This is a real world example of the Sustainable Growth Rate, which is a financial concept that applies to any business.
The unprofitable SaaS business model trap
91–99 of 99 posts
Re: The unprofitable SaaS business model trap
#92Earlier quoted context omitted.
they exist, i know of at least one example. but they are not public (yet), hence their financials are not widely known. soon though. your techdisruptive article is very much focused on the SAP take on this, transforming themselves into SaaS. there is big demand in SaaS for real turn-key solutions, rather than the classic generic enterprise software that needed an army of consultants to even boot up. customers want th…
> there is big demand in SaaS for real turn-key solutions, rather than the classic generic enterprise software that needed an army of consultants to even boot up. "classic enterprise software" is turn-key.... The challenges for SAP to transform themselves into a profitable SaaS are no different than any enterprise SaaS trying to be profitable.
no. classic SAP or ORA is generic, they have certain industry templates but applying them is far from easy and fast. there is no way to simply turn on SAP CRM and start working with it say as a biotech.
Re: The unprofitable SaaS business model trap
#93Earlier quoted context omitted.
You can sell razors at a loss if people buy your razorblades at a substantial profit.
You are of course right. The problem is that software companies end up doing the exact opposite more often than one would expect. We do the equivalent of selling razors at a profit, and to make the deal sweeter throw in the commitment to provide "as many razors" as the customer can possibly demand, and replacement razors at heavy discounts... for as long as there's an entity called McRazors, Inc.
That's one problem. Another problem is bad estimates of how much the razors cost and/or how much profit they're actually making on the razor blades.
Re: The unprofitable SaaS business model trap
#94Earlier quoted context omitted.
Instagram. There are businesses that can succeed at it, but they rely on not making money until acquisition, where the acquirer bets that they will add other value down the line. That said, it is not an avenue I necessarily want to follow.
But Instagram didn't make money as a company for itself, Instagram itself was sold and made money for the founders/investors. The two are not the same.
I'm not making that argument necessarily. If you only define success as making money in general revenue, it doesn't fit the bill.
But to me, selling for $1bn (at the outset), is definitely a success.
Re: The unprofitable SaaS business model trap
#95Marketo was founded in 2006. Eloqua was founded in 1999. They're now only $10 million in revenue apart. If you were asked to it wouldn't be too hard to put together an argument supporting that Eloqua was too conservative and allowed Marketo to overtake them by being overly aggressive.
Your job, if you're running these companies, is to make your shareholders happy and create a large return. i) Did this happen for the VC's involved? ii) Is this now happening in the public markets? Those are the (only) questions that matter.
Re: The unprofitable SaaS business model trap
#96Re: The unprofitable SaaS business model trap
#97Re: The unprofitable SaaS business model trap
#98Earlier quoted context omitted.
But Instagram didn't make money as a company for itself, Instagram itself was sold and made money for the founders/investors. The two are not the same.
I'm not making that argument necessarily. If you only define success as making money in general revenue, it doesn't fit the bill. But to me, selling for $1bn (at the outset), is definitely a success.
For the founder and the seed investors and the VCs, certainly it was a great success. From my perspective, that's a type of success is exceedingly rare, akin to winning the lottery.
That mindset doesn't fit with my own personal goal of building a business that returns consistent profits, preferably as soon as possible after launch.
Re: The unprofitable SaaS business model trap
#99Earlier quoted context omitted.
You said annual?
Yes. Are you saying that annual retention (not churn) of <20% is considered strong?
Sorry I meant churn, but >80% annual retention is very good. 98% annual retention is unheard of in pretty much any decently sized business I've seen.