Our workshop with Software Pricing Partners following the SaaS Summit: All About the Cloud is now finalized! Seating is limited so please check the details below and sign up NOW:

SaaS Offerings: How to Develop, Price, Operate, and Succeed

• One Day SaaS Executive Workshop Covering Technical and Business Topics
• May 13, 2010 at the Donatello Hotel (near Union Square) San Francisco

Executives responsible for succeeding in the SaaS market need to make a series of critical choices in developing, packaging and selling their offerings. This one-day workshop provides the insights and tools needed to make the right choices.

Many of the challenges SaaS companies face can be met by balancing and integrating technical considerations with the business aspects of SaaS. Companies that can do this can bring their products to market rapidly and become cash-flow positive quickly.

This workshop is the first to integrate pricing and business models with development and deployment. The workshop will be held on May 13th, the day after the OpSource and SIIA event SaaS Summit: All About the Cloud at the Westin St Francis Hotel on Union Square in San Francisco. The workshop venue is conveniently located one half-block from the St Francis, at the Donatello Hotel on Post Street.

Which companies can benefit by attending this workshop:

• A new venture or as an ISV with on-premise products considering developing a SaaS offering
• A service company with significant vertical expertise than could be delivered and monetized in a SaaS model.
• An existing SaaS provider who made choices opportunistically that now constrain growth and cash flow.
• A SaaS entrepreneur with limited funding that needs to achieve positive cash flow early with products that evolve with the market.

Company challenges this workshop can help overcome:

• Building out a suite of products but are unsure of the pricing and operational models needed to grow.
• Developing a framework for sorting out technical and strategic choices required to move to the SaaS business model.
• Facing significant operational problems including efficiency while keeping churn under control in an existing SaaS product.
• Ensuring the pricing model, development framework and operational plan will work in complex, highly competitive markets.

Topics to be covered:

• What Makes the SaaS Model Different and Difficult?
• Making Development Choices Strategically
• How to Choose an Effective Pricing Metric
• Creating a Lean Product Development Roadmap
• Using Packaging and Licensing to Increase Success
• Finding the Right Price Levels and Discounts
• Operating a SaaS Business
• Auditing Your Plans with a SaaS Reference Framework

Because of the value of this workshop, the importance of the SIIA/OpSource conference for SaaS providers and the convenience of the venue, this is an excellent opportunity to “put it all together.” The workshop content makes it well suited to a mixed group of business and technical members of your team because it joins the issues of both sides into a single view.

Per Person Pricing

Group Promo Codes

Three or more members of the same team:

• On or before May 3rd – 57KA5G
• After May 3rd – 7GNGBH

All attendees will receive copies of the workshop materials. The workshop fee also includes a “working lunch” and refreshments during the day.

Secure Registration with Acteva.

Hotel

The Donatello Hotel has a limited number of rooms available for workshop attendees at $139 during the period of May 9-14. This is an excellent opportunity to save with a very convenient location if you are also attending SaaS Summit/All About the Cloud Event.

• To receive this discounted rate, you must the contact the hotel directly at 415-441-7100 – and ask for In-House Sales and  the “SCIO Pricing” discount.

About the Speakers

Michael Dunham, VP of Service Engineering – Scio Consulting
Mike Dunham has more than 20 years of hands-on experience helping major corporations and government agencies succeed in an increasingly technical environment. As Scio’s principal consultant, Dunham provides clients insight into trends that affect business and technology planning so the processes Scio uses can bring clients’ ideas to life. As the VP of Service Engineering, Michael defines Scio’s service products and operational processes. A native of Sacramento, CA, he holds a bachelor’s degree in business administration from the University of California at Davis.

Jim Geisman, Principal and Founder – Software Pricing Partners
Jim is an acknowledged expert in software pricing and, since founding the firm in 1982, has helped several hundred companies develop effective pricing models and strategies. His consulting spans established and emerging software companies delivering B2B solution via desktop, enterprise-class and, more recently Software-as-a-Service / on demand software. Jim has been a board member or advisor to several early stage technology companies. He holds degrees in Electrical Engineering from Tufts University and an MBA from Harvard Business School.

A quick introduction on our podcast:

I find much of what I read in the media about the “issues” involved in developing SaaS products as silly – and sometimes just plain misinformed. Is it just me or are there just too many analysts with nothing else to write about? Hint: Pick up the phone and talk to some people who are actually developing a SaaS product…

SaaS itself is a victim of this type of FUD (Fear, Uncertainty and Doubt). There seems to be a rise again of articles about “continuity assurance” and “source code escrow.” I’m not going to link to any of them – all of them seem to assume that there needs to be some draconian legal answer to the problem of data portability. Let’s be honest people – No Technical “Solution” is Forever <PERIOD>. If you’re not taking steps to manage your risk for control of your data and processes from day one you’re in trouble no legal agreement or high-priced lawyer can fix.  And yes, a smart SaaS vendor will build portability into their product because they understand the business value it gives – but nothing can force customers to use it and plan properly.

Likewise, I think people who are researching the business and technical issues for developing SaaS products are finding more FUD than substance. Yes, SaaS business operational issues are different, particularly for vendors of traditional “premise-based,” single-tenant applications. Yes, the technical requirements of the Internet-based and “cloud” environments are different.  In fact, it would be a good idea to seek help on these issues so you can concentrate on delivering a service with business value.  But honestly, I would and have recommend that for anyone developing a software product today. Think lean. Don’t waste money and time developing what you don’t have to – use services and frameworks you can leverage. Spend on developing a product customers will pull into the market. Learn customer-driven product management.

But doing that means leaning on tools, frameworks and yes – platforms so you can focus on your product. Enter the Boogie Man. Analysts produce lists of lists of keywords that capture a perceived issue: “vendor lock-in,” “Opex Vs. Capex,” “proprietary lock-in,” etc. And as anyone who has followed the industry knows – there have been failures.  But on the other side of the coin – the number of failures has been quite limited considering the wealth of tools and services available.  That isn’t a lot of solace to companies that bet on Coghead – but I have to say they should have seen the writing on the wall a long time before the doors closed. The total lack of data/code portability tied to a vendor that was clearly struggling to get traction and funding (read: no business model – the smell of burning cash) should have caught prospects’ attention.

The real truth is that software development has been depending on tools, frameworks, application servers, services, and platforms since the days when we left assembly code behind. You can’t avoid them.  If we were constrained to coding directly for each processor and environment, technical progress would be dismal indeed. Java, C#, HTML, .NET, Apache web server, XML, PHP, Ruby, Python – all of these simple examples are at some level an abstraction of layers below them. But like Microsoft’s Visual Basic – they are all tools that have a lifecycle and will eventually be superseded or folded into the next generation product. Technology moves on. Nothing is forever.

Of course, this doesn’t mean application developers shouldn’t consider where their tools are in their lifecycle and viability of the community of users around them. It doesn’t mean that the business side should ignore the risks of the choices the technical team has made.  It doesn’t mean we don’t need to have an idea of what we would do if the worst comes and we need to change our assumptions. How long would it take? What would the most likely alternatives be? What is the real risk of doing nothing because you’ve become a “deer in headlights” with all the choices you have to make – instead of just making decisions, allowing for risks and moving forward to a positive cash flow from a product with a growing, paid user base?

Because we don’t believe “doing nothing” is an option that will lead to success, at Scio we’ve made a conscious choice among the tools available to us. We’ve picked a group that we believe deliver business value to our customers.   We have invested our time and resources in this “platform” to develop our delivery expertise and are continuing to do so.  I say that not to highlight ourselves – it is what service companies do. They leverage tools to deliver their services better, repeatably and more competitively.

Do I need to say it? SaaS is a service business. Don’t succumb to the irrational fear of tools you can leverage to better deliver your expertise and value to your customers. Learn to evalute and manage risk. You cannot be successful if you are totally risk averse.

If you’d like to know more about how to navigate the operational and technical choices in developing SaaS products – let me make a suggestion: Jim Geisman, of Software Pricing Partners and I will be giving workshops on SaaS following the OpSource/SIIA SaaS Summit 2010 – “All About The Cloud,”  May 10-12 in San Francisco.  We’re very serious about making this an opportunity that people can take advantage of – so we’re “crowd-sourcing” the workshop configuration before we open registration. We need feedback from people who are either planning to be in the area for SaaS Summit or are just in the region and interested in attending (you don’t have to attend SaaS Summit to attend our workshops – but we encourage it).

Would you give us some feedback on the workshop configuration that would be most useful to you with this survey?  We would really appreciate your help on this.  And watch for more about the workshop starting next month.

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/2010/01/05/6-points-for-successful-saas/ http://blog.sciodev.com/2010/01/05/6-points-for-successful-saas/#comments Tue, 05 Jan 2010 23:13:31 +0000 Michael Dunham http://blog.sciodev.com/?p=742

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.

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 this article, “Nearshore” refers to outsourcing software development to providers that are located in foreign countries in the same or adjacent time zones or that are geographically close to a client’s home country. For U.S. companies, this term describes outsourcing to providers located in Canada, Mexico and Central and South America. For companies in Western Europe, nearshore providers are logically located in Eastern Europe, the Middle East or North Africa. At Scio, we work primarily with customers in the U.S. using a combination of U.S.-based and nearshore resources from our Delivery Center in Morelia, Mexico.

The other day I was reading an article about the “Experience Economy.” In the language of economists, the Experience Economy is the next step in the sequence from an agrarian economy, to the industrial economy and the more recent service economy. A basic premise of the Experience Economy is that competitive differentiation between service providers will emerge from positive and memorable customer experiences. In this view, customers will begin to take for granted that top-notch quality of service and work products are widely available. They will begin to make purchase decisions and maintain loyalty based on the quality of their experience of working with a service provider.

After considering the subject, I realized that one of the main advantages of working with readily accessible teams is precisely that it helps provide a better customer experience.

I have found that in the context of software product development, given a choice, people invariably prefer to work with local team members (either internal employees or consultants). After all, the ability to interact face to face greatly enhances the richness of communications, which in turn helps productivity and improves quality. It is usually the promise of lower costs that persuade companies to go through the additional effort of working with a remote team.

Although working with a nearshore team is by no means the same as working with an on-site team, it does provide the possibility of much richer communications between all team members than is possible when the remote team is in opposing time zones. For most practical purposes, it resembles very much working with a team in a neighboring city or state.

A typical day for one of our outsourced product development clients starts with the Daily Scrum Meeting (we are an Agile development shop based on Scrum). Our nearshore team joins the client team in a web meeting and conference call where progress is communicated, plans are updated and action items are identified and assigned. The rest of the day goes by with direct communications (through email, instant messaging or phone calls) between individual members of the Scio team and their counterparts on the client team. When issues arise, the combined team is typically able to address them in real time and resolve them quickly. During planning and review sessions, the client and Scio teams can brainstorm and provide feedback to each other to improve the next Sprint (the name given to iterations in Scrum). So, while these interactions are not as rich as working at the same office, they do provide a level of team integration, rapport and ownership that is far superior to what is possible when the remote team gets all their communications through a designated offshore team representative.

The fact that the entire nearshore team is present during the daily Scrum calls means that there is no loss of fidelity in conveying client ideas and requests to the team; they were all there. Both team and individual team member concerns can be addressed directly. Likewise, the ability to communicate and interact in real time (instead of waiting overnight for a response) helps to foster relationships between the client team and the nearshore team, and thus reduces the time required to reach agreements, and overall helps both teams to get the desired results more quickly and satisfactorily.

With a closer geographical location, a closer cultural affinity also typically follows. For example, in Morelia, Mexico, within ten miles of our Delivery Center, there are local franchises of McDonalds, Burger King, Kentucky Fried Chicken, Domino’s Pizza, Subway, Sam’s Club, Applebees, Chili’s, OfficeDepot, OfficeMax, Costco, Walmart, Nextel, BlockBuster, and others. So, while we could discuss whether globalization takes away from the personality of a city, it is also true that in this particular case it helps create a shared context that enhances communications and mutual understanding.

Television is another example of a medium that creates a shared cultural experience. Cable and satellite TV in Mexico play basically the same shows as in their counterparts in the U.S.; even public broadcast TV channels in Mexico play shows like Desperate Housewives and Lost. (Yes, they are one season behind, but the point is that it is another factor that creates a shared context.)

This is not to say that the national cultures involved are exactly the same. There are significant cultural differences between the US and Mexico that come into play and need to be accounted for (see Geert Hofstede’s Cultural Dimensions for a good comparison of different country cultures), but the cultural gap is much smaller than with more distant countries.

Another element that enables a nearshore team to provide a better customer experience is that by working during similar business hours, the quality of life of the client team members is not affected. There is no need for late-night or early-morning conference calls to be able to synch up with the remote team. Likewise, it is not necessary to wait anxiously all day for a remote developer to finally arrive to the office to be able to talk to her about a particular issue.

Granted, since our engagement model may include nearshore resources, my opinion is biased. And I fully recognize that a nearshore location alone is no guarantee for good quality or better results. However, I think that given two providers that are equally capable, where both have proven methodologies, committed team members and a results oriented attitude, but where one is on a similar time zone and the other is in an opposite time zone, the perceived experience of working with the nearshore provider will overall be better than with the offshore provider.

What is your experience? Do you agree?

Postscript:

It has been brought to my attention that in the last few weeks there has been frequent coverage in the media about the violence in the vicinity of the U.S./Mexico border, arising from the war on drugs. This, naturally, can be of concern to those considering nearshore outsourcing in Mexico.

The situation is indeed very serious in that region and without a doubt it is affecting the ability to conduct bi-national business in the area. However, even though it may seem that the whole country is in a state of emergency, in reality the problem is mostly concentrated in a few locations, like Tijuana and Juarez.

Morelia, where our Delivery Center is located, is about 800 miles away from the closest border point with the U.S. Morelia is the capital of the state of Michoacan, and it is pretty much a college and government town of about one million people. Although some incidents have occurred here, life in the city goes on ordinarily, with its characteristic lively, dynamic atmosphere.

A fact of modern life is that there are no completely safe and risk-free places anymore. From the recent terrorist attacks in Mumbai, India, to the attacks in New York, Madrid, and London, it is becoming difficult to think of places where safety can be entirely and permanently guaranteed. Nevertheless, the risk of being the victim of violent acts is still very small compared to the risk posed by car accidents or unhealthy life habits. So, while it is only common sense to stay out of places where violence is rampant, we must all go on with our lives, striving to make the world a better place.

Going back to the issue of working with resources in Mexico, as Datamonitor put it in a recent article, “it would be futile for both outsourcers and their clients to forsake this country in light of recent worrying media reports, considering its clear advantages and history as a delivery hub”.

The other day something happened that brought back a lot of memories. I have been an enterprise systems consultant for many years and in that time have been involved in a lot of interviews – both as a subject and an interviewer. One of the most difficult interview types is the “team interview” where a client team interviews the consultant team. With the economy pressing tough choices on everyone – team interviews on conference calls are a necessary evil – but after my latest experience I realized there is a whole generation of people who have never had to do it.

Let me give you a hypothetical situation: The prospective client is an ISV. Their CEO is well respected and has strong backing to continue marketing their licensed suite of products. The CEO’s knowledge of the market though tells him he should explore if there are other ways to deliver his product and is interested in Software as a Service. He has limited resources and although they are very competent, he knows that researching a SaaS product would take them off their core market. To accomplish his goal of exploring SaaS, he is considering using a consultant team. He finds a group that seems to be a reasonable candidate and after a one-to-one call with the company’s CEO, decides to bring in his core team to have a phone conference with the consultant group’s core team. His aim is to discuss a service offering the consultant group has for assessing the problems and advantages in SaaS for ISVs.

The consultant group in question has four years of experience in the SaaS market and outsourced product development (OPD). They are a specialized shop providing business and technical consulting in SaaS product development and software development with a total head count of less than fifty. Both as a team and individually, the group has a wide range of experience solving software development problems.

The call begins well enough. Everyone introduces themselves and the meeting is turned over to the core team of the ISV. But, what transpired from there seemed to be an unplanned series of questions with the general aim of disqualifying the consultant group rather than finding out what they had to offer. Imagine a few questions and answers:

What is company’s experience with HIPAA? With NAS? With security and reliability? How many people do you have on staff? How many companies have you helped? What kinds of software development do you do?

These are all fair questions of course. But in this context, the unplanned nature of the call failed to serve both the ISV and the consultant group. No one really explored what the client needed or what the consultant group was offering in this exchange. Instead, many of the questions that were asked either weren’t relevant without knowing more about the client’s need or not related to the competency needed for the consultant group to effectively complete the short engagement proposed.

OK. With that background, how could the call have gone better for everyone? What should teams expect or do to make this type of call a valuable exchange?

First and foremost – the call should have been facilitated. Someone, on either team, needs to take the role of facilitator to ensure the meeting has a goal and it is accomplished in the time available to the satisfaction of everyone. Yes, that sounds a bit formal, but assuming the call and time of everyone involved has value, facilitation should be considered a point of respect on all sides to ensure value is received.

With a facilitator in place, the next step is to go around both groups briefly, giving names, positions, and roles. If there are more than ten people on the call, it might be well to have team leaders introduce their groups and give a summary of their backgrounds to keep the time involved in the “round-robin” down.

Next, most facilitators will ask for permission of the group to lead the call – and ensure it accomplishes what is needed. This is an important step because it sets the tone that this is a meeting and it has a goal. With an assent, the facilitator may then lay a couple of ground rules to ensure people are heard and their concerns are answered.

A lot could be said about the importance of the facilitation in meetings in general and how it can be best accomplished. But, to keep to our topic – consider these points as a bare bones standard:

• Introduce everyone with name, position and role
• Facilitator usually takes the last introduction, explains the role briefly in the context of the call, and asks for everyone’s permission to assume the role.
• An end time for the call is agreed to with an understanding of what will be done if the time is exceeded.
• Ground rules are quickly covered. It always sounds a bit awkward at first, but an understanding of respect for each other and the time is always key. Even though in this case there would be no formal presentation, a online workspace with a “whiteboard” is a “best practice” because it allows the facilitator to put goals, notes, times, and follow ups out where everyone can see them.
• Goals for the meeting are agreed to. If they exist before the call – well and good – but often they do not. Even if they do, getting the goals in front of everyone is critical for success and when the question is asked, there are often ideas exposed that no one had considered.
• Agenda is agreed to with times. Setting times is critical. In this kind of meeting, limited time should be set aside for the consultant team to answer all the general questions that are usually asked and the client team should have a short period to set a context for their questions in terms of the project under consideration.
• Changes will happen. As the meeting evolves and time runs down, the facilitator should check that everyone is still on board and their concerns are being answered. Having a meeting interface can allow participants speaking from many locations to signal they want to be recognized, they want to add to their team’s presentation or they have to leave.
• At the end of the meeting, a summary of any action items or followups is agreed to and the call ends.

One more point – if you are interviewing a consultant team – keep your questions open and ask them in a way that gives some insight into the group’s process and approach. As consultants we sometimes call this “asking for free consulting,” but it is the best way for both teams to assess if there is a match. Instead of, “What is your experience with HIPAA?” – the question should be something like, “How would you approach a situation that required HIPAA compliance?” In this case, the first part of the answer should be “Don’t take unnecessary risks. Have you really evaluated if you need to identify a person with the data? Like credit card data, is that something better left to those that are tuned to dealing with those risks?” Instead of asking, “What is your experience with NAS?” – the question should be, “How would you approach a situation requiring NAS or high volume storage?” and the answer should start with a short series of questions about where the data is going to be stored (in house or in the cloud), record size, processing needs and where the finished product of the data needs to go.

Of course, a skilled facilitator will re-ask a question that isn’t open enough to get the answer the client needs because in meetings, it is key that a facilitator remain neutral – but that takes understanding by everyone before it can work well. Should the client team or the consultant team take on the role? That really depends on the experience of the team, but most of the time the consultant team should be more experienced with facilitating. Either way – if making a decision is important, be sure you are asking the right questions and getting answers that mean something related to the assignment.

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Interviewing the SaaS Consultant  http://bit.ly/h1At

In part one of this series, we proposed two situations that are occurring in this tough economy:

• Startups with experienced founders and a strong product idea for a new software application but limited funds and time to build a team.
• ISVs with existing software products who are faced with dwindling sales, lowered product development budgets and increased pressure to roll out new versions and extensions for their product line.

We posed outsourced product development (OPD) as one possible solution, but also exposed a few of significant risks involved. So what issues do you have to consider when judging OPD vendors?

According to the CTO forum – one of the biggest concerns is intellectual property (IP) security. The second is that when engaging an “end-to-end” consultancy that also provides software development, product development may not be a core practice within their services.

I would say there should be several other concerns that are generally only exposed by actually going down the OPD road. IP security and practice development are certainly important. Covering those questions first, what would an experienced product manager would also consider before engaging an OPD vendor? -

• Is IP security sufficiently covered in both national laws and treaties? Is it covered in the standard contractual language found in the vendor’s agreements? Do the vendor’s internal development practices reflect the difference between “best practices” – common base elements in code development and outright code copying between customer projects?
• Is the vendor really aware of product development disciplines, aware of best practices as they are applied to software products, and able to work collaboratively with the in-house team? More than that – in the current economy – can the vendor approach the project collaboratively using Agile techniques so that results can be seen early and judged before the project goes too far off track? This applies across the entire product development cycle. Agile techniques provide early prototyping, clear identification of in-house “product owners” and validation of concepts at points where they can be assessed against the product requirements and roadmap.
• Is the vendor’s team stable, experienced and available? Can you interview proposed team members? Are their language skills and understanding of your business culture up to your standards? Many times proposals are sent with a pile of “representative resumes” which may or may not actually represent the team offered when the contract is signed. Can you specify a dedicated team that will be available for on-going work, enhancements, bug fixes, and maintenance? Switching team members in mid-stream is sometimes more difficult to hand with remote teams than it is with in-house.
• What is their QA and release system? If the vendor is handling several projects – test and release may be a very busy asset in the company that is quite separate from development. Understanding the differences between various types of business models (licensed, downloadable, on-demand, etc) and the impact of releases on each time is critical. How are bugs handled? How transparent are their results? How complete is their testing cycle?
• Is collaboration a core value within the team? Does the vendor have the tools, practices and procedures in place to provide the platform necessary for good collaboration?
• How will collaboration actually play out? Typically, offshore that are several time zones away teams will say, “we are working while you are sleeping” which indicates a 24 hour working cycle. But how is collaboration between the remote team and the in-house team really taking place? If it is limited to emails and voice mails the messages can easily end up in a frustrating cycle of cross communication. Many offshore vendors will provide a project manager with overlapping hours for both the in-house team and the remote team. This can still lead to a “telephone game” syndrome where the remote team is never completely “in the loop.” Bringing the remote team or project manager on site for a period of time can be difficult and costly if they are several time zones away, which lowers the value of an outsourced solution. Consideration of a national or nearshore provider should be part of the list to evaluate the approaches to this issue. In full disclosure, Scio is a nearshore provider to the Western hemisphere, but is important consideration none the less. Throwing critical product development work “over the wall” is difficult process to manage well regardless so any improvements that can be made are worth evaluating.
• And in line with evaluation – does the vendor offer a range of engagement options that allow you to both look at your needs in discrete sections and evaluate the team, the approach and deliverables in a way that you can avoid bitting off more than you can chew? If the first response back from a vendor is an end-to-end proposal – are there ways to do shorter, tighter engagements that will allow you to see how the team works and judge if it is a good match? Well-defined, short engagements that will still give you useful deliverables a good way to “move the ball ahead,” avoid risk and get a feeling for what you are getting into.
• Is the development environment open and flexible? If you want your developers to work “side-by-side” with the remote team, can they work and share a common environment and code base? Even if you are not a developer by trade, is the work assignment system open and clear so you can understand what is currently in work and what is in the queue?
• How well versed is the vendor team in the technologies you need to employ? Can they offer a range of approaches with clear value cases for each? If your project involves collaboration with your in-house team, it is critical that the technologies and environments used leverage your teams knowledge base. A good prospect will be clear about their domain and will place boundaries around what is in their sphere and will take more time to work with. Limited experience may not always be a disqualifying factor if the team is aware of their limitations and can take appropriate measures to remediate, but simply indicating “we can do anything” can be dangerous.
• How much attention will your project get from your OPD vendor? If your project requires a team of five or ten, will it be considered a priority with a vendor that has more than 1,000 staff members? Feeling comfortable with the level of interaction you’re going to have with your vendor has a lot to do with how important your project is to them in the “big scheme of things.” If typical team sizes range increments of 10′s or 100′s you have to be concerned about how dedicated your team will actually be.

So – with that insight, is OPD for everyone? No. Does it have any more or less risk than other outsourcing? No. If you understand the risks, you can deal with them by both planning projects properly and selecting the right partner. And in the end, that is the point. An OPD vendor needs to be a team you feel comfortable approaching as a partner. There are many companies today that have only a handful of direct staff members who do quite well with an end-to-end OPD team. They concentrate on their market, sales, customer satisfaction and the leadership of their product development teams – regardless of where they are. They have learned to work fully with product development “in the cloud.”

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This is a tough time to be starting a business, but many people in technology or with deep industry experience who have been recently laid off are doing just that. Companies with existing product lines are facing tough choices too. Can you afford to sit on your hands while your sales dwindle? So let’s imagine you’re one of those folks…

A little depressing in these times but...

You’ve just been laid off. You have great experience in your field. You have an idea of what you want to do. You think a cloud/on-demand business is the way to implement the idea, especially in this economy. You know the venture capital market is pretty tight for new startups (!!!). Between the severance you got when you walked out the door, money from the three F’s (Friends, Family & Fools), and what you might be able to get from a second on the house (if the banks will cooperate) you could get going, but from what you’ve heard, you don’t have anywhere near the $3-4 million startups used to get in their “first round.”

Or let’s take the another way: You have an existing software product. With the economy in the tank, your license renewals and new sales are not meeting quota and the budget you had for your next version is no longer possible. You really need the boost the new modules in your product plan could give your sales, but it looks like you’re just going to have to wait it out and cut costs. Meanwhile a competitor, that released their latest version in early summer, is also struggling, but at least they are getting sales – by targeting your base.

In one way, both these folks are faced with the same problem – they have to innovate their way out of a tough time. Their solutions are likely to be somewhat different, but their underlying issues are much the same. Hiring staff, heading off on a new venture that can leverage their experience and the issues in this economy seems to be beyond their reach. In the end though, the smart ones will innovate their way out of it.

I read an article today in Manufacturing Business Technology from Sidney Hill. He alternatively takes the side of the potential customers and the ISVs – and points out that:

“This will indeed be good for a number of the companies on our emerging vendors list—companies like Plexus Systems, which offers a SaaS-based ERP suite; and New Momentum, with a SaaS-based product that helps manufacturers reduce myriad supply chain risk factors.

If you read our emerging vendors coverage, you will notice that the SaaS model is not the only innovation in the manufacturing software space. You’ll learn about companies like River Logic, a newer vendor offering a solution with a new twist on supply chain optimization; and Zontec, an established vendor of statistical process control (SPC) software that now makes SPC results available through mobile devices like the iPhone.

This issue proves that innovation continues in all economic climates. Let’s just hope that the Emergency Economic Stabilization Act of 2008 clears this current storm sooner rather than later.”

The smart approaches we’ve mentioned before, building to the long tail. knowing your market, and developing a strong, service-based approach remain key and will save cash, but there is one additional tool which is also worth consideration – many companies today are leveraging outsourcing services for product development. It is certainly beating our own drum, it is in fact one of our core services. But from that point of view, there are some important points to consider before going down this road.

Companies that provide Outsourced Product Development (OPD) for software-based products fall into two broad categories:

• Classic product management consulting for the front end of the project – market analysis, product definition, feature prioritization, and specification phases.
• “End-to-end” OPD practices within software development consultancies that offer at least some portion of the front end (there is a lot of variance) tied to the in-house software development team.

Each approach has its downsides…

A management consulting approach tends to be more expensive for the front end, but it may offer specialized market analysis and vertical expertise not available elsewhere. Once the “front-end” part of the project is done, you are then faced with either developing the resulting product specs in-house or finding a development team that can translate the product specs into technical specs and project plans. That can involve several iterations as both the product specs and the development plans are rationalized. Depending on the approach the consultancy uses, your team may be less involved than you would like. Time and cost constraints can limit collaboration with the management consulting team.

An end-to-end practice can greatly streamline the translation of the product specs to technical specs and project plans. If the development team is integrated into the product definition process, many of the downsides of projecting impractical features or configurations can be exposed early. But, if the OPD team is remote and not easily accessible during the process – poor communication and the lack of collaboration with the in-house team can result in the proverbial “camel – a horse designed by a committee” situation. Worse, if the development is begun before the problems are completely understood, the expensive camels can be packed up and ready for market before you realize what is in the box. And yes… It happens a lot more than we like to think.

But let’s say you’re not scared off by these possible downsides. You’ve been around the block a few times and you know that issue mitigation is necessary regardless of how you approach the problem. The key is knowing the issues and making appropriate judgements as you go along. Is there a simple bulleted list of issues to watch for that would help make a judgement?

Yes – there is. And you can find it in the second installment in this series as we explore the critical considerations you need to know when selecting an OPD team. Join us for the second article in this series: OPD – Product Development “In the Cloud.”

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