Here in New Zealand we've got a pretty good pedigree for creating Software as a Service (SaaS) products. Most people have heard of our own high profile entrant, Xero, but there are a bunch of businesses doing myriad things - from payroll to project management; HR to education - all via a SaaS model.

But building a great product and building a great business are two very different things. Arguably a poor product with a great business behind it will succeed (at least in the short term) better than the greatest product in the world delivered with a poor business model.

There are two sides of the coin here - the revenue derived from selling a product, and what it costs to create, administer and sell the product. Out of the bottom drops the profitability - the imperative for a fledgling business. Many people worry that we're not aligning good product development with similarly high quality selling.

This alignment is even more important for SaaS businesses than any other - the SaaS industry is changing so fast that early momentum is crucial and the barriers to entry for SaaS vendors are lower than for most other industries, so getting runs on the board (and dollars in the bank) is critical.

Julian Stone, CEO of ProActive Software agrees that there is a capability gap here. "Many companies I talk to seem to have a 90% success rate on development objectives, but can’t sell and when they do they have low success rates. This is normal [in New Zealand]. It’s the classic situation of either one person trying to fulfill all business roles, or traditional marketers using traditional [superseded in the SaaS space] sales techniques".

So how do New Zealand SaaS businesses do in terms of converting a great product onto a great business? We're in the fortunate position that we have a publicly-listed SaaS business which is obliged to meet the NZX reporting requirements, and therefore have some interesting metrics with which to compare and contrast.

Xero achieved its first thousand customers 18 months after launching. The second thousand took another four months to amass. Clearly sales growth is non-linear, in fact pundits have coined the term "a hockey stick curve" to describe the sudden move from flat sales growth to a steepening growth curve. So how do SaaS businesses get there? And how long should it take?

Xero CEO Rod Drury commented on the number of SaaS CEOs who contacted him when the Xero sales metrics were published in the stock exchange updates. "Other CEOs contacted me saying how relieved they were to know the time sales momentum took us to build. No one is really sure [in this new industry] what is "normal" in terms of sales growth," he said.

Drury is adamant that there is a two-stage sales approach that needs to be used for SaaS businesses. Initially sales are as much about product validation and market proof than pure revenue. As such, it is incumbent upon new SaaS businesses to adopt a much higher-cost initial sales approach. "There are two questions being asked here and the sales process will answer those questions. Firstly, is there a market? Does a problem exist that needs solving? Secondly, does the product in question solve that problem? A direct sales model in the initial stages will more quickly and accurately answer these questions".

The hard part, of course, is knowing where the crossover point lies - when to move from a high-touch, direct approach method to a more scalable, lower cost and, ultimately, more viable methodology. Drury says the answer is easy: "Your board will tell you" - which is yet another reason to encourage the formation of an independent or advisory board, a surprisingly rare feature of New Zealand start-ups.

Drury does add: "As a manager you know the right point - when the required growth rate is steeper than what is achievable using direct sales techniques - that will alert you to the need for more leverage."

Greg Day, technical director for getstaffed.com agrees with Drury's perspective and worries that there is an oversupply of products with an underwhelmed customer base. "I think the SaaS market is becoming overwhelming in terms of sheer numbers, and it is increasingly difficult to differentiate yourself. I'm not sure it is specifically a sales issue, just that the majority of apps that are coming out are variations on a theme, rather than a unique proposition."

Day goes on to caution that his: "underlying concern is not so much a sales issue, although given my personal experience being a tech guy trying to sell, that issue certainly exists, but that the software as a service market is really not producing unique 'must-have' propositions, but relying on the fairly tired, not really relevant, mantra of '[on the] web, no installs, free updates' et al. There aren't too many products that say 'forget the delivery, forget the charging model, you just MUST have this'."

Many traditional marketers would contend that the sales requirements for a SaaS business are similar for those for any other business. However Stone disagrees. "There’s a big difference between developing SaaS and living in the culture of SaaS. For the ones who haven’t yet embraced SaaS, it’s a really hard sell. The reason they haven’t is typically that the business culture and the owners’ mindset are entrenched in traditional thinking and are thus very hard to sell to”, he said. “In the past, you would sell to meet a need, irrespective of the companies tech culture. Now, you are having to change the culture mindset to make a sale".

Stone has some concerns around the way that New Zealand start-ups approach selling. "I think Kiwi companies struggle with this type of selling as they sell on features and price (traditional) and the reality is that selling SaaS is about value (but understanding the customers mindset and culture also)."
The issue with SaaS being relatively young means a dearth of marketers with experience selling, and using, the product. As Stone contends, "It’s a different type of selling and New Zealand is still in its infancy here. Would you buy a car from a person riding a bike? Or a website from someone who doesn’t use the internet?" He goes on to encourage vendors to exude confidence: "[potential customers] are looking for confidence from a vendor – so you have to provide a thoroughly confident front."

So everyone seems to be in agreement that there is a sales gap in our businesses. How, then, do new ventures "Cross the Chasm" and move from being a business with a great product, to being a successful business with a great product?
Stone is brutally honest when asked what solutions would fill the gap - quite simply he says it comes down to time. "It’ll improve as the tech industry in NZ matures." Cold comfort for SaaS vendors who have a burn rate to think about! Stone has some other useful ideas, suggesting SaaS vendors do as much sales research as they do product research. "Spend time trying US SaaS software products. Sign up for demos and let them try to sell to you. You’ll learn more doing that than you will anywhere in New Zealand."

Drury is also a proponent of low-cost methods to reach potential customers. "Xero is entering into the second phase of its sales approach, where we go from a ‘direct to customer’ strategy to a much more channel-oriented one. Look for good use of web tools such as live meetings, email campaign tools and online live chats. In the physical world, we'll be ramping up partnerships with channel partners who can help us scale user numbers, while at the same time lowering the average cost per sale figure."
So it would seem that in some ways selling SaaS is similar to selling other products. There's no replacement for hard slog - making the calls, getting the brand awareness, contacting the media and generally shaking hands and kissing babies.

SaaS is still, however, a somewhat different beast - where the mind needs to be focused on ways of moving to a low-touch sales method as soon as practicable; one where using channel partners in new and creative ways is key; and one where time is absolutely and unalterably of the essence.

Bio - Ben Kepes is an entrepreneur, a commentator and a board member. His business experience includes a diverse range of industries from manufacturing to property to technology. As a commentator he has a broad presence both in the traditional media and as an extensive blogger. He sits on the boards of a number of organisations, both commercial and not-for-profit. Ben lives on a 12 acre lifestyle block in Waipara, North Canterbury, with his wife and two young children. Despite his current Mainland affiliation, Ben is a born and bred Wellingtonian and has no doubt that Wellington is the home of good coffee.

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