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Building a Profitable SaaS BusinessBuilding a Profitable SaaS Business
Presented by Montclair Advisors, LLC Sponsored by OpSourceFebruary 9, 2011
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Successful SaaS Companies are ProfitableSuccessful SaaS Companies are Profitable
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SaaS Business Model Drivers
• The Great Recession has changed the software buyer’s behavior
• Buyers want to purchase using OPEX not CAPEX
• Market growth is with SaaS firms, 30%+ CAGR
• SaaS company valuations are 3-10X ttm revenues
• New technologies like Cloud Computing make it easier to launch SaaS products and services
• Aligns well with software consumerism of Facebook and eBay
• VC’s only fund SaaS-based software companies
Market factors are changing buyer behaviors
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Montclair Advisors’ Software Business Continuum
Customer Selection
Software ContinuumSoftware ContinuumSoftware Continuum
Value Capture
Strategic Control
Customizability
Deployment Time
Integration Difficulty
Deployment
Business Model
Strategic Intent
Traditional Hybrid SaaS
� Enterprise � Enterprise and SMB � SMB > Enterprise
� Perpetual License� Services
� License & Subscription� Services
� Subscription
� Long term license deals, large replacement costs
� Customer support, control of data
Cross Over
� SMB > Enterprise
� Subscription
� Complex Customizations � Customizations & Configuration
� Configurable � Highly Configurable
� Months or Years � Weeks or Months � Days or up to Months � Minutes > Weeks
� Difficult to Integrate � Moderately Complex to Integrate
� Packaged Integration � Packaged Integration
On-premise FocusDrivers: Large on-premise customer base, market, or solution type
LT both on-premise & SaaSDrivers: Existing customer base, new and existing markets or solution type
Exclusively SaaSDrivers: Newer business, competition, products or markets
LT move to SaaSDrivers: Competition, new markets, products or company value
Subscription model requires agility and efficiency
Source : ©2008-2011, Montclair Advisors, LLC
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SaaS Business Model Comparison
Traditional SoftwareTraditional Software SoftwareSoftware --asas--aa--ServiceService
Financials
Revenues License Subscription
COGS 10-15% 30-35%
Product Development
Methodology Waterfall Agile
Releases Annually Quarterly
Architecture Single Tenant Multi-Tenant
Services
Implementation Customization Configuration
Fastest Time to Value Months Hours or Minutes
Sales
Methodology High Touch Low Touch
Pricing License Subscription
Trials No Yes
Marketing
Lead Generation Tradeshows, Email Campaigns Email, Social Networking
Significant Differences Across Business Processes
Source : ©2008-2011, Montclair Advisors, LLC
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Montclair Advisors’ SaaS Business Maturity Phases
Source : ©2010-2011 OPEXEngine and Montclair Advisors. Chart based on 2010 public and private financial data.
Sales momentum and operational efficiencies are key to reaching profitability
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Key ConsiderationsKey Considerations
� Customer satisfaction and renewals
� Revenues and cash flows
� Expense management and COGS
� Sales structure and compensation
� Internet marketing and social networking
� Development methodology and releases
� Hosting infrastructure and management
� Business metrics
Some Best Practice IdeasSome Best Practice Ideas
� Know your Customer Retention Rate
� Understand your actual hosting costs
� Calculate Your CAC
� Define SaaS-based comp plan
� Roll-out a reasonable customer SLA
� How quickly can you deploy your products
� Hire some SaaS DNA
� Obtain board buy-in before moving
� Continually measure everything
� Build a break-even financial model
SaaS Tips and TricksKey themes to consider and some ways to avoid the big mistakes
Source : ©2008-2011, Montclair Advisors, LLC
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Cost of Goods Sold (COGS)(% of Revenues)
Income (Loss)(% of Revenues)
30%
10%
Organizational Efficiency’s Impact on SaaS Profitab ilityAutomation, process improvements lead to lower COGS over time
Source : ©2008-2011, Montclair Advisors, LLC
What’s in your COGS?Expenses often included
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Successful SaaS TransitionsThe market shift to SaaS is clearly underway
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Successful SaaS Transitions
• Primarily services companies with less than 100 employees• Very successful QuickBooks, Quicken and TurboTax franchises• Slow and steady launch of a number SaaS-based solutions• Rebuilt offerings and launched PaaS (IPP) and marketplace• Hybrid business model but pushing towards SaaS
Leading SMB Business Applications Provider
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Successful SaaS Transitions
• Targets large, complex organizations and governmental institutions• Started in 2005-6 and took about 3 years to reach breakeven• Managed transition for existing cash and operating income• Architectural change and re-platforming of suite• Targeted hiring of key talent• Offers hybrid option
Leading Talent Management Systems Provider
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Deep SaaS and Cloud Industry ExpertiseRepresentative clients various sizes and segments
SaaS Cloud Global ERP HCM SCM InfrastructureSaaS Cloud Global ERP HCM SCM Infrastructure
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Montclair Advisors provides personalized Software-as-a-Service business advisory services designed to help software companies to develop and optimize their SaaS business models, improve revenues, control costs and deliver world-class software.
Visit us at our website, check out our Smart SaaS blog at www.montclairadvisors.com/blog or follow us on Twitter @Montclairadvrs.
Worldwide Inquiries: Contact:Phone: +1.510.336.0019 Kevin Dobbs, Owner and Managing PartnerFax: +1.510.336.0219 [email protected]