saas profitability best practices: montclair advisors webinar

© 2011 Montclair Advisors, LLC All Rights Reserved

Building a Profitable SaaS BusinessBuilding a Profitable SaaS Business

Presented by Montclair Advisors, LLC Sponsored by OpSourceFebruary 9, 2011


Successful SaaS Companies are ProfitableSuccessful SaaS Companies are Profitable


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


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


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



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


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



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


What’s in your COGS?Expenses often included


Successful SaaS TransitionsThe market shift to SaaS is clearly underway


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


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


Deep SaaS and Cloud Industry ExpertiseRepresentative clients various sizes and segments

SaaS Cloud Global ERP HCM SCM InfrastructureSaaS Cloud Global ERP HCM SCM Infrastructure


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]

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