Demystifying SaaS

Demystifying SaaS

In the summer of 2008, Shashank N.D. and Abhinav Lal, while still undergraduate students at the National Institute of Technology, Karnataka, were ready to take the plunge into the world of entrepreneurship. Their idea was to launch a product software company to serve clinics and doctors with small practices. In May 2008, Naabo Medical Solutions (Naabo), their first startup was born.

“From social networks like Facebook and Twitter to coverage in popular technology blogs, they closely engaged with their prospective and current customers on a regular basis.”

Shashank and Lal started off building a vanilla product. After a lot of research, they understood that scheduling patient appointments was a problem for medical practices that happen at a clinic level. They built their first product called ‘Practo’, in just 14 days, a basic calendar-like appointment scheduling software with the ability to send SMSes. This got them their first few paid customers. Today, Practo is a software-as-a-service (SaaS) product serving over 500 practices and 5,000 doctors and supports over 5,00,000 patients.

For a student startup, Naabo’s early-stage decision-making was spot on. The founders got a basic product out to the market with absolutely no delay, with just the bare minimum feature set. The company got its delivery model (of charging a monthly fee, with the SaaS model) right and more importantly, was successful in selling their product without much delay. Practo solved a real problem for doctors and clinics and that has clearly been the key to its growth.

Ever since web-based proved that a rental-based model for software would work, SaaS has been a buzzword, world over. completely changed the way companies spent money on hardware and software. With reliable brands like Google, Microsoft and Amazon providing the infrastructure (in terms of server space) to support several other cloud computing ventures, the barriers to entry have come down drastically.

Over the last few years, India has seen the entry of several SaaS players, primarily serving the SME segment. SaaS allows the automation option to small and mid-size companies, which were underserved earlier, and helps make these companies more efficient. With a rental-based model (that of paying per-user per-month to access the software online), technology-related capital expenditure was replaced by operational expenditure and more significantly, eliminated the need for an in-house system and information technology (IT) administration department.

In this article, we aim to demystify the SaaS landscape in the country. We have put together a six-point framework to help early-stage entrepreneurs understand the finer nuances of building a growth enterprise in this sector.

The product development lifecycle

Entrepreneurs need to understand that the initial version of the product need not be packed with too many features. Version one of your product could be a plain vanilla product with just the right number of features that will solve the initial problem you set out to solve. To make the product robust, additional features can be added as an incremental process with the help of customer feedback. Samir Kumar, managing director, Inventus Capital Partners, rightly says, “SaaS or non-SaaS, a product development company will have to get an initial product out and then work with customers to make it robust.”

Take the case of the product development process adopted by Mumbai-based online project management software company, DeskAway. When Sahil Parikh and his wife Sitanshi Parikh founded DeskAway in 2007, it was to solve a problem they encountered while running their previous venture, Synage Software, a software services firm. At Synage, they needed a simple tool to delegate work to team members, track the number of hours taken to complete a task and keep managers updated on the status of a project. And BaseCamp’s (part of U.S.-based 37 Signals) online project management tool did not solve Parikh’s problem then. And that is when he decided to build DeskAway.

After launching a test beta version in late 2007, Parikh and his team worked closely with their customers to qualitatively understand what additional features and product enhancements were needed. All through 2008, based on inputs from early customers and technology bloggers, the DeskAway product was shaped up with additional features.

While product development is important, the entrepreneur needs to balance the time spent on product development and sales. Sameer Guglani, founder, The Morpheus, a startup advisory firm that worked with DeskAway in its early stages, explains this with an example of salesforce. In 2004, when salesforce had an online customer relationship management tool used by sales teams, they received several requests to build a marketing module. However, they focused on growth with their existing product features and launched their marketing module almost five years later.

Methodical approach to sales

Broadly, there are two categories of customers for most SaaS companies – a customer who has already identified a pain point and is looking for software to solve his problem and another who needs to be educated about the advantage of using a SaaS product. In the early stages, as several experts believe, it is easier to go after the customer who is already sold on the need for automation. These customers largely turn to the Internet to find solutions to their problems. They read articles on popular technology blogs and reputed media vehicles to understand what is out there.

Fundamentally, this means a SaaS company needs to have its social media and Internet marketing strategy in place. Taking DeskAway’s example, Gulgani feels, their social engagement strategy was implemented very well. He adds, “From social networks like Facebook and Twitter to coverage in popular technology blogs, they closely engaged with their prospective and current customers on a regular basis.” While this helped DeskAway add to its customer base, it also played a critical role in identifying new features that customers wanted. In a SaaS business, the sales and customer engagement process has to be closely linked with the product development lifecycle.

For Practo, the sales process was completely different. It networked with the healthcare community and doctors and it was this engagement that largely helped them in the customer acquisition process. Shashank says, “Till date, most of our customers have come from referrals. Doctors consult each other a lot and our referral program has enabled us to expand.”

Guglani reiterates on the importance of a methodical approach to sales. He draws an example from the story of job portal, Naukri. “What Sanjeev (Sanjeev Bikhchandani, founder of Naukri) did in terms of his sales force is the secret behind the success of Naukri.” He created a B2B (business to business) sales force, with each regional team acting as a profit center. While, as a job portal, had the right ingredients to be useful to both job seekers and companies, it was its sales force that made the difference in terms of growth.

“What Sanjeev (Sanjeev Bikhchandani, founder of Naukri) did in terms of his sales force is the secret behind the success of Naukri. He created a B2B (business to business) sales force, with each regional team acting as a profit center. While, as a job portal, had the right ingredients to be useful to both job seekers and companies, it was its sales force that made the difference in terms of growth.”

Looking at your business from a numbers perspective is crucial as well. Guglani shares his DeskAway experience where tracking growth was not about just the final sales revenue figure, but also about what it took to get there; like the number of people who took free trials, how many of them were converted to paid customers and how to continuously get those numbers up.

Working with partners

The overall cloud computing landscape thrives on partnerships. Amazon’s web services (AWS) and Microsoft’s Azure, among other services, provide the infrastructure needed to host your applications on the cloud. One big problem for early adopters of cloud computing and SaaS is that they will have to trust someone else with their information. The ability to store your data with Amazon or Microsoft, brands that have already built trust, does make customers more confident.

The cloud computing landscape, in addition to SaaS, also includes IaaS (infrastructure as a service) and PaaS (platform as a service). While IaaS is all about renting out hardware (just as software can be rented), PaaS gives developers a platform layer on which business applications can be built. A number of business applications need a basic layer on top of which several processes can be modeled to perform a particular task. Indian companies like OrangeScape and AppPoint are PaaS service providers that give developers the ability to build business applications on their platforms. These platforms can be rented out, as opposed to buying the complete license for it.

Partnerships in the cloud computing space are not restricted to product development and delivery alone. It extends into the sales process as well. DeskAway partnered with JamCracker, a Silicon Valley based cloud services provider, to act as its channel partner and carry DeskAway in its marketplace.

Chennai-based NuStreet Technologies that makes SaaS products for the manufacturing, textile and healthcare industry is continuously roping in “product creation” partners, companies that will play the role of industry experts to identify the feature sets for its products. From data storage to product development and sales, formal partnerships are critical for growth.

Core capability

As in most other businesses, the founding team is critical to build a growth company. Guglani elaborates, “In a SaaS business, we ideally want one of the founders to have the ability to build top-quality web-based software. The other aspect we emphasise on is the ability to bring in early sales.”

SaaS companies, to start off with, also do not need a large team size. DeskAway, which is among the top five, in the online project management software category, has an overall team size of about 15 people. There are only six developers who work on their core product even today.

Growth strategy

The poster company in the enterprise cloud computing space is Founded by Marc Benioff in March 1999, salesforce rakes in U.S. $1.4 billion a year in sales with a market capitalisation of U.S. $15 billion. For most for the first five years, it focused on selling online software that could be used by sales teams in the U.S. Over the last few years, it has launched the force platform (PaaS), on top of which external developers can build software. Its global expansion plans are in place and Benioff is ensuring no stone is left unturned to pursue growth. From new products to emerging markets, growth is coming from all directions.

But, the foundation for growth was laid in the first five years. Kumar says, “You have to look at the scenario before salesforce came into existence. Companies paid a hefty price for software and hardware. Salesforce changed all that. Converting cap-ex (capital expenditure) into op-ex (operating expenditure) was a brilliant idea. More importantly, companies did not have to grapple with IT and system administration departments.”

Expansion, like in most other sectors, comes from product category diversification or launching in new markets. Most Indian cloud software companies are still in the early phase of laying the foundation. The key is to go after a large market and offer a solution that will increase efficiency for its customers.

Adapt to external factors

In the SaaS space, there are several external factors that come into play. A high-quality Internet connection is critical to ensure a good customer experience.

InstaHealth Solutions, a Bangalore-based software company serving the healthcare space, found that bad Internet connectivity in hospitals was affecting its growth. Its hospital management software was extremely valuable to customers, but, operationally accessing the software through the Internet was problematic. Ramesh Emani, one of the founders of InstaHealth, takes us through how it approached this challenge. “We now adopt a modified model of SaaS. From a technical standpoint, we continue to offer remote backup of data, remote updation of software, and our applications can be accessed by the customers from anywhere. The only difference is the server is onsite and this server is cheaper than having a router for a backup net connection.” From a commercial standpoint, InstaHealth has completely moved to a license-based approach.

Inventus’ Kumar believes that SaaS works very well for non-real time applications. For an entrepreneur, it is critical to identify if the software solution one is proposing is operationally possible to deliver in the SaaS model. The efficiency the software provides along with cost benefits will have to be stressed upon to early customers.

The next phase

Research agencies are gung-ho about the prospects for this industry. IDC, a research agency, expects global spending on cloud services to grow almost threefold over the next five years, reaching U.S. $42 billion by 2012. And the Indian market is estimated at over U.S. $ 1 billion. A large chuck of this market comes from SaaS especially targeted at the SME segment.

Both Kumar and Guglani are also confident that India is going to see a large cloud software company being built out of India. Kumar reiterates, “In any product company, proximity to the customer is critical. In the last few years, a significant domestic market has emerged. Cloud software companies could start off serving the domestic market first and could go global for the next phase of growth.”

Cloud computing could possibly reinvent India’s technology industry all over again. Only this time, it will be through products rather than services. Can we expect to see an Infosys in this space? Only time will tell, but the market sure is ready to make this happen.

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