In the paper "Investing in Companies that Deliver Software as a Service" I described the reasons Trident is aggressively investing in companies that offer software as a service (SaaS) and presented the companies in our SaaS portfolio. As we have been building these companies, we have come to appreciate the importance of sales velocity in a SaaS company's success.

On-demand software is now routinely associated with fast time to value when compared with its on-premise counterpart.  This is because on-demand software is accessed through a browser, the data it operates on and application infrastructure is maintained by the software’s vendor, and the overall health and uptime of the application also become the vendor’s responsibility.  Moreover, the utility nature of on-demand software allows the purchaser to pay only for what is being used and for as long as it is being used, resulting in recurring but smaller operating expense financial commitments than the capital expense  required by equivalent on-premise software solutions.  Therefore, the sales professional of the on-demand software vendor knows that unless he can demonstrate fast time to value he will lose the sale, and if the promised value doesn’t materialize or doesn’t endure, he will eventually lose the customer. Accordingly, the customer is not making a long term capital investment and retains the ability to move to another service if value is not realized within expectations.

To compensate for the smaller size of each contract and slower revenue flow that is recognized as the service is delivered, the on-demand software vendor must sell to more customers at any one period of time.  This is where the concept of sales velocity comes in.

Ingredients for achieving high sales velocity:

·         Tight linking between sales and marketing.  The sales and marketing organizations must understand and appreciate their respective roles in achieving the sales velocity. Marketing must view sales as their customer and understand their role in the sales cycle.  Likewise, sales must recognize the need to provide constant feedback to marketing and for quick follow-up of leads and sales opportunities.

·         Internet-based lead generation.  The majority of the sales leads for SaaS companies should come through the internet (because of the channel’s low costs).  Outbound telemarketing can also provide a good leads but, while less expensive than field sales, it is definitely more expensive than internet-based lead generation.  For this reason it is important for the company to invest in email programs, Search Engine Marketing and optimization (SEM/SEO) programs and tools, e.g., A/B testing, as well as in working with lead-generation companies.

·         Two-tier lead management process. Telemarketing qualifies leads, creates opportunities and manages the lead maturation process while the sales organization validates opportunities and tightly manages the sales process. Otherwise the sales rep must cycle a significant amount of time to follow-up and qualify leads.

·         Function-rich web site with consumer-like look and feel that talks to the line-of-business managers and end users, not IT.  One of the most important marketing investments a SaaS company can make is in its web site.  Moreover because most people today routinely interact with consumer-oriented web sites that are highly interactive, they are starting to expect similar look and feel from corporate web sites as well. In addition to the particular look and feel, the SaaS company’s web site must provide

1.       rich self service functionality so that the visitor will have the ability to learn about the company and its solutions at his pace with no perceived sales pressure;

2.       multiple communication channels (IM, SMS, Email, chat) for the visitor to connect with the company at any time he chooses; 

3.       functionality that turns every interaction into an opportunity to gather pertinent information from the visitor, e.g., registration, surveys, cookies, tagging etc;

4.       content through self-guided demos, replays of webinars, white papers, blog,  trial software, and the corporate social network.

·         Well-defined sales process.   The sales organization must have a well-defined, metrics-driven process that begins with marketing handing a lead to sales, and ends with the handing of a signed customer to the company’s operations and support services group.  Every step of progressing an opportunity must be identified and the right people in the sales organization must own it.  The performance of each member in the sales organization must be constantly evaluated against the metrics associated with each step (e.g., how many calls does it take for a lead to be converted to an opportunity, what percentage of the leads become opportunities, how long does an opportunity remain in specific sales stage steps, business conversion rates etc.).

·         Clear and rich outbound communication.  To make their business model work, SaaS companies typically staff their inside sales groups with more junior individuals.  These individuals become particularly effective when provided with well-articulated scripts with simple, value-oriented messages that guide their interactions with sales prospects.

·         Communication doesn’t stop once the sale closes.  The company must use every opportunity it has to convert every customer interaction into a value exchange opportunity.  Customers and prospects want to feel that they are learning something new every time they initiate an interaction with the company.  Once they feel that they are getting some value they are more willing to provide value back by providing more information about their company, problem, etc.

·         Start fast and expand.  SaaS deals tend to be smaller by dollar value when compared to corresponding enterprise software sales deals.  To compensate for this reality, as soon as the close of the first deal with a customer, SaaS companies need to start working on expanding the initial opportunity.  The fast time to value that characterizes on-demand software provides the reason for this expansion.  But to uncover such follow-on opportunities it is necessary to establish and maintain a constant dialog with the customer.

·         Separate the sales people into hunters and farmers.  It is also important to organize the sales organization into “hunters” those people who turn leads to customers, and “farmers” who are the ones that cultivate a customer and win follow on sales.  In this way the sales velocity can remain high through the hunters and the company can realize the full potential of the recurring revenue model through the farmers.  In fact, under certain circumstances, e.g., depending on the type of accounts and size of ACV, it may make sense for the “farmers” to be based in the field.

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In the presentation Venture Investing in Web 2.0 and Digital Media Companies I had stated that one of Trident’s digital media investment theses is centered on destination sites and communities with specialty content.  The digital media content may be specialized based on personal interests, demographics, ethnicity, etc.  Most frequently it is assumed that specialty content only has Long Tail distribution characteristics.  However, an increasing body of data is starting to point out that specialty content is of interest not only to many small groups but to many large groups of internet users, essentially the mid-tail (or the middle) of the distribution curve brought to attention by Chris Anderson.  For example, data that was recently published by Compete.com (shown below) confirms that of social networks with specialty content, e.g., classmates.com , CafeMom , and flixster , are growing rapidly. 

Trident invested in 3 such companies: DesiHits! , an entertainment/lifestyle hub for anyone curious about Desi culture, Doppelganger, a virtual world that focuses on music, entertainment and fashion for the teen lifestyle, and Spire, a high-end lifestyle community.  We are attracted to such communities and sites because we believe that their specialty content enables richer user interactions.  Richer interactions drive higher user loyalty, less attrition, higher activity or usage rates (for a related article see here ) and faster and easier adoption by the “right” user base..  For example, DesiHits’ 1M users (a number that was achieved in only a few short months) have commented that they come to the site because it is easier to find and consume South Asian-oriented content there than to try to find the same type and quality of content in MySpace or Facebook.  Ultimately, by creating a site with high usability and a strong community of users, you also create a site with improved monetization opportunities either through advertising or through subscriptions.

Marketers understand the high value of these specialty content sites and are increasingly working with them (see USA Today related article here).  For example, according to Microsoft, ad spending in such sites increased to 39% of all internet ad spending in 2007 from 37% in 2006 and CPM grew 30% yoy.  Marketers realize that even though the specialty content sites have smaller user bases than general-purpose sites such as Yahoo! or CNN.com, they represent well-segmented and very large markets. For example, the Southeast Asian community is well over one billion people dominated by India’s population.  Therefore, a company that wants to increase its brand awareness in India, for example a mobile phone manufacturer, can easily justify advertising with DesiHits.  As was recently reported in Forbes.com (here), CafeMom is finding similar success with brands that want access to its user base.  For these reasons sites such as DesiHits, Doppelganger, Spire, etc. are commanding, and are able to achieve, higher advertising and sponsorship rates.  While we don’t expect advertisers to move completely away from the general-purpose ad networks, we foresee that the percentage of internet advertising budgets directed at sites with special purpose content to continue to increase.

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