Maximizing Saas Outcomes: Creating a Defensible & Scalable B2B SaaS Business
Editor’s note: This is the fouth post in a series in which Georgian Partners’ Advisory Board member, Gab Goncalves, describes how he created value at PeopleAnswers, the predictive talent analytics software company he founded in 2001. If you haven’t already, we encourage you to read his previous post on articulating your total addressable market, or starting at the beginning of the series in which he outlines the six drivers of B2B SaaS business value.
The next key lever that a B2B SaaS business can use to increase value is creating a defensible and scalable solution.
So your SaaS B2B business has taken off – congrats! Now how hard is it to keep up with the demand? What happens if an investor buys your business and turns the right dials to increase growth by a factor of three? How hard would it be to keep up? The easier it is for the business to accommodate new explosive growth, the more an investor will pay for it.
The best way to determine how scalable your SaaS B2B business is, is to walk through all the moving parts as if your business were three times the size it is today. How would orders be processed if you had three times the volume? How would you handle customer on-boarding, training, billing? How would your technology keep up? Would latency greatly increase? Could your database handle three times the amount of data it has today? Could you handle three times the number of customers asking you to make one more customization to your solution? Would you have to triple today’s employee headcount to accommodate triple the revenues? Could the systems your employees use today handle three times as many people on it?
Strive for Configuration, Not Customization
At PeopleAnswers, two important things that helped us achieve scalability were having the right backend engine and thinking about configuration rather than customization.
PeopleAnswers’ solution is based on the principles of industrial psychology. Most of our competitors have troves of Ph.D.’s in their offices to sort through the data and to develop recommendations. The problem with this approach is that it is not very scalable. A Ph.D. industrial psychologist is hard to find, very expensive, and is usually focused on quality not speed.
So we committed to a multi-year project to teach our software to do all the heavy lifting that an industrial psychologist would have to do for us without automation. This new analytics engine, which could run through the data modelling with just a few high-level decisions from our industrial psychologists, greatly increased the efficiency of our science team, allowing them to take on more of a supervisory role and to deal with any occasional unforeseen exceptions. Without a robust backend engine, we would have needed one industrial psychologist for every five clients. With our backend engine, one industrial psychologist could oversee up to 50 clients.
And after we had a stable backend solution in place, we brought in Ph.D. mathematicians to incorporate advanced heavy-math enhancements to our modeling. These enhancements took the science of industrial psychology to an unprecedented level of analytics, resulting in a new generation of accuracy and predictability. The cherry on the cake were the patents that we were awarded protecting the leading-edge software modeling we had developed.
Another example of scalability at PeopleAnswers was our commitment to software configuration. When you cater to large enterprise companies, you can count on your customers wanting your solution custom tailored to their unique needs. Software customization is typically slow and expensive to do. Developers often create hard-coded one-off solutions that are unique to that particular customer and that result in branches to the software code base. When you think of the word “customization,” think of slow and expensive software developers programming features that are not often leveraged throughout your customer base. Plus years of maintaining one-off code that needs to be dragged along future development.
At PeopleAnswers, we decided to implement software customizations by making these enhancements available through a configurable interface. Our software developers built all one-off requests directly into the main software code base, but allowed these features to be turned on/off by a client account manager flipping a switch in our administration screens.
That approach simplified long-term maintenance of the code base and allowed our client account managers to quickly configure the client’s environment without further involving expensive software developers. Eventually, we had a long list of flexible options that could be quickly enabled for our enterprise clients without us having to incur the cost and time associated with custom software development work. Our mantra became “configuration, not customization.”
These are just two examples of PeopleAnswers’ commitment to scalability. We constantly examined all our processes and systems looking for opportunities to do more with the same number of employees. I have no doubt that our commitment to scalability was an important contributor to our exit multiple.
You Need Competition
I am a big believer in competition. If you don’t have competitors, chances are that your value proposition isn’t good enough and your total addressable market (TAM) isn’t big enough. Having competitors is a good thing because it establishes to outside investors that your value proposition for your SaaS B2B business is worthy. But once you get that checkmark, investors’ very next thoughts are “how are you different from the competitors and how can you keep them away?”
Differentiation from competitors often is just a question of optimizing your value proposition. Clearly articulating what you are going to stand for usually makes you different (see my prior post about creating a clear value proposition). Being defensible is all about how big your moat is around your castle and how easy it is for other better capitalized competitors to knock you off. The more defensible your SaaS B2B business, the bigger you can grow without someone knocking you off, and the more money an investor or an acquirer will pay for it.
The funny thing about being defensible is that you can incrementally add defensive measures as time goes by. A patent, for example, may be awarded several years into a venture because better technology can be developed at any time. It’s rare for a new venture to optimize scalability when it first launches, rather reputation is gained as you optimize execution. What’s important is to be purposeful about defensibility and to have a plan to keep continuously adding defensive measures to your castle. Each defensible layer that you add takes time and money, so plan to incrementally build it, but always be building. A good exercise is to annually review your existing defensive measures and to identity future ones that you are in the process of building.
If you’d like to continue reading this series, check out our next post on developing a compelling revenue model.