5 TRAPS YOU SHOULD AVOID BUILDING A SAAS BUSINESS
Keynote presentet on SaaStock
by Dr. Ricco Deutscher
Trap #4: Lack of Focus
Dr. Ricco Deutscher:
“I like that picture [laughter]. Let’s have a look on a typical SaaS process landscape.”
Dr. Ricco Deutscher:
“On the left-hand side, you see the customer with front end devices with an email inbox. On the right-hand side, you see the process landscape to process the whole business. It has a front-end with website service provisioning CRM and a lot of back office stuff like financial accounting, payment management, billing, contract management. Everything you need to operate your business. 20 years ago, the situation looked like that.”
Dr. Ricco Deutscher:
“The provider was in charge of the whole system landscape and operated all these services, all these modules. Partially, we bought licenses, we installed the software and operated the software but we developed also bespoke applications and operated this by ourselves. Okay.”
Dr. Ricco Deutscher:
“Our core competence, on the other hand was that. I call it service provisioning. And this is a kind of contradiction. You operate the whole process landscape, but your added value is this little piece. But 20 years ago, there was no other choice.”
Dr. Ricco Deutscher:
“Today, the situation is completely different. We have a fast-growing SaaS covering most parts of the value chains. Covering most parts of this landscape that SaaS providers can really focus on the core competencies and outsource everything else to the partners. Sometimes I see SaaS providers which develop bespoke applications next to their core business and that leads me to a very fundamental question.”
Dr. Ricco Deutscher:
“So, is a bespoke solution for non-core functions meaningful or not? This is the fundamental make versus buy option. Do you buy a software or do you develop that by yourself? To answer that question, let’s briefly go through the advantages and disadvantages. The advantage for bespoke solution is that it perfectly meets your requirements. No product can meet 100%. There are always smaller gaps. This is the big advantage. The big disadvantage is that solution has exactly one customer. It’s you. You cannot share the cost. A product provider can share the cost of development across all customers. And if I talk about development costs, it’s not just the initial cost but also the maintenance cost.
So, analysts like Gartner say if you consider the whole total cost of ownership of software, only 20% belongs to the initial development and 80% belongs to the maintenance. Many people underestimate the full cost of software. Moreover, software projects can fail – I have seen so many projects failing – and heightened my time to market. It takes a while to develop a subscription management platform. And so, these are the advantages and disadvantages and at the end, it’s a very simple economic consideration. If your requirements are so special that no product is available on the market to meet your requirements, you need to go for bespoke application. But if the gaps are very minor, very small, you should definitely go for a standard product. And I see, in the discussion with our customers, I see often the tendency that they overestimate advantage and underestimate the disadvantage and this is what I call a not invented here syndrome and this is very typical for all software companies.”
Dr. Ricco Deutscher:
“And I was a couple of years a SAP P developer and I saw the same trap even at SAP. 20 years ago, they discussed internally whether they should come up with their own database to compete against Oracle. This is a very typical trap especially for software firms. My advice is to avoid it.”
Here comes the last trap #5Â
