Sightings in SaaS

I just finished reading an interesting article by fellow EI Mike Krigsman in his IT Projects Failure  blog.  There is also an interesting video interview with NetSuite CEO Zach Nelson about the value of NetSuite, cloud computing and NetSuite implementation.

One thing came to mind for me as I listened to Zach and read Mike’s analysis; that is, the SME, small and medium enterprise,  market is really substantially different from the large enterprise market in one very important aspect: Experience.

In the SME market there are the Newly Born. These are companies that have gotten started within the last 10 years and have grown substantially. They have managed to achieve this growth, in many cases, without the benefit of a well thought out IT plan. They probably have an off the shelf accounting package, email, possibly a small crm system and a lot of spreadsheets. Someone hosts their website. A service bureau does their payroll. Regardless, they have grown and now number 50 employees or so.

At the next level there are the buried. This is a company, sometimes of considerable size, that is now on the second or even third generation of ownership. They have systems, somewhere, and the systems are capable of reporting month end results. Again, they look to third parties for a lot of their needs, like payroll, website, etc. But for the most part, their systems and the costs associated with them are buried.

Finally, there are the reincarnated. These are organizations led by people who have done this several times. They have worked for large companies, and led new startups. They often have venture or angel capital and have as much business savvy as large organizations. They may begin with a limited set of applications, but over time they formulate an IT plan that enables their revenue growth and keeps costs in check. They understand the value of systems. They have been there before and they personally know the costs of on-premise software.

Now which of these three companies is a good candidate for NetSuite? Well, I can take a quick gander at our own client list and tell you that about 1/3 of our clients are the Newly Born looking to upgrade to something better and the other 2/3s are the Reincarnated. The Buried show up here and there, but very rarely. From time to time a new owner takes the reins of one of the Buried and they start down a new path, but by and large the Buried are a very difficult market to sell anything into. Even in the best of times it’s hard to make inroads in this market. Why is that?

Well, the largest cost of on-premise systems, by far, is the enormous distraction they create to what should be normal business operations. Yes, I agree with Nelson that there is huge value to one system, huge value to not having to ‘spin up a server’ and even huge value to cloud implementations over on-premise. In the end, however, it is avoiding the cost of distraction that provides, to me, the real value of NetSuite and other cloud computing applications. At the Buried, the distraction has now become the normal. People don’t even notice it anymore.

My wife and I saw this firsthand recently when we stopped by a local establishment for dinner and, while waiting for a table, had a drink at the bar. While standing there and placing our order, the system went down. The bartenders made a simple announcement to the rest of the staff and they all started to manually take orders. It became paper based in a matter of minutes. I remarked about it to our server and her reply was “Oh, we’re used to it, it happens all the time.”

This is what the Buried live with every day. They have simply acclimated themselves to the fact that their systems are what they are. It may take a week to produce an inventory report in Excel but once it’s created it’s only a couple of little tweaks every month to fix it up and off we go. Multiply that effort by 200 or 300 and there you are, an information system built on the desktop, ready to go! The Sales Manager(s) may spend hours approving written commission and expense reports, but they’ve worked it into the schedule, no worries. The costs of creating, running and maintaining this ‘system’ are buried, and will remain ever so. The auditors might grumble, but they tend to grumble a bit anyway.

The difficulty for NetSuite is telling a story that helps the listener understand how the world changes when you have a integrated system that relies on real, and real time, data. The key is “Who is the listener?” I’ll talk more about that tomorrow. Right now, I must honestly get back to work helping one of the Reincarnated implement NetSuite.