Monday, April 27, 2009

Managing unpredictability

I live across the street from a small family farm and a market where they sell the produce grown on the farm.

Last weekend, my neighbor, the farmer who manages this enterprise, pointed out to me where they've already put peas and beans in the ground. Because of the unusually warm weather we're having this spring, the plants are growing faster than they'd planned. It means that they need to re-plant more quickly, so they can keep production steady and have an ample supply of peas and beans in the store.

As he explained, "When it's raining, we complain we can't get anything in ground. With this warm weather, though, there's no way we can plant fast enough to keep up."

Shaking his head, he added, "Running a business that depends on the weather is just crazy."

Farming is a business that would be much simpler with more predictability. I'm sure there are lots of other issues on my neighbor's mind: the cost of fuel, keeping the tractors in good working order, and how much space to allocate to corn, peas and beans. But I suspect it's the unpredictable weather that most often keeps him awake.

Two years ago, the farm built a large greenhouse, equipped with a computer-controlled system to maintain an optimum growing environment. The windows on the roof open and close, and the sun shades unfold automatically to maintain the right temperature. An elaborate system of pipes, hoses and storage tanks, keeps the plants well watered.

The considerable investment in the greenhouse and the control systems is justified because a portion of the business -whatever can fit in the greenhouse - can succeed no matter the weather. Essentially, the investment allows the farm to adjust to unpredictability.

This same concept applies to other businesses. The ability to adjust to unpredictability is worth a significant investment.

In fact, this is a primary benefit of software-as-a-service (SaaS) solutions. Using SaaS solutions, companies can more quickly ramp up to meet a spike in demand, drawing on the resources of the SaaS provider. Conversely, as demand wanes, they can scale down without idling in-house IT resources. SaaS solutions provide businesses with flexibility that allows them to to respond more effectively to unexpected changes in demand for applications.

SaaS providers should highlight this advantage as they market their solutions. In addition to the advantages of lower cost, more rapid deployment, and easier maintenance, marketing professionals should also promote the benefits of flexibility. You should talk about how your solution helps companies respond more effectively to unpredictability.

The cost of unpredictability may be difficult to quantify, but CEO's and CIO's recognize it, and they put value on solutions that can help them manage it. Expecting the unexpected is something these executives are paid to worry about, and they're willing to make investments that help them manage unpredictability. SaaS solutions can't "change the weather," but they can help build a greenhouse.

Friday, April 24, 2009

Lead nauseam

I am hearing way too much about lead gen, lead gen, lead gen, as if it's the only task that deserves marketing's attention and budget. So here's an alternative perspective.

It's not.

Marketing professionals, and especially marketing professionals in software-as-a-service (SaaS) companies, need to pay attention to the other parts of the job, too.

First a confession right up front. I've designed, built, fueled and serviced my share of "lead generation machines." These contraptions gobbled leads into the top, chopped & ground them into opportunities, and extruded deals out the bottom. And when the machine got balky, I crawled right inside for a tune-up. Tighten a filter here, apply some lubricant there, and crank it back up.

I assure you, I have no fear of the spreadsheets, leads/opps/deals ratios, and yield calculations that come with lead generation programs, and they do indeed have an important role.

But in some cases, the focus on lead gen - to the exclusion of other marketing activity - has gone too far. And that's not helping SaaS companies.

Companies selling SaaS solutions, even more so than those licensing on-premise applications, need to earn the trust and confidence of their prospective customers.
  • Prospects need to be comfortable that their provider can deliver useful enhancements over the life of the subscription.
  • They need to count on their vendor to provide an important application reliably.
  • They need to trust the vendor with sensitive data.
In other words, prospective customers are making purchase decisions based on the vendor's reputation.

And in SaaS companies, marketing has a critical role in establishing that reputation and projecting it to the market. They need to invest time and budget to create awareness, establish the company as a thought leader, and build a positive perception. Marketing is responsible for making prospective customers trust your company.

That's done through effective press and analyst relations, speaking engagements, by-lined articles, or participating in relevant blogs. It can't be done through lead generation programs alone. The results can't be measured in the cost per lead or the opportunity-to-win yield, but they are critical nonetheless.

SaaS companies that don't invest in establishing a positive reputation for themselves in the market will have difficulty attracting and maintaining customers.

Of course, for most marketing professionals, lead generation is still an important part of the job. And cost-effective lead generation is essential to success. (See my previous posts on hyper-spending and matching customer acquisition spending to growth.) But to paraphrase the lovely Peggy Lee, "That's not all there is, my friends."

Monday, April 20, 2009

Marketing's Role in Sales' Success

Though I've spent most of my career in marketing, my first job was in sales. I sold Fuller Brush door-to-door, carrying a bag full of kitchen and bath cleaners, air sprays and vegetable brushes. I could demo furniture polish, tout the advantages of a horsehair shaving brush, and recite the lifetime replacement guarantee.

I also learned to handle the ignominy of doors closed in my face, right in the midst of offering a free coffee scoop or tea strainer.

I would like to think that these credentials might have bought me at least a bit of credibility with sales folks, who might otherwise think that we marketers spend all our time pondering taglines and tweaking the corporate color scheme.

For my part, the experience gave me an appreciation for how difficult sales can be, and how it requires persistence and confidence.

Perhaps it's that sense of confidence that makes it difficult for sales people to appreciate marketing's help. Ask a rep why they won a particular deal and you'll nearly always hear something about "the productive relationship that the sales executive established with the customer." Sometimes, they'll also cast a bit of credit to the demo person and to the legal team for pushing through the final contract.

A shout-out to marketing? Not very often.

Maybe this will change in the software-as-a-service (SaaS) world. For companies selling SaaS solutions, marketing is critical to sales success.

For one, success often depends on a higher volume of deals. Unlike the on-premise world of large, up-front license fees, SaaS revenues are spread over the lifetime of the subscription. Sales people usually cannot consistently rely on one or two "whales" to make their quarterly quota. They need to get into more opportunities, and they need for those opportunities to be warm. That's marketing's role, generating and cultivating qualified opportunities.

The SaaS model also favors closing deals more quickly. Because revenue can be recognized as soon as the subscription begins, a deal closing at the beginning of the quarter is worth more than one that closes at the end of the quarter. Marketing can help here by producing effective sales support tools - customer case studies, analyst recommendations, etc. - that accelerate the sales process.

Marketing can also help by extending the reach of sales into the current customer base. The SaaS business depends on renewals; current customers are also prospects. To the extent that marketing can take on the responsibility to "sell" to this target by building an informed and committed customer community, sales reps can focus their attention on winning new prospects.

For companies selling SaaS solutions, effective marketing is essential to success. Done well, marketing can help generate higher deal volume, accelerate the sales process, and handle the responsibility of selling to current customers. In the SaaS world, marketing has the opportunity, in fact the responsibility, to measurably enhance sales success.

Wednesday, April 8, 2009

ROI Calculators for SaaS Solutions

I spent three summers as a counselor at a boys camp in Maine. I taught canoeing and sailing and lived in a cabin with ten 12-year olds.

Before the counselors' ritual late night snack - lasagna, fried chicken, ice cream or whatever other leftovers the cook left out for us - I told the campers in my bunk the obligatory scary bedtime stories. I related the standard repertoire of haunted campsites and Bermuda Triangle mysteries, though I once went through an abridged version of "The Picture of Dorian Gray."

The stories were scary enough to get a bunch of 12-year old boys to pull the covers up over their heads and eventually nod off.

They're not likely to work, though, with older kids, including us professional marketing folks. We need something truly hair raising, stomach turning, knee knocking and toe curling.

I'm talking about something truly horrifying... like the dreaded "ROI calculator."

Whenever I got a request from sales for an ROI calculator - and without fail I would get that request - my first response was to chew up a couple of Pepto Bismol tablets. If I was a smoker, I would have had a smoke.

Why this fear of the ROI calculator?

For one, I'm very wary of how they'll be used in the sales process. In particular, I'm concerned that they tend to draw too much attention to the cost relative to other considerations. When selling to enterprises, you want to be certain that you are presenting more than the low cost advantage of your solution. With a SaaS solution, you are asking the prospective customer to enter into a long term relationship in which they entrust you with an important business application and sensitive data. Price is certainly an important consideration, but not the only consideration.

I'm suspicious of the sense of accuracy that ROI calculators purport to project. They should help the prospective customer get a reasonable approximation of the ROI from your solution. But to go beyond that by developing an overly complex contraption that calculates out to six digits past the decimal point often generates more skepticism than credibility.

I'm wary that the numbers are cooked. Rather than your running the ROI calculation on your own, it's better to let the customer enter in their own data wherever possible. If they don't have the data, and often they don't, provide "industry standard" benchmarks, preferably from an independent source.

I worry that the discussion about the precise numbers may obscure the logic. It's more important for the customer to understand all the elements that are factored into the equation than the single ROI number that pops out at the end. The sales person should be able to clearly explain how the calculator was put together. Another argument for simplicity over complexity.

I'm concerned that the ROI calculator won't be used to compare all the relevant options for the prospect. Compare the ROI on your SaaS solution not only against on-premise automated solutions, but to manual methods as well. If a prospective customer is using a paper-based system to manage expense reports, for example, compare that manual method against your SaaS solution in calculating the ROI.

I am afraid that the ROI calculator will be relied upon too heavily. Be cautious about using it to convey the entire value proposition. Some items such as lower maintenance and upgrade expenses can be calculated, but it may be more difficult to put a number on the value of high security or flexibility. In other words, know the limitations of the ROI calculator and where it needs to be supported by other material.

You'll inevitably face the scary task of putting together an ROI calculator. But if you're aware of the risks and adhere to a few rules about how to build it and use it, perhaps you can put away the Pepto Bismol and forgo the cigarette.