Why I'm cancelling my subscription: a failure to communicate

I just cancelled my subscription to the New York Times on my Nook.  Not because I won't be reading the New York Times any longer... but I won't be reading it on my Nook.

Why not?  Because the service provider, Barnes & Noble, routinely breaks a fundamental SaaS rule: 

Communicate with your subscribers.

What we have is a failure to communicate. 

Barnes & Noble is unable or unwilling to let me know when there's a problem with their delivery.

Several times over the last few months, my electronic newspaper didn't arrive as scheduled. 

Last Saturday morning, the New York Times icon on my Nook was showing some kind of inexplicable message:  "Connecting." Nothing about a delivery problem.

On the Barnes & Noble website, nothing about the problem.

On the customer support telephone line "hold" message (which I listened to for 15 minutes), nothing.

In my email inbox, nothing.

When I finally reached a customer service rep, she told me that their servers had been down since the evening before.  They won't be able to deliver my newspaper or anything else until the problem is fixed.

It's a daily newspaper.  It's not worth much the following day. 

Lots of SaaS applications - CRM, ERP, HR, etc. -  are time-sensitive.  You expect them to be available when you need them.  Late information is useless information.

Look, I understand that applications, servers and networks go down.  Sometimes it's for scheduled maintenance and sometimes unexpectedly.  It probably happens less frequently for SaaS solutions than it does for internal networks, but it happens nonetheless.
 
But that's not what I'm ranting about.  I'm ranting about the lack of communication.

Poor communication will hurt you

When something does go wrong, you've got to let your subscribers know. 

That's part of your obligation as a legitimate SaaS provider.

• Post a notice to your website.  
• Send an email to your subscribers.  
• Include the information in your "hold" message.  
• Run up a distress flag.  
• Say something!

Just don't keep us in the dark.  It can cost you subscribers.  In fact, I know one.





This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License. Images obtained via iCLIPART.com.

"Old" tactics can still work for SaaS marketing

Lots of things about software-as-a-service (SaaS) are new:  the business model, the delivery model, the development model.

But that doesn't always mean that the marketing tactics need to be new too.  You're not obligated to use only the latest tools and techniques.  Sometimes the "old" tactics will work just fine.
 
Not everyone lives on Facebook

Facebook, Twitter, Pinterest and other social media are certainly more glamorous than print media.  Marketers even brag about how many "followers" and "friends" they've attracted.

But print media can be very effective.  If that's where your prospective customers are, you should be there, too.

Coverage in "Modern Bee Keeper" magazine may not sound cutting edge, but if you want to get your solution in front of bee keepers, it just might do the job.

Tradeshows are very much alive

I've heard people say "tradeshows are dead."  They figure that nobody has time or budget to spend time at an event, and everything can be found on the web anyway.

Not so fast.  Big shows like the Consumer Electronics Show and the Detroit Auto Show are thriving, and small regional shows are "must attend" events for certain audiences.  School bus fleet managers in North Carolina regularly attend events hosted by the "North Carolina Pupil Transportation Association."  If that's who you sell to, that's where you can find them.

Direct mail can still work

Direct mail seems so dated in the age of email, websites, and social media.

But don't dismiss it out of hand.  After all, I counted more than 20 promotional solicitations in my USPS mail box last week, and I know that the people who manage direct mail campaigns carefully track results.  This tactic, which has probably been around since the Pony Express, must be working for somebody.

Spend to win customers, even if it's old school

SaaS companies need to be especially careful about where they spend their marketing money.  Sales and marketing costs will likely be one of their largest expenses, and spending on things that doesn't actually attract customers... that's a recipe for going out of business.  (See "SaaS customer acquisition;  Feed it or starve it")

But while you're thinking about how to spend wisely, don't rule out certain marketing tactics just because they're not new or your hip marketing brethren shun them.

Frankly, it doesn't really matter what other marketers are doing; what matters is what your prospective customers are doing.




This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License. Images obtained via iCLIPART.com.

Spend first, think later: Bad idea

When it comes to putting together a marketing plan, there are lots of reasons to spend first and think later. 

The "spending" I'm talking about is spending on marketing programs like PR, events or collateral. 

And the "thinking" is about developing a compelling value proposition and messages. 

One reason why marketers spend first and think later… it's more fun.

Spending money on a clever promotional video, a tradeshow party, or a new ad campaign...  that can be fun.

But thinking about a value proposition… that's not fun.  That's hard work. 

Eat your broccoli first

Spending before thinking is more fun... but it's backwards

You need the value proposition in place before you can do any of the fun stuff. 

It's like you need to eat your broccoli before you eat dessert.

You need to know who you're selling to, what problem they're trying to solve, and why they would buy a solution from you instead of somebody else.


And you need to express that value proposition clearly, concisely, and consistently. 

You need to do the hard work to answer these fundamental questions before you start spending on marketing programs.  (Or you can hire someone like me to help.)

Because until you have a well-articulated value proposition in place, it's difficult to get much value from the other stuff.

You can spend lots of money on programs to deliver your messages:  PR, search engine marketing, videos, a website, tradeshows, etc.

But it won't buy you much unless you have a compelling message to deliver.

For software-as-a-service (SaaS) companies in particular, that's money wasted… money that you can't afford to waste.  (See "SaaS customer acquisition:  Feed it or starve it?"

Eat your broccoli first, then you can have the pineapple pie!







This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License. Images obtained via iCLIPART.com.

Making free trials work: 3 tips

Lots of software-as-a-service (SaaS) companies offer free trials.  But in even the best cases, only about a modest portion of the free trialers actually convert into paying customers.

In fact, many times the free trialers don't even try the free stuff.

People download the trial, but then they get distracted.

Or they don't have the time to use it.

Or they don't have the data they need to get started.

Or they decide it's a hassle.

Or they lose interest.

Or whatever.

Totango calls these folks "accidental trialers:"  prospective customers who sign up for a free trial and then do nothing.

After a few weeks, the trial expires - a complete flop for both the prospective customer and the SaaS provider:

The prospect gains little experience with the product and misses the opportunity to see how it might be helpful.

The provider has little opportunity to convert the free trialer into a paying customer.   They've invested in finding and cultivating a prospect, but they can't close the deal.

How can SaaS providers avoid this?  How can they get prospects to actually try the free trial?

Tip 1:  Don't make the trialer work too hard

Just because your solution is free doesn't mean your prospective customer's time is free.  If you ask them to do lots of work - track down data, configure forms, set-up work flows - they're likely to bail out.

Instead provide completed templates, default settings and benchmark data already filled in.  The trialer, of course, can make changes, but they're not starting from a blank page.

Tip 2:  Don't overwhelm the trialer

You're proud of your solution - every bell and whistle of it.  And your paying customers may grow to love every bell and whistle too - eventually.  But your free trialers probably aren't yet ready to see every single feature and function, and they may be overwhelmed by a walk-through of the entire product.

At this stage, it's better to focus the prospect on accomplishing a few simple, common tasks.  Show them how easy the solution is to use and how quickly they can achieve worthwhile results.  Get them as soon as possible to an "Aha!" moment.

Tip 3:  Offer help

Even with the simplest, most intuitive solutions, the prospect might need some guidance.  These folks aren't dense; they're just busy.

Give them a guided tour through the trial, a step-by-step guidebook, a recorded tutorial, or one-on-one coaching.

Yes, helping free trialers can be expensive.  But remember, you've already spent time and money to get prospects this far in the purchase process.

Spending more to push them one final step - and convert them from trialers to buyers - might be a worthwhile investment.





This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License. Images obtained via iCLIPART.com.

  
  
 

SaaS companies can't afford to sell

Most companies offering a software-as-a-service (SaaS) solution can't afford to sell it. 

I'm talking here about "selling" in the traditional sense:  finding prospects and convincing them to buy a product or service. 

In some cases that's done with experienced sales executives working their Rolodex (or its electronic equivalent).  Or it might be sold by a team of inside sales reps making cold calls from a purchased list. 

The best of these sales efforts may follow "solution selling," "SPIN," "customer-centered selling" or some other sophisticated technique.  But it still involves the vendor's salesperson reaching out to a potential buyer.

Selling is expensive

For most SaaS companies, however, these techniques are too costly. 

For one, those experienced salespeople are expensive.  Paying these folks to find and woo potential buyers, often with a sales support engineer in tow, means travel expenses, a decent draw, and a hefty commission. That's beyond the resources of many SaaS companies, who depend on future subscription revenues to pay for current sales expenses. (See "SaaS customer acquisition:  Feed it or starve it.")

(A notable exception to this would include SaaS companies like Workday, which offers talent and financial management solutions for large enterprises.  Selling these complex, enterprise-wide systems does indeed require experienced and expensive salespeople.  But unlike most SaaS companies, the large subscription fees can support that kind of sales model.)  (See "Customer acquisition spending: Lessons from Workday.")

Besides the cost, this approach - trying to find potential buyers, many who aren't really looking for a solution, and methodically coaxing through to purchase - just doesn't work as well as it once did.  With information so easily available, most prospective customers can do much of their research  before they even talk with a sales executive.  The sales exec comes in only near the end of the process, not the beginning.

Rely on "buying," not "selling"

So if SaaS companies can't afford traditional "selling" to grow their business,  they'll need a different approach.  They need to rely on "buying."  

That is, they need to attract prospects who are actively looking to buy.   The goal isn't to sell them your solution.  The goal is to attract them to buy your solution.

Perhaps an analogy can illustrate the difference.

"Selling" is like sending a brave hunter out onto the plains to stalk a large beast.  The hunter wanders for days or weeks over many miles, tracking the prey, and finally gets close enough to bring it down with a well-aimed spear.

"Attracting buyers" keeps the hunter in the village.  Instead of trekking for miles and days, he digs a water hole, provides a salt supply, and lets the wind carry the scent of this lovely feeding spot across the plains.  When the beasts gather around the watering hole, our brave hunter tosses a net over them.


Let prospects find you and move themselves toward a purchase

Attracting buyers means making your company and your solution visible to your prospective customers.  Build a watering hole where they can find you when they're searching. 

Make it easy for them to find you, and you won't need to rack up mileage or pound the phones trying to find them.

Once the prospects do find you, don't sell them; educate them.  Help them understand how to make an informed decision.  Be a resource.  Make them smarter. 

Earn credibility and trust.  Let them see what value your solution can deliver for them.  Show them how others have used it successfully.

And then provide a way for the prospect to "buy."  Give them an easy way to move themselves toward a purchase at their own pace. 

With certain more complex SaaS solutions, a salesperson may be needed to negotiate pricing, work through terms, or configure the precise package of services.  But in many cases, the prospective customer can take those steps without much help.

There's no need to push, no need to cajole, no need to "sell."




This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License. Images obtained via iCLIPART.com.

SaaS customer acquisition: Feed it or starve it?

If you manage a software-as-a-service (SaaS) company, at some point you'll be forced to make a tough decision about your customer acquisition process:  Feed it or starve it?

Should you pony up the money to feed a full-blown sales and marketing effort?  Or should you starve the process and keep the cash in your piggy bank?

Because of the way the SaaS business model works, if you feed the customer acquisition process, you hurt profits and burn cash.  In fact, the more customers you acquire, the more money you lose, and the more cash you burn… at least in the short term. (David Skok of Matrix Partners calls this the "SaaS Cash Flow Trough.")

And if you starve customer acquisition, you improve profits and save cash.  The downside: you might actually kill the company.

Faster growth = lower profits

The problem is timing.

To acquire customers, you pay money now - for sales people, marketing people, tradeshows, pay-per-click campaigns, search engine optimization, direct mail, or whatever else you do to attract paying customers. 

But those customers don't pay you money now, or at least not all of it.  They pay you over the life of the subscription.

Earlier I've described this as the "Wimpy effect" after the Popeye cartoon character who promises "I'll gladly pay you on Tuesday for a hamburger today."

Here's how that looks on an income statement:  costs are higher than revenues.  Profitability goes down and cash flows out. 

In fact, the faster you grow and the more customers you acquire, the more the costs exceed revenue, the more profitability goes down, and the faster cash flows out.

So here's where that critical decision - starve it or feed it - jumps out at you.

The "starve it" option

You could choose the "starve it" option.  Cut sales and marketing headcount and scale back spending on customer acquisition programs. 

The good news is that you post higher profits and burn less cash.

The bad news is that you don't attract many customers.  That means you're giving up revenues, both in the short term and in the long term.

And if you're in a very competitive market, it's likely that you're losing market share.  The prospects you're not attracting are adopting somebody else's SaaS solution and they're lost to you.

At the end of the "starve it" route, you'll have a better looking income statement and more cash on hand.  But you'll also have a smaller company with fewer customers that's losing momentum, having a tough time competing, and dimmer long-term prospects.

The "feed it" option

Or you could choose the "feed it" option.  Put more money into sales and marketing and ramp up your customer acquisition programs.

The bad news is that you hurt profitability and burn more cash.

The good news is that you attract more customers.  There's more revenue now and lots more revenue over time.  And you're gaining momentum and market share.

Making the "feed it"option work

If you want to succeed in the long term, it seems that the obvious choice is to feed the customer acquisition effort, not starve it.  But a few things need to be in place to make the "feed it" option work.

1.  It requires enough capital to pay for the "feed."  The cash you're using to pay for sales and marketing needs to come from somewhere.

2.  The "feed it" option requires you acquire customers cost-effectively.  Every dollar you put into sales and marketing needs to generate more than a dollar in revenue over the life of the customer.  In fact, as a rule of thumb, every one dollar spent on customer acquisition should actually yield at least three dollars in long term revenue. (Commercial interruption:  SaaS Marketing Strategy Advisors can help you build an efficient customer acquisition machine.)

3.  This option requires patience and courage.  Spending money to lose money in the short term is not for the faint of heart.

4.  And finally, making the "feed it" option work requires a deep understanding and confidence in the SaaS business model.  After all, it runs counter to the common wisdom:

In the short term, every new customer costs you money.  

But with a well-run SaaS business, over the long term, you actually do make it up in volume.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License. Images obtained via iCLIPART.com.

Customer Acquisition Spending: Lessons from Workday

According to a business adage, you need to spend money to make money.

According to a SaaS business adage, you need to spend a lot of money to make money.

Workday recently made public its S-1 filing in advance of an initial public offering. The document reveals what it takes to succeed in a market dominated by Oracle and SAP. Specifically, it illustrates the need for software-as-a-service (SaaS) companies to spend money - lots of it - on customer acquisition.

In its early years, Workday spent well in excess of its annual revenues on sales and marketing. In 2008, it spent 2.5 times more on customer acquisition than annual revenues, and in 2007 it spent nearly 18 times more than annual revenues.


With only $455,000 in revenues in 2007, Workday funded a direct sales force and a professional marketing effort costing more than $8 million. I saw first-hand the company's significant presence at that year's HR Technology conference, where the company's booth and a front stage presentation by co-founder Dave Duffield made for an impressive coming out party.

Sales & marketing costs still represent the single largest expense for Workday. It's selling a critical solution via an expensive direct sales force to large enterprises, and usually competing against well-entrenched competitors. A typical sales cycle can extend over 6-9 months.

Though the cost of customer acquisition relative to annual revenues has declined steadily, on-going customer acquisition expenses will continue to keep Workday in the red for some time. According to the S-1, "we do not expect to be profitable for the foreseeable future."

So what is Workday getting for its money?

What's the payoff from this significant and on-going investment in sales and marketing?


High growth: Workday's revenues grew at a compound annual growth rate in excess of 300 percent from 2007 through 2011. The company has attracted about 325 customers over that period, mostly large enterprises with thousands of employees.

Strong customer lifetime revenues: Most of Workday's customers are on 3-5 year contracts. And in addition to the subscription fees, many pay for implementation, training and other professional services. (It would be helpful to calculate the average customer acquisition cost relative to customer lifetime revenue, but the S-1 filling doesn't appear to provide the required data.)

Visibility and credibility: Its high marketing spend has established Workday as a leader among SaaS ERM providers. When large enterprises consider potential solutions, Workday is usually on the short list.

Success requires funding, courage and patience

Here's one important lesson we can all take away from Workday's experience:

SaaS companies that want to grow need to spend money, sometimes a lot of it, on customer acquisition.

Often SaaS companies will need to commit to high sales & marketing costs even at the expense of profitability, at least in the short or medium term. Companies with an effective customer acquisition plan in place, however, can generate high, sustainable, and eventually profitable growth.

To put a sharper point on this lesson:

SaaS companies without the funds, courage or patience to pay for a well-functioning customer acquisition effort over a sustained period will have a difficult time growing their business.

This work by Peter Cohen, SaaS Marketing Strategy Advisors is licensed under a Creative Commons Attribution 3.0 Unported License. Images obtained via iCLIPART.com.