5 TRAPS YOU SHOULD AVOID BUILDING A SAAS BUSINESS

A Keynote presentet on SaaStock
by Dr. Ricco Deutscher

“About a long time– about 20 years, I have experienced a number of great successes but also great failures. Everybody likes to talk about his successes. I will talk about failures and my lessons learnt. I structured a presentation into five pieces. Five traps you should avoid building a SaaS business in Germany. Here is …”

Trap #1 Wrong customers

saastock keynote trap number one wrong customer

Dr. Ricco Deutscher:

“Can a customer ever be wrong [laughter]? In order to avoid misunderstanding, well I’m very much customer focused and I love serving customers. Here’s the situation. Let’s imagine you want to build up a software business and from day one, you have a DAX member as first customer and even as a reference. And you have a deal with them that makes you profitable from day one. Doesn’t sound that fantastic? I guess, everybody here in the room agrees. And that was the case I had with one of my previous companies.”

Dr. Ricco Deutscher:

“So, on the left hand side, you see the age structure of the customer base was very easy. We had Deutsche Post as customer and we had a fantastic deal that it paid all the development to us so we were profitable from day one. And we were happy about this great start of that company.”

Dr. Ricco Deutscher:

“But after 12 months, the situation didn’t change. We still had this one customer. We were very busy adding feature for that customer, but we didn’t get any other customer. And we asked ourselves what happened. Why couldn’t we get any other customers? We had a lot of talks with the other customers and we figured out they have different requirements compared to Deutsche Post. In other words, Deutsche Post was demanding a kind of custom development instead of an innovative product while the others were asking for an innovative product. So that caused that we were lacking innovation, market adoption and, of course, company valuation. And the very fundamental question at that point of time was could we ever implement our target business model? Because what Deutsche Post pushed us very much into the outsourcing business, not so much in the product business, how can we make a turnaround?”

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“We decided to go a two-path approach and we developed an innovative product for the market, not for Deutsche Post. We developed very specific add-on features to build a custom solution for Deutsche Post and to make Deutsche Post happy. And by following that approach, we achieved a turn around. We were very successful and got a very nice exit after three and a half years. And I asked my question. So what should be different at the very beginning to avoid that slow start? To avoid that long time to market? It took us more than a year.”

Dr. Ricco Deutscher:

“And my answer was that you need a customer structure with that age structure. Which means that you need more young customers, smaller customers because all the innovation comes from them. Deutsche Post didn’t require any innovation. So, this, I consider, is a very nice start for a customer base. Majority of the customers are young. You see here, this is from billwerk after two years. Yeah. 60% of our customers are five years old or younger. They bring all the innovation and we have few big customers bring all the revenue. Which I think, is the right balance because we think our customers are our source of innovation and knowledge. And in a very dynamic innovative market, this is absolutely key. Coming back to my initial question, can a customer be wrong?”

Dr. Ricco Deutscher:

“Yes, it can be wrong if the requirements of that customer do not match your product strategy. Okay. So that was trap number one and my recommendation is build your customer base bottom up, not top down.”

Here comes Trap #2

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