“I don’t want to have to know my customers by name.” – SaaS Company CEO
In early 2014, I was invited to be part of a networking roundtable series on Industrial IoT in Palo Alto. In preparation for the event, I met my host at an IoT conference in Las Vegas. He was a co-founder and the CEO of an industrial IoT SaaS (Software-as-a-Service) company. When I asked him about his go-to-market strategy, he told me:
- “We don’t want to be an enterprise software company; we want to be an Internet company.”
- “What’s the difference?”, I asked with unsophisticated curiosity.
- “An enterprise software company knows every one of its customers. I don’t want to have to know my customers by name. That doesn’t scale.”
When I look back on this discussion, I realize that my host was giving me a picture of the world in which we operate today. The “Internet,” now SaaS, business model was the way of the future.
But I like knowing my customers by name. I work hard to practice design thinking in everything I do. I endeavor to be empathetic with not just my customer, but my customers’ customer. When I first considered the logic of this Internet vs. enterprise software model comparison, I was dismayed. This was a paradox. I needed to embrace SaaS to scale for success. But how was I going to build a product that customers loved if my goal were to not have to know any of them?
Enterprise software companies do have to know each of their customers. The relationship between supplier and customers is usually tightened by customization and configuration for workflows within the enterprise. And let’s be clear, SaaS companies do know the names of each customer, but not until after they are customers. They cannot get to know people if they want to scale at the level expected from their investors. The harsh reality of these two software-based business models is that one scales exponentially and the other scales only as fast as the company can develop a relationship with each customer.
But knowing your customers needs and meeting those needs is a fundamental of any business. So how does one succeed independent of relationships-by-name? The answer to this paradox can be found in three key principles in the practice of SaaS business models.
Knowing customer names is not empathy. Understanding customer needs is.
Leaders of traditional finance industries like banking and equipment finance often stress the relationship-centric nature of their business. They hire established salespeople to acquire customers. Smaller lessors and community banks will market how they make lending decisions based not just on “anonymous numbers” but on the relationship they have with a customer. They taunt larger competitors with the flexibility their customer relationships provide.
Of course, these same leaders lose sleep every night thinking about FinTech competitors, worrying about how fast they grow. FinTech’s practice SaaS business models that scale and adapt with an incomprehensible speed in the context of the relationships and regulations of finance. They do so not by knowing each and every customer, but by knowing the needs of each and every customer intimately through empathy-based journey mapping of personas.
FinTech companies focus their development teams on deeply understanding their customers as a group and they focus on large groups – ideally growing groups. They leverage design thinking to effect empathy with their target personas through targeted interviews and digital surveying tools. They intensify their focus on empathy with a build-test-learn process that refines and confirms saleable solutions. They know that knowing names does not assure empathy, the tools of design do.
A base need of a market segment defines a standard solution that can adapt and scale
The next principle of SaaS takes advantage of the output of the first – standard solutions. When one finds the base needs of a group of people, one is not distracted by individual requests and customization. A persona-based design process generates solutions that work for a target population. The power of standard offerings is enormous. A standard offering can be produced efficiently with economies of scale. Standard offerings enable agility through single source code trees that allow new features to be deployed across the entire population of customers.
Standard offerings enable speed through automation of everything from customer service to higher priced upgrades. As long as the SaaS targets the right market segment, standard offerings grow revenue fast.
DIY solutions are elegant and scale exponentially
The other big advantage of properly targeted empathy is scale. Scale is the economic result of adoption and adoption comes from the elegant alignment of solutions to not just needs, but user capabilities. SaaS offerings lean on DIY for purchasing, configuration, installation, and even customer service. When a SaaS offering works, even the marketing of that offering is DIY because all it takes to close the next customer is for that customer to see enough “stars” to find their way to the sign-in page.
If a company can onboard a new customer with automated tools, e.g., “please provide your name and banking information”, scale is limited by the technology, not the humans in the organization. SaaS companies today leverage automated identification and security that is easy to use, e.g., two-factor and biometric sign-ins. SaaS companies know their customers behaviors and preferences so well that their last step in closing the deal is often the first step — a customer providing their name. DIY can, and should, be elegant.
When I look back to that insightful conversation in Las Vegas, I recognize that what first seemed like an impossible task for SaaS developers — creating rapid growth without customer relationships, i.e. knowing your customers by name — is a false paradox. In the digital age, names are not required for empathy. In the digital age personal interactions are still valuable, but too slow to drive growth.
Fortunately, the path forward has been demonstrated, repeatedly, by successful SaaS companies. Whether a leasing or leasing software company the business must focus on defining its customers as a market segment. Leverage relationships, but do not focus on them as the key to transactions. Meeting the needs of a segment enables more durable and agile offerings that reduce the costs of customization so commonly found in equipment finance. Finally, leverage the tools of the digital age with an empathetic design process to make it easy for customers to use and buy an offering. These three principles will break the SaaS paradox and deliver scale beyond that of a traditional relationship-based model.