As a leader running SaaS applications in an enterprise, you can sometimes forget that you yourself maybe working at a SaaS company! It is of utmost importance to make sure you are always thinking how you can best align the goals of the enterprise systems architecture with the vision and priorities of the SaaS business as a whole.
I do my best to keep up with readings on Techcrunch especially the Enterprise and SaaS specific tags to make sure that I am understanding how the industry as a whole is evolving and any news / thoughts that I can apply to my day to day work.
I recently read through a great article, Understanding SaaS: Why Pundits Have it Wrong, from Andreessen Horowitz, well known VC firm in the valley, that talks through the mechanics of a SaaS business and how best to value them. Reading it with a lense of an Enterprise Application leader, there are key business priorities that must be accounted for from a systems perspective. Some key questions:
Do you know if your business is successful?
As a general rule: if LTV is 3X or greater than CAC, that’s a good sign that the business model is working.
If the LTV is close to or less than CAC, then we know that something is out of balance; it suggests that the company is spending more money to acquire the customer than it expects to generate in profits over the customer’s lifetime. This could be because the company hasn’t figured how to effectively monetize its customers. Or that customers are leaving before they’ve spent enough money on the platform to cover the costs to acquire them. Or that the company hasn’t figured out an effective way to scale its customer acquisition costs. Whichever it is, you better investigate!
Have you been investing in your BI technologies? Do you have a clear way to analyze data between you CRM, Billing and ERP systems. If someone asked you if can credibly determine if your customer’s lifetime value is three times greater than their customer acquisition costs, what would you say? Honestly, it’s not an easy answer, or solution, but something that you need to align your systems to begin to help answer.
Are you investing in the right enterprise applications?
There are several ways that a company can offset or overcome churn: add new customers at a faster and faster pace; have “negative churn” (which happens when expansion revenue is larger than the revenue lost from churned customers); and reduce churn itself — that is, retain customers! This is why marketing, sales, and customer management functions are so crucial to SaaS and why you will see SaaS companies invest in these areas ahead of the revenue.
What are the current enterprise applications priorities and budgeted projects? Are the marketing, sales and customer support functions properly supported. Obviously things are never black or white in the IT world, but knowing that the primary goals of your company is to focus on reducing costs of customer acquisition and reducing customer churn, it makes complete sense to make sure that these areas are properly supported; with the best ROI over other random tools in other functional areas.
There are other great tidbits in the article and I encourage any practitioner that works for a SaaS company to read the article in detail and make sure you understand the keys to your business’s success. This will go a long way in making sure your priorities are aligned, and if not, providing guidance to your leadership team in which direction would be best for the company.