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There is No Book on Running SaaS Companies

October 21, 2014

I’ve been charging for content for most of my 20 year career.  I got started during my junior year in undergrad in 1994 by selling a $100 annual subscription to chat online at TheGlobe.com.  By the end of the first year, we had a USPS box stuffed with checks (credit cards were accepted online, but not popular).  It took however a couple years to really understand willingness to pay and how to price the product.  In those days, there was no SaaS acronym or rush of VC’s to back these models.  There was only AOL and smaller niche communities like The Well to try to model off of.  And just as we got the hang of it, the euphoria of Internet 1.0 conditioned users to expect free service, for everything. Our nascent business model was swept away in 1998 like a sandcastle at the beach.  We reluctantly moved on to an advertising dependent model.

Over the years I’ve accumulated a trove of favorite articles and key learnings about subscription models.  Professors Hal Varian and Carl Shapiro from Berkeley’s Haas School, Information Rules, remains a favorite, as does Rafi Mohammed’s body of work on pricing.  His 2005 book on pricing, The Art of Pricing, is a great, straight-forward entry point for anyone getting started. CEO Dale Pollak of vAuto too was instrumental in seeding ideas for maximizing price.

Now I lead MediaRadar, a company that helps ad sales teams improve their sales performance by providing them the best intelligence on the market. We work with websites, but an equal number of magazines and newspapers, too. This means providing the very best prospecting tools and fantastic insights on how to best pitch an advertiser.  Think of a marriage between the prescriptive advice of Cliffs Notes and the sophisticated data model of a Bloomberg terminal.  We’ve made more than our fair share of errors, but we’ve also built a meaningful business with more than 1,200 clients with the sales teams at ESPN to Bloomberg relying on MediaRadar.

What I Have Learned:

These learnings are in no particular order, but are all fundamental in a subscription business.

  1. Prove your value to clients. I don’t mean this statement in a generic “you must do good” way, but in a specific, measurable report. Strive to offer value at least 6 times the investment, or more, for clients to be happy. Dan Miller from The Roda Group whispered this fact to me early in my career. He was right! We track ROI and issue ROI reports to clients to help them measure the impact MediaRadar has on their business.
  2. Reduce friction to evaluate your product. You’re selling a subscription. Let prospective clients try the product, before they buy. We let prospective clients request demos and trials from the website, a mobile device, and of course by calling in.  Do not charge for the trial, even if there’s setup work to be done.  You want it to be easy for someone to see if you can help their business.
  3. Push trials. Set a high bar by offering a meaningful trial. Many SaaS companies don’t offer trials. My feeling is this: If clients don’t want our product after they sample it, our product is not good enough! You might say price could be too high. This could be true, but do you want to be the low price leader?
  4. Introduce new products and charge for them. Clients understand that to innovate requires an investment and new products cost something. It’s also a great way to force new products being developed to “pay their way”.  If no one buys, you know you’re off the mark.
  5. Test many purchase models. Be empirical. We have tested trial length, level of user engagement in trial, freemium models, etc. There is no single, right model (hello Angry Birds!). But there is a process that leads to success. In my experience it’s been easy to say you’re going to be empirical, but implementing the tracking is complex and often tedious. Limit the number of trials so you get enough data to be statistically significant.
  6. Nurture renewals. If you’re in a subscription business, the renewal is just as important as the original sale.  It’s easy to lose sight of this. We’ve learned that higher renewals are achieved by starting the process early.  We’ve also learned that internally renewals need to be emphasized.  Dedicate personnel.  Finally, you need to study and discuss failure openly and celebrate the successes, repeatedly.

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