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.