January 18, 2017
David Cancel: Why Half of All SaaS Companies Will Go Out of Business

According to David Cancel, half of SaaS companies will go out of business unless they form better customer relationships.

At SaaSFest 2016, David Cancel of Drift explained that the SaaS industry has moved on from the “first era” of SaaS 1.0. We are now moving from a cloud-first mindset to a customer-first mindset, and any company that wants to stay in the game needs to get on board.

David explains in his talk why an inward, company-first approach will strand your business in the past and how SaaS 2.0 will be ruled by the customer. The key to future success is ensuring that you're connecting with—and listening to—every one of your customers. The company that gets closest to their customers wins.

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Treating People Like Leads is a Company-First Mentality

When you talk to your customers and listen to what they have to say, you treat people like people—not like leads.

But once upon a time SaaS companies didn't do this. They would make decisions that prioritized the company over the customers. As a result, customers were abstract names in a spreadsheet rather than real people to do business with.

Customer Relationships in SaaS 1.0

Most early SaaS companies were cloud-enabling: they took on-premise software solutions and made them available on the cloud. Their product wasn't commoditized yet and they didn't have hundreds of competitors. At this point SaaS companies were still unique and still in control of the process, so they were able to look inwards.

A customer's interaction with one of these early SaaS companies would look something like this:

image (38F60426-CC27-4FBF-886B-8059A622A2FB).png

Customers have to jump through an absurd number of hoops just to talk to someone about their interest in the product.

Why Company-First Alienates the Customer

This approach depersonalizes the customer interaction because no one is actually listening to the customers. Fields and attributes in databases were more important than relationships. Marketing teams were content farms and nearly everything was automated:

Dear [first name],

Did you know that [company] could benefit from this new feature...

This email feels like a form letter, and by attempting to sound personal it projects that your company is ingenuous and duplicitous. It doesn't instill trust or connection with your customer.

SaaS 1.0 companies that began 10 to 15 years ago could get away with this personalization that never felt truly personal because they still had control over the market. Yet companies that began 1 or 2 years ago are still trying to get away with this—and it isn't ever going to work today.

Marketing and sales techniques need to evolve along with the changing industry.

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Treating People Like People is a Customer-First Mentality

As the SaaS industry has come to include more fields, grow and expand more efficiently, and become saturated with competition, customers are less and less likely to put up with poor customer relationship management.

If a customer feels that they are “just another lead,” they'll take their business to another company. But if they feel that their business is appreciated by the company and they see that their needs are being answered, they'll be motivated to continue a great business relationship.

Customer Relationships in SaaS 2.0

The shift in the SaaS market and the focus on having the best customer service is motivated by the fact that customers choose companies that provide personalized experiences. A study by PWC's Digital Services group found that 94% of the surveyed senior-level executives believed personalization is important or critical to reaching customers. The industry is changing both in the way customers perceive companies and the way that companies cater to customers.

Today, SaaS companies win over their competitors by owning the customer relationship. This in evident in comparisons such as:

  • Netflix versus Blockbuster

  • Airbnb versus Hilton

  • Uber versus yellow cabs

  • Amazon versus Borders

  • Apple versus Sony

It's not enough now to just provide a product—too many other companies are doing the same thing. That's why you have to look outward and seek customer feedback. The new model for customer relationships in SaaS 2.0 looks like this:

image (C67B631B-17D0-45F5-8C1D-E6AEE7744159).png Communication is the key to making your customers feel heard and listened to.

Why Customer-First Helps You Innovate in Your Industry

Customer-first isn't just the key to winning in SaaS—it's a smart business practice for any company with competition. A company that doesn't get on board will suffer when the market competition expands.

It doesn't matter how strong or legendary your business is—you can't ignore your customers. Case in point: Henry Ford said, “If I had asked people what they wanted, they would have said faster horses.” Good thing he didn't listen to those pesky customers, right?

Not quite. Listening to his customers wouldn't have prevented Ford from inventing the Model T—but it would have saved his business when General Motors entered the picture.

By 1927 Ford sales dropped from 60% of the market 6 years earlier to 15% of the market and Henry Ford was forced to retire the Model T. GM had begun stealing customers away from Ford by listening to the market and realizing that people wanted car options for every person and every purpose.

Ford hadn't listened to his customers and had focused too much on his company. Meanwhile GM created multiple brands and sold different cars to different personas—which was just what the customers wanted.

How You Can Be Sure You're Listening to All of Your Customers

Every instance of communication should feel like it's from a helpful friend—not a sales representative targeting an MQL. This means making sure customers are getting the answers that they need when they need them.

  1. Route customers and potential customers to the appropriate teams. If a potential customer makes a pricing inquiry, they should be routed to speak to a sales team member. If a current customer has a question about the product, they should be routed to speak to a customer service team member. It's essential that you have a system that will help you interpret inquiries and route customers to speak to the people who will be able to most help them.

  2. Use a bot to recognize inquiries and answer small questions. Bots can provide helpful information to customers or reroute them to a human who can provide help—and customers don't mind getting help from bots as long as you're upfront about the fact that it's really a bot. These bots may be reactive, meaning the customer starts the conversation, or proactive, meaning the bot starts the conversation in response to actions the customer takes.

  3. Have 24/7 support if you need it. One of David's earlier companies went international several years after its founding. Yet Drift was internationalized in 15 languages within the first 6 months of business. The market is becoming more and more global, and having support available whenever any of your customers need it is essential. Bots and AI can be especially helpful for this if your support teams are not international.

In today's SaaS industry, there's no justification for not talking to your customers. Treating people like people isn't just the right thing—it's the smartest business decision for your SaaS company.

Communication Is Your Number One Priority for SaaS 2.0

Helping is the new selling and customer experience is the new marketing. At Drift, David found that communicating with customers on a one-to-one scale is crucial to their business and to the businesses that they interact with every day.

Promoting messaging and communication with your customers tells the world that you're listening. You can shape your brand around creating those amazing customer experiences for people by being open to what they have to say.

Is your SaaS company listening?

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