with clients. We’ve been involved in that exercise recently and I thought it might be useful to share the what and why of our approach to software development for online products.

First, there is one basic idea that informs all of this:

We define “Big Bang” development as:

• A basically black box project where significant work is done up front to develop extensive requirements documents which detail the features and functionality in great depth for a software development project that typically lasts from 12 months to two years.
• The time expended on requirements development is expected to provide developers with a very specific vision of the product that can be put out for bid, will put a box around scope, cost and time, and will last through out the project.
• On release, the exhaustive feature list is expected to drive market adoption and leapfrog existing competitors.

This technique of specifying software product development has been used for years by companies that want to somehow reduce risk on a project they cannot do in house and often because of the technology and complexity, where they cannot provide granular oversight during the project.  But regardless of those worthy aims, these projects continue to fail because:

• Controlling scope over the life of a project becomes increasingly difficult as the project complexity and time span grows. Prediction accuracy degrades geometrically over time – yielding a project plan that can be relied on at a high level at best.
• Technology continues to respond to Moore’s Law.  The longer requirement development takes, the longer the project goes on, the less likely it is to meet the expectations of the market on delivery. User expectations, informed by other products they have tried, have moved on. In addition, the technology assumptions at the beginning of a project don’t always work out when development actually takes on the complexity of integrating them. So the choice of a tool, framework, or library may seem like it solves a lot of problems at first, but in practice may turn out to be a black hole into which resource time disappears.
• No matter how detailed requirements are – they are limited by two things: point of view (the classic story of the blind men and the elephant is the common point of reference) and actual feedback from end users of the resulting application.  No matter how carefully feedback from end users is brought together for requirements, it is only as good as their vision of the final product.  As we and others have said many times – if you asked people at the start of the 1900’s what they wanted for personal transportation – the requirements would only lead to better horses. In addition, it is rare for requirements to both anticipate user needs correctly and the complexity of delivering them in a particular way. The risk in requirements actually increases the more detailed they become – if they cannot respond to end user feedback early in the development process.

So – what is the alternative? Consider “Lean Product Development.” We have a general assumption of software product development we have formed over several projects and across several industries:

Lean Product Development (Click on the image to see it in detail)

The phases and their aims break down this way:

1. Sprint 0 – During this phase, requirements are verified, technology choices are made in detail (architecture, stack), user stories are built (we use Agile development techniques – user stories are roughly equivalent to use cases), and the user experience (more than just interface, how a user will use the product) approach is developed to set interaction standards.  The outcome of this phase is a set of technical specifications, personalities (roles to a degree), and prioritized user stories with effort estimates for each story.
2. Alpha Version – During this phase, the underlying framework is built and core functionality is developed for key end-users. The point of this phase is to verify the product vision with the key audience of the application – the end users who perform the most critical tasks and use the application most. This means the alpha version needs to be actually be tried by the core end-users.  This usually requires client partners – which in the case of a new vendor requires getting out into the market and bringing in some early adopters. The outcome is to lower risk. The cost at this point is low, compared to the whole project, so changes can still be absorbed without loss of large portions of developed code and sunk costs. Also, at this point, the approach of the development team in carrying out the vision of their client can be verified early – so that adjustments can be made and trust between the client and the development team can grow. This approach follows the sage advice articulated by Steve Blank - the point of early user validation is to get out your “dark room” and get in front your audience early so they can inform development before costly mistakes are made.
3. Beta Version – This phase produces the first cut of the market version of a product. It is important to understand that the scope of this version is intentionally limited to just what is necessary to deliver value to end users. In other words – deliver just what they will PAY FOR. This is a critical assessment that is informed by both the vision of the subject experts and the feedback from the Alpha Version. The problem is however, no matter how good the vision and feedback are, there will be additional feedback when the product hits the many different contexts of actual target end-users in the market. The release of the beta version also provides the “kick off” of internal operations for the provider – and in the case of most products – support, sales and marketing. The lessons learned from beta release then inform the next phase so that beta adopters are rewarded (and retained) and operations delivers the message and services needed to drive new customers and user adoption.  Because of the incremental nature of Agile release cycles, the actual point when sales are made during this phase varies a lot between products – but development doesn’t stop. What changes is that development is now more directly informed as new customers come on and participate in the beta. Some companies test pricing and marketing more aggressively at this point than others – but the general recommendation is to establish pricing early and test it against the perceived value from users. The outcome isn’t expected to be an adjustment to pricing directly but rather an adjustment of features or packaging to better align with perceived value.
4. Market Release – This phase marks the release of the full market product and the beginning of “normal” product enhancements to continue to grow functionality in alignment with user feedback. We sometimes add a phase for development up to market release itself that is separate from beta – but for general purposes – development has now slipped into an enhancement mode, rather than full out development unless there is a significant difference from what is planned for release to beta customers and the general market. The outcome of this phase is a product informed by target user feedback, tested business operations and a change of focus from getting the product “out the door” to getting customers and continuing to enhance features and functionality. It is not an end point – it is just the start of the natural evolution and “pull” of a “consumerized” online product.

The outcomes of this process are:

• Early release and feedback from the people who count – the users in the field.
• Early validation that both the vision and the requirements are resulting in a product that delivers value and will meet market expectations.
• Lower up front risk and lower time to profit. Waiting over a year to put a product in the market with real users is a recipe for disaster. Getting into the market, proving operational assumptions and kick starting cash flow as soon as practical is key to success.  A good reference on this Joel York’s SaaS Metrics Rule-of-Thumb #4: Company time to profit follows time to break even. You can’t prove your assumptions around operational costs and customer acquisition cost (CAC) until you get into the market. The sooner you get into the market, the more time you have to adjust to reality before your startup cash pile is burned up.
• Simple – a higher chance of success measured by what counts – adoption, cash flow from customers and retention of users.

A lot of our customers though face a little more difficult situation – they have an existing product in the field that started life as a traditional premise-based product and is now being pulled to adopt a more dynamic online model. That brings an additional set of issues:

• If the development cycle is long, existing clients may jump ship before the full online version is available.
• Support and maintenance of the existing product can overwhelm the key members of the product team that need to be available to shape the new product.  Finding a point when transition can begin in an orderly fashion, without cannibalizing existing sales is critical.
• The new direction provides an opportunity to develop new markets, adopt new pricing levels and transition to a pull-driven feature model (rather than the push of traditional product releases) but timing is key. For a complex product meeting the needs of the top of a vertical market this becomes a huge exercise and is frankly very difficult to break down into manageable pieces.

To deal with that we have a general model that takes the new product template above and turns it into a phased development of a suite of products. In the diagram below – you can think of each of the blue boxes as a modified run of the our typical product develop cycle:

Progressive development for a suite of online software products (Click on image for more detail)

The major steps in this are:

• Sprint 0 – A holistic project-level requirements, technical specifications and feature breakdown that sets the stage for the entire project – but doesn’t lock assumptions down. The point of this entire project is as before, get products out early, get feedback and cash flow as soon as practical. This also includes a more detailed look at the first product in the suite.
• Web Enhancements – This part of the first product release is optional but worth considering as a way to ensure existing customers stay onboard for the long run and can see the long vision early – so they will become key in feedback as the product progresses through the lifecycle. What form this product takes varies, but the idea is to enhance the existing product with features that suit the Internet environment particularly well and extend it in ways not possible before because of technology or restrictions inherent in the on-premise version.
• Broad Market Version – To allow early feedback and to get into the market as soon as possible, the first product  needs to be a focused subset of the expertise expressed in the legacy product that addressed the top of the market previously. Generally, this means providing a set of features that will provide value for the 2nd and perhaps 3rd tier of the market. Again, all the points of a typical product release as we first described need to happen in this release so the product is informed by actual end-users in the target market – which coincidentally is a new market for the vendor.
• Professional Version – Building on the same code base as the Broad Market Version, the professional version targets the features which will satisfy 80% of their installed base. This sets the stage for migration and broadens potential adoption by a group of customers who will pay significantly more for the value the product delivers. This also marks the point where legacy support and maintenance can begin to turn the corner and clearly move toward the new product.
• Enterprise Version – Again, on the same code base, enterprise functionality is added and now the entire “product suite” has reached levels of functionality never achieved in the legacy version. Users pick levels by feature packages within the suite – so if properly architected – there is a lot of variation in pricing and packaging possible to meet needs in different markets.

It should be said that the timeframes proposed here are generalizations and will vary, but – they are based on the assumption that development should focus on delivering features with value to end users. Everywhere else, the simple rule “less is more” should be followed with the leverage of services and frameworks where ever practical. The architecture needs to allow those services to be used as long as necessary, but to be replaced as growth provides the option to drive down the cost of service.  It should also be said that features and customization in this approach come from choices of what is made available to roles in market packages and configuration – not separate versions.

Now, I’ll admit this is a big vision and a lot to absorb in any context – either as a startup or a software company with legacy products in the market.  And – it is a big shift in how we have looked at software product development. It comes from our own experience of the issues we find repeatedly in the market. I can’t say it is an approach that every development group can provide successfully. It depends on making clear choices that will provide these outcomes and not waffling with half measures.

What do you think? Can you see your company going down this road? Can you see the benefits? Let me know…

]]> http://blog.sciodev.com/2010/02/24/lean-software-product-development-in-4-phases/feed/ 0 http://blog.sciodev.com/2010/02/09/lean-into-saas/ http://blog.sciodev.com/2010/02/09/lean-into-saas/#comments Tue, 09 Feb 2010 18:10:53 +0000 Michael Dunham http://blog.sciodev.com/?p=768

At Scio, we’ve been working towards a goal of achieving a “standard” process and platform for developing SaaS products for a long time. Of course, when it comes to services, nothing is ever “done” – it just reaches a point where you know you are achieving goals, satisfying customers and can continue to improve over time.

We’re in the business of developing SaaS products. To develop custom products economically and reliably, you have to build or adopt tools, methodologies and repeatable processes that streamline the process, cut out unnecessary waste, and control risk. We, like many software development groups who have adopted Agile development processes, have realized that much of the business of “manufacturing software” aligns well with the concept of Lean manufacturing and product design.  In fact, the leading Agile consultancy, Poppendieck, has produced a book on the subject.

But what does this have to do with SaaS? Our move down the Lean and Agile road is not an accident. It is our core belief that customers will be more successful if they and their products and business processes are also Lean and Agile. We’re not alone in that thinking. Bessemer Venture Partners, in the latest release of their Top 10 Laws for Cloud Computing, covers the core concepts even if they don’t acknowledge them as Lean specifically. Steve Blank and Eric Ries recognize something they call a “lean startup.”

So – what is the core of Lean as it applies to SaaS?  The original concept of Lean was started in Japan and has been defined as:

• Build only what is needed
• Eliminate anything that does not add value
• Stop if something goes wrong

At Scio, we’ve translated this to:

1. Build only what is needed – Agile and Lean are customer-driven methodologies. Building what is needed assumes you have a customer and you can get feedback directly and honestly from users. This doesn’t mean focus groups however that are just about “improving the current status quo.” As has been said, “If you asked people in the early 1900’s what would improve their personal transportation – we’d all be riding better horses.”  SaaS products are also user driven, as we and others have said many times.  To know what is needed, a SaaS vendor needs to get their product in front of end-users as early as possible and go through a “verification of vision.” This means testing the hypotheses that the product provides value, users will use it productively and customers will pay for it. At Scio, we’ve acted on this idea  by standardizing on SaaS specific platforms, services and frameworks (like SaaSGrid) that eliminate the development of the operational aspects of SaaS and provide a consistent multi-tenant architecture that can be used across multiple products. This, coupled with Agile scrum principles allows our customers to get their core products in front of key customers in three to four months. Because these common aspects of SaaS products are available on a “pay as you go” model, they don’t contribute unnecessary costs to the needed capital to launch a product and they only contribute incrementally to overhead.
2. Eliminate anything that does not add value – Getting a product in front of actual paying customers as soon as possible means not developing features that do not directly add value for end users. This assumes you can field test the feature set early and is the next level of verification just below the first point. It assumes what is known in Lean as “pull-driven” features – features that users need and actively advocate. It also points to the “slow drip of new features” that users expect from online services rather than the “version-driven” approach of traditional software releases. It does not however mean the end-user “defines” the product vision. This is where the first point and the second separate. Innovative products rarely rise directly from customer requirements, but value-driven features can and do.  For us, translates to building on modern extensible architectures that don’t require extensive re-writes to implement new features over time and “post release.”  We also ask our clients to take their assumed feature sets and apply the “80-20 rule” – which simply says that 20% of all features of a product will deliver 80% of the value. In Lean, features that do not add value are considered waste, but there are two forms of waste recognized: Those that do not add value but are unavoidable with current technology and those that create no value and are avoidable with a better design.  This also leads to more concentration on “user-experience” and understanding of the user’s context and avoidance of risky, over-complex projects.
3. Stop if something goes wrong – SaaS products naturally reach different audiences based on marketing, vertical demand, market maturity and the delivery medium of the Internet itself. But, what happens if your development cycle for a complete product is the 12-18 months common projects in traditional software? Your initial cost and risk go up drastically and if your vision is off the mark, failure can be very costly. At Scio, we focus on developing a core product that can reach paid customer release in six months or less. This keeps risk low and insures new products have the potential to reach positive cash flow at the earliest possible point in the product lifecycle.  This also fits with the mantra, “fail early and often.” A product can be a complete failure of vision or there may be just certain aspects that miss the mark. Either way, you need tools to monitor product usage and user feedback and a roadmap that allows you to get market verification early and to avoid “big bang” releases that are costly and not led by “pull” from users.

Lean also leads into continuous improvement – which is part of the service-led concept of SaaS. There is no “perfection” – only continuous improvement over time lead by user pull and innovation. The steady drip of user-led improvement leads to better retention. lower churn and a longer customer lifecycle – key SaaS metrics.  Better understanding of the value stream, another principle in Lean, leads to better pricing and more value recognition by customers.

There is a lot more to cover in terms of the alignment between Lean, Agile and SaaS. Take this as your “introduction” and follow the references I have provided. I’ll be adding more articles about this important subject in the near term – so watch for the Lean tag in our cloud – but in the sprit of Lean – we’ll stop here for now.

When I wrote the recent article “SaaS: 10 Trends for 2010” I used the phrase “Best Case SaaS.” I realized from feedback and some thinking afterward though that many people don’t share my vision of what it is.

What I was trying to say is there really is a path to success for SaaS products through the thicket of options out there.  But since we don’t all share an understanding of all the options – that becomes pretty nebulous.  We’ve written about the 10 Ways to Fail at SaaS – What about Success?

Whether you call it “best practices,” “optimum implementation,” or best case – to have a discussion of what it takes to field a successful product we need to have a common understanding of SaaS itself. One of the people who has been pretty clear about a vision has been Phil Wainewright – but there are several others who are advocating for various aspects. My concern is a lot of them tend to be involved in the technical side of SaaS and not a straight- forward business discussion.  Of course, it takes an understanding of technology to bring a SaaS product to market, but in truth, you can hire that expertise if you have a clear business strategy to back it up.

Before I list the six points I have outlined – let’s get our definition clear.  Software-as-a-Service (SaaS) is not as simple as, “A application delivered over the Internet on a subscription basis.” That definition is what most people think, but in truth it is far to limiting by itself. If you want to keep it simple, you could just say, “an online service” but that might be a little broad. To cover both sides of the fence, vendor and user, I’ve been using, “an application delivered across a network to a client in a pay for service model.” On reflection – even that definition has its faults.

The point of this little exercise in definitions is that we need to realize that what we once called “Business-to-Business (B2B or B-to-B)” or even the slightly more exotic sounding “B2B2C” would be called SaaS today.  Does that mean Priceline is a SaaS product? Well – Yes! The simple end-user travel services they offer are monetized on a transaction basis, but we should also understand that behind that stands an even more important service disposing of excess inventory for the hospitality and travel industry. Somewhere in the middle is an advertising platform that allows the “inventory customers” sell through Priceline directly. Does Priceline care which service you use? Not really, they make money from all sides of the transaction and with any service you select. It truly is a Long Tail offering in every way.  The same could be said of the Amazon platform only more so.

So – really we could just say SaaS is “an online service” or “service automation delivered in a pay for service model” and be accurate? When we do that we begin to realize there is a whole field of service companies that use applications to automate and deliver aspects of their services – but aren’t usually considered as “SaaS companies.”

With that in mind, let’s go forward and look at “Best Case, Successful SaaS.” The points build on each other – so follow along through them and it will make more sense.

6 Points for Successful SaaS

1. Expertise that can be sold to a reasonably large market segment in an online delivery model and can be scaled to meet the market potential over time.

This is of course the “reason for being” for SaaS.  Online services are sold on a “pay as you go model.” No matter how you look at it, if you don’t have a target market large enough to give you a positive return on investment in a reasonable period of time, you aren’t going to be successful in a SaaS business model. In a vertical, this means offering a service that is attractive to at least second and third tier markets. It could also mean “tagging along” with more general offerings that give your service more weight in an “ecosystem” model. Regardless, you cannot ignore the simple economics of online services. You cannot afford to run out of cash before you reach a positive cash flow. That means development has to be planned and controlled to yield just enough of a service to sell successfully as soon as possible. It means that you must have a understanding of SaaS Metrics and the critical Customer Lifetime Value Ratio (CLV). It means you need to have a “proof of market” investigation as a part of product planning and (for heaven’s sake!) development. It means you have to understand (and monetize) the value your end-users perceive. It means your online service must be planned to evolve after release (see point #2).

Now the second part of our first point is what brings up the application model of SaaS. To scale a service economically, it has to be automated. When you get right down to it – SaaS is service automation! We’ve been doing that for years – the most significant difference is that now the Internet offers a delivery vehicle that is pervasive and universally accepted. So – if you’re really going to deliver a service online, plan to automate your own business operations from day one or you won’t scale with enough efficiency to reach positive cash flow in time. You might be able to onboard your first 100 customers manually – but if your market plan says you need to take on 1,000 customers with 20 seats each in your first year – your operational costs will quickly eat your cash reserves – IF you are able to handle the work that involves. (See point #5).

2. A strategic roadmap that allows the product to be brought to market early in the design cycle and to adapt to user and market feedback.

Taking the first point to heart means really understanding you can’t do everything and you shouldn’t if you want to be successful. You need to have a plan, a roadmap. You need to provide a valuable service from day one the market will pay for, but you also need to have a strategic plan for where your service is going over time.  Within that plan, you need to be flexible (see point #3) and responsive to user feedback (see point #4) and market forces.

Bringing the product to market early also means not taking on development of features that don’t support the direct value to end-users. As mentioned in point #1 – you need to automate your service – but do you really need to build all your operational automation (see point #5) to bring a product to market? No. There are many operational services you can leverage to lower your development complexity (risk), time to market and total development cost.  The general rule of thumb is you will save as much as 60% of your development effort and about 40% of your total costs before launch. The services you use become part of your overhead and need to be part of your metrics. Can you develop them into your service at a later date when the cost is justified by growth? If you take point #3 into account – yes.

3. An extensible, service-oriented technical architecture that will support the expected growth and change over the long term, economically.

Before anyone calls me on it – the last word in this point covers a lot of sins that have been visited on the SaaS business model. Let’s be straight-forward. We’re interested in SaaS because we want to MAKE MONEY. If we want to do that we have to be able to operate, deliver and maintain our application economically and reliably over the long run. That means we need a multi-tenant database structure. I don’t know any other way to say it. You cannot scale on individual instances for each customer or maintain them over time and make money.

It doesn’t mean however we have one big spinning top that runs everything forever.  As your service grows, you will use several strategies to extend your application over multiple instances, and to balance your service among several applications perhaps. Do you have the idea that Amazon is one big application? Of course not. Your service might present one “interface” for users – but that doesn’t mean it is just one application. Architecturally, that is just the “presentation layer.” We have to have an understanding of the technical strategies that allow online services to scale, embed other services, extend our services outside the application, and change our service without extensive rewrites over time while continuing to make a profit.

With that understanding, we can plan our roadmap to help us decide the battles we need to take on and when. Do we need to buy infrastructure if we can rent it? Not if the market price, availability and reliability meets our needs. Do we need to build a pricing and settlement system to monetize our service? Not if there is one available at a price that can be incrementally applied as we scale and with the level of maturity we need.  Can we eliminate some maintenance concerns with virtualization? Yes – when it makes business sense – if we have a properly architected application that is built for the online environment.

What about “lock in?” they ask. There are two things to consider: #1 – Can you afford to spend thousands of extra dollars over some extended period of time before you put your service in the water, take on customers and begin making money?  For most of us the answer is no.  #2 – If your application is properly architected and you have developed a roadmap with proper risk avoidance, the services and platforms you use are tools you use to reach your maket sooner and with less up-front investment. Do you want to buy that store on the mall or rent it? If you rent – can buy or build when you have a proven market? In most cases – yes.

All this implies you or your team has technical background in online services. But if you are a entrepreneur or service company without a strong technical team – can you still survive in the SaaS world? Yes. There are companies with services that will fill that void – (shameless plug for the people who bring you this blog) Hello….

4. Customer and user collaboration tools embedded in the service and the business operations that surround it.

If you absorbed the last three points – you should have gotten one thing clearly: Release 1.0 day is not the end of the development cycle for online services. Because of Google, SalesForce, Amazon, and service portals like FedEx operates, we all expect, even require, online services to evolve. It should be no surprise that online services need to evolve dynamically to meet customer needs and stay ahead of the market. The question is how?

Just like nearly everything else in online services, the answer comes with some level of automation. Inside the application, monitoring must be embedded to help evaluate feature use in a user context. We need to know if user admins are able to use the tools they have effectively. We need to know what percent of their day our line of business users spend in the application and how often they use it to complete “high value tasks.” With that information as a baseline, we can evaluate the impact of new features, improved help, better support strategies. Without it – we’re clueless and we might as well be selling licensed software to silos behind firewalls.

To leverage our delivery platform even more we need to embed direct user engagement with blogs, forums and community tools like UserVoice and Get Satisfaction.  These are services you subscribe to (point #3) not build. These are not the endpoint for user engagement however, they are just the tools. As tools, they are used by product management, support, sales and marketing to help guide service development, to retain customers, up sell and grow best practice communities.  What you should be beginning to realize is this really means a successful online service needs to rethink the timeworn model of “key stakeholder engagement” and get directly to the end user. To do that the business organization behind the service needs to be aligned to leverage the tools and integrate what they yield into decisions. (Enter points #5 & 6).

5. Integrated business operations for the service itself embedded in the same delivery model used to deliver to end-users.

Once again – SaaS products are classic service automation. If you are going to sell a service – if you are going to build an application to deliver your services – shouldn’t you also automate the pricing, settlement, onboarding, user management and all the other operational aspects of your business directly in the application itself?

This is a point that seems to have eluded many service companies and ISVs with licensed products. You cannot scale to reach profit in online services with manual or loosely connected internal business processes. SaaS is all about making a profit from volume.  But, as point #2 cautions, you cannot build all the operational aspects of your service directly into the application without placing considerable risk on your costs, application complexity and time to market. If you have planned your product with the architecture discussed in point #3, you can leverage available services that will provide these critical aspects of business operations for you and embed them in the product platform itself. This gives you the best of both worlds – fully integrated business operations using the data and infrastructure you already have online and a cost that is applied incrementally based on use.

6. Agile business philosophy embodied in every aspect of product development, operations and services.

You nearly have it – successful SaaS is all about service automation and dynamic business. It delivers what we need, when we need it, at a cost that is measured by use on every side of the platform. That means you and your customer alike are benefiting from the investment in the application and involved in its continued success intimately.

To handle the continued development and change involved in SaaS, most technical teams use Agile methodologies. To feed development and manage the product roadmap then, we also need to consider an organizational alignment with agile philosophy. When we really consider the organizational impact of being an online service, we start to understand there is really no option. To be successful at SaaS, we need to be an agile business top to botttom.

This is a lot to absorb. It is a different way of doing business. I don’t want to underplay the significance of any one of these six points. We at Scio made a strategic decision last month – we’re alining our services to deliver best case SaaS to our product customers and nothing else.  To help people put this into their own context, we’re giving a workshop on January 28th in Dallas as part of SaaS University. I strongly encourage you to join us if you have any interest in developing an online service in the coming year.

So – what is your take? Did this list suprise you? I hope not – but I’d love to hear your point of view.

It is that time of year again – when analysts and writers of all stripes put their bets on coming trends for the new year. There’s some interesting stuff in them – check the links. But, since our predictions last year were right on the money – I expect nothing less this year.

Of course, I do have to say if you didn’t read our prediction last year, it was about what would appear on the blog in 2009. Hardly something to crow about since I knew then what I know now – this is our field and it will continue to be our focus. But… this year, while not particularly emboldened by such shallow success – I am going to stick my neck out – a little.  Over the past year, despite a dismal international economy, we did begin to see some trends that carry enough weight that we at Scio will be refocusing our services in the new year.  Nothing too dramatic really, but moving more towards the emerging best practices in the industry.

So – that said – here’s our:

Top 10 Trends for SaaS and Cloud Services in 2010

1. SaaS will continue to grow in acceptance and prevalence in the marketplace but – the term itself will fade in favor of “Cloud (insert your term).” There is no end of analysts predicting the continued growth in 2010 of SaaS as a business model for software vendors and a positive direction for software users. That part of the prediction is about as safe as predicting rain will come to Seattle sometime next year. But – we’re not going to call it SaaS much anymore?  Is all that marketing ink going to disappear? No. But the truth is we get tired of hearing the same old tune everyday and it starts to become little more than background hummmm.  Everything “Cloud” is ascending and marketing loves it because it is by definition a nebulous, foggy term that can be floated for nearly any purpose. I could just as easily say the same thing about the time worn acronym Service Oriented Architecture (SOA). At the heart of all well-designed services is a SOA strategy – but we don’t really talk about it explicitly. Marketing has hit that nail for over 10 years and still very few know what we’re talking about.  The same is true of SaaS. Discuss the term and we get tied up in preconceived arguments about security, lock-in, lifetime costs, and multi-tenancy without discussing the business case for vendors and users. Next year we’ll be shedding those arguments and just selling mature services without acronyms. And to add one more log to the fire that will lower the prominence of the term “Software as a Service” – vendors of virtualized infrastructure have already hit commodity pricing thanks to Microsoft’s Azure and Amazon’s offering – the only place for them to go is to add application suites to their “cloud.”

2. Real business value in SaaS will continue to improve, be better understood and measured more explicitly. There is a growing understanding of the difference between an ASP implementation of a standard premise-based application and a service that designed for the delivery medium that is embodied in SaaS. It is much more than technology or an offset of costs for infrastructure and resources.  That said, the metrics on both the vendor side and end-user side of the SaaS equation need more clarity and uniform acceptance. As a buyer of a SaaS offering, I shouldn’t care if it has been adopted by hundreds or millions of users.  What matters is who is using it successfully and what is their context? If I am going to base a critical part of my business on a SaaS offering, I need to understand if the lifetime value of customers is substantially greater than the cost of customer acquisition. I need to have confidence that the adoption of the service is higher than abandonment. I need to know the service will have enough value to continue. Having that confidence is a product of a conversation between the SaaS vendor and their customers/end-users.  It takes some real thinking on the part of the vendor to engage in that level of collaboration – but we will continue to see the most successful services providing a model of this behavior and inspire others to do likewise.

3. Service ecosystems will rise. Best case SaaS should be designed to meet the market embodied in the Long Tail. As we and others have said many times, the economics of SaaS and efficiencies of modern development cannot really be leveraged without a good-sized market. You can often reach sufficient market size by targeting your service to the second and third tier markets in a vertical but the time required to reach positive cash flow in SaaS can still cause many problems. Whether a specific service can be sold to a wider market or not then – it is wise to consider an ecosystem approach and I believe many will in the coming year. Salesforce and Google both exploit their ecosystems to bring a broad range of services together on their platforms and as was mentioned in our first point, cloud infrastructure vendors are heading in the same direction. In verticals, I can imagine a focused service teaming up with a general operations package for instance – especially one that could be pre-configured and integrated to the vertical application providing a “suite” for users. This can give users the benefits of single sign-on, data sharing, perhaps a lower total cost (assuming the vendors recognize the value in packaging joint services) and a “desktop” for most tasks they do everyday.  In fact, in the long run, I don’t expect to see many “stand alone” services – it just doesn’t make sense for the users or the vendors. We will see a lot more applications “joining forces” strategically or being acquired in the next year by integrating, combining user data pools or through “Mash-Ups.”

4. New services will focus less on “doing it all from day one” and more on their roadmap. In the “brave new era” of SaaS, one of the big impediments of developing a service was all the decisions you had to make and all the business operational aspects you had to have a handle on to arrive at requirements and start development. Many entrepreneurs felt they were being asked to either start with the equivalent of the original Wright Flyer or with a development burden so large they could never reach a positive cash flow with a reasonable investment.  Now however, there is a wide array of mature, tested services that can be easily integrated into a service product to provide standard approaches to operations, integration, sales, and many other business and technical requirements. With an extensible architecture, there is a great value in picking “best of breed” services to do the “dirty work” while focusing custom development work efficiently  on the real value proposition for a service. The time to market and up front investment decrease dramatically and the risk of running out of cash on a reasonable investment is contained. As none other than one of the leading investment groups has proclaimed, “Less is more!” And rather than worry about “lock in” – thoughtful entrepreneurs will realize at the point in the road where the cost of the integrated services begins to be a part of overhead that is worth investing some development time in – current development practices can allow extensions to the application without an expensive rewrite.

5. Integration requirements will drive standards for service-based communication and interaction. If cloud “ecosystems” are going to rise, if online services are really going to dominate the market for innovative products in the near term, standards for integration and service-to-service interaction need to be recognized and grow dramatically. Despite the continuing whines of a few holdouts – no serious vendor of online services should be considering parallel deployments – both on site and across the Internet. Developing a product that can address both markets eventually becomes “SoSaaS” – a product so hobbled by its split identity it cannot truly leverage the value of either delivery model. Instead, with an extensible Service-Oriented Architecture (SOA), open APIs and standard integration tools, online services will offer ways to leverage local data, applications, and other online services in ways that are in the end much cheaper and more reliable than traditional custom integration services.  This doesn’t mean SaaS vendors won’t offer on-site applications – but in many cases those applications will be hubs for addressing local integration needs and compliance issues.

6. End-user clients and platforms will continue to evolve and increase in their importance and differentiation. We’ve all recognized for a while that standard PCs and “browsers” have many deficiencies in addressing the needs of a growing market for on-demand services. Over the past year, we’ve seen the release of ever more capable “netbooks,” smart phones, and rumors abound that Apple will introduce a market changing tablet in the coming year. Regardless of what Apple does or doesn’t do – it is plain that an increasingly mature field of online services  means that fewer users will require the same platform they have used for decades. The coming products will certainly be more mobile, more connected, and less tethered to common operating systems.With the rise of applications like Google Chrome, the Chrome OS, Android, frameworks like Flex, and the increasing number of “app stores” for the various smartphone OS platforms, it doesn’t appear likely that the growth will slow down any time in the near future.  As is already happening – 2010 will be a year of increasing market fragmentation as each camp heads in its own direction. I don’t expect consolidation and standardization to begin for at least another two years. For online services this means more opportunities to reach specific markets, but it also requires a level of user experience (UX) and user interface (UI) expertise that few developers have had to address so far. In the short run, the best path is going to be a roadmap of planned deployments to different platforms, starting with the one that is most “ubiquitous” in the vendor’s target market. In the long run, we can expect to see more development environments address the most prevalent options – but there is going to have to be more consolidation for that to be truly effective.

7. Customer collaboration will become a more integrated and critical part of product management and business operations. Just like “SaaS” and “Cloud,” “Social Media” has been so over-hyped in the last year that it has become nearly useless. Some see any mention of the subject as a red flag. “A time-wasting, spam-heavy, productivity killer,” they say. Others have found social media to be a strong implementation of “opt-in” marketing (count me among them). Regardless of which side you are on, I think we can all agree that online services require end-user and customer collaboration to be successful. We’re seeing product management, marketing, support – all aspects of SaaS product operations move toward closer collaboration with their user base and I expect it to continue in the new year and to become accepted as “standard practice” among winners in the field.  To that end, integration of collaboration tools and services into the applications themselves as part of the operations side will grow a great deal in the coming year.

8. Agile will continue to grow in acceptance and will become the dominant approach for both development and business operations “in the cloud.” To understand this prediction, don’t confuse yourself with the “Agile vs Waterfall” software development debate that never seems to go away. Please also drop the religious approach to the Agile Manifesto that some have adopted. Think instead of the implications of a more dynamic, competitive, integrated, and collaborative delivery platform and try to imagine doing business as usual. I don’t believe you can. The philosophy of Agile, rather than the methodology specifically, is a fit for online services that is hard to ignore. Tie that to a product development team that is using Agile methodologies and delivering a nice, steady drip of product improvements to your customers and you really don’t have any choice.  You either align with success or get run over. This means too, however, that ISVs with existing product lines have to think about how they will handle change. Organizational change is never easy and many have decided to basically put the new product into a separate product group. It isn’t the best strategy for the long run, but it may be the only way some vendors can manage the change.

9. There will be a growing awareness of the requirements and responsibilities implied by “mature services.” Let’s be honest – most companies market ahead of capability.  Whether it is to “test the waters” or jump start sales, it leads to a lot of hype and fuzzy specifications that customers see through quite easily.  The fact is though that as online services become more accepted and critcal to their customers, they will have to be more reliable, secure and scaleable.  Some of this falls on the vendor to insure their operations and platform are truly “enterprise-class” but there are a growing number of options that allow vendors to adopt best-of-breed environments and platforms on a “pay as you go ” utility model and avoid the high cost of upfront investment. Taking advantage of them means more consideration of Service Level Agreements (SLAs) and open service histories, but these are emerging and they will continue to be key in contract negotiations in the coming year. We still see people new to the field looking for an infrastructure provider before they start development on a product, but with more standardization and more recognition of the needs of mature services – I believe we will see more understanding that you can and probably will both migrate among providers and have more than one at a time during the lifecycle of a online service.

10. SaaS vendors will stop trying to sell split versions. Ok, this is me, beating a dead horse. But really – if even half of the predictions in this list come true (and I don’t think it is even remotely a stretch to imagine it) – you can’t offer products that will both install locally and as an online service off of one code base and not cut off most of the value your SaaS version could deliver. That doesn’t mean you won’t continue selling to your installed base if you have one – but it does mean you can’t sell the same product you’ve sold to your installed base as an online service. It also means you will probably have to put the online service on its own path to success – not tied to your existing customer base. In time, if your online service is as successful as it should be – you will probably be able to drop or sell off the on premise version – but that is a consideration for the roadmap. So, let’s all hope for the best outcome and stop trying to reinvent the past.

Ok – that’s it.  What do you think? What’s on your list? What did I miss? I went way over my usual allotment for space with this one – but it seemed to need it and I didn’t want to split it up so late in the year.

Here’s to Success for Everyone in the NEW YEAR from the Scio Team!

People say that marketing for “cloud services” are really over the top right now – selling a lot more promise than can be delivered. If that’s true, social media is somewhere out in the stratosphere of hype – pushed into orbit by leaders like Twitter and Facebook - I’ve heard many people say if they were trying to avoid reading yet another article on the wonders of connecting to “communities” on the web.

If that’s the case for you – I hope you’ll set your prejudice aside and listen to our podcast this month on Haut Tech Conversations. You can download the show and listen to it at your leisure. Our guest was Jonathan Hyland, the Client Relationship Director for iCIMS, a leading SaaS provider of “Talent Management Systems.” Jonathan is deep in the trenches of the user community at iCIMS because he is responsible for managing the client renewal pipeline, user satisfaction, user advocacy, and maintaining visibility of the value proposition their services deliver.

I enjoyed this conversation because social media is still a widely misunderstood subject among SaaS and Cloud Service providers. Many see everything social as an unnecessary and noisy “distraction” that is a waste of resources and time. I understand their point of view because if they come from traditional software marketing, support, and sales environment,  they are part of a legacy that rarely focused on end-users or tried to foster communications among them. And if you’ve ever tried to sip from the Twitter fire hose, you can probably understand their discomfort with jumping on the band wagon.

We covered the many sides of communities in SaaS including:

• Inbound Marketing – Getting found by vertical and best practice communities while building up a presence for your brand and the services it provides.
• Marketing to the Converted – Retaining subscription renewals, up-selling, and evangelizing your existing end-users and the key stakeholders that drive client adoption.
• Product Management – The balancing act that comes from involving end-users in driving product development without crossing into crowd-sourcing and losing your strategic direction.
• Support - Leveraging the community to provide best practices and support while continuing to be strongly involved in providing assistance and guidance.

And finally – how a community relations director can keep from looking like a product shill, serve user needs, retain subscriptions keep the sales funnel full and have time to take off for vacation in a 24/7 product world.

I think the take away from this conversation was very interesting and I don’t want to spoil it for you – but we found that “being social” is a lot more hands-on and face-to-face than you might think. It really is still true you need to be balanced between social tools and more traditional face to face approaches than you might think.

Joining Jonathan on our panel was Jessie Kliza, the Business Development Director for Apprenda and Peter Cohen of SaaS Marketing Strategy Advisors, who also happens to be one of our fraternity of Haut Tech Irregulars.

Our Special Guest -

Jonathan Hyland, M.A., PHR – Client Relationship Director at iCIMS. Jonathan has a background in Industrial and Organizational Psychology, graduated with honors from Monmouth and finished his graduate work at Hofstra University. He started as an intern at Questus but moved up quickly when he came to iCIMS. He now carries responsibility for managing the client renewal pipeline and upsell opportunities, ensuring client satisfaction with internal advocacy, and the development of marketing materials covering the value proposition of the  iCIMS platform.  In that role, he works with user communities at all levels for iCIMS. You can find Jonathan most days on Twitter and read some of his thoughts on his jaHRd blog.

Our Panel –

Jesse Kliza – Director of Marketing at Apprenda, the creators of SaaSGrid, a distributed SaaS platform that eliminates the difficulties of building and delivering Software as a Service.  Prior to joining Apprenda, Jesse was Community Evangelist and Product Manager at SaaS ISV, Autotask.  Among Jesse’s many contributions while at Autotask, he was responsible for the creation and oversight of the Autotask Community  – which won a coveted ITSMA Marketing Excellence award in 2008. Jessie can be found on SaaSBlogs, Appenda’s best practice blog for the SaaS community and his Twitter feed.

For those who are not aware of SaaSGrid, it is a service that greatly reduces the barrier to entry for SaaS by overcoming significant technical hurdles like multi-tenancy and grid scalability, while at the same time providing “out of the box” application services like metering and monetization, billing and subscriber management, and much more. Scio is a Premier Development and Implementation Partner for SaaSGrid.

Peter Cohen - Peter is the founder and managing partner of
SaaS Marketing Strategy Advisors. His firm provides expert guidance to help companies effectively market and sell software-as-a-service (SaaS) solutions to enterprises. The firm’s clients includes several large, well-established clients, looking to enhance their SaaS marketing practices, as well as smaller companies that need guidance in launching a new SaaS solution to the market.

Peter has more than 25 years’ experience developing and implementing successful marketing strategies for technology companies, including Computervision, Lotus Development, IBM, and Authoria. Peter has spoken on the topic of SaaS Marketing for the Massachusetts Technology Leadership Council, and written for widely-distributed publications including MarketingProfs. He publishes a monthly newsletter and a blog, both entitled “Practical Advice on SaaS Marketing.”

So – you can download the show,  you can subscribe to our feed on iTunes or use the widget below. And if you would like to comment here or catch me on Twitter – we’re always interested in extending the conversation.

At Scio, we use Innovation Games with our clients in several contexts, from new product definition to ongoing product management. For a new product design, the games help us work with our client team to uncover customer requirements that are still loosely defined, as well as to help our development team understand the key selling points of a product. For ongoing product management, the games help us work with client product managers to come up with new ideas, develop and prioritize their product roadmap and identify issues hampering their success.

Innovation Games are a series of serious games developed by Enthiosys, an Agile Product Management consultancy based in the Silicon Valley. Enthiosys developed these games to drive innovation by facilitating communication between clients, users and the development team in a structured but fun approach. By using a “game” approach, the activities remove personal agendas and psychological barriers that frequently exist when trying to reach alignment between stakeholders. Luke Hohmann, CEO of Enthiosys, has written a book about the games and methods behind them – Innovation Games: Creating Breakthrough Products Through Collaborative Play.

We recently started a project with a new client from the UK to develop a SaaS application for them using SaaSGrid (SaaSGrid is a SaaS Application Server developed by Apprenda). As part of the project kick-off and Product Design phase, three members of the client team spent a week at our Development Center in Mexico including the their product owner, the project manager and a development manager.

The visit was part of Sprint 0 (product definition and design), which is the first phase of our Agile Development process. The visit had five key objectives:

• Finalize the high-level product requirements.
• Define the technical architecture.
• Define the UI approach and look & feel
• Finalize the project execution plan.
• Get the development team underway with the certainty that they had an accurate understanding of the project goals, the product key features and the overall vision and expectations of our client.

During this visit we used Innovation Games to reach some of the objectives we had in mind. We used four games:

1. Product Box – day 1, morning
2. Start your Day – day 1, afternoon
3. 20/20 Vision – day 3, afternoon
4. Remember the Future – day 4, morning

Our client provided their application requirements as part of their development partner selection process and those were used to estimate project scope and provide our price quote. It was understood at the beginning that the requirements were not 100% complete and some ideas about new requirements or the approach to implementing some elements had changed since the  document was written.

We began our games with Product Box. Our aim was to quickly surface the key features (and key selling points) of the product. After reviewing what came out of that game, we discussed in more detail the full set of application requirements, the company goals, and the overall project expectations.  We then followed with a session of Start Your Day. In preparation for this game, we had printed daily, weekly and yearly calendars on full poster-size paper. We played the game for all Personas, and with this activity we wanted to identify patterns of use for each persona.

On the third day, after we worked on defining user stories in greater detail and across all modules, we played 20/20 Vision. We printed all the features (each feature contained one or more user stories) on letter-size paper, and with masking tape, we started to place them on the wall. The client team went through an iterative process of placing features on the wall and moving them up and down, where the features at the top were deemed to provide more value to end users, and the ones at the bottom less value. This exercise helped us prioritize the product backlog. This prioritization, together with technical dependencies, is used to define the sequence of application development for the user stories.

On the final day of the visit, we worked with the client team in the Remember the Future game. The scenario we set for the game was: “The date is exactly three months after the launch of the product, what will the ideal situation look like?”. This brought up expectations about the number of paying customer they would have, the quality and performance of the application, etc. Then we asked, “what will each of our teams have done to make that happen?”. We worked backwards to bring out all the activities and milestones in marketing, development, testing, etc. that will be needed to get to that ideal situation.

Using Innovation Games was very productive for this project.

• Product Box it helped us see that some of the requirements that we thought were secondary were actually part of the key selling points of the product.
• In Start your Day we realized that some users will concentrate their usage of the system to specific hours of the day, where they will need to process data in batch modes. This suggested that we needed to design a UI optimized for sequential data capture for those users. Additionally, we discovered that we will have peaks in some batch processes, such as invoicing, at certain times during the month, as well as some reporting that needs to be generated once a year for tax return purposes.
• 20/20 Vision was useful to prioritize features using end-user value, rather than how cool a feature would be or how attached a member of the client team was to a piece of functionality.
• Remember the Future helped us see the dependencies between the work that each of us (Scio and Client) has to do to make the project successful, as well as establish a timeline that we will need to adhere to.

When as part of the agenda for the visit, we mentioned that we were going to use “Innovation Games,” our client was of course, curious about the idea. It is easy to imagine a “game” but not necessarily the business value behind it. We explained that the games are strong facilitation techniques that would be fun and productive, so they engaged with enthusiasm and played along happily. The results were great, and at the end of the week we all agreed that we accomplished a lot.

Although it is possible to obtain similar results using other facilitation approaches, using Innovation Games is a more engaging and fun approach to exposing all the different aspects of a product that surface during the games, which would otherwise be missed or discovered too late.

So let’s keep on playing – Serious games that is.

I’ve noticed there are broadly two camps when it comes to developing new services for the Internet: Those entrepreneurs that feel they must do everything themselves regardless of the hurdles they face and those that want to focus on their core expertise and leverage outside services where possible.

Of course, there are also those that sit on the fence and never make a clear decision either way, but since for the most part the fence-sitters haven’t and won’t develop a service anytime soon – they fall outside the scope of this discussion. And frankly – they are hard to address until they make a choice that works for them.

The DIY (Do-It-Yourself) mindset comes from a long tradition in software development. The idea of the lone visionary, working in a makeshift office in the garage late at night against all odds, is an iconic image for Silicon Valley entrepreneurs. The folks who took that route are the stuff of legends in the business – and rightfully so.

But today’s business is a lot different from the days when people like Bill Hewlett, Dave Packard, Steve Jobs and Bill Gates started. There are options, services and alternatives that can be strategically leveraged on the road to product release that didn’t exist just a few years ago. We’ve gone through many cycles of change and innovation that have both raised user expectations and created a number of issues that entrepreneurs are expected to understand and deal with at an early stage.

Since I focus on helping “as a Service” and cloud-based businesses – I also have to point out another interesting aspect of this strategic choice for entrepreneurs. If you are expecting to sell a service delivered on the Internet – are you taking your own medicine? Are you considering services you can leverage to help you deliver your service more efficiently, faster and with more options than you might otherwise be able to offer with a reasonable compromise between cost and effort? If you’re not – are you in a good position to advocate someone else should make a different decision when they look at your new service? It’s an interesting thought…

To add one more log to the fire – the first rule of Bessemer Venture Partners Top 10 Laws of Cloud Computing and SaaS is:

BESSEMER CLOUD COMPUTING LAW #1: Less is more!

Leverage the cloud everywhere you practically can, both for your internal systems as well as for your own product offering(s) and “just say no” to on-premises deployments! This will not only give you a direct understanding of the customer experience and best-of-breed strategies of Cloud Businesses, but it will free up your technical resources and balance sheet to focus on your core product and customers.

There is another side of the discussion too – There is a large segment of the SaaS market that is made up of service-based businesses that use custom applications to manage and extend their services to their clients. These companies often don’t see the applications they use as more than an aspect of their service. They do not see themselves as software developers but they do develop, integrate and leverage application-based services for their service offerings. In today’s environment, many of these companies are extending their services to the Internet in one way or another.

What are some of the options available as services to developers of “as a Service” products today?

• Infrastructure Virtualization – Whether you call them “cloud services” or Infrastructure as a Service (IaaS) or virtualization, there is a broad set of services available to eliminate the need to own, provision, maintain and scale the servers, CPU, memory, storage, networks, databases and operating systems required to offer a service on the internet. In the best case, these services are use-based and can scale up and down with demand. They can eliminate or lower the costs of buying and deploying infrastructure and the resources necessary to operate and maintain it. On the resource side, this may be a expensive skill set not present in the existing vendor team that could be less burdensome if many of the tasks are automated. That said, IaaS is an often abused term in my opinion. Just as everything on the Internet is being identified as a “cloud service” – infrastructure services come in many shapes and flavors and some deliver more promises than value. Knowing what is possible, what you are actually getting and what you need is key when you begin to engage with cloud providers.
• Operational Services – This is another broad class that covers what we often call the “plumbing” of an on-demand service. It includes areas like billing and settlement, pricing, client administration, reporting, integration, user community management, sales automation, product management, and content management. If developed from scratch, the combined effort to put these services into a product can easily reach 60% of the cost of a project. In fact, because of the cost and expertise required, these services often end up being very constrained or left to manual processes which greatly impede growth and reliability of the product.
• Platform Services – If IaaS is an often abused term, Platform as a Service (PaaS) is rarely ever described in terms that actually speak to their business value for as a Service companies. 90% of what is offered today as PaaS is either a development environment or a BPM (business process management or workflow) system. I don’t want to disparage the value of those two approaches to a software development effort – but - they need to be separated from the PaaS offerings that also address the operational needs of a service-based business as described above. A PaaS that addresses operational needs does several things for a new service – it lowers the effort and cost required for development and it lowers the time to market and risk associated with larger, more complex development efforts. In addition, most PaaS offerings include levels of infrastructure virtualization that lower the need to deploy and manage the servers and their associated hardware, software and networks.
• Resources – While outsourced development is a very obvious option for building the application (Scio is after all, a software development provider) , there are many types of resources available for specific tasks such as planning, marketing, sales, and support. It is critical that the selected service provider understands the issues that “as a service” businesses face, but when they do they can greatly reduce risk, false starts and strategic errors. In considering outsourced resources it is important to remember there will always be a “cheaper” resource somewhere. The provider you select needs to deliver value for cost and in SaaS and cloud-based businesses that comes from knowledge and practical field experience.

So, let’s say you’re one of the entrepreneurs that are either considering or actively leveraging services as a part of your product strategy. What do you need to understand to be successful at picking or using services?

1. Pick for Value, Not Cost – Value can be measured many ways but the key in services is not the cost, it is value delivered. In most cases this should be realized in lowered or offset development effort, risk, complexity, time to market, or increased expertise (or all of the above). Depending on the type of service, the offset could be in the form of on-going overhead – as it would be if you use a billing service for instance. In the best case, all overhead for service-based businesses should be tied to use. This means the overhead cost per period can be divided by the number clients or users so it can be understood and budgeted as an operational cost. In this scenario, the cost should also fall if the basis (users or amount of bandwidth or whatever the metric is) also goes down. A service cost that only rises in stair steps can quickly become a serious liability if there is a lot of subscription churn or usage variability in your product.
2. Build for Flexibility - Just as the features you offer in your product today will invariably need to change over time, so too will your service strategy. When you have reached a point in your growth curve that it makes sense to recapture the overhead devoted to a service, you may decide to build that function into your application directly. If you have built on a flexible architecture, this should be a choice that is available to you whenever you decide the time is right. This same line of thought addresses changes in service providers. Just as you might decide to change your bank to capture a better interest rate or more services, you should also be able to change your service provider if competition puts a better choice in front of you or your existing provider goes under. This is a risk in every aspect of business and part of the trade-offs you have to consider. Not planning for risks is wrong but expecting you have eliminated all risks by taking on the responsibility yourself is equally shortsighted. Properly balanced service usage and risk planning is a serious competitive advantage in the long run.
3. Pick Your Battles - Understanding service value means really knowing what your business needs. You will not have every use case for pricing in place the day you roll out your service. Building a pricing engine at that point means you may have to completely redesign your system while doing manual workarounds when it is realized you need a different pricing strategy. In this case, a feature-rich service could provide a window into many approaches you hadn’t considered. On the other hand, if your service requires a great deal of analytics, a library of analytic routines may be of value to lower development overhead, but if you do not completely understand how the library works and the results are obtained, it could be providing unreliable results. Just as in selecting features, you need to understand what your service needs to be effective and pick your battles carefully. Don’t build what you don’t have to but don’t accept black boxes that you don’t understand. Do proof of concept runs and don’t accept marketing at face value. What works for another provider may be entirely different in your context.
4. Focus on Delivering Your Expertise and Satisfying Your Customers – Really this is just part of picking your battles, but it is a core strategy just the same. The point of an effective services strategy is that it must free your team to focus on the value you provide to your customers . If managing a service is more work than doing it yourself, there is something wrong. Effective services clear out operational hurdles, provide market-led options, and grow with you. This also means understanding your core expertise and not extending yourself into areas where you don’t need to go to be successful. Service-based business is quite different than providing licensed software. Leverage service providers who have the field expertise you need while you continue to define and deliver the value your customers are paying for. Would you want your airline pilot to also be the maintenance team that keeps a modern passenger jet operational? It might sound good on the surface, but in reality, there is enough in each field that it just isn’t practical or safe. Focus on what you need to do to keep your customers and let qualified resources keep the engines running.

I would be remiss if I didn’t also say that we help our clients pick services everyday. There is no one size fits all and every choice has a trade-off. We spend a fair amount of time dissecting services and trying to understand the technical and business cases for their use. I can’t recommend a set of services that will work in every situation – but I hope these “pointers” will give you an idea of what is involved in the choices you have.

What have you found? What situations have you faced? Join the conversation and let me know.

Addendum -

I’m going to the Cloud Futures conference in San Jose, December 7-8, 2009. If you’re going to be there let me know on Twitter or by leaving me a comment here. I’d love to get a chance to meet with some of the community there and heaven knows, none of us have gotten out to many conferences in the last couple of years.

In our first two podcasts for Haut Tech Conversations we covered service and pricing. Both subjects are critical for SaaS businesses to consider and understand in the context of their product. In the podcast we did yesterday, we went into yet another critical area – Marketing!

To put us in the right frame of mind for this conversation, we brought the respected expert on SaaS Marketing, Peter Cohen of SaaS Marketing Strategy Partners together with our panel – Ron Arden, Vice President of Strategy and Marketing for eDocument Sciences and Justin Pirie, a SaaS and Cloud product manager and marketer who has been working in subscription software for over four years.

We covered a lot of ground in this podcast – it is a wide-ranging conversation that got into many of the unique aspects of marketing in an on-demand world. We also went into many of the areas that are closely linked to marketing – Product Management, Agile Development, Community Development, Ecosystem Management and Customer Relationship Management.

What questions does it answer? In consideration of the title of this podcast and the “Wheel of Death” as Peter calls it – we talked about the issues traditional vendors face when development teams work on SaaS products – especially with Agile methodologies. The Agile approach is a good match for SaaS products, but to take full advantage of it – the entire organization must be in alignment. If marketing is out of the loop, the steady flow of product enhancements and new features can make the marketing team feel like they are like a hamster in an exercise wheel – running forever and not getting anywhere. Getting above the traditional feature-based technology marketing syndrome is critical in SaaS.

From there we incorporated all the various points of view of our panel and as we always do – let the conversation flow into the many areas that overlap in a SaaS product organization.

If you have any interest at all in how to deal with the dynamics of marketing a SaaS product and an hour to spare – I suggest you download this podcast, listen and share it with your team. I am very pleased with the insight our guests brought to the discussion and we would all love to hear your thoughts in comments here or on your blog. Join the conversation!

Our special guest for this podcast was –

Peter Cohen: Peter is the founder and managing partner of
SaaS Marketing Strategy Advisors. His firm provides expert guidance to help companies effectively market and sell software-as-a-service (SaaS) solutions to enterprises. The firm’s clients includes several large, well-established clients, looking to enhance their SaaS marketing practices, as well as smaller companies that need guidance in launching a new SaaS solution to the market.

Peter has more than 25 years’ experience developing and implementing successful marketing strategies for technology companies, including Computervision, Lotus Development, IBM, and Authoria. Peter has spoken on the topic of SaaS Marketing for the Massachusetts Technology Leadership Council, and written for widely-distributed publications including MarketingProfs. He publishes a monthly newsletter and a blog, both entitled “Practical Advice on SaaS Marketing.”

Our panel included:

Justin Pirie: Justin is a SaaS and Cloud product manager and marketer who has been working in subscription software for over four years. He specializes in working closely with companies to create successful SaaS products using the latest techniques and industry best practice. He is based in the UK and has advised companies in Europe and the US. He has been on our show before and is now one of our Haut Tech Conversations “Irregulars.” You can follow him on Twitter here.

Ron Arden: Ron is the Vice President of Strategy & Marketing for eDocument Sciences. He on focuses on SaaS computing and using social media tools to drive business for eDocument Sciences, and recently became an Inbound Marketing Certified Professional. He has over 25 years of strategic planning, marketing, sales, business development, consulting and technical experience in the information technology industry. Prior to eDocument Sciences, Ron was Director of National Solutions Support for IKON Office Solutions developing and driving strategy, policy, tools and the product & services portfolio for IKON’s Professional Services group. This included developing and managing vendor relations for all Professional Services partners. Prior to IKON, Ron held executive, management and technical positions at numerous Fortune 500 organizations, including DEC and Wang. You will find Ron on Twitter as @RonArden, on LinkedIn, and his profile on Google.

You can download the mp3 here or listen directly or on iTunes from the widget below:

SaaS is not a “one-size-fits-all” business. There are many options now for platforms and services you can use and the number is increasing every day. A lot of the information available is laden with marketing hype. How do you make the right decisions?

We’ve been helping companies transition to SaaS as startups and from traditional licensed software for several years and we’ve build up a practice we use repeatedly to navigate the choices. We’re bringing our practice to the Dallas SaaS University event as a workshop to help SaaS executives and entrepreneurs make the right choices for their business. We’re passionate about helping companies succeed in SaaS and we’d like to pass some of our knowledge on to you.

You can take this workshop combined with your signup to the University event or separately, but I encourage you to take advantage of the combined pricing that is available. This is not a “technical” workshop – we will be covering how the technical and business decisions SaaS requires impact your business and product strategy. We’ll be using interactive exercises to help you put the concepts into your context and build something you can take back to your team. It is a full day with a catered lunch and will be a limited group so you will have plenty of opportunity to ask questions and be involved.

UpDate! – Use Discount Code: SCIO100

Here’s the outline:

Charting Your Course to SaaS

Making the Right Decisions for Your SaaS Product

Overview – How is a SaaS Product and Business “Different”?

• Leaving 30 years of industry history behind
• Transitioning to a service-led model
• 10 ways to fail

Your Service is Different

• What does making the right choices mean?
• Understanding your market, product strategy, roadmap, supporting technologies, and skills needed.
• Knowing flexibility is key in SaaS

Sell the Right Product

• Map your core product and customer assumptions
• Consider test marketing plans
• Developing a go-to-market feature set

Make Strategic Development Choices

• Selecting services and platforms
• Selecting a technical architecture
• Making development and deployment choices

Operating a SaaS Business

• Understanding service-led business requirements
• Leveraging operational metrics
• Understanding end-user interaction in SaaS and product management

Who Should Attend?

This workshop and seminar is important for anyone considering a SaaS product, in the process of developing a product or offering a product that hasn’t reached its potential, including: Entrepreneurs, CXO’s, product managers and key executives in startups, vendors moving to SaaS or existing SaaS companies.

About Your “Professors”
Luis Aburto, CEO of Scio Consulting, is a veteran of international technology and engineering consulting for corporate and government clients in the U.S. and Latin America. Mr. Aburto is the founder of Scio Consulting, and in 2006 was responsible for focusing the direction of the company on SaaS enablement services. Luis has worked with a multitude of software companies of all sizes and across many industries, helping them make the transition to SaaS.

Mike Dunham, Principal Consultant of Scio Consulting, has over 25 years background in the development and introduction of new technology working with startups, government and the largest enterprise software companies. He has worked with Scio for five years, regularly authors articles on SaaS and the software industry and hosts a series of podcasts on SaaS best practices. Mike leads Scio’s professional services helping companies develop and bring to market new SaaS offerings.

As I mentioned – there are several ways you can join us in this workshop and I very happy we have the opportunity to bring it to SaaS University. I’m looking forward to meeting many of my friends at SaaS University for the event. If you would like to know more about what we’re going to be doing or some help building the case so you can get company support to go, just let me know. See you there!