Our CEO and founder Kieran Phelan recently interviewed Gary Turner, MD of Xero UK and EMEA as part of our, ‘SaaS Focus Series’. Gary co-founded Xero so knows more than most when it comes to creating a successful SaaS business. You can watch the full interview here. In this week’s blog Kieran takes inspiration from Gary’s interview and covers three key things you need to know if you are in the SaaS start-up phase…
I was delighted to sit down with Gary Turner recently and to glean some wisdom from him on SaaS companies. Gary’s expertise in the SaaS industry is second to none. Read on to discover my three key takeaways from our interview that are necessary for anyone venturing into the SaaS industry.
1. Know your USP
Gary began by delving into the origins of SaaS – understanding the background and current marketplace is essential. He explained, “The term ‘SaaS’ (software as a service) was given to a new generation software in mid-2005. However, since then this ‘monthly subscription’ model has evolved beyond recognition. We have a new generation of internet connectivity meaning this model is now much more applicable to many more companies.”
Given this backdrop it is essential that any new product must be a good idea, or as Gary said, “even slightly better than the norm.” He explained that Xero was designed to be a “transformational product” both as a piece of software and for the customer. It may sound clichéd but the product must solve a problem, and therein lies the unique selling point.
Opportunity can be created for new companies, “if there is a product that serves a need, provides good customer service and has a clear purpose.” Uniqueness is essential, as is deciding the approach. We now have so many apps, subscriptions in the marketplace that we have the luxury of being able to be very niche. When creating the product it is now possible that it solves one very particular problem for one industry. We’ve seen evidence of this with some of our SaaS clients and it can work in today’s climate. Gary commented, “there is a real appetite and it is economically visible for discreet, niche products to come to market.” On the other side of the coin, it is worth noting, given the digital age we live in a mass subscriber approach is also possible if the USP is right.
2. Understand the SaaS financial model
Gary states, “knowing the financial model for a SaaS business is, the most important thing if you are considering starting up” – something we would echo. Essentially, it is different to a traditional model. The main challenge lies in the fact that you are receiving a twelfth of the year’s revenue every month. Therefore sales revenue can’t fund your expansion which creates a need for capital. It is about creating a shift in perspective – determine the long-term value of this customer. Before starting, “know how you will run, build and fund the business.”
We have access to more insights and understanding of customer acquisition that ever before, so to put it simply – use them. Through sales and marketing we can see what is effective and what isn’t. Customer acquisition and knowing the customer acquisition cost is a key component to the longevity of the business and must be considered at the early stages.
Gary also gave some views on churn rate, (the rate that customers stop doing business with an entity or cancel subscriptions.) Gary commented, “Churn will never go away but there are agitators that will make it worse”. Some of these can include customer service issues, response time or a bad product – none of which are, “legitimate churn” reasons. We must understand what is driving the company’s churn by asking customers the right questions. Rather than over analysing churn Gary suggests, “investing in acquiring customer as the principle growth lever in the business whilst keeping an eye on churn”.
3. Live for today, but plan for tomorrow
Gary firmly believes in looking ahead to the future, and shifting the focus from today to ask ourselves, “what are we doing tomorrow? It is so easy to get bogged down in the here and now, but we need to look to six months, a year down the line.” He explained that even the best idea has a shelf life, and we need to consider when something can become a liability – asking pertinent questions such as, “when will this software not work, when does this team structure not work”.
People wellbeing is essential to the future, and, “whilst a product may be great it is the people that make the difference.” Gary focuses on ensuring clarity in teams, priorities and strategies to make sure everyone is on the same page. It is also imperative, “to not loose touch with reality” and to “keep grounded” in your business. This can be achieved by ensuring you know what is happening in the front-line and having an understanding of what your customer experiences.