Cloud – it’s all good right? Not for ISVs. #cloud #isv #saas

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This is an excerpt from our new book  “Thinking of migrating to the cloud? Ask the Smart Questions” which is out in the fall.

Simple decision, right?

As every new software vendor “in the cloud” it would seem that migrating from on-premise to the cloud is the obvious answer.  But it is not so clear cut

Client benefits

  • Try before you buy; in the time it normally take to write a requirements spec, run a beauty parade and make a decision clients than run a real life, low risk trial.
  • Speed of installation (not implementation): the software can be rolled out to different “locations” (geographical, organizational; internal and 3rd parties, working style; office, home-office, mobile) rapidly
  • No upgrades; everyone immediately has access to the latest version of the software – although this may be considered a disadvantage if customized training has been developed.
  • RBI, not ROI: rapid, tightly focused implementations mean that the benefits can often be delivered before the software has been paid for (Return Before Investment). So the projects are self-funding.
  • No need for IT input; rather than completely side-stepping IT, the projects need only a light touch from IT, which the IT department should see as a benefit. It is helping them deliver the “app gap”

Vendor benefits

  • Easier sale to business – you can reduce the sales cycle from months to days or weeks through low risk, pilot projects. And these are an easy way to get a foot in the door.
  • Rolling out updates / out of date software – You know every client is on the latest version of the software. And there is virtually no cost to rolling out the changes that encourages small incremental updates.
  • Geographical reach – Subject to local country restrictions on data center location, you can roll-out to much of the world without having to establish local operations.
  • Lean startup approach to roadmap – With incremental releases you can start with a smaller functionality set and let customer demand help shape the roadmap, rather than invest heavily to produce a “full featured” product and hope it hits the mark.
  • Metrics to see behavior – How are your clients using your software. With on-premise you never knew. Now you can see hour by hour, client by client. Which means you can coach them, hence the rise of the Customer Success teams within cloud vendors.
  • Annuity revenue stream – Over time you can build a strong, dependable, annuity revenue stream. This is valuable asset and has a key impact on the high valuations of established cloud 

But not all good news; downsides for vendor of cloud delivery 

Cloud is not all honey and roses. There are inevitably downsides, especially when compared with the incredible lucrative on-premise software business. There are downside for clients, but let’s just focus on you, the vendor. Let’s pick up a few of the issues. Interestingly they all relate to business model and money.

  • No upfront large license deals – You are used to large one-off license deals which would fund the growth of the business. Annuity revenue stream
  • Really tight margins – Clients are expecting lower per user costs than on-premise software. This is in part by the born-in-the-cloud startups who are entering the market with none of the overhead and funding to allow them to buy market share.
  • Sell deal, then drive consumption – If you going after big enterprise sales then you do all the pre-sales work, the procurement win the deal but the initial order is cents, not millions of dollars. You need to work with the client to drive awareness, support projects and drive the roll-out – for 1, 2, 3 years – before the revenues really start to flow.
  • Engaging top enterprise salesmen – If you are a top enterprise salesman you are used to doing big deals and getting big commission checks. Waiting 3 years will not turn them on.
  • Cannibalization on migration – If you want your existing clients to migrate they will take a hard look at the users who are really using the software and the annual cloud license fees are likely to be less than the on-premise annual maintenance fees that they are happily paying each year.


Happy Independence Eve, America from the Brits.

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The 3rd of the July is the day to celebrate, not the 4th of July, if you are British.  But it could have been SO much better for the Americans if the Brits had won all those years ago.  And this is why…..

However, the ad above was run by Newcastle Brown last year. And it didn’t go down so well over here in the US.  So they paid Elizabeth Hurley to apologize.


The most important factor for start-ups @TED

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The most important factor in the success of a startup is TIMING, more important than the other 4 factors; idea, team, business model or funding.  Too early means too much educational marketing, but too late means there is too much competition.  On balance innovative companies are early rather than late.  Which is why our recent book IMPACT gives you critical insights into the purchasing approach of early stage customers and what to do about it.

Free download of abridged copy of IMPACT.

Below is Bill Gross’ assessment of 200 companies.

Viral marketing in 1860

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So you are General William Giles Harding, living in Nashville, Tennessee and you need to drive up sales of your thoroughbred horses in 1860 and pay for the upkeep of your 5,400 acre estate, Belle Mead Plantation. You have customers in the north but how do you get the message out and close sales, when the internet and social media won’t be invented for at least another 150 years?  You use clever marketing.

So the General invited a few of his top customers from the north down to his estate. The most wealthy he put up in his plantation house. The rest stayed in the local upmarket hotel and caught the train to his own railway station on the estate. Over lunch, before they were about to ride out and tour the estate he would say “Let’s go and shoot some buffalo”. He appeared senile and his guests politely explained that there had been no buffalo in Tennessee for over 50 years. But he was very assertive, “We can hunt buffalo. I’ll wager that if you can shoot a buffalo then you will buy one of my thoroughbreds”.  His guests not wanting to embarrass their host happily took the bet, not realizing that the General was not senile but very smart and had stocked his estate with buffalo, elk and deer.

So the shooting party spent the day on the estate and nearly all of them shot a buffalo, took it home to have it mounted as a trophy, and of course bought a thoroughbred as per the bet. More importantly, it was the most fun any of these rich northerners had ever had. So they went back and told their friends who lined up to come down and bag a buffalo and buy a thoroughbred.

So, even back then, marketing was about a clever offer which exceeded expectations and got the word out. Nothing has changed.

What did $1bn businesses look like at the beginning? @todfrancis @shasta

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Tod Francis from Shasta Ventures has written a fascinating blog where he has looked the early years of a number of the Unicorns ($1billion+) consumer companies and tried to identify some common traits.

His summary:

There are large companies to be built by offering new, innovative and superior customer experiences to large markets, regardless of how competitive the sector already is or how successful the founders have been before.

The full article is here

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Struggling to forecast sales? Maybe it isn’t you.

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The biggest issue when running an early stage company with a burn rate when selling to Early Adopters is the inability to predict the close date of the pilot projects. These make up the majority of the pipeline and are your lifeline. This uncertainty tears apart the executive team and drives the investors to distraction.

The issue is clear once you think about the IMPACT process. IMPACT is the buying cycle of all corporate customers.  It is described in this blog : IMPACT – the buying cycle from the corporate buyer’s perspective.   You can download the free abridged (20 page) eBook which explores IMPACT in more detail and how to sell innovative technology solutions. This is selling to the left of the chasm for those who remember Geoffrey Moore’s Crossing the Chasm and Inside the Tornado books.

If you are making smaller sales then these are the pilot projects to assess and prove the viability of your solution. This is in the MPA part of the IMPACT process. You may run a number of these MPA projects before there is sufficient evidence to build a case for the enterprise roll out – the CT part of IMPACT. When we say “smaller sales”, these can still be $100k or more, so significant for your survival, but they are not the enterprise or global deal.

So if you are in MPA, then you are driving the deadlines, not the customer. You are not in a customer’s procurement process. Therefore it is impossible to predict a close date for the deal. Only once you reach the CT part of the process are you in a procurement where the customer has set deadlines. Then you can start to have confidence in the forecasted sales.

You can beat up yourself, sales management and the sales guys but it doesn’t make any difference. You do not control the buying cycle and the customer has not committed internally to any deadlines. The projects are being pushed forward by your sales team and the energy of your customer evangelist and sponsor. The moment that you realize that you cannot control the deals and therefore more and more granular forecasting is not going to help, then life becomes more bearable. So instead you need to rely on a different mechanism to ensure the long-term survival of the company.

You need to make sure that you have a large enough volume of sales in play so that enough will close each month. Combine that with enough investment so that you are not going to get killed if you have one bad month when enough deals don’t close.

Remember, you don’t really “lose” deals. There is rarely any competition. What happens is that deals get delayed and put on the back burner and can reappear later. The only way to really lose a deal is for your evangelist or sponsor to leave the company. The trick is to make sure that your sales guys are not devoting too much time and effort trying to push deals along that are moving slowly. Sometimes, deals need to be left alone so that the sponsor can progress them internally. Your sales team should be reactive rather than proactive. This is a very different approach for most Value Added sales guys who are very disciplined with their daily call lists that they use to hound customers.

It also means that the tools to drive sales have a stronger marketing focus i.e. Hubspot & Marketo rather than a sales forecasting approach ie & Netsuite.

IMPACT – the buying cycle from the corporate customer’s perspective

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The six phases of the process are easy to remember as they will have an enormous IMPACT on your company’s performance:

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Every purchase goes through all six phases, with or without the vendor (your) assistance. The reason that you probably don’t recognize this process is because the customer goes through the process on their own, and only invites you in at a certain point. But more of this later.

First, let’s understand the IMPACT process – from a buyer’s perspective. This is an employee in a major corporate, mired in politics, trying to make change happen. It may be formal – driven by the executive team – or more likely it is an employee who spots the opportunity and is the evangelist that initiates it.

Phase 1: Idea

The identification of ideas for changing or improving a business that are good enough to warrant investigation.

This is the ideas phase. This may be the executive team going on an offsite with strategic consultants to plan its future. They will be looking for ways to grow revenues, create competitive advantage, increase shareholder value, contain or reduce costs. It is ‘blue sky’ thinking to discover breakout ideas, rather than looking for solutions.

Alternatively, it is a vendor who has the idea and through their marketing (white papers, conference presentations, blogs) highlights the new idea and it is brought to the attention of the customer, either directly or via a consultant or analyst.

 Phase 2: Mentor

The mentor runs with the idea to validate it.

To move forward the idea will need a mentor. This is your Early Adopter, to the left of the chasm. An Early Majority buyer will not even consider the idea, as it is unproven and risky in their minds. A good mentor is someone with vision, passion and energy. Generally they are ambitious. The idea is not for public consumption and the mentor will work with their close team and trusted advisors to validate the thinking. The mentor will be scoping and testing the idea for feasibility, credibility, and political acceptability as much as they can without raising internal awareness. Mentors may start using the internet for research – analyst reports, blogs, articles, vendor white papers, free ebooks and references in social media posts. They may come back to the vendor who started it all. The mentor will start to plan how the idea can be delivered as an initiative, how it will be announced, what will be presented and to whom, and a route through the political maze.

If the idea does not fly then it will get buried – forever.

 Phase 3: Position

Enrolling a sponsor who can make resources and budget available to invest further.

The mentor will need to find a sponsor, because to move forward into the next phase will require resources (money, people, time) to run a pilot project to assess the value of the initiative. The sponsor will be the person with enough political muscle to get the resources. This may be under the corporate radar, as it will not be announced as a formal change initiative, with all the politics that this entails. The mentor will know that the initiative is moving out of the Position phase when an assessment team is assigned and money is being spent and a pilot project has been launched.

Phase 4: Assessment

Gathering data to assess the value of the idea.

The Assessment phase plays a very important part in the modern world. Today, with ever increasing levels of corporate governance, there are layers of compliance that ensures company officers are held accountable for their decisions. Particularly ones involving investment and strategic direction, which has made the Assessment phase a big hurdle. But the Assessment phase is not just about cost justification. It is an evaluation of everything, both quantitative and qualitative. This typically involves an assessment team or project team conducting a proof of concept or pilot project to generate the evidence and data. Hence, the need for a sponsor capable of funding the team. This is your paid pilot project. The pilot could be as much as $100k spent on product and professional services so don’t just focus on the enterprise deal or think that this is just the first phase of the enterprise deal.

Phase 5: Case

The creation of a quantified business case and assignment of resources/budget to it.

The mentor will use the output from the Assessment phase to build a business and investment Case. It is likely that this Case will then be pushed back and forth between the mentor and the sponsor until the sponsor is happy that the Case appears to support all the business and political goals. Then, the Case can have a budget assigned to it and is used to start the formal procurement process. At this point the project may no longer be in the hands of the mentor or sponsor. It may now be part of a formal procurement process driven by IT and procurement.

Phase 6: Transaction

The formal procurement.

This is where the customer will make their decision. In the perfect world you are single source at this point, having managed the mentor and sponsor through the first five phases. Procurement will raise a purchase order and negotiate contracts for the solution put forward in the Case. Depending on the solution, market and company approach, procurement may need to drive a formal procurement with competitive tendering, beauty parades, and all the fun and games that this entails.