Program description

Unlike traditional software business models which are based on one-time license sales and lump-sum cash payments, the SaaS model is predicated upon building annuity-type revenue and cash streams. Over the long-term this business model is highly attractive, but especially for early-stage companies ramping SaaS revenues poses a unique set of challenges. MassTLC has gathered a panel of accomplished SaaS operating executives to share their insights on getting the initial revenue ‘flywheel’ turning and building sustainable SaaS enterprises.

The panel

Skip Bestoff, General Partner, at Castile Ventures did a great job of moderating the discussion–asking all the questions we hoped he’d ask.  Fred Mather, Global Head, M&A and AI Sales at IntraLinks and Richard Turcott, CMO at RatePoint drew on a wealth of experience to share best practices, lessons learned, and advice about how to get the revenue flywheel going.

Determining market positioning and value propositions

Skip asked, “How do you find the sweet spot for your business?”

Advice:

• Understand your market and follow through–too often people find their target market and then later ignore what they’ve learned.
• Meet with prospects to gather market insights.  Nothing beats seeing someone’s reactions as they talk about what’s important to them.
• Ensure that the opportunity you’re pursuing addresses a significant problem
• Tie your value proposition to cost and/or time savings.
• To ramp quickly, aim for those who already recognize they need a solution to the problem you’re addressing

Tips:

• Accelerate your learning by using pay-per-click ads to test various terms you’re considering using to market your solution
• Then, apply what you learn to other channels

Skip asked:  What’s the impact of the subscription model on the value proposition?

• SaaS enables you to target the economic buyer, since you don’t need to put anything in “on premise”
• The sale is more transactional.   When the entry point is just $/month, perceived time savings and ease of use often trump classical  ROI
• Customer centricity is more important than ever.  You need to deliver a great customer experience if you lead with a trial.

IT’s involvement in the sale

Comments:

• The IT budget is shrinking, so you need to attack the operating budget if you want to make a lot of money
• IT is still involved for enterprise sales, that require custom development such as integration with other applications the customer is using
• You need to tell IT what’s in it for them
• Although it’s all over the place, most IT departments today are economic buyers
• If IT approval is needed, there is one more step in the sales cycle, and the company tends to grow less quickly.

How much should you pay to acquire a customer?

Advice:

• Start by determining the lifetime value of a customer (LTV).  The calculation is (1/attrition rate)*Average sales price
• In the beginning, you may need to pay more than the LTV because you haven’t proven your value or developed a brand.
• In the long term, you need to pay less than LTV to achieve profitability

Best practices for acquiring customers

• Depend on prospect and customer anecdotes to get your messaging right.
• For small price point products, you’re conducting focus groups every day (as you watch online buying behavior)
• Leverage the community: start with those who wield the greatest influence with the target market
• Then, focus on getting customers that are willing to serve as spokespeople for your case study
• Work your network:  with the advent of social media, no one needs to make cold calls
• Set limits and success criteria to ensure that your trials encourage conversions:  give prospects just enough time and functionality to experience value
• Hone your process by analyzing the sales pipeline:  key metrics include visitors to trials, trials to conversions, time to progress through cycle, level of discounting

Customer support strategy is essential to success

• Having a well thought out support strategy is essential to success
• Business users are less technically savvy and require more handholding
• To scale, you need to make people comfortable with on-line support
• To maximize profitability, you need to bake support into the product over the longer term.
• Initially, however, it’s likely you’ll need to  provide personal support to compensate for gaps in the product and/or training materials

These are some of the insights I gained from the panel this morning.  What have you done to get the revenue flywheel turning for your SaaS business?

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Where there’s sales activity, there’s an unmet need

Our clients find that one of the best ways to find out where to concentrate their firepower is to follow the money. They do this by studying recent activity—their own, the competitions’, or those of the companies that are succeeding under current market conditions. Why? Because where there’s activity, there’s an unmet need.

Use knowledge about wins and losses to replicate success

Next our clients look at outcomes. Who won? Who lost? Why? Once they have the answers to these important questions, they know what they need to do to replicate success–their own or that of others who were more savvy or more fortunate.

Follow the money

Here are concrete actions you can take to follow the money and capitalize on opportunity in a tough economy. Start with your own experiences, but don’t stop there.

If your business has won any deals recently, find out what caused these accounts to purchase when everyone else is sitting on the sidelines. What about their situation was different? What compelled them to act now? How did they find your company? What caused them to seek you out? How did they justify their investment?

From market intelligence to marketing strategy

Depending on what you hear, the answers to these questions may shed light on what characteristics separate the prospects that are likely to buy, from those that are not. You may also find out who you need to reach at these companies, where you need to place your marketing messages, or what you need to emphasize in your marketing literature and on your sales calls to capture attention and motivate action.

Competitive intelligence can uncover opportunity

If you haven’t won any deals recently, try to find out whether anyone in your target market has bought from anyone else. If so, you may be able to turn to them for answers to these important questions. Then, you can use that information to remove obstacles to the sale—and replicate their successes.

If neither you, nor your competition, have won any deals lately, don’t despair. You may just be targeting the wrong prospects or using the wrong message.

Validate assumptions to uncover new value propositions

The next line of attack is to go back to your existing accounts—especially those that are actively using your goods or services. Find out not what caused them to buy originally, but how they are deriving value from your solutions today.

It’s not uncommon for companies to buy for one reason, only to learn later that their purchase is more valuable when deployed to meet an entirely different need. If you find that’s the case, ask them how they discovered the new application—and try to quantify the value that they’re deriving. Then, if the value is significant, you’ll want to figure out who else might have similar needs—and rewrite your marketing messages to reflect the value these accounts have discovered.

Keep following the money

Still no success? Then, it’s time to go further a field. Where are companies in the industries you target spending money? Which ones are spending? What needs do they believe their purchases will address?

Once you know which needs are at the top of prospective buyers’ lists, you’ll know where to focus your efforts. Perhaps you can reword your messaging to demonstrate how you address these same needs—or perhaps you can develop a solution that does. If not, you may be able to partner with someone who is addressing those needs to enhance—and add value to their solution.

Change can create market opportunity

When times get tough, the business environment changes, and buyers’ needs and priorities change. Approaches that worked last year—or even six months ago—may no longer work. Nevertheless, strategies that never worked before may be effective now.

But you can only capitalize on market opportunities if you know where they are

The only way to find out what those strategies are is to turn to those that are still spending. Only they have needs that are so pressing that they bought in this economy. Only they know what worked—and what didn’t at every stage of the buying process. And only they know what ultimately caused them to purchase—and why they selected the vendor they did. On the other hand, once you know what they know, you may just be able to get a leg up on the competition.

Where is the money?

Let us know what you’re seeing. Are businesses still spending? Are they spending on similar solutions—but just cutting back? Or are they spending to address entirely different needs?

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In recent posts, we’ve discussed the characteristics of a compelling value proposition, and the importance of concentrating your firepower on those companies that most value your capabilities. This week’s post discusses concrete steps you can take to identify, validate, and test your value propositions.

Begin by gaining deep insights into buyers’ needs and purchase preferences

As Steven Covey said, “Start with the end in mind”. To develop a compelling value proposition, you first need to validate what matters most to prospective buyers. Else, if you make inaccurate assumptions, you’ll miss the mark and potentially end up wasting lots of money on ineffective marketing programs.

This can be a lot harder than it seems because there are lots of important questions you need to answer first. Approach this assignment as journalists do when researching a breaking story. Start by inquiring about the 5 Ws and the H.

Who are your most promising prospects?

As we discussed in the past, the most promising prospects are those that value your solutions most and will therefore pay top dollar, buy more quickly, and/or motivate others to also buy. To find them, first list all the market segments that need your capabilities.

Then, eliminate less desirable segments. Examples include market segments that are too small to meet your revenue goals, are so competitive that they will drive up your cost of sales, and market segments that don’t especially value your organization’s unique strengths.

To rank the remaining segments, and identify your target market, interview key stakeholders in each. Key stakeholders include everyone that the decision maker involves in the buying decision–from external advisors to the internal personnel who will use and implement your solutions.

When will prospective buyers need your capabilities?

The need for many solutions is event-driven rather than ongoing. For example, companies are more likely to seek out insurers when they are contemplating taking on new risks, marketing agencies when they are launching new products, or a new accountant when they are dissatisfied with their current service provider.

Often knowing what events trigger demand for your solution can help you develop a more compelling value proposition. To find out ask about last time they purchased similar services: What caused you to purchase then—rather than six months sooner or six months later?

What do key stakeholders value most?

The only way to ascertain whether you solutions provide sufficient value to garner sales is to first find out what matters most to decision makers. Ask: What are their goals? How are they measured?

Then, ask the same questions of the remaining stakeholders. Although only one person can approve a purchase decision, others can block it if their needs are not met.

In fact, you may need multiple value propositions in order to win the company’s business. For example, the decision maker may be bent on achieving market share. Finance may require a certain return on investment. Supporting departments may care about the cost and ease of ongoing maintenance. Users may focus on ease of use and access.

Where do decision makers get their information?

Some decision makers learn of new solutions through trade journals or trade association meetings. Many expect those that work for them—and have subject matter expertise—to make them aware of the need for new solutions. Others turn to trusted advisors and colleagues for recommendations.

Where ever your decision makers turn for information, that’s where you need to place your marketing messages. Else, you run the risk that you will not even make the short list when it comes time to evaluate new solutions.

How do stakeholders decide whether or not to recommend your solutions?

Not only do different stakeholders have different goals, they often require different evidence to reassure them that your solutions will meet their goals. They seek this information to address their reservations and mitigate risk.

Some will require media coverage in marquee publications, others will require references and/or testimonials from industry leaders, and still others will require demos or tools that will help them calculate the return on investment they can anticipate. Again, whatever their preferences, you need to do it their way. Else, they may never access your value propositions—and you may lose the deal to the competition.

Developing a value proposition is an iterative process

Once you’ve identified a few value propositions, do some testing. Send out a direct mail piece and see how many people respond. Develop google ad word campaigns that offer a free demo. Offer a free webinar and see how many people attend.

If people show interest you’ve probably discovered something of value. If people invest time in learning more, you may have a compelling value proposition. If not, you need to go back to the drawing board.

Validating your value proposition helps you make the most of your marketing investments

Remember, it’s not what you think that’s important; it’s what matters most to your most promising prospects. That’s why industry leaders always invest in marketing research despite the fact that they have ongoing experience with existing customers.

With the marketing investments they’ve made in product development—and plan to make in promotion–large companies know they can’t afford to miss the mark. Chances are neither can you.

What surprising information has your organization learned when validating your value propositions?

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2. Getting top dollar depends on first determining who values your solutions most
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Your value proposition must target your most promising prospects

Nevertheless, to be truly effective, your value proposition must target your most promising prospects. Willie Sutton robbed banks because that’s where the money was.

Yet, one of the most common mistakes that many businesses make is selling to profitable markets, without questioning whether better opportunities exist elsewhere. When they do, they run the risk of expending valuable sales and marketing resources in the wrong places. That’s what happened to several of my clients before they focused on first determining who valued their services most.

Not all value propositions are equally compelling

One of my clients had been marketing its analytic software as a productivity tool that streamlined regulatory compliance and reporting. When a new marketing vice president joined the company, he engaged my business-to-business marketing consultant company to validate the company’s value proposition.

We interviewed decision makers in a number of market segments in search of unmet needs. Eventually, we discovered a more profitable application for the company’s products. We found a set of decision makers that were seeking analytic software that they could use in a pre-sales environment to reduce investors’ risk. Because these customers felt such a tool would help them attract new clients—rather than just reducing reporting costs—they were willing to pay top dollar.

As a consequence, my client was able to penetrate a new market segment and increase revenues by 9 million dollars—after marking minimal modifications to the customer interface of an existing product. Today, sales of the new product have totally eclipsed sales of the original solution. That’s 9 million dollars that the company had previously left on the table because they failed to validate their marketing assumptions.

Your market decides what value proposition is most compelling

Another client found a more profitable market by happenstance. This professional service organization was marketing its engineering consulting services to large accounts in a highly competitive market. At the same time, the company was turning down smaller projects that required the same capabilities because the company “wasn’t in that business”.

When we reviewed the company’s win/loss data, the owner realized that the requested services were far more profitable than the ones he was currently selling. He, then, decided to actively pursue the market the company had been avoiding. A year later, he had a new million dollar business that leveraged his company’s existing capabilities. Had he neglected to regularly analyze his wins and losses, he would have continued to do business as usual and missed out on a highly profitable business.

Just because you’re doing well, doesn’t mean you’re not leaving money on the table

What are the lessons learned here? Just because you’re doing well, doesn’t mean that you’re not leaving money on the table. Your most promising prospects may not be who you think they are. The value they seek may not be what you think it is. The only way to be absolutely sure what the market values most is to gain deep insights into prospective buyers’ needs and priorities.

When developing a value proposition: ask don’t guess

To determine what prospective customers value most, it’s important to ask buyers directly, rather than making assumptions. This can be more difficult than it appears.

In most companies, multiple parties have direct contact with customers. They, therefore, think they know what matters most to the customer and how to create a winning value proposition.

Sales may believe that the reason the company made—or lost—its last sale highlights the solution’s value, and will be true for all sales. Marketing may push for value propositions that generate a lot of leads—rather than a few higher quality leads. Finance may push for replicating past successes because their analyses show these accounts are the most profitable.

It’s like the old story about the blind man and the elephant. Everyone in the company has had experiences with customers. The problem is that no one has had discussions with a broad spectrum of decision makers that focus exclusively on these decision makers’ goals, totally independent of the vendors’ solutions.

Consider engaging an expert to help you discover your value proposition

Sometimes you need an outside perspective—someone who can help the team step back and see the whole forest—rather than just the trees. It often takes someone who is less invested in the outcome of the decisions and is less likely to have assumptions about the market.

This individual is more likely to focus on prospective customers’ needs–rather than the value they place on existing solutions. Rather than asking questions about what prospective buyers value, experts are trained to ask how their employers measure their success, what their goals are, and what’s getting in the way.

Getting to the heart of the matter also requires specialized ability and training. Much more than just the ability to ask open-ended questions and probe for clarity, success depends on knowing exactly what questions to ask—and how to ask them–to uncover needs that the decision makers, themselves, may not yet fully recognize or be able to articulate. Equally important is the facility to translate the information that the interviewer gathers into solutions, marketing messages, and marketing programs that will accelerate the sale.

Value is in the eye of the beholder

More important than developing a compelling value proposition is first determining the highest value your company can deliver. Although performing marketing research can be time-consuming, it’s usual the single most effective investment that any company makes. That’s why Fortune 500 companies invest so heavily in marketing research, they can’t afford failure, they don’t want to spend money on rework, and they abhor leaving money on the table.

What steps has your company taken to assure your solutions are aimed at your most promising prospects—rather than those with smaller budgets or less urgency about buying?

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Today’s entry describes the elements of a compelling value proposition. We’ll follow up in subsequent posts by discussing steps you can take to create and validate your organization’s value proposition. Then, we’ll discuss how to leverage your value proposition in all your marketing initiatives.

Value propositions promise quantifiable outcomes

A value proposition is a description of how prospective buyers will materially benefit from using your products or services. Better value propositions address quantifiable outcomes that buyers can expect as a result of working with you.

Examples of “quantifiable outcomes” include: attract more clients, garner a price premium, increase customer satisfaction, improve quality, improve productivity, and decrease costs. That said it is not necessary to cite the degree of change prospective buyers can expect—since that may vary from account to account.

In today’s market, it’s not sufficient to craft a value proposition. Your value proposition must be compelling to elevate your message above the clutter.

Compelling value propositions address pressing concerns

Compelling value propositions speak to the audience’s most pressing concern—rather than a lesser need. They capture attention because the issues that they reference are already top of mind. To ensure your value propositions really resonate with your audiences it’s essential to first determine precisely which problems—and even what aspects of those problems–are most troubling to decision makers.

A compelling value proposition is specific. People’s needs are tied to particular circumstances at a particular point in time. Value propositions fail when they try to be all things to all people.

Compelling value propositions are never vague

Compelling value propositions focus on a single benefit—else the value that will compel buyers to act gets lost in the clutter. Too often, companies try to accomplish too many goals in a single communication and end up overwhelming the receiver.

Compelling value propositions are clear and concise

A compelling value proposition is clear and concise. Everyone’s busy. No one has time to deconstruct others’ communications. Beware of the technical jargon or excess prose that will blunt the impact of your communication.

Compelling value propositions motivate action

A compelling value proposition creates a sense of urgency that motivates buyers to purchase sooner rather than later. They do so by alluding to a fleeting opportunity or a negative consequence that will result from inaction. A “market window” is an example of a fleeting opportunity. Missing that window is a negative consequence that could result from inaction.

Compelling value propositions mitigate risk

A compelling value proposition mitigates risk and addresses reservations. Left unaddressed, reservations diminish the receiver’s perception of value.

Compelling value propositions accelerate sales

Compelling value propositions can have a dramatic impact on sales. Take Google for example…

Google AdWords offers one of the most compelling value propositions that I’ve seen: “Reach people actively looking for information about your products and services online.

It’s specific: advertisers will reach people who are actively looking for information about their products and services. It’s clear and concise. It focuses on a single benefit and promises a quantifiable outcome: better quality leads. Better quality leads are a pressing concern for almost any business.

Google follows this value proposition with a second value proposition that clarifies the first one: “Easily control costs–pay only when people click on your ad.”

While the first value proposition promises buyers results, the second addresses a major reservation. It assures advertisers that they won’t have to pay to reach prospects who aren’t looking for their solutions.

It takes perspective–the customers’ perspective–to develop compelling value propositions

Google AdWords has generated significant revenue for Google by delivering a service that prospective buyers find extremely valuable. It seems so simple. Yet, other search engine companies had the same opportunity and failed to capitalize on it.

Before AdWords, most search engine companies focused on selling banner ads. They were seeking products they could offer to generate revenue. Google, however, went back to customers’ needs—and came up with a truly compelling value proposition.

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2. Getting top dollar depends on first determining who values your solutions most
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Getting the sale depends on affirmatively answering all three of the following questions:

• Have they heard of your business?
• Do they know that you can address the problem?
• Will they remember you when it comes time to buy?

Brand awareness is not sufficient. Think back to your own experience.

Sure, you’ve lost sales because prospective buyers haven’t heard of your business. But, I’ll bet you’ve also lost business because prospective buyers just didn’t realize that you offered a particular product or service.

For example, three years ago, when I needed my hedges trimmed, it never occurred to me to call the arborist who prunes my trees. That is, not until I asked a neighbor for a reference and she told me she used my arborist.

I was taken aback. Even though I was highly satisfied with his services, it just never occurred to me that he also trimmed hedges. That’s because in my mind he was a “tree specialist”.

And, my mistake was not uncommon. In fact, most people only think of your business as doing the last thing you did for them–unless you take conscious steps to correct that impression. We’ll discuss how in a future post.

We’ve also all lost business because we’re not “top of mind” when the buyer finally develops a sense of urgency. We’ll also discuss how to stay high on prospective buyers’ radar in a future post.

In the meantime, we’ll discuss 4 questions you need to answer before launching a marketing campaign or engaging an advertising or public relations agency.

Who do you need to reach?

Often, it’s not just the decision maker. While he or she may make the final decision, many others often influence the sale. Without first engaging these individuals’ support, it’s often impossible to sway, or sometimes even reach, the decision maker. Prospective audiences for your marketing messages may include industry analysts, trusted advisers and internal staff such as technical evaluators and financial personnel.

How do you get their attention?

As Marshall MacLuhan said the media is the message. That means that the delivery vehicle is often as or more important than the message.

Most people are busy performing urgent tasks and are not receptive to messages about anything else—unless the information comes from a trusted source. Examples include advisers, existing suppliers, trade publications to which they subscribe, or presentations that they attend.

If, on the other hand, the prospective buyer is ready to purchase, he/she may be actively seeking out information. In that case, consider adding paid Internet search and website optimization to the marketing mix. If you’re already a trusted source, you may be able to save money and go direct—via telephone, email or direct mail—with confidence that they’ll open your communication.

How do you capture their interest?

Always speak specifically to the most pressing concern of the target audiences–in their language. General messages are not nearly as effective. So, it’s essential to first identify the target audience—and then what’s keeping them up at night.

As we discussed last week, you may need to prime the pump before speaking about your solution—or even the benefits it offers–if the problems your solution addresses are not particularly pressing. Consider developing intermediary messages that heighten prospective buyers’ awareness of the consequences of not addressing the problems your solution addresses. Follow those with messages that generate a sense of urgency about addressing these problems sooner rather than later. Then, and only then, will prospective buyers be receptive to messages about your solution and the benefits it delivers.

When is the best time to deliver your message?

The best time to deliver messages is when the audiences are most receptive. That however is hard to establish. That’s why marketers often say, “It takes 7 impressions to make an impact.”

In some cases, key events trigger needs for services. For example, everyone needs accounting services when taxes are due. Many require accountants when starting or acquiring a business. Nevertheless, the safest approach is to communicate your marketing messages consistently and frequently since recipients are generally pre-occupied with something else. Just by the law of numbers, if you communicate often you’re more likely to get a hit.

Once you get the answers to these questions, you’re ready to begin promoting your solutions.

Next week, we’ll discuss what to do once you prospective buyers’ attention.

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