Product Management Tidbits

SaaS Product Management Challenges

Posted by Barry Paquet on Mon, Aug 10, 2009 @ 11:10 PM

In recent years, the software industry has transformed itself. SaaS adoption is wide spread and is now a credible business model. Looking beyond Salesforce.com, other companies like ConcurVocus and RightNow are successful (reads profitable) as well. The advent of SaaS has left many antiquated companies like SAP and Microsoft struggling to adapt. Interestingly (and a topic for another post), others like Lawson's CEO, Harry Debes, believes SaaS is doomed to collapse. Regardless of where you stand, the reality is that many companies are practicing SaaS and there are thousands of SaaS product managers that are similarly struggling to adjust. Making matters worse, is the product management industry has been equally slow to adapt and provide new guidance or practices.

I'm not sure why, but many product management evangelist and training companies have yet to address the impact of SaaS on product management. At least one leading consulting firm in the field minimizes SaaS to a mere delivery model, suggesting product management is "business as usual". In doing so, they reinforce traditional practices --- ignoring the obvious nuances of SaaS. Perhaps it's been too long since these "gurus" have been product managers themselves. Staying connected has always been a challenge for consultants... (I should know, I am one).

Below are a few points illustrating how the industry is changing and a sampling of how product management responsibilities and skills are evolving under SaaS.

  • Market Intelligence: Traditional product managers make client calls, win/loss reports and customer visits. For product managers, this is a primary source of market intelligence. It is these activities that allow them to observe customers and understand business problems. This approach has historically been product management "best practice". But how practical are they for SaaS companies? With 1000's of customers rather than dozens or hundreds, SaaS product managers can't possibly call or visit enough customers to return any statically relevant data.

    SaaS Approach - To address this problem, software product managers will turn to on-line communities. Pressure to keep cost down, increased user influence and an attempt to increase customer value (overall experience) are some of the more obvious factors that will drive this initiative. Product based communities will drive product direction and development and force product managers to adapt their techniques and skills for the new paradigm.
  • Pricing: Gone are the days of 90% margins and basic P&Ls.

    SaaS Approach - SaaS product managers must now become intimately familiar with pro forma statements and product BOMs, more specifically, fixed vs. variable cost. What is the cost of a single new customer? How do I integrate computing consumption into my pricing? What is the total cost to service a customer? How many customers do we need and when can we expect to make a profit? What is my target margin? What is the expected payback period? Two, three or four years? How do I account for the marketing ramp-up, new sales commissions, and support (the old days of X % of license price are over!)?  

    Perhaps is time to add management accounting (advanced) to the list of product management skills.
  • Packaging and Fulfillment: Do I want a single offering and a single price? It worked before --- right? But now that we are targeting volume (i.e., customer acquisition), how do I accommodate the less sophisticated and budget sensitive customers? How do I simplify my offering, provide enough business value to warrant subscription costs and simultaneously preserve value for more sophisticated customers?

    Historically, software product management addressed these concerns with "lite, professional" and "enterprise" applications (remember "standard" and "basic" versions...  I have yet to meet anyone that wants to buy anything standard or basic). In most instances, each version was a code branch with a set of features turned on or off. Over time, they increasingly became distinct products. Some even eventually needed full-time product managers.

    SaaS Approach - Today, these customer segments (and more) are addressed in a single code base. Customers are free to upgrade or down grade almost at will. To manage these requests and to minimize the overhead (fulfillment, billing etc.), SaaS product managers need to consider new fulfillment (on-boarding) tools (e.g., OpSource and Aria) to provide this flexibility but also to enhance customer experience. While you still have to determine the feature set for each version, you can minimize the transition and switching costs.
  • Change Agents: Unless you are one of the fortunate product managers that is employed by a company that was conceived with SaaS from day one, you will evidently be challenged to align your organization to the new on-demand model and subsequent culture required to sustain it (see my earlier post, "Shifting from Product to SaaS" for tips on how to get senior management on board). Although it may appear counter intuitive, the application development is actually the easy part. It's getting the rest of the organization in-line that is demanding. Unless the organization adjusts, the promise of on-demand will elude both you and your customers.

    No doubt, companies that are introducing SaaS are building solid applications. What escapes most of these organizations are the skills and systems required to support the service model. Many fail because they conduct sales, marketing, support, services, and finance using the same tools and resources used to support traditional grounded software. Takes Sales & Marketing for example, many continue to practice direct marketing, print ads, customer visits, trade shows, etc. While these activities do have a positive influence on sales, the issue lies in their cost. Scaling these activities is simply not congruent with the SaaS business model.

    In an effort to call out some nuances, below are a few examples how SaaS touches every department.

    SaaS Approach
  1. Product Management
    • Thought leadership
    • Serial releases - requires increased communication (inside and out)
    • Smaller iterations - constant prioritization
    • Customer (community) feedback - product requests, self-service, and best practices
  2. Marketing
    • Continuous marketing with constant up-sell and cross-sell
    • Touch users early, often with business relevant information
    • Marketing targets new and existing customers
    • Provides services throughout the organization
  3. Sales
    • Low cost, higher volume sales model (e.g., on-line)
    • Shorter sales cycles with increased focus on business relevance
    • Compensation (what happened to my big fat check?)
  4. Services
    • Setup, installation and upgrades are no longer the focus of services
    • More business consulting and education versus technical implementation
  5. Support
    • Support provides as a critical touch point that requires and experienced skill set
    • Switch to a true 24x7 multi-channel support
    • Shift from issue resolution (break-fix) to ensuring ongoing customer success
    • Balance need for higher-volume, lower cost to serve
    • Customer monitoring and subsequent coaching becomes strategic
  6. Finance
    • Revenue recognition, financial system for tracking deferred revenue
    • Billing systems with tiered products, metering service levels, and managing renewals
  7. Engineering
    • Architected for multi-tenancy and high scalability
    • Infrastructure to support tier management, customer metering, service levels, retention policies, and self-configuration
    • Agile to support faster release cycles

To conclude, fundamentally the role of product management hasn't changed but the nature of the job is absolutely evolving. SaaS product managers face different challenges and must adopt new tools and allocate their time wisely and efficiently. SaaS companies must use technology to drive automation, reduce cost and increase customer self-service.  Product managers must deliver applications that scale with volume but maintain fixed cost and overhead. As a SaaS product manager, your service offering permeates the entire organization. Be prepared to lead --- if you don't, it's likely no one else will.

Topics: Product Manager, SaaS, Product Management, Leadership

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