What are the “unique” values of SaaS?

March 28, 2010

A high priority for us as venture capital investors is to invest in capital-efficient companies. And capital efficiency requires profitable distribution economics.

The unique values of Saas

Capital efficiency for SaaS-based expansion stage companies is predominately a factor of sales and marketing economics.

SaaS typically goes hand-in-hand with a subscription pricing model. Subscription pricing allows the initial price point (and the associated customer initial investment) to be relatively low. The facilitates a sales model that is largely dependent on inside sales. And we all know that inside sales is the most efficient, productive and capital efficient form of distribution.

SaaS also facilitates a short sales cycle. By avoiding the need for software deployment, and (the horror!) an appliance shipment, a SaaS vendor can execute a sales cycle without the delays of on-site evaluations. That takes a lifetime off of the sales cycle. Not only because you can run avoid the added evaluation time, but more importantly, because a sales rep can juggle multitudes of evaluations in tandem, waiting for the right prospect to make a buying decision at the right time.

I also find that SaaS solutions typically do not require an indirect distribution channel. A SaaS vendor can sell directly to the customer, wherever the customer is based, because the product does not require an on-site evaluation and/or deployment… the solution is typically easy to use and easy to modify for customers… and there is no CD, box, or (the horror!) an appliance to hold in inventory. By avoiding an indirect channel, the SaaS vendor gets to hold on to more of the gross margin, hence the capital efficiency again.

The browser based product evaluation also has significant effects on the marketing function. Marketing becomes more capital efficient by going exclusively on-line. By marketing on-line, the market department can leverage the same content through a multitude of on-line marketing channels. So massive marketing budgets spent on off-line advertising, conferences, road shows, etc. can be slashed by a factor of 10… through a content marketing strategy that leverages the same content and pushes through the 42 online channels available to the marketer.

The Chief Executive Officer

Firas was previously a venture capitalist at Openview. He has returned to his operational roots and now works as The Chief Executive Officer of Everteam and is also the Founder of <a href="">nsquared advisory</a>. Previously, he helped launch a VC fund, start and grow a successful software company and also served time as an obscenely expensive consultant, where he helped multi-billion-dollar companies get their operations back on track.