Simon Peet discusses the three key areas that software businesses need to successfully navigate if they are to transition from legacy licenses to a SaaS model.
At Livingbridge we always try to understand the challenges to growth that are holding businesses back from reaching their potential. By understanding the hurdles to overcome, we can in turn understand where we might be able to add the most value.
For software businesses, many are grappling with the very specific challenge of moving from a license to a SaaS model. For us there are three key areas that software businesses need to successfully navigate if they are to overcome this challenge:
1. Understanding your customer:
Whilst many customers want to move from capex to opex, there is always a segment of your customer base that will resist the change. Being clear on what those customers are concerned about and thinking through how you can address this through the cloud offering or even through continuing to maintain a small on-premise base will make sure you are still front of mind when they are eventually ready to switch.
2. Persuading your sales person:
Changing the behaviour of a sales person used to selling (and being incentivised on) large license sales towards the completely different set of skills needed to deliver subscriptions is often a painful journey. A different employee proposition and effective team management can carry them through but in reality, sales teams may need to be restructured if they cannot work through the upheaval this can bring.
3. Working capital:
It is well understood that moving from license payments to SaaS (even if customers are paying up front) will likely come with an associated drain on earnings in the short run and in particular on working capital. Working with your finance team (and/or investor) to have confidence around the ability of the business to absorb the transition is key to give a business the confidence it needs to commit fully towards a SaaS model.
Beyond this, businesses will have to deal with moving to a more frequent release cycle, the technical challenges of migration, and managing the business on a completely different set of metrics – a considerable list of considerations for any business contemplating a transition!
At Livingbridge we have worked with a number of investees to help them navigate these challenges. An example of this is Exclaimer, an email signature software provider that we backed in 2016, where new sales are 90% SaaS vs c.50% at the time of our investment.
For most investors, moving from on-prem to SaaS is not optional, with Gartner predicting that by 2020 all new entrants will offer subscription-based business models. And it’s not just the threat of new competitors to think about – a business which has successfully managed the (challenging) transition will invariably be more valuable. The combination of having executed the heavy lifting, alongside the quality of earnings that true SaaS businesses enjoy, will result in a significant premium on valuation.
If you would like to find out how Livingbridge can help software companies like yours navigate the transition to SaaS please get in touch on firstname.lastname@example.org.