Disruption is always hard – this applies in the software industry where SaaS is attempting to disrupt the traditional model of one off licensing fees and installed applications. It’s 17 years since Geoffrey Moore published his oft quoted tome Crossing the Chasm, and his words ring as true today as they did back then. Sarah Lacy recently wrote a great article looking at the realities of achieving momentum for SaaS businesses.

Sarah’s article rings true after some conversations I’ve had recently with SaaS founders and execs. They all describe the struggle to achieve sales growth, and the hard slog that is required. On-demand software promised an easier and quicker sales cycle and one which obviated the high level of traditional sales costs (travel, traditional marketing, sales execs etc). The reality however is somewhat different. As Lacy says, quoting AMR research’s Bruce Richardson;

So what becomes of the remaining software companies hoping to make a mint distributing their wares via the Web? Not every startup has the patience—or funding—to stick on demand out for 10 years and $100 million-plus in sales. Those mid-slog are feeling it acutely. Richardson says he increasingly hears about "founder fatigue," entrepreneurs being ground down by the endless travel and ever-ballooning marketing costs. It’s worse for the publicly traded companies constantly under Wall Street’s what-have-you-done-for-me-lately scrutiny.

I’ve talked to a few on-demand CEOs who feel like they unspool a great story for Wall Street, only to hear a resounding "That’s it?" in response to growth projections. Richardson tells me of one founder he met with recently whose company is growing well but who lives on airplanes, jetting from one sales call to the next. "You get the feeling that if someone came along and said, ‘Let us buy you for 50% more than the stock price,’ they’d do it," Richardson says. "It’s just too hard."

It’s a sentiment that resonates with my oft mentioned theories about SaaS/s and SaaS/v – in the rarefied world of SaaS start-ups and commentators, we can’t see past our belief that a SaaS product that merely replaces an existing installed app will prove irresistible to customers. The face is that even with a significant value-add in the SaaS product – it’s still a struggle to gain momentum – SaaS is just too scary, too unknown and too outside customers frames of reference.

I still firmly believe that SaaS is the way of the future – but also strongly believe that there will be a five to ten year lag before vendors achieve the sweet spot on the hockey stick curve. As Nick Carr said in his post;

Web apps remain a hard sell when it comes to big, conservative enterprises, and the capital and marketing costs are daunting, particularly if you’re running your own data centers. This revolution in business software will play out slowly and, for most suppliers, painfully.

Lacy is realistic in her assessment of the task in front of SaaS vendors;

On-demand software has turned out to be a brutal slog. Don’t expect it to get easier anytime soon. Success will come to a few smart, tenacious companies, but it will be hard-won.

So what is the bottom line? SaaS will get there – but it’ll take longer, cost more and disrupt business models less than you’ve been led to believe. Anyone without an appetite for the long hard slog should do their due diligence very well.

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

  • “founder fatigue,”.. haha i like it.. The cure is quite simply coffee, red wine and a ridiculous obsession with creating something people will find really useful

    If it was easy, everyone would be doing it….

  • Perhaps a period of struggle like this will weed out the men from the boys, or the true models from the unsustainable – wait! Isn’t that what happens in a bubble?

    Struggle is a good time to checklist the sustainability elements of your business 😉

  • We’re pushing on and confidence. However in the last 1-2yrs many small companies have appeared on the SaaS scene with unsustainable, super cheap ie: $5/month plans…. This down-turn could be a blessing in disguise as many of them will surely go to the wall.

    Pricing is sooooo important. You can’t easily raise prices in a recession.

  • Did you just say the “R” word.. eeek!

    I guess a majority of the free/may-as-well-be SaaS products out there must be VC backed, so it’s really only the VC’s that will be hurting at times like these.

  • ummm no – @Rick

    Once the VCs start hurting you can bet they’ll dump on the vendors they’re “supporting”.

    It’s not unlike shareholders dropping falling stock – there’s no loyalty in a recession

  • Absolutely… Agreed Ben, I’ve talked to enough VC’s to know that if they start hurting, they’ll be jumping on the vendors boots and all.

    Unless it’s a strategic free model. But if it’s a commercial model – it has to cover costs – pretty simple. VC’s want a return, but they’re not stupid and if the term ‘flogging a dead horse’ comes into play – they know it, and won’t hesitate to act.

  • Yeah i agree with you both, rash comment on my part.

    More directed down the line that the some of the people involved in startups may not have much $ to lose if it all goes belly up, just a bunch of sweat and a bit of ego..

    Having not been through the bubble the first time around it’s definitely a learning experience to watch this year unfold.

  • If you want a sped up version of what’s happening, and what happened in the past, view this vid: http://snurl.com/323jb [julian101_com]

    It’s old, but soo relevant

  • I hope that certain browser evolution will make the all thing smoother to cross the chasm.

    Finally when you install Google Gears apps, it is just like having a normal app (icon on your desktop to launch it, Data’s on your computer, …).

    That could help the bridge.

  • Dan D. Gutierrez |

    By Dan D. Gutierrez
    CEO of HostedDatabase.com

    Challenges indeed! We launched the web’s first web-hosted database solution in 1999, eCriteria.net, and it’s been quite a ride ever since. We chose to not go the VC route, and instead proceeded carefully and cautiously as a self-funded concern. In retrospect that was the smartest way to go, because the Application Service Provider (ASP, as SaaS was called in those days) business model was premature in 1999. Fast forward nearly 10 years, and we see cloud computing as becoming an accepted platform … at long last.

  • Ben, can I get a copy of the SaaS presentation slides you presented at the ICT conference. FYI – we are a SaaS provider, based in the Naki but with offices in Auckland and throughout Australia. What do we do? provide web enabled e-tendering to local government and corporate procurers with over 50,000 users. Self promotion yes, but its hard to share a real success story in less than 100 words… see http://www.tenderlink.com for more.

  • Tony Zuanich |

    Blogs like this are being contrarians just for the sake of raising hits to the blog. The SaaS ship has sailed. The alternatives are economicly weak which allows SaaS to win the game. Period. Yes, it will take some time, but 5-10 years may have applied to Web 1.0 only. Pointing out the lack of motivation of a few old executives has no relevance to the proven technology entrepreneurizm of the US. Prediction: SaaS jumps the chasm 3-5 yrs.

  • @Tony

    Thanks for your comment – however I deny that I am being contrarian merely for traffic. If you read my writing you’ll know that I’m a SaaS evangelist from way back. I’m also in another role heavily involved in business mentoring, economic development and advisory work. Put these two hats on together and you have a post about SaaS that advises caution and level headedness.

    It is interesting to note the number of SaaS vendors who agree with what I am saying here – we all need this thing to be a success – no one wants people going to the wall.

  • Interesting to read the comments on this topic. As a SaaS provider, I have been through this for many years. Our SaaS offering is widely accepted and for a number of reasons. It is unique, it significantly improves business processes, it reduces operational cost, and it is always best-of-breed at point of login. These are fundamental to gaining traction. More importantly, our SaaS offering is a small cog driving other parts of our business, almost a loss leader. The trick is to have several cogs driving your engine!

  • I think in SaaS, ‘Crossing the Chasm’ is less about the stage in the market, ie: early adopter, early majority, late majority etc… and more about changing a mindset.

    I think you can cross the Chasm in SaaS, by changing from a technology focus, (ie: Web2.0, Axax etc) to a business focus, (ie: Revenue, expense, ROI etc).

    If you get real about the business side of the business and stop focusing too much on the technology side, you can make the right decisions. And it’s the right business decisions that will get you across the chasm, not the technology.

    Technology is fickle and changes continuously. Basic business principles are sound and last the distance.

    For example, here’s some good questions:

    – Do we earm more from a customer than it costs us to market and aquire them?
    – As we grow, will our margins expand or contract?
    – Should I bootstrap? Borrow? or take Investment?
    – What’s our churn? if too high, then why are we still trying to sell instead of focusing on retaining customers?
    – What’s our conversion rate? Is it dropping? or increasing?

    Some thoughts for the morning…
    From a SaaS CEO – Julian Stone – http://www.proworkflow.com

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