Learn how to make the transition to a SaaS business model (and get it right) – from experts who’ve done it before.
If you’re approaching an on-premises to SaaS transition but want to understand how to get through it safely, this is the blog for you.
You already know that moving to SaaS can make your organisation more profitable, scaleable, and customer centric. (Just look at the CLOU index – it rose by 80% during the course of 2020.)
What you need next is expert advice on the transition itself. You need to know about the potential pitfalls that can turn the journey into an odyssey. You need to know the hidden challenges and unpleasant surprises that could lie in wait.
To help you take your first steps towards SaaS, we’ve assembled some of the best business minds in the Nordics. They’ve all been on this journey – and they’re here to share five lessons they learnt the hard way.
Set expectations around revenue
When you transition to SaaS, you won’t see an increase in revenue immediately. In fact, you should prepare for a dip in revenue.
And this short-term dip is inevitable. You’re not just changing what you sell, you’re changing how you charge. You’re moving from up-front to recurring revenue.
“With SaaS, you change the model and how you sell, that affects your revenue and cash flow in the short term,” says Per Ivansson, part of the Monterro Operations team and former CTO at Episerver. “So make sure you have a strategy in place to deal with this. With the right sales incentives in place, the drop in up-front licenses can happen faster than expected.”
Transitioning to SaaS also requires you to think differently about sales metrics: your retention revenue and churn rate become vital indicators of long-term health. The most successful adopters fully embrace this elongated value structure.
SaaS also generates a different cost of goods sold (COGS) value – you’re now responsible for the service delivery of your platform (hosting it, maintaining it, updating it etc.) – and this will eat into your gross margin.
We recommend you review your discount approval process and ensure your sales team fully understands the new rules they’ll need to play by.
Prepare for the long-haul
Moving to SaaS isn’t an overnight change – it’s an ongoing process.
It’s important to keep the momentum up during this period to ensure none of your work-streams slow down. To prepare for this, put processes in place to keep the pace up – a thorough roadmap is a great place to start.
Remember, this journey is an evolution to a more efficient, scalable, and customer-centric ecosystem – not a series of quick wins. A transition of this nature requires new strategies, a mindset change, and the cooperation of nearly every department in your organisation.
As with any long-term project, the C-suite will play an integral role in keeping everyone on track (and on time). “In our journey, the C-suite’s commitment to the vision and transition was crucial,” shares Daniel Österhof, Vice President of Reliability Engineering at Optimizely. “It aligned the business and ensured everyone was heading in the same direction.”
It’s also crucial to invest in your cloud infrastructure. Don’t skimp at the design stage – you’re building the future of your business here. Put robust automation, monitoring and alerting in place to ensure you’re running a performant, efficient, scalable and secure environment.
You (and your customers) need to trust the new cloud-based solution will handle data securely – automation helps reduce risks like human error, data loss, and security breaches.
As Per Ivansson adds: “Investing in cloud infrastructure will also mean your processes are scalable. This will ensure you have the capacity to handle for example upgrades, even when the number of customers grows.”
Avoid the customisation trap
As you define your core product, you need to rethink your approach to customisations – because with SaaS, you shouldn’t have any.
As you speak to your customers, you’ll find many of your customisations are prime for retirement – some are no longer useful and others simply won’t fit your new vision. Pär Alenius, Business Consultant at Palette, tells us: “Over and over again during our move to SaaS, customers would say they hadn’t used these customisations for years, or they didn’t even realise they had them.”
If you find yourself trying to incorporate customisations, you’re not only diluting the benefits of SaaS – you’re also going to have problems when it comes to rolling out upgrades. (Customisations need custom treatment – which means bespoke automation scripts and manual upgrades.)
If your customers need additional capabilities that your standard product won’t (or can’t) offer, invest in public APIs your customer can use, to ensure there’s a clear line where your product ends and where customisations start.
It’s important to interrogate (with lots of customer input) the customisations you made in the past and make tough decisions about which ones you will incorporate in your standard product – and which ones you’ll leave behind.
Choose your customer migration path carefully
Migrating your customers is a lengthy process.
Eventually, you’re going to need to move all your customers (otherwise you won’t reap the full rewards of SaaS). But if you start with your biggest and most complex customers – this migration can quickly become a migraine.
So, start with customers who are ready to embrace the move. These customers will likely have no (or few) customisations, and already understand the value of SaaS. Take the time to fully explain (and evangelise!) the benefits of your new product to them.
As Per Nilsson, Head of Online Operations at Palette advises, “You can be more efficient and profitable if you can keep existing customers so get them excited about your roadmap, your solution, and your future together.”
Timing is also important here. Even if your customers already have experience with SaaS, you’re still asking them to take a new step with you. So ensure they’re fully aware of what will change before you change it, so you can manage expectations from day one.
But as Per Ivansson tells us: “Don’t just talk about the move, do it for real.” This phase of the transition can easily fall prey to interia. So the best way to spark action is to assemble a cross-company taskforce, then empower them to make big decisions, quickly.
Make sure to over communicate
In a transition of this scale, it pays to choose words wisely.
Finalistic terms such as ‘end of life’ or ‘sunsetting’ have a drastic effect – so ensure you explain that the new SaaS product is really no more than a new better version.
Balancing input from current customers against where you want to take your new product is also key. You’ll also need to set up – and follow – a robust change management program that includes everyone (that’s your employees and customers too).
Then balance this against what you want. You can’t let your existing customer base take control of what you’re doing – so if you feel like you’ve outgrown some of your customers – that’s OK.
As says Per Ivansson. “You need to have the guts to say no to those customers that don’t fit your new product. Otherwise neither you, nor your customers, will be happy”.
This is a bold new step but it isn’t changing for its own sake. It’s measured, planned, and considered.
The key points
- Remember your revenue will drop at first – so plan accordingly.
- Prepare for the move to cloud operations to take time. Approach this as an evolution – and remember: your business model and technology are two different things.
- Keep customisations out of your core product – the level of customisation you want can be achieved with some carefully chosen APIs.
- Set up a great cross-sectional team to tackle the migration – empower them and appoint a dynamic leader.
- Create a robust change management program, communicate well, choose your words wisely, and remember – you’re in the driving seat.
To get your hands on more tips and insights (and to better understand the changes you’ll need to make within your organisation, to your product, and with your customers), read The field-guide to transitioning your product from on-prem to SaaS.