SmoothSpan Blog

In this final installment of my interview with Steve Singh, CEO of Concur, he discusses his views on sales and marketing for SaaS companies including some thoughts on how the business is changing.  If you missed part 1 or part 2, be sure to give them a read as well!

As before, my parenthetical remarks (meaning my reaction but not something Steve and I talked about) are in parenthesis. Any mistakes are mine, and any great insights are Steve’s!

One of the things that stands out about Concur is the wide range in customer sizes you have. Lots of SaaS companies are primarily SMB. What makes Concur different?

Steve: Our product works for companies ranging in size from the LA Philharmonic to BofA with 180,000 uses.

The differences we see in the two ends of the spectrum:

• Integration is harder for larger customers. They have to integrate to financial and other systems. They have multiple ERP, HR, corporate credit card, personal accts, and many other systems.

• We have established API’s built by Concur to facilitate these integrations, but it’s important to remember that On-demand can’t require massive customization or massive consulting.

Bob: (Avoiding the need for massive customization and expensive professional services engagements that go along with it has been one of the big obstacles for many customers considering SaaS. If you can’t work out a mechanism to deal with customization that is relatively self-service, you won’t be able to enjoy the full benefits of the SaaS business model. This is one of the reasons why I wonder at the Force platform, which is aimed at least partially at customizing Salesforce, but which is so similar to conventional ERP customization that it seems very heavy weight for SaaS.)

Tell us about your use of the Web as a marketing medium. How are you using the Web?

Steve: All On-demand companies have a long ways to go to use the web as a marketing platform. We deliver our services that way, but we need more marketing and selling. Marc’s company does a tremendous job selling and shareing customer experience. It is a more cost effective way to reach middle market accounts. It makes it easier for customers to learn on their own schedule, which lets them move through your funnel without feeling the pressure of a formal sales process.

It’s a priority for Concur and you’ll see us make some leaps.

Bob: (The Web 2.0 remains a challenging medium for many to figure out how to harness. It will be interesting to see what new paths Concur will blaze.)

How does SaaS affect the sales process?

Steve: SaaS accelerates sales. You can’t argue with the numbers. Cycles are shorter in every segment. The reason is lower up-front capital commitment. The Customer is more comfortable. No long term commitment. No point to try before you buy, it’s more expensive to try before you buy, so they just dive in.

Advice for Technologist/CEO’s on Sales & Marketing?

Steve: Go spend half your time with customers and prospects. Not just for learning, but to understand where your customers are going. It tells you where to invest. You have to understand their objections and problems.

Customers are also a tremendous source of energy. Even if they aren’t 100% happy, a frank and honest conversation can make the difference. “I love what you provide, I only want you to improve it.” How can that be a bad conversation?

Bob: (Go to any successful ISV’s user conference and you can feel that energy that Steve Singh talks about!)

What is the role of Partners for SaaS?

Steve: It doesn’t work to hang out with SI’s. SaaS ISV’s are built to deliver ROI immediately. VARs and SI’s are driven to bill hours.

There’s a role for partners to help you distribute or who can add value to your solution. But, your missions must be aligned. We have a great relationship with ADP. We have great relationships with Corporate Travel partners.

You have to find each other. The best relationships are when you both need each other. You can’t sell them on the idea.

Bob: (Partnering in the SaaS world is hard, so hard that I’ve referred to SaaS as Partner Toxic and even IDC has said it’s difficult. Steve points out some excellent examples of relationships that can work well with SaaS.)

What trends and changes do you see going forward with SaaS?

Bob: (Steve followed up the interview with a great note about some interesting changes he sees coming to SaaS.) 

Steve:  Some thoughts on pricing, contract lengths and cash flow from operations.

1.  Pricing is always a philosophical discussion that intersects with market realities. While market leaders can often demand pricing premiums and while investors will always ask to increase prices on a periodic basis, we think the right approach in the SaaS market is to price aggressively in favor of the customer. Given that the leverage point in this business model is the technology stack that you are utilizing, there is plenty of opportunity to drive. very impressive operating margin. Increasing operating margin is purely a function of building scale [more customers signing up for the service]

2. Contract lengths – Investors often ask, how long customer contract lengths are. They and many SaaS providers take comfort in the wrong thing. The right question here is – what is your retention rate. I think it is a false sense of security to look to 3 – 5 year contractual commitments. If customers are dissatisfied with your service, they will stop using it and stop paying the bills. Revenue recognition becomes simple. Zero. How many companies do you know of that have sued their customers. If you were to plot a chart that shows contract lengths on the x axis and number of SaaS companies on the y axis – you would find that the average contract length is 3.5 to 4 years. If you then add two more “SaaS” companies to that chart – ADP & Paychex – the bell curve on that chart would move to less than 1 year. ADP currently signs 90 day contracts that automatically renew. It is my view that SaaS contracts will move to that type of term over the next few years. The only metric that will matter is customer retention as that will be the measure of contract length.

3. Cash Flow From Operations – there is a wide disparity in how cash is collected across SaaS providers. Some companies collect 1 year of cash up front, some 2 years, some 90 days, etc. We have taken the view that since the customer can terminate the contract effectively at will, the more conservative posture is to collect monthly [although we do have a small handful of customers that pay quarterly as it is easier for them]. The difference between monthly billing and collections versus 1 year up front is very significant – for more than the obvious reason. SaaS companies are growing at a rapid rate – today. Once that rate of growth slows down, the cash flow from operations for those companies that collect 1 year of cash up front will drop precipitously. Or for that matter if customers decide that paying 1 year up front is not market the same result will come about. In contrast, if you bill and collect monthly, you can literally stop selling new customers and not see any change in cash flow from operations. This is important because investors often value SaaS companies on cash generation. ADP & Paychex? Monthly.

Bob:  (These are all fascinating business strategy points that Singh is making.  Balancing on the razor’s edge of a more competitive offering that drives growth faster versus trying to be profitable sooner and use less investment capital.  Steve sees the market moving in favor of customers.  And why not?  That is the natural direction the compass of progress points as markets mature.)