About a week ago I hosted the second annual meeting of our
SaaS portfolio companies’ CEOs. Like last
year, we met in our office in
- More of the companies have established separate sales teams to acquire new customers and to cultivate/expand existing customers. Our companies are starting to use of Success Managers for customer cultivation/expansion. These individuals are part of the inside sales team and become involved after a customer has been acquired and onboarded. Typically each Success Manager is assigned 30-40 customers. The first goal of a Success Manager is to ensure each customer uses the product correctly and gets the maximum benefit from the product. In the process, the Success Manager at the minimum assures that the customer will be willing to renew the contract at the right time. More importantly, however, the Success Manager cultivates the customer for an upgrade/upsell.
- There is a more concerted effort by our portfolio companies to further develop the self-service channel in order to reduce sales costs. But, as SaaS is being aggressively adopted by the Global 2000, our companies find it necessary to also establish field sales teams. However, they require the field sales people to engage only if a minimum deal size is established (typically $100K).
- One of our CEOs eliminated his entire field sales effort but now regrets letting the best of his field sales people go because he thinks that based on the opportunities his company is pursuing, they would have been able to perform very well even working as inside sales capacity.
- The sales process is becoming more complicated, particularly with larger companies. Now our sales people need to “sell” to more executives from different organizations within each such prospective customer.
- Quickly and frequently experimenting with different pricing and terms and conditions is viewed as important by all CEOs. They believe that only through such experimentation they can maximize the results of their sales efforts, particularly in today’s market environment.
- SEO is more effective than SEM for lead generation. In addition, emails combined with inside sales outreach efforts are very effective for lead generation. Quick and frequent experimentation of various approaches to lead generation is very important.
- The companies are not adequately leveraging social media in their lead generation efforts. We have urged them to start doing so. We pointed to the fact that User Generated Content (UGC) is ranked higher by search engines. For this reason companies such be using more UGC in their marketing efforts. The companies should also try to not only use the communities they have started building but also partner communities.
- The comprehension of the SaaS model and market by the industry analysts is improving by the month. The CEOs mentioned the analyst firms they think “get” SaaS and the ones that remain skeptical about the model. Interestingly, none of the participants considered any of the analyst firms to be thought leaders today in SaaS. They believe the SaaS thought leaders are independents.
Market conditions (David Spitz’s comments with additional commentary from our CEOs)
- SaaS companies are benefiting disproportionately from the recovery, though not all SaaS are performing in the same way. The public SaaS companies tracked by Pacific Crest demonstrated strong growth over the past two quarters with companies either meeting or exceeding their 1Q10 targets (as I had also written here).
- Company growth is very important even if the company doesn’t generate much free cashflow (FCF). But in general the markets are looking at growth rate, revenue, and FCF. Investment analysts are also starting to pay close attention to the bookings of SaaS companies and to the additional net new subscribers per reporting period. Investors are becoming savvier about SaaS and are now able to analyze the relationship between Customer Acquisition Cost (CAC) and customer Lifetime Value (LTV). However, it is unclear whether these metrics really matter to corporate development executives looking into acquisitions of SaaS companies in addition to the three metrics mentioned above. Financial buyers, e.g., private equity firms, are also becoming interested in SaaS because of the recurring revenue model.
- More private company financings are getting done, more acquisitions are being contemplated, including some larger deals, and companies are more open to filing to go public (with the strong encouragement of investment bankers). SaaS companies with at least 15-20% YoY growth and at least $15M in Annual Recurring Revenue (ARR) are of particular interest since they show that they can achieve scale.