How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects From A Business Development Perspective [1 ed.] 9783954891818, 9783954896813

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Thomas Buchegger

How to start up a software business within a cloud computing environment

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An evaluation of aspects from a business development perspective

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Buchegger, Thomas: How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective. Hamburg, Anchor Academic Publishing 2014 Buch-ISBN: 978-3-95489-681-3 PDF-eBook-ISBN: 978-3-95489-181-8 Druck/Herstellung: Anchor Academic Publishing, Hamburg, 2014 Bibliografische Information der Deutschen Nationalbibliothek: Die Deutsche Nationalbibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet über http://dnb.d-nb.de abrufbar. Bibliographical Information of the German National Library: The German National Library lists this publication in the German National Bibliography. Detailed bibliographic data can be found at: http://dnb.d-nb.de

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Cloud computing is an online based technology approach that is used to deploy, operate and distribute “Software as a Service”. Therefore, cloud computing offers storage, computing hours and other more complex subjects in the form of a service and by a pay-as-you-use model – primarily to Software vendors. Software vendors themselves can benefit from cloud computing by running their own software and offering it as a service to their own customers. The author evaluates the effects of cloud computing for business development

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in software start up companies.

How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Acknowledgement I would like to thank my employer runtime software in Stuttgart, with CEO Markus Eilers leading the way, for enabling me to write this book and their remarkable support during this period. Cordial thanks to the management team of the investigated company for providing me with insights into their core business development processes, answering unlimited questions and leading many discussions. Furthermore, I would like to thank several employees at Microsoft for a vast number of subject related discussions and insights. A special thank to Mr. John Unruh for his valuable inspiration, faithful feedback and extraordinary support. The final thank you is extended to my better half Sonja as well as my family. Without your encouragement, support and love I would not have been able to take this effort.

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Thank you very much to all of you.

How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Table of Contents ListofFigures.......................................................................................................................IX Chapter1:Introduction........................................................................................................11 Background.............................................................................................................................11 AimsandObjectives................................................................................................................12 Methodologicalapproach.......................................................................................................15 Chapter2:LiteratureReview................................................................................................16 Introduction............................................................................................................................16 BusinessDevelopmentFramework.........................................................................................18 SoftwareasaServiceframework............................................................................................26 Thecustomer’sviewpointsonSoftwareasaService.............................................................30 Conclusion...............................................................................................................................33 Chapter3:Methodology......................................................................................................35 Introduction............................................................................................................................35 Justificationforcasestudyselection......................................................................................36 Marketview............................................................................................................................37 CashOnePro.............................................................................................................................41 Conclusion...............................................................................................................................53 Chapter4:ResultsandDiscussion........................................................................................53 Summaryoftheresultsintheliterature.................................................................................53 Summaryofsurveyresults......................................................................................................58

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Summaryofcasestudyresults................................................................................................61 Discussionofresearchfindings...............................................................................................64 Answerstoresearchquestions...............................................................................................67 Conclusion...............................................................................................................................75 



How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Chapter5:Conclusion..........................................................................................................76 Introduction............................................................................................................................76 Keyfindings.............................................................................................................................76 Recommendations..................................................................................................................78 Keysuccessfactors..................................................................................................................79 Scopeforfurtherresearch......................................................................................................80 Conclusion...............................................................................................................................81 Annexures...........................................................................................................................82 Questionnaireanalysis............................................................................................................82

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References..........................................................................................................................86



How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

List of Figures Figure 1: Diffusion of Innovation............................................................................................23 Figure 2: Long Tail...................................................................................................................31 Figure 3: SaaS Sales Process................................................................................................49

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Figure 4: Recurring Revenues from SaaS Business..........................................................52

IX 

How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Copyright © 2013. Diplomica Verlag. All rights reserved. How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Chapter 1: Introduction Background The entire software and information technology industry is currently facing a change of paradigm as the era of traditional business software is facing a massive theoretical shift and many common software offerings will be transformed into software service. These circumstances will not only influence the way companies develop software, moreover it will have drastic impacts on entire business models (Saugatuck, 2010). Software as a Service (SaaS) is part of the cloud computing concept and mixes up business-to-business offerings with a consumer-oriented approach (Gross, 2010). Former well-defined limitations between business-to-business and business-to-consumer products have become softer. Users of software and services typically favor well-designed software in terms of both usability and appearance. Experts often mention the terminus “consumerization of IT” in this context (Gross, 2010). Nowadays consumers are in constant touch with software and applications and consumeroriented applications are typically more standardized, better looking and easier to use than business applications. A typical SaaS offering exists physically just once on one cloud platform and is run in a multi-tenancy environment (Koenig, 2006). In other words this means that there is just one physical version of

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software that is delivered to all customers. To provide better understanding, Software as a Service (SaaS) is being delivered in a similar way like conventional websites, where every visitor comes to see physically the same website. This new concept of distributing Software as a Service requires a high level of standardization, which is reasonable due to the fact that the target group should

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

be as large as possible and therefor the scope for individualization and customizing is decreasing enormously. Experts are apprehensive that standardization will be enforced to the disadvantage of the level of customization (Schwartz, 2005), and this is just one indicator that the entire software industry is in a state of flux. Another indicator is that one of the most common business models in software business, which consists of a unique license fee plus annual service fees, will be replaced by a variety of pay-as-you-go payment plans. New payment options and dynamic usage plans are just one result of a big change in software business. The market entry barriers into the software industry for new businesses are lower than ever before. On the other hand the way to a Software as a Service (SaaS) offering for an existing Individual Software Vendor (ISV) is not that easy because it goes hand in hand with a couple of risks for their existing business. From the viewpoint of an Individual Software Vendor it is important to find the right mixture of business development aspects and adjust their priorities in accordance with the SaaS offering.

Aims and Objectives When establishing a SaaS business the most important aspects of business

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development probably come from the common business models in the software industry, because SaaS and the concept of cloud computing brings many new opportunities, such as scalability, internationalization and marketing-driven sales as well as with a large number of variations; for instance, a higher cash intake over time instead of a high upfront license sell-off (Ratameta & Veeragandham, 2009, pp. 17 - 21). A new venture will have to consider several

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

factors for a long period before they start to be productive, like stressing the opportunity, creating a sustainable team of creators and followers, setting up strategies and much more (Copeland & Om Malik, 2006, pp. 78 - 81). The objective of this book was to find out on what aspects of business development successful ventures starting their business particularly in a cloud computing environment paid more attention to and their relevance to start up companies in the software business. The current research was authored to assess what aspects of business development are essential to create a successful SaaS venture and where SaaS business creation differs from the traditional way of software business creation in relation to an on-premise software approach. The analysis concentrated on both research methods and professional ways of proceeding. The data collected was carried out by merging information that was gathered out of evaluating a questionnaire with IT decisionmakers on the buyer’s side and compiling a case study with a successful SaaS vendor. This book focused on the need of new ventures to make decisions in respect of a potential cloud / SaaS strategy. The investigated aspects of business development were primarily corporate strategy, product development, marketing, sales (with a special focus on pricing strategies and models), distribution and

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the special aspects of business acceleration. On the other side, it was important to find out what successful companies left undone with intent, as Porter (cited in Oblinger, 2011) stated that it is more important for a company´s strategy to know what not to do instead of what to do. It was an indispensable requirement for this book to research a company

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

that has a SaaS offering available and runs a scalable business (Shane & Kataraman, 2000, p. 223). Founders of start ups need to make decisions about further investments over a long period of time before they see if their new venture is failing or succeeding (Jay & Gregory, p. 391), which requires professional business development. This project should help us to understand what aspects of business development are crucial and what negative effects can emerge when business development is neglected. Amongst other things it has to be clarified whether successful ventures defined their product/service and if tools like the Six Sigma Product Development Circle (Wilson, 2005, p. 62), TQ/TQM and Lean (Bhasin, 2006, p. 56) were helpful. In addition to the variables named above, which can have an impact on the success or failure of a venture, a further objective of this project was to understand whether some aspects of business development were not just very important to the company, but especially accelerated the organization because of their Software as a Service offering (SaaS). I hope to answer the question: "What aspects of business development do entrepreneurs of Software as a Service start up companies regard as the most important?" In that aim, the following research questions were helpful:

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What business models work well for a SaaS start up? What characteristics show markets and target groups that are suited to SaaS offerings? What kinds of new opportunities come along with the offering of Software as a Service?

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Which marketing and sales approaches have produced better results? How important is uniqueness in relation to the business concept? What steps of common business planning are the most important?

Methodological approach The method is all about researching successful businesses. The author researched a company that can be described as a successful start up with a successful SaaS offering. To get a better understanding of their key success factors, the author completed a couple of introductory interviews with the founders, account managers, partners, potential customers and customers. Furthermore the company provided the author with detailed background information, financial information, business plans and strategy papers. This information was aggregated into a case study. For the purpose of anonymity and nondisclosure the company is called CashOnePro, whereby this name is a fancy name. Furthermore the author collected qualitative data from interviews with purchasing decision-makers in the software business. The qualitative data includes specific answers to major questions regarding Software as a Service (SaaS) as well as traditional questions concerning on-premise software – especially

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regarding differences in decision making, customers’ expectations, viewpoints and best practices – in order to increase the value of the results. The research was made up of 35 interviews with attendees of 2012 CeBIT – one of the world’s largest exhibitions for software and information technology.

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Chapter 2: Literature Review Introduction The concept of cloud computing consists of three different layers: Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service (SaaS) (Korzeniowski, 2010). Infrastructure and Platform as a Service are more technical concepts that provide computing power and storage capacity, and respectively runtime and development of environments on demand. Over the past years the market for hosting has been surfacing toward on demand offerings on a more elastic, pay what you use basis (Leong & Chamberlin, 2010). Global cloud computing providers established cloud data centers to make IaaS and PaaS available for customers, which are typically individual software vendors (ISV´s) that use the cloud data centers to provide their own Software as a Service (SaaS). SaaS means that an ISV provides software that is run in a cloud data center instead of an on-premise installation at the customer’s private data center (Guo et al., 2011, pp 2 – 3). So the main and obvious differentiation between SaaS and the long-known license selling model is that the customer does not need to care for appropriate servers and administration of the software, because the requirements for the use of SaaS are typically the availability of an internet connection and a frontend device like a computer or

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mobile device. Due to the fact that software becomes available without the need for one´s own servers and infrastructure, and without the burden to invest in a software license, small and medium sized-businesses as well as entities and departments of organizations become an interesting target group for SaaS providers (Agrawal et al., 2011, pp. 8 – 10).

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Business development is a steady process of advancement with the aim of improving the performance of a company. It begins at the stage where an idea is transformed into an opportunity that can be characterized by 1. Adding some kind of value to the customer 2. Answering a certain problem, desire, want or need and the important thing here in this respect is that the customer is willing to pay for it 3. Being positioned into a robust, large enough, growing market that allows high gross margins as well as early free cash-flow, and high profit potential as well as solid, sustainable and trustworthy returns for potential investors 4. Matching with the entrepreneurs in relation to time, marketplace and risk-reward balance. (Timmons & Spinelli, 2010, p. 150) Furthermore, the aspects of business development include, roughly speaking, the characteristics of marketing, sales, product design, as well as financial planning and corporate strategy. Another approach to business development – especially for the purpose of developing smaller companies and start ups – is an iterative circle of actions that consider the aim of permanent improvement by analyzing the current situation, identifying the potential for improvement and simply doing it (Butler, 2011, pp. 14 - 17). Further points of interest are the

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relationship between the customer and the service provider, the way the provider attracts new customers and the delivery method of the cloud offering. To distinguish the business development framework from other fields, topics like business process management, business operations management, software development methods, human resource management, accounting and finance,

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

quality assurance or project management are not the subjects of deeper investigation. Chapter 2 provides the essential information on the concept of establishing a start up company within the cloud computing business environment. It proves interconnections between universally valid knowledge about business development and the specialties that are applicable for SaaS companies. Therefore, in a first step the two frameworks of business development and SaaS are screened and, secondly, the coherences, overlaps and inferences are worked out.

Business Development Framework Important aspects of business development from an ISV view Funding by venture capital or angel investors has been recognized as substantial equipment for the creation of new ventures in information technology. Particularly within the first year, a new venture will face very high investments in product development, marketing and sales (Harrison, Mason & Girling, 2004). Depending on what special business the new venture is going to enter into the acquisition of own server farms or the lease of servers in a data center can be connected to tremendous capital commitment.

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Having a detailed business plan available is a key success accelerator. The decisive factor with a business plan is not that the entrepreneur is very good in guessing what will happen in five years, but that it has the absolute necessity of setting goals. Entrepreneurs should make sure that they set goals, since it is important to make sure that everybody who is involved knows exactly what the

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

goal is. This is not a question of understanding the overall mission or the vision of product or a service, it is more about the chief architects and designers having a common, detailed mental picture of the product so they are able to transmit both the overall picture as well as break it down into pieces in the puzzle (Bersoff, 1994). Unfortunately, developing good software is just half the battle. The software – assuming that it is delivering value to customers – must find its way to customers through sales. From the point of time when someone is writing the first lines of code until someone pays for the usage of software a long time can pass and this time can require enormous amounts of money. In the case of venture capital involvement the capitalist’s goal is to find out as early as possible whether the software will be successful (Mann & Sager, 2006). When launching a software service in a cloud environment this means that the vendor simply deploys an application to a cloud data center with just a few clicks and makes it available to all potential customers all over the world. The start up would be able to start with a beta version or a friendly user version without any further investments in own server infrastructure and does not need to worry about physical distribution. The idea behind the new business is that it has to be transformed into an opportunity. A good idea is not automatically a valuable opportunity. Only four

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out of 100 ideas – presented to potential investors in the form of a business plan – get to become a start up company (Timmons & Spinelli, 2009, p. 111). Software is a very special kind of product, because it is not tangible and its value is not easy to quantify as it typically consists of just a CD-ROM. Business software typically needs to meet a customer’s requirements. The more custom-

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

ers whose requirements can potentially be satisfied the larger the ISV´s potential target group is. This leads to the strategy to create software that is as comprehensive as possible (Kittlaus & Clough, 2009, pp. 47 - 54). Standard business software applications like SAP, Microsoft Office or Dynamics are equipped with a very wide range of features and allow a high level of customizing and a wide variety of upgrading possibilities. Customizing, upgrading and down streamed service and support offerings are characteristically part of the on premise software business. In particular, support and after sales revenues are typically substantial fragments of on premise business models on the one side, but for the customer on the other side there is a certain form of risk in terms of dependency and unpredictable expenses. Therefore, most large ISV´s have established an ecosystem of software partners and system integrators that care about selling the ISV´s software applications to customers as well as adapting the software to the customer’s specific business processes and requirements (Dinsmore & O´Connor, 2005, pp. 14 – 15). Derived from the fact that a software customer needs to purchase not only software licenses, but also has to invest in consulting, implementation, server infrastructure and software updates, the aspect of pricing – and associated with

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that the entire sales strategy – is significant. In contrast to other industries that deal with physical products, in the software business the unit costs are virtually zero. This fact does not make it easier to find the best fitting price for the product, as from the customer’s point of view the value of software – by the meaning of which problems can be individually solved with it – is subject to

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

individual evaluation. The more complex feature stack of an application is, the more difficult the evaluation and therefore the pricing are (Coburn, 2005, pp. 13 - 17). On the other side it cannot be kept as a secret that companies that serve niches or focus on very specialized businesses can survive easier than more general oriented companies, because they are not facing such a large number of competitors and it is easier for them to work out their distinguishing characteristics. As such, specialist corporations generally last longer than broader focused ones (Romanelli, 1989, p. 385). One proof for this can be found in the business concept of Dropbox Inc. The company was founded in 2007 and offers a SaaS solution for sharing, hosting and synchronizing files. No more, no less – but Dropbox generates its easy business concept to very high growth rates (Fowler & Vascellaro, J., 2012). This richness of features implies that the application is most often in need of explanation by pre-sales consultants. Added to this, customers want to see the software in a realistic environment before they make their decision. This means that high expenses through sales consulting might arise and that the timeframe for making a decision can last for more than a year. So the ISV has to think twice about whether to invest in a sales opportunity and of course has to find the critical mass in terms of the lower limit of the number of potential users. This

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leads to the situation that designing applications for and selling solutions to large enterprises and the upper mid-sized-company sector is the more lucrative option for ISVs. According to Rogers (1962, pp. 282 – 283), there are five different types of technology adopters. The so-called innovators are the first movers that a SaaS

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

vendor could win as customers. Roger´s viewpoint was directed towards an end consumer´s behavior and so he characterizes innovators as of young of age, dynamic, prepared to take risks and part of a higher social class. SaaS vendors don´t typically sell their services to end consumers, but due to convergences between business decision makers and end consumers, which can be best described as the consumerization of IT (Gross, 2010), it can be assumed that SaaS

vendors

can

draw

back

conclusions

from

Rogers´

findings.

The second group that adopts technology is called ´early adopters´ and differs from innovators by an advanced manifestation of opinion leadership though the mass of customers can be found in the early majority and late majority group. Both groups adopt innovations only after a certain period of time, whereby faster success within the first two groups probably could have an impact on the time to reach the majority groups, as they want to make sure that a solution which was proved by others can be achieved by contact with early adopters (early

majority)

or

by

contact

with

early

majority

(late

majority).

For the sake of completeness there are also laggards that are characterized by

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the adoption of technology at a very late stage.

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Figure 1: Diffusion of Innovation

Source: Everett Rogers (1962) So the aim of a SaaS vendor should be to pass through the first two levels by attracting innovators and early adopters very quickly and typical SaaS business models can be very helpful for that. For instance free beta phases, friendly user phases or free trial offerings help to accelerate innovators and early adopters. The BCG (Boston Consulting Group) matrix, which is often called the Boston Portfolio Matrix illustrates the correlation between product lifecycle in terms of market growth and relative market shares. The matrix is divided into four squares with four different recommendations for further action:

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1. “Dogs” (low market share/low market growth) should be reassessed as long as no progress can be detected after a certain period of time 2. “Question marks” (low market share/high market growth) are typically newcomer products and the question is whether the company should invest or forsake

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

3. “Cash Cows” (high market share/low market growth) usually don´t require further investment but will deliver constantly high cash flows 4. “Stars” (high market share/high market growth) are the most promising products and the company could try to optimize i.e. with higher contribution margins. The BCG matrix can be overlaid with Rogers model as it considers the view of relative market share and market growth rate (Henderson, 2005, pp. 43 - 46). Again from an SaaS provider´s viewpoint a relative market share can be increased by selling faster than competitors, which can be achieved by focusing on Roger´s target groups. The market growth rate can be assumed from the feedback that should be generated out of the introduction of the service to innovators and early adopters (Rogers, 1962, pp. 282 – 283). Knowing and understanding the customer is not only important in product design, but also in selling software applications. The customer wants to feel understood and sales managers have to demonstrate that they understand the customers’ business and bring value to their business as a consequence. This need for understanding at the buyer’s side often arises from the background that the customer does not understand the software at all, but it is easier to make a purchasing decision as long as the decision-maker feels understood by

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the other party (Foerster, 2009, p. 125). This plays a part in contributing to the conclusion that software vendors tend to focus on dedicated industries, although their solution would fit for other industries too. Business software is usually oriented towards business processes along the value chain. This opens a wide field for interfaces and complementary products.

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Even if a complementary product does not have very high sales potential, it could be an enriching feature or have a competitive advantage like simplicity, interfaces to other systems or different usage limitations, which influence the customer’s decision on the overall solution. A competitive advantage is characterized as it is a tactical advance of one company against rivals.

(Sengupta,

1998, p. 354). A complementary product strategy can include new possibilities for front-end devices like bar code scanners or smartphone applications as well as supplementary software applications for affiliated divisions or other entities within the customers’ ecosystem. In particular, lightweight applications with a smaller feature stack for the use on smartphones and tablets have seemed to have a more and more demanded implicitness. Piracy is a tender subject in software industries. According to the Business Software Alliance the worldwide loss throughout software piracy in 2010 was almost 60 billion USD (BSA, 2011). This is a serious problem for ISV´s, because it is very difficult to detect pirated material. On the other side, studies show that software piracy is indirectly responsible for a large part of the acquisition of new customers (Givon, Mahajan & Muller, 1995, pp. 34 - 35). Today most software vendors offer free test versions of their software to counter this situation. To avoid misusage, the free usage of the software is limited to a

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certain period of time and must be registered via telephone or the internet for safeguarding the ISV (Kittlaus & Clough, 2009, p. 147). Particularly in the last few years a cultural shift in software business has been detected. Solid literature on venture creation is typically about the importance of USP´s, and sustainable and competitive advantages. Some successful IT

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

entrepreneurs in recent years have come up with a major and different approach whereby it seems like the idea of a USP does not play a very significant role due to the fact that the industry is growing fast. In fact the new big trend in software design is lightweight, simple and easy to understand applications that are distributed via social media, smartphones or tablets. Within this scope apps are typically replaceable by other, similar apps and the differences between the offerings are rather minor and can often be summarized as a matter of taste. What goes against the principles of product development is put in a nutshell by the advice “Underdo your competition” (Fried & Hansson, 2010). With this it is not automatically meant that the offering does not need to be better than competing offerings, but to a greater degree the advice is to make the functionality still sharper, better to understand and better to use. This is one effect that comes along with the trend of the consumerization of IT, when customers favor smart and lightweight applications instead of a feature-overloaded all-round product (McCafferty & Reisinger, 2011, p. 8).

Software as a Service framework From an ISV start up business point of view SaaS is a big opportunity to enter markets that are typically dominated by large software vendors. Small companies and start ups can be fast and flexible in attracting global customers with a

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SaaS offering. A business model is a description of the value a company offers and delivers to customers in order to generate profitable and sustainable value (Ojala & Tyrväinen, 2011, p. 2). SaaS means that the customer pays a periodic fee for the usage of the service. Independently from the “pay per whatever” (for instance per user, per month, per transaction etc.) model, the SaaS vendor can

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

assume that a large part of the revenues from one period can be brought forth to the next period. So revenue forecasts build up on summing up existing revenues multiplied with the company´s overall retention rate plus new contract value increase (Saugatuck, 2008, pp. 7-9). This payment model causes a permanent increasing stream of incoming cash and enables the SaaS vendor to generate an overall higher amount of cash than with an on premise offering. The multi-tenancy approach (Koenig, 2006) allows the SaaS vendor a very easy way to foster software deployment and distribution to customers. Cloud data centers are prepared to handle software requests globally and allow the vendor to offer the software service to potential customers all over the world. When selling software services online, and initially via marketing channels, the SaaS vendor typically provides free trials or even a free version with limited functionality. To win a customer it is important to provide the opportunity to test the software service extensively (Saugatuck, 2008, p. 23). Additionally, some SaaS vendors make use of a viralization effect. Dropbox – a very popular US-based software start up with a SaaS offering – makes use of both a freemium pricing model (free basic model or premium fee based offering) in combination with a viral business model. The idea of Dropbox is to easily

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share and backup files in the cloud. One of the competitive advantages of the service is the integration into the file directory (i.e. Windows Explorer). So the files are saved on the local drive, synchronized with the cloud service and shared from the cloud to others. Whenever an existing user wants to share a file with someone else the other person has to subscribe to Dropbox too. This invite-to-use concept accomplishes further awareness without marketing

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

expenses. New subscribers can use a free version with less capacity but with more or less full functionality. This again causes further viralization, even if the subscriber does pay for the service, but new subscribers will be attracted again. Apart from the fact that expenses for software development arise in any case, a cloud based software distribution model ensures scalable infrastructure expenses. The SaaS vendor does not need to care for their own technical infrastructure and the cloud data center providers would charge only the real consumed capacity (Espadas et al., 2011). This pricing model is typical for cloud computing and enables the SaaS vendor to offer the service at a comparatively low price (Saugatuck, 2008, pp.11 - 12). A pricing strategy is important to a SaaS venture, but it is typically not part of the set of competitive advantages, as a pricing model is too easy to imitate. Based on this cloud pricing model four different payment schemes for the pricing of the SaaS offering can be determined: 1) Base fee + usage fee: this is the most secure and probably most profitable pricing scheme. It guarantees the SaaS vendor a consistent stream of income throughout the base fee. The usage fee generates additional revenues and cares simultaneously for risk reduction because the usage fee would typically cover all data center costs that are associated with Copyright © 2013. Diplomica Verlag. All rights reserved.

the user´s consumption. A variation of this model is the inclusion of a limited service package inside the base fee. Typically the base fee is equal to the usage fee plus a little encore.

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

2) Usage only fee: compared to model 1 this pricing model is very closely related to the generated expenses in the data center. It does not generate consistent revenues but the real pay what you use model can be a competitive advantage against other vendors. 3) Monthly, quarterly or yearly fixed amounts are very popular for services with predictable usage behavior or with at least predictable overall usage behavior with the result that the SaaS vendor does not run the risk of generating higher cloud data center expenses than revenues from the SaaS business. In addition, a monthly amount is typically connected with some kind of quantity (i.e. monthly fee per company, per user or per fixed number of employees). Added to this, SaaS users typically have to subscribe for a certain period of time (i.e. one year). Acceleration is one of the driving factors for SaaS vendors. Globalization, higher bandwidth and the technological progress on cloud infrastructure offer a meaningful framework for creating new cloud services and to speeding up revenues very quickly. In combination with a high market demand SaaS can be like a take-off ramp for startups: In the year 2012 80 percent of the Fortune 1000

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companies will be subscribed to cloud services (Gartner, 2011, p. 5). The case becomes even clearer when taking a look on the supplier’s side of the market. Almost 90% of new software startup companies show up with cloud services or cloud related services and even up to 80% of new products of traditional ISV´s are cloud services or cloud related services (Gens, 2010, p3).

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Comparing the efforts for a startup company with a cloud-oriented approach to a start up with a traditional on premise licensing selling model the on premise start up will be facing higher upfront investments. The potential higher return on investment for the cloud business can result from both lower upfront costs plus the opportunity of higher revenues throughout their marketing driven sales approach (West, 2011, p2).

The customer’s viewpoints on Software as a Service The above described multi-tenant platform approach encourages a marketing driven sales strategy to offer services to the long tail of the markets (Elberse, 2008). The long tail as a target group also means a paradigm shift in product design for the entire IT industry. Whilst common software vendors typically design software with a market focus on large companies, SaaS providers will address more and more small and medium sized-businesses. This requires them to place the business value of the service upfront within the solution and then offer a transparent payment plan that creates room for the customer to

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make an easy decision (Browning, 2011, pp. 4 – 5).

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Figure 2: Long Tail

Source: Thomas Buchegger (2012) referring to Chris Anderson (2010) From a customer´s viewpoint this is a very important factor because small businesses in particular get a great chance to make use of valuable software service in fields where on premise software vendors would not take the effort of a sales pitch upon themselves. In terms of total costs of ownership (TCO) small customers won´t pay much more than large enterprises because the accruing overhead costs are limited to Copyright © 2013. Diplomica Verlag. All rights reserved.

the implementation itself and not as it used to be for hardware infrastructure (Murray, 2007). Even the costs of implementation are typically lower than for the implementation of on premise software because SaaS offerings are typically more focused on one or only a few specific tasks, features or functions and are therefore easier to use (Dippenaar & Butler, 2008).

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Current research by Nucleus (cited in McKay, 2008, p. 3) shows that SaaS was a small business model only in the beginning, because even in 2008 almost two out of three companies with more than 1,000 employees already used one or more on demand service. Forrester (cited in Frauenheim, 2010) takes a very similar line as they found out that only 14 percent of the researched companies are not interested in implementing SaaS. Their core concerns are -

Security (51%)

-

Integration challenges with other applications (40%)

-

Lack of customization (34%)

-

Total cost concerns (33%)

-

Difficulty and risk of migration or installation (29%)

-

Application performance (27%)

-

Complicated pricing models (21%)

A further difference can be detected in decision-making on the customer´s side. On premises installations do not get around a customer´s IT department because the software needs to be installed inside of their own datacenter and then needs to be administrated by the IT department (Nie, She & Chen, 2011). The initial set up of a SaaS subscription requires filling out a basic application form and a credit card so accessibility to software becomes much easier and

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faster and even without approval of the IT department. As companies, especially large enterprises, let their data slip away by subscribing to a Software as a Service, there is also a major advantage seen in terms of easy and rapid data restore and back up opportunities (McKay, 2008, p. 3). By

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

researching the areas of operation the top five answers (Frauenheim, 2010) are: -

Sales force automation (29%)

-

Human capital management (29%)

-

Customer service and support (27%)

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Collaboration and support (25%)

-

Marketing automation (24%)

When taking a closer look at the top reasons for adopting on demand services a greater part of the researched businesses answered lower expenses, faster implementation, but also deficits in their own technological ability to implement (on premise) software solutions. The Forrester´s 2009 research generated another interesting insight - 55% of SaaS subscribers stated that they just wanted to find a solution that simply accommodated their demands and did not care whether it was a SaaS solution or not. (Frauenheim, 2010)

Conclusion The theoretical model of business development for software businesses does not differ very much from business development in general. It shows that traditional software development is very complex because the business devel-

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opment process is very focused on a close interaction with the customer and the end product should allow for a very high level of customization. However, the most important characteristic is the pricing (=licensing) model in combination with a consulting engagement for customization and implementation.

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Business development in Software as a Service differs significantly in its methods of distribution (cloud), pricing models (subscription) and limited imple-

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mentation phases.

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Chapter 3: Methodology Introduction As the literature review has been accompanied on behalf of the relations for business development of startup companies in a SaaS environment, the next step is to take a closer look into a practical role model for cloud computing. This chapter describes why the author decided to do a case study and what turned the balance to consider CashOnePro as the main subject of investigation. Chapter 3 also includes a detailed analysis on what aspects of business development the company has paid a lot attention to and where they deviate from the assumed course. CashOnePro – which is a fictious name for a real company - is a project management and financial management software that contains process management, resource planning, project management, lead management, budgeting, invoicing, document management, finance management, time recording and reporting. The company is targeting small and medium sized businesses in the service sector. To be more specific CashOnePro was principally designed for use in advertising agencies and was then enriched with the functionality that meets the requirements of customers within similar service businesses like engineering or information technology. The targeted customer’s business Copyright © 2013. Diplomica Verlag. All rights reserved.

models are typically based upon time and material contracts or on milestones and deliverables contracts. The milestones and deliverables model´s key characteristic is that the customer does not simply pay for the time invested in a project, instead, milestones and deliverables means that the customer will pay for defined objectives at fixed dates. To provide the required functionality to

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

serve both forms of business models CashOnePro needs to manage a complex set of features. Time and material contracts require detailed time tracking functionality and reporting functions in order to demonstrate the customer the volume of the provided work time in the project. Despite that progress and project management is an important element too, but the model allows a more agile approach during the project. The milestones and deliverables model is used to realize detailed and specified projects. All change requests that may arise during a project need to be tracked clearly and need to show any implications for time and budget in real time. Even smaller service companies are not in the favor of using an Enterprise Resource Planning (ERP) System, because the introduction of such a system is typically very time consuming and too expensive. Most ERP systems do not even target smaller companies as they assume that they cannot afford high license expenses as well as the required high efforts for implementation, integration and customization. CashOnePro realized that there is a demand for smaller companies to manage incoming and outgoing invoices, working processes, contracts, employee vacation times, financial accounting and tax affairs.

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Justification for case study selection With the aid of this case study the concept of business development within a SaaS-based venture can be illustrated holistically. Instead of demonstrating extracts of a large number of investigated companies the case study example represents a whole picture of an integrated approach on business development. As business development is a set of interlocking disciplines the selection of a

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

case study helps to outline the potential relationships and interactions of different activities (Butler, 2011, p. 15). The selection of a case study ensures a very high level of detail. This is an important aspect as the fine points make the difference in establishing a SaaS business model compared to on premise software businesses. The subject of cloud computing in general and the SaaS model as a distribution and selling concept is complex in principle. As such, the case study selection allows for a deep investigation of complex facts and circumstances. To attain a higher level of precision a short survey across decision makers on the side of potential customers contributes responses to the question of what requirements customers have regarding quality, availability, security, performance, functionality and pricing. The interviews were conducted in Hannover at CeBIT – an annual exhibition for Information Technology.

Market view The author conducted a series of 31 interviews with potential SaaS customers. Prior to the interview the participants were asked whether they were in a position to make decisions on the introduction of SaaS offerings within their company or their business unit. This ensures that the random sample repre-

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sents the main unit of decision makers in IT businesses. 89% of all decision makers are aware of cloud computing and are of the opinion that they know what Software as a Service actually is. From the customers point of view Software as a Service is the same as or something like, a future trend of application service providing (ASP), which is as a matter of fact an early form of

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

software leasing. At a first glance the difference to SaaS is not too wide, espe.

cially for the customer. Another frequently mentioned description was the term “rental software”, which means that the interviewees understood that SaaS subscribers do not purchase software in the sense of being the owner of a software license. This again is the decisive factor to understand the concept of Total Cost of Ownership – TCO in this context (Conry-Murray, 2007, p. 1). Of those surveyed, 68% stated that their company had already adopted one or more SaaS offerings. According to the survey the three most important factors that influence decisionmakers on the evaluation of new software suppliers or products are price (49%), functionality (40%) and usability (37%). In particular, the passion for usability has appreciated in value over the last few years. A higher level of usability means that the software or service is not just easier to use in terms of handling, it also means that the need of explanation and the retraining expenditure can be kept within a low limit. These circumstances can be affiliated to the trend of consumerization of IT (McCafferty & Reisinger, 2011). When asking for the influencing characteristics in selecting a SaaS offering potential customers still see the cost factor as being the most important (68%).

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The difference here is that the SaaS offering consists only of a variable usage fee as long as the customer makes use of the service whilst the common software procurement process includes costs in terms of investment as well as lifecycle costs for updates, maintenance and operation. The second important aspect for customers is security (45%). Discussions with interviewees showed that people typically understand the three terms of data security, availability and

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

trust. Data security is often a legal issue, especially since the customer does not really know whether the appropriate data can be stored outside of the country of operation or even outside of the European Union. Availability on the other hand must be separated into two parts. First of all, there is the availability of the service itself. Large cloud data centers and therefore SaaS vendors that run their services within cloud data centers come up with a 99.8% availability which is typically much better than other non-cloud data centers or private server hosting. Secondly, availability means the possibility of using the service during offline times at the customer’s side. An example of such a situation is the entry of orders in the field service with a mobile device in an area without internet coverage. Finally the term trust addresses the question of whether the customer wants to trust in the SaaS provider. In the meantime usability - 45% for SaaS offerings vs. 37% for software decision making in general - is more or less equal crucial for on premise as well as for SaaS offerings, but after that those polled named flexibility with 35% as another important aspect during their decision making process. Flexibility in detail doesn´t mean here that the software can be adjusted to different requirements or situations. Flexibility in this context can be described as the opportunity to easily scale up and down the users or participants on the costumer´s side.

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Another remarkable answer was the risk reduction factor that was named all the same by more than every fourth participant. It is to say here that risk reduction does not stand in confliction with security in general, because risk reduction is not limited to only reducing security risks, but it includes also subjects like failure safety, reliability or availability. If at all there can be any kind of dissent

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

with data security, though most decision-makers referred to the advantage of higher availability due to better server uptime standards, there is no need for server administration on the customer side as well as no risk of overstraining hardware resources. Last but not least, potential customers mentioned that crucial factors are the automation of updates whereby the customers do not have to care about installing the latest version of the software and do not have to invest extra money in any updates as well as being subject to a short timeframe for the implementation of the service to their company. What is interesting here is that implementation time does not play a remarkable role within the responses on general software decision making, despite on premise software projects have typically massive implementation spaces of time starting from a couple of months up to some years and more than one half of the implementation projects even fail during the implementation period (Lientz & Rea, 2000, p. 17). Most (68%) of the interviewees said that their company already uses SaaS offerings and the top three company divisions using SaaS are Sales (73%), Marketing (64%) and Human Resources (41%). Moreover 62% of the management also uses SaaS. Even more interesting is the fact that 87% of the partici-

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pants said that their company would subscribe to further SaaS offerings. The market (represented by the interviewees) obviously sees advantages and disadvantages in using SaaS. The main advantages are scalability (74%), cost reduction (71%) and flexibility (65%), whereas the expected main disadvantages are reliance on the SaaS vendor (61%), data security (68%) and a low level of functionality (61%).

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

The final question was whether the (potential) customers expect a bright future for SaaS vendors and the clear response was that 90% see a bright future.

CashOnePro .NET + Silverlight + Windows Azure = The technical basis. CashOnePro´s core software application was developed within the .NET environment, which is Microsoft´s software development platform. The decision to develop the software with .NET is on the one side typical for business applications and on the other side something indicating that the decision-makers at CashOnePro have placed great value on an object-oriented software development approach. This means that the advantage of the .NET framework can be found in an efficient software development approach (Hoboken, 2011, pp. 19 – 21). Generally speaking .NET is one of the younger program languages and offers a more state of the art approach than developers can achieve with some other languages. CashOnePros Chief Software Architect who was responsible for the general software development strategy, said that CashOnePro paid a lot of attention to usability and therefore they were in need of a resilient option to develop rich internet applications. Finally, Silverlight – as well a Microsoft plug in for rich internet applications and therefore uniformly possible to integrate with the .NET framework – was selected for the purpose of creating extensive, user-

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friendly and dynamic user interfaces. As Silverlight was introduced as recently as 2007, it is in terms of distribution behind the more popular Flash platform (Ozer, 2008, pp. 1 – 2), but as CashOnePro´s product manager states, this was of marginal importance because CashOnePros public website does not require the download of the Silverlight plug-in and so the potential target group can be

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

reached easily. Only the application itself requires the download of the Silverlight plug-in. The more interesting question regarding the technology behind CashOnePro addresses the cloud strategy of the ISV. CashOnePro´s board of directors decided to address not only the local market in Denmark and wanted to expand their business to global offering. This was achieved with Microsoft´s Windows Azure Platform as a Service (PaaS). Microsoft runs six cloud data centers worldwide, so a worldwide availability with attractive server response times can be ensured. The Windows Azure platform consists of highly virtualized computing power that supports recent web technology and provides a self-service portal for deployment and maintenance access. The entire platform allows a completely automated infrastructure backend in terms of service management, load balancing, provisioning, application lifecycle management and multiregional deployment. The ISV itself does not have to care for IT management, configuration, updates, patches or even manual up scaling. Whenever the entire systems needs more IT resources – regardless of whether it´s a database, storage or computing power – the platform can be easily scaled up and down without any investments, because the ISV has to pay only the consumption which is measured again by computing time, storage and transaction. (Redkar,

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2009, pp. 240 - 242). When asking CashOnePros Chief Software Architect about the risk of being completely dependent on Microsoft the response is as simple as it is reasonable: “The risk that Microsoft stops it´s offering of tools for developers or its cloud offering is rather low. But the other side is that Microsoft is the only player that

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

offers a fully integrated and consistent offering across all crucial levels of software development starting with a .NET development framework, over the frontend technology Silverlight and finally the hosting platform Windows Azure. This is what we expect from a professional software partner and currently there is no other player on the market that offers such a wide-ranging technology stack.” In addition, Windows Azure includes a market place, which can be used as another marketing and sales channel for CashOnePro. The business side of CashOnePro According to CashOnePro´s Vice President Sales the key target group is the professional service industry. One key characteristic within this business is that their business is typically based upon chargeable hours and this aspiration is addressed by CashOnePro in a very detailed manner. The role model for planning and development of features, functionality and competency was an advertising agency, because there were no solutions for advertising agencies on the market. As advertising agencies are characterized by a business to business model that is first of all based upon hours and only in a wider sense upon goods or in this case more easily external services like advertisements in magazines or airtime for television commercials CashOnePro decided to start with such a business in order to capture an as large as possible part of their

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requirements within the professional services industry. Further businesses that can be attracted with the CashOnePro offering are consultancy firms, marketing and communication companies, architecture, engineering and PR businesses, attorneys and tax consultancy offices and even service providers within the public sector.

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Due to the distribution model via worldwide cloud data centers CashOnePro is in a favorable position to deliver its service without any regional or national limitations. The Vice President of Sales expects a higher demand to come from companies in the United States because he assumes that the adoption of SaaS offerings is far advanced compared to the European market. He also sees big business opportunities in the BRICS countries (Brazil, Russia, India, China and South Africa), because of their tremendous economic and entrepreneurial potential. The Global Entrepreneurship Monitor Global Report 2011 discusses the high entrepreneurial intention rates in China and Brazil (Kelley, Singer & Herrington, 2012, p. 9) and the high innovation rates in South Africa (p.20). Even if also BRICS countries see declining economic progression, The Economist expects very high real GDP per person growth rates between 2007 and 2012 for China (50%), India (33%), Russia and Brazil (both more than 10%) – especially compared to Germany (4%) or United States (-3%) (The Economist Online, 2012). CashOnePro expects a certain behavior from companies within these emerging markets that are growing fast: they search for solutions that can be adjusted easily on the one hand and they also search for solutions that do not require any upfront investments but charge for the service using a pay as

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you go model.

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Business Development When talking about corporate strategy CashOnePro´s founder tends to discuss the company´s vision about offering the best fitting project and financial management software for service businesses. Since they are following this strategy CashOnePro wants to be “best in class” by delivering high value to their customers. CashOnePro´s “elusive one thing” (Buckingham, 2005, p. 72) is to listen to their customer, bring their requirements into questions and always satisfy them. The best approach here is by the way not only to satisfy them but also even to surprise them. CashOnePro has learned to deal with different customer requirements, integrate them into their solution and turn them into a standard. CashOnePro is clearly focusing on their vision of having the best fitting solution available and they are very talented when making a decision on whether a requirement should be added to their solution standard or whether they are facing something that should be customizable. With their approach to delivering their software as a service throughout the cloud CashOnePro made the strategic decision to expand their business on a global market. That implied that they had to adjust their set of features to different currencies, fiscal and taxation systems and even different legal frameworks. They turned their mindset as well as their behavior from local to global.

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From think local, act local to think global, act global (Thompson, Strickland & Gamble, 2005, p. 221). Since they deliver their service online instead of selling boxes with a physical product they have made their business more saleable and reduced the level of complexity when setting up a new customer.

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

One of CashOnePros key success factors is speed in product development. They are very prompt in adopting new features and functions to their software. CashOnePros Chief Software Architect makes very clear that they do not think twice and just release updates as soon as it has passed the quality check and also do not follow strict release cycles, which is characteristic of many other software vendors. As their first and core target group was advertising agencies, CashOnePro´s Chief Software Architect does not make a secret of their high aspiration for aesthetically pleasing user interfaces. According to Timmons model of entrepreneurship, a good business opportunity needs to address the 4 Anchors (Timmons & Spinelli, 2009): 1) Product / service needs to generate significant customer value 2) Product / service needs to solve a specific problem 3) Business must have healthy market margins 4) Business must be attractive to founders and investors The core value delivered by CashOnePro is that it enables service companies to model their business processes within a software system. The CashOnePro feature set starts at the time when a service company starts acquiring custom-

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ers as leads and ends up as a full financial management system. CashOnePro´s lead partner account manager who manages all the sales partners, says that most common ERP (Enterprise Resource Planning) systems are hulking because they are designed for production companies in the large enterprises sector. As such, they are designed for just the opposite of small service compa-

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

nies because their core feature set is designed around the process of manufacturing and the service aspect plays a minor role, if one at all. CashOnePro is focused completely on service businesses and their specialties. The time that is required for the implementation of CashOnePro is just a few days instead of a couple of months and therefore CashOnePro is also affordable for small companies. The market for service businesses is healthy, huge and emergent and competition for CashOnePro in this field is manageable. As CashOnePro is a SaaSoffering, potential customer´s get the chance to try and experience CashOnePro immediately so they can also make a decision immediately on whether CashOnePro can answer their requirements. Typically, this can occur even without an in-house sales presentation and a long lasting decision-making process. On the other side, CashOnePro´s sales team fosters qualified and highly interested leads out of the sales process and – most importantly – the potential customers have identified themselves with the product already. So, the cost of sales is rather low which means that profit margins go up automatically. Due to their subscription plan, CashOnePro can expect consistent payments from its customers every month and, according to high growth rates in smaller service companies, they can even expect a growing number of users per company

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which results in increasing turnover per customer too. The marketing and sales approach at CashOnePro includes a broad mixture of activities and efforts with the intention of increasing revenues. CashOnePro´s partner manager highlights their marketing driven sales strategy as well as their partner sales network (West, 2011, p2). CashOnePro wants to offer potential

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

customers the possibility of accessing a testing version of the software as easy as possible. Therefor it was helpful to provide the software as a service directly from the cloud. This illustration indicates the sales process and makes clear that CashOnePro´s sales process is much easier and faster than a common software selling process that typically includes invitations to bid, requirement and functional specifications, testing environments with tremendous adaptions and modifications. Throughout this lightweight sales process CashOnePro´s sales team is able to handle any desired amount of leads per automatically bringing them into a trial mode where they can test and qualify the solution for themselves (Acquisition). During this trial period the CashOnePro sales support team is available to the potential subscribers, offering advices and tricks without being intrusive or pushing them towards a decision. CashOnePro trusts in the fact that their solution is one of the best fitting solutions for their target group and that customers identify themselves with the features and usability of the software. After the trial period, which is typically up to 4 weeks, the potential customer receives the offer to start with a subscription for just a few users. During this time the customer does have to pay the monthly fee but the expenses keep within a limit because at this time the service is typically not rolled out to all potential users.

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At this moment CashOnePro can be rather sure that the new subscriber has a serious intention to use the service company wide. Therefore the sales consulting team – or in the case of partner involvement the consulting team of the partner – would care for the subscriber during the implementation stage. The

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

customer should then import all relevant data and set up all relevant workflows as fast as possible (Set Up). The earlier the customer is able to work with the product the better. Once the customer has begun to work with CashOnePro in an operative manner the potential arises for a full roll out throughout all involved persons across the company. Customer retention is a core part of CashOnePro´s sales vision (Value Enhancement). In the specific case of CashOnePro the sales process is even a closed loop because due to the possibility of upgrading to better packages with more functionality, the sales team can easily step into a new selling process.

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Figure 3: SaaS Sales Process

Source: Thomas Buchegger (2011)

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CashOnePro has established a partner program in 20 countries across Europe, North America and Asia. The partners are typically existing and reputable software companies or system integrators that have their own customers, can extend their offering and potentially sell CashOnePro to their own customers. CashOnePro offers their partner´s up to 50% commission on software sales. The partner can typically achieve further revenues throughout consulting and implementation services. According to the partner program, the partners are responsible for marketing and sales in their appropriate countries and can even build up further partners. The partner system is easy to understand and clear. A new partner needs to complete some kind of software and sales trainings - up to specific sales targets and partner fee´s - and can choose between three different partner levels: Reseller, Value Added Reseller and Premium Value Added Reseller. The pricing model at CashOnePro is a hybrid assortment of traditional software licensing as well as a new way of distributing software as a service. From the customers point of view this means that one can purchase a CashOnePro license, run the software on their own servers while purchasing every product update and care for update implementation. On the other hand, a customer can also receive the Software as a Service on a basis of a monthly fee per user

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which can be scaled up and down on demand. There is a differentiation between basic users that have only limited functionality and advanced users for those who need more. In addition to the two user types CashOnePro offers five different packages with appropriate top priorities to very small companies (Starter), companies that want to professionalize their project workflows (Pro-

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

ject), sales oriented companies (Business), medium and large businesses (Enterprises) and a special solution for media companies (Media). To increase attraction and the number of potential customers, CashOnePro pays a great deal of attention to online marketing and search engine optimization. As CashOnePro has defined it´s target group very clearly (service oriented businesses), the marketing managers at CashOnePro can make the best out of the enriched possibilities of the online advertising industry. The internal sales team at CashOnePro is in the happy position of undertaking product demonstrations and showcases remotely via online meetings and web conferences. To support potential customers with further information CashOnePro offers a wide selection of online videos that describe the product and shows the potential customers how easy it is to use. All of these materials are also very helpful for the sales team at CashOnePro´s partner companies because they can start immediately on their own sales activities. CashOnePro has installed a professional Account Management, who is responsible the partner account management as well as the management of key customers. SaaS subscribers have a high expansion potential not only as a result of their natural, organic growth, but also through involving more existing

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employees

by

handling

more

business

processes

with

CashOnePro.

The account management team offers free pre-sales support within the scope of new customer acquisition throughout the entire partnership landscape. CashOnePro also assists partners in their acquisition process with business workshops, online demo´s and case studies.

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Financial planning CashOnePro´s main advantage in terms of financial planning as well as regarding risk reduction is the hybrid approach regarding SaaS and license selling. As a result this combination leads to both a high retention rate and license selling. The illustration about recurring revenues from SaaS subscriptions shows the stair stepping that occurs from new customer fees that cater for increasing cash flows from one year to another. CashOnePro experienced a retention rate of 92%, which means that 92% of every annual turnover from SaaS business will recur in the following year.

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Figure 4: Recurring Revenues from SaaS Business

Source: Thomas Buchegger (2011)

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Conclusion The answers given to the interviews within this chapter showed that the results go in the same direction as previous research on the distribution of SaaS solutions. A deeper investigation regarding the disadvantages and concerns showed that security and trust seemed to increase, which could be affiliated to current discussions in the media on this subject. CashOnePro, which was the company investigated for the case study, is providing a SaaS offering that is remarkable in some characteristics, as they came out with an ERP for service companies and ERP in general is a thinly occupied field within SaaS. Other somewhat consequential particularities were found in the pricing model and the manual onboarding process.

Chapter 4: Results and Discussion This chapter discusses the results of the literature research, the survey results as well as the case study results. It includes an interpretation of the research findings and links back to the literature review. Finally it answers the core research questions.

Summary of the results in the literature Start up businesses in the software industry need to decide on the methods of

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software distribution and furthermore where the software application should be run. As long as the customer runs the software on own their servers – in an on premises scenario – the ISV has limited options to control the software in terms of updates, bugfixes, service packs and the avoidance of pirated editions or false licensing. However, the customer has to ensure that the IT infrastructure is

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

adequate

at

all

times

–

especially

in

times

of

load

peaks.

As long as ISV´s run their software on their own systems or leased servers in data centers they need to ensure that they have enough IT infrastructure available to handle all sorts of lead peaks. This means that, for all practical purposes, start up companies are facing high investment costs regardless of whether they purchase or lease servers, because they need to have enough compute power and storage that serves lead peaks available permantently. Within a cloud environment start up businesses pay only what they use and are not confronted with any upfront investment costs in server infrastructure. Startup companies that provide an SaaS offering can often hardly estimate the evaluation of their business performance, especially the first few weeks and months after launching the service can be characterized by high peaks. Just in case some actually positive, business accelerating events happen – for instance an untypically large assignment or an unexpected successful viral advertising campaign (Bersoff, 1994, p. 94) - every startup company would like to handle such instances and a cloud infrastructure would just automatically scale up and down. Another big difference between on premises software start ups and new businesses with a SaaS offering is the level of standardization and customization

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(Kittlaus & Clough, 2009, pp. 47 – 54). SaaS offerings are typically not very customizable because they are typically not very complex. An orientation on standardized, horizontal workflows is a big chance for small companies to implement new processes to their operations that were left to random choices before.

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Whilst on premises software companies often establish a partner program and develop partners over a couple of years to push their sales pipe (Dinsmore & O´Connor, 2005, pp. 14 – 15), SaaS start ups would invest in marketing activities (Elberse, 2008). Whilst a sales representative of an on premise software vendor is busy being employed in winning a medium sized business as a customer, a SaaS business with a successful business concept would automatically increase subscriptions when they increase their marketing budget (Browning, 2011, pp. 4 – 5). An on premises start up business would have to establish a software demo system for every new potential customer (Raab, 2007). Besides high efforts through pre-sales engineers the software vendor will just lose time because the demo systems should be customized to the customers´ requirements so that the customers at least have a chance to identify themselves with the new software solution. On the other hand a SaaS vendor would state clearly what is in the package and what is not. As such, the customer knows exactly what to get out of this offering. To make sure that the SaaS offering is really as good as one´s word the SaaS startup typically provides a test version that is immediately available (Saugatuck, 2008, p. 23). According to the different pricing and payment schemes the SaaS vendor could offer some kind of limited versions.

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To win a potential customers full enthusiasm the SaaS vendor could provide a freemium version that serves the customer with free premium feature functionality but as it is free it is limited to a certain number of instances, a special capacity or a defined timeframe (Kincaid, 2009). The other possibility is to whet the

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

customer’s appetite by limiting functionality or even by a mixture of the above named (Saugatuck, 2008, pp.11 - 12). Anderson (2010) has researched the aspects on addressing the long tail of the market. Small companies often take a close look at what large companies do and even often try to do the same things because they assume that this could be good for a small company too. From this point of view it is meaningful for a startup company with a SaaS offering to win some lighthouse customers by the meaning of projects that can be used as highly visible references, since they attract a lot of attention from potential customers, partners, media and the company´s environment (Julien, 1995, p. 14). A couple of very visible projects with customers that have a high level of brand awareness or some other extraordinary characteristics that help to market their own SaaS offering as a success story can help to attract new customers within the long tail. The largest players on the cloud and SaaS market are Microsoft, Amazon and Google (Greenway, 2011 cited in Lunden, 2011). All of them are located in the United States as a wide range of SaaS-only providers that use the infrastructure of the above named large players. The way of implementing software purchasing decision making in companies that are located in the United States is different compared to companies in the European – especially the German –

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market. According to a research study of the Experton Group in Germany, the decision makers tend to first investigate first the range of functions in order to make sure that the software delivers as much functionality as possible. Secondly they put the set of functionality into a relationship with the price (Oppermann,

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

2010, own translation from the German text). In sum, German decision-makers prefer to get as much functionality out of investment as they can. The most popular departments in enterprises for the usage of SaaS offerings are Sales, HR and Customer Service/Support (McKay, 2008, p.3), as these departments work on processes that can be separated easier than core production processes. Software decision making in the United States is more based on the question of which software services is best placed to solve the problem (Auditore, 2011). This type of decision making is the more attractive one to be addressed by SaaS vendors, as SaaS services typically focus on solving one special problem or making one special process easier. This trend in decision making takes place in European companies and even in large enterprises too (Nie, She & Chen, 2011), as they tend to avoid IT department participation. Generally, it can be said that the various accounts of research have shown that security, integration challenges and lack of customization (Frauenheim, 2010) are the biggest concerns of IT decision-makers in relation to SaaS offerings. On closer consideration, from a Total Cost of Ownership (TCO) point of view customers would consider building the software by themselves instead of buying a new one. With the concept of SaaS and the pay-what-you-use model customers can prove, in addition to a make or buy decision, whether a SaaS

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subscription would be more beneficial (Murray, 2007). The TCO consideration is occasionally responsible for the role of the CFO´s impact on decision-making. According to Gartner 42% of the CIO´s report to the CFO and 26% of all IT investment decisions are authorized by the CFO alone (Savvas, 2011).

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Summary of survey results The author conducted a survey across 35 decision-makers in IT. When selecting the participants the author looked for a high level of homogeneity and wanted to interview people who are concerned with cloud computing and SaaS. Therefore the interviews took place in March 2012 at CeBIT (Hannover, Germany), which is the worlds largest exhibition on Information Technology and attracts more than 500,000 visitors every year (Silverberg, 2011, p. 28). All interviews took place at the Cloud Computing area at Microsoft’s exhibition stand. Visitors to this area of the show are typically IT decision-makers and most often represent the IT departments of medium sized and large companies. The type of the interviews was personal and unstructured. The author discussed their role with the participants, how it is their business to make sure that they fit into the desired basic population of IT decision-makers and picked out random people, consumers and representatives of other software companies. The author noticed the participant’s answers and asked more detailed questions when necessary. 52% of the decision-makers associate SaaS with application service providing (ASP) and 23% with rental software. This is not completely false but a very light-minded view. The obvious question is why? Through discussion the author

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got the impression that decision makers do not want to be concerned in detail with the question of what the exact differences are but they know very well that a good SaaS offering needs to be easier to use, better looking than simple HTML web interfaces and more beneficial in terms of expenses than ASP offerings. This lack of interest in details was expounded by Beggs (2012). The

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

technological differences like multi-tenancy or operation in high-performance cloud data centers (Luit, 2009, pp. 2-3) seem to be of little concern. Saugatuck (2010) expected a 42% adoption rate for SaaS in 2010 (McNeill, B, 2010). Compared to the results of the survey (68% at the beginning of 2012) one could imply indeed a significant increase but it must be considered that the interviews were conducted with participants who are at least familiar with the concept of cloud computing. The processes for purchasing software licenses in terms of implementing new software at a company, compared to subscribing to a SaaS offering, are completely different, i.e. in terms of legal aspects (rent vs. own), operating and administrating servers by themselves, and customizing and managing an internal roll out (Sehlhorst, 2008). Nevertheless, in both cases decision makers stress the core issues of expenses and usability. On the other side, decisionmakers see quality and functionality (in terms of feature richness) as important characteristics in purchasing licenses, whereas security and flexibility are more important for the decision regarding a SaaS offering. This shows very well how difficult it is for a customer to make a rational purchasing decision when deciding between on premise software and SaaS, because the decision-maker typically compares only two key characteristics (expenses and usability), whilst

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the other most important characteristics (quality, functionality and security, flexibility) can´t be compared to each other. Only a few participants named update automation and short implementation time as a key characteristic when selecting a SaaS provider. This is not a

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

surprise because both characteristics are exemplary for SaaS and can be taken for granted. Regarding the expected disadvantages of using SaaS offerings, the first two main issues from the customer’s perspective are actually not disadvantages but concerns: reliance on a SaaS vendor and data security. As stated above, security in general is a prime subject especially because of the different dimensions (availability, trust and data security itself). 68% of those polled said that reliance to a SaaS vendor is one of the disadvantages. This is to say that a SaaS subscriber of course commits themself to the vendors, but typically the customer can just unsubscribe from the service. Compared to on premise business this means progress in terms of customer friendliness. The third estimated disadvantage is the apprehension that the services have a low level of functionality, which is of course a valid argument but on the other hand suggests a corresponding attribute of simplicity. A software vendor always has the chance to assemble more and more functionality, but this comes along automatically with more and more complexity. So this is always a double-edged sword. More than half are afraid of integration problems, which are definitely a challenge, as SaaS offerings are typically not built for business process integration with other services or software systems. If customers need to integrate their

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SaaS services into an existing system landscape then of course they would have to plan for some extra investments. Also noteworthy is that 45% of the potential customers see a low level of customization as a disadvantage.

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Summary of case study results From a technological point of view CashOnePro is very cutting edge. With backing on the latest version of Silverlight for performing the service as a rich internet application, running their services on the highly contemporary Windows Azure platform and designing the software within the .NET, CashOnePro claims to be an ultra modern software vendor (Hoboken, 2011, pp. 19 – 21). This proves that their software designers pay a great deal of attention to clean code development guidelines by using a coherent development framework (Ambler et al., 2001, p. 1). It is probable that this does not play a role for the end-user, but IT insiders appreciate state-of-the-art developed software. Due to the complexity of ERP systems, the ERP vendors seem to fear the cloud like the plague. The largest ERP providers (SAP, Oracle, Sage, Microsoft) still do not have their core software transformed into a cloud business model. The current acquisition of SuccessFactors – a successful HR cloud offering – by the German ERP heavyweight SAP shows very plainly that they try to compensate for their own failed cloud experiments by acquiring others (Kanaracus, 2011, p. 2). This highlights that CashOnePro also walk on thin ice, but on the other side it ensures that CashOnePro is one of the first ERP vendors with a serious cloud offering, which can make them into one of the leading cloud ERP´s.

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As CashOnePro was initially developed for advertising companies they automatically focused on a close target group and expanded their activities to further, congeneric industries. By focusing on advertising companies they coincidentally developed a solution that fits very well for small and medium sized businesses, which is actually not typical for ERP suppliers. As a conse-

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

quence, CashOnePro finds itself in a market position that is not very highly competitive. Another advantage out of this scenario is that advertising agencies tend to have a high demand for good looking and easy to use applications. Therefore CashOnePro´s graphical user interfaces are above average in terms of style and are, as far as is possible, self-explanatory. The internationalization strategy at CashOnePro is defined by delivering a very similar service in all country markets, with only slight deviations, and is designed to develop the same marketing and sales channels in every country. So to say: think global, act global (Thompson, Strickland & Gamble, 2005, p. 221). A significant aspect of SaaS offerings is that potential subscribers can register to use a trial version of the service. Of course, CashOnePro offers this option too, but it is not a completely automated process and the trial cannot be activated without the support team setting it up manually. In a worst-case scenario, this may result in a loss of time and tempts the prospect to continue searching for further services that can be checked out immediately. Smartphone applications are, at an increasing rate, frontends for cloud services. Most apps are run on smartphones and backed by data from the cloud´s

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infrastructure. But smartphone apps can also be used as a marketing channel to generate new potential customers. CashOnePro´s combines both. With a simple but efficient time-tracking app they can turn smartphones into a tracking tool for billable time and simultaneously generate new leads from smartphone marketplaces.

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As CashOnePro is offered in five different shapes (starter, project, business, enterprise, media), there is an easy to understand point of entry (starter program) and the system always offers a good chance for an upgrade. This approach is very typical for SaaS offerings but the way CashOnePro realized it, departs from classical SaaS pricing models, because a wide spread strategy is to offer a completely free model that can be used professionally but is linked to some kinds of limitations, which should motivate the free user to upgrade to a payment plan. CashOnePro has implemented a partner sales strategy to bring the service to the market. They try to find at least one core partner per country and they look for partners that have experience in system integration. A partner sales strategy is characteristic for products and services that are in need of explanation or that require a higher level of integration and customizing than standardized software. Basically, a software partner is required to do the integration and customizing of software and services. Software vendors like Microsoft require partners because they won´t be able either to sell the products or get the software to work without the help of hundreds of thousands of partners across the world. In the case of CashOnePro the main task of the software partner is to do the sales job and therefore the company pays a relatively high commission of up to 50%.

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In addition to the commission, the partner can also achieve further revenues throughout their consulting and customization business at the customer´s side. The partner sales strategy is even more necessary, as the business model does not have a viral approach. The workflows within the service do not have fea-

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tures where users can invite others to collaborate, which would lead to an automatic distribution by the meaning of a snowball effect.

Discussion of research findings CashOnePro was evolved out of an on premise solution and therefore their cloud solution is not a 100% SaaS offering. It does not completely accomplish all of the business characteristics for Software as a Service. 

Due to its complexity CashOnePro is not an easy to deploy / easy to deliver solution (Ojala & Tyrväinen, 2011, p. 2).



Both sales and support are done by partners and not by the vendor itself. Customer support in particular is a crucial topic in SaaS business and a high standard of customer support, consistent response times and interaction with the users is typically done by the SaaS vendor instead of relying on a variety of partners. CashOnePros strategy on support is not SaaS ready.



Even if CashOnePro offers trial´s, the trial set up process is not an automated mechanism but rather a manual procedure. Even if the waiting time for a potential subscriber is just a few hours in the best case, it could lead to a decreasing success rate. This is since it could confuse a visitor especially when they are familiar with

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SaaS offerings with the opportunity of an immediate trial access. On the other side the potential subscriber has time to search for other solutions instead of waiting for the trial activation. 

A wide range of successful SaaS start ups and cloud businesses like Linked In, Dropbox, Xing, Google Docs or SkyDrive have es-

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tablished their services as a freemium business model (Kincaid, 2009) and each has become very popular with this approach. CashOnePro does not trace a freemium business model. Some software vendors are proceeding with the current paradigm shift in software business rather carefully and hesitantly. CashOnePro is currently trying a hybrid approach by offering their software as an on premise version to be run on the customer’s side and as a cloud version to be run in a cloud data center. It is probable that this is not the worst decision for the moment but there´s a risk that the company fritters away precious time by following up on both approaches. Theoretical views on cloud business models typically include marketing driven sales strategies (West, 2011, p. 2). Some examples show that there are ways to prosper without massive marketing investment i.e. by viralization, when one of the core functionalities of the service requires the invitation of further users. CashOnePro tries to realize its market penetration with a partner model instead. Probably the biggest issue that stands in the way for a self-spreading business model is the fact that CashOnePro is actually too much in need of explanation and requires too much customization. This demands too much of a prospective

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buyer and illustrates the need of a partner channel but prevents CashOnePro profiting from all of the advantages that arise out of a cloud business model. When CashOnePro´s manager´s talk about their ultimate objective “listen to the customers” they are actually talking about a high level of customization in their solution. Even if it is a barrier in terms of a storybook SaaS business model,

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45% of the sample of the survey stated that they are apprehensive of a low level of customization in SaaS offerings. As Romanelli (1989, p. 385) stated that niche players live longer CashOnePro has a good chance of a long lasting life. CashOnePro has developed a reasonable specialization path, beginning with a business solution for advertising and design agencies, over communication and PR companies, architects, consulting engineers and IT companies, right up to all service oriented businesses. Due to the fact that CashOnePro started as a solution for advertising companies they were compelled to come up with a modern, up-to-date and aesthetically pleasing graphical user interface, and in terms of the consumerization of IT (Gross, 2010) it can be said that they did a good job in this regard. Secondly, by focusing on advertising agencies CashOnePro coincidently focused on small and medium sized businesses, as advertising agencies are typically small businesses on average, consisting of 3.3 employees (Kopp, 2012). This fact is very helpful because, as stated above, SaaS business models work well for the long tail of the market (Elberse, 2008). Roger´s model of technology adoption (1962, pp. 282 - 283) tracks a curved pathway with an allocation of increasing and decreasing demand. With CashO-

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nePros hybrid strategy consisting of both on premise and online versions, they worked against that mechanism. For the rest the SaaS approach also solves the software piracy issue because, as long as the vendor runs the service, no one would be able to make use of

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the service from a pirated copy. Just as a customer stops paying the monthly fee, it is up to the SaaS vendor to stop delivering the service. Common SaaS services serve only separated workflows, particular functionalities or snippets of core business processes. In this regard, CashOnePro is very different because the service manages all of the important business processes that that exist in the fields of project management, sales, document handling, invoicing, customer relationship management, resource planning, finance management and time tracking. To make this clearer here, a typical SaaS offering by the book would deal with time tracking only, for instance. As such, this is a massive differentiation and big unique selling proposition for CashOnePro.

Answers to research questions SaaS requires a holistic marketing approach (Kotler, 2009). Software as a Service is not only software and it is not only technology. An SaaS vendor should not act and behave like a vendor but more like a host. It´s not about selling a product: it is about delivering a service, over and over again, every day. SaaS customers want to experience virtuous product design and they want to be surprised with overwhelming service again and again. This begins with

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outstanding sales support during their period of decision-making and also takes place in regard to fast system restoring and prevention of data loss after time outs. A high retention rate plus a high rate of new customers is needed to accelerate the business. New customers can come from viral effects, marketing, sales,

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partner channels and so on, but a high retention rate requires a well-performing business concept. Running a SaaS business is very different from selling software. It is insufficient to make the customer believe that it was a good decision. It is important to have real users that accept the solution and are happy to work with it. Every day. High growth rates can be generated only with a voluminous lead pipe. Therefore, it requires a credible sales and marketing strategy. In the case of CashOnePro – which is actually an ISV starting a SaaS business – it is important to set the ISV sales team apart from the SaaS sales team. The SaaS sales team should not work like a solution seller, because they can often try to make an existing solution fit to a customer. The better approach here is to find customers that want the service as it is now. Particularly during the starting time, it is extremely vital to find the best working mix of pricing, product plans, sales methods and marketing activities. This is a period of trial and error but the outcome is very useful for coming months and business planning with real-time figures. What business models work well for a Software as a Service start up? SaaS subscribers tend to evaluate their services online, by simply trying the

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expected best fitting and fastest available solution(s). SaaS subscribers don´t typically call the sales team of a SaaS vendor or try to get a sales presentation in house. They just want to test the service and get their own impression as soon as possible. Therefore, a SaaS start up business needs to come up with easy to understand SaaS offerings that are immediately available. This business model will work best because simplicity is essential to attract a high

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number of customers in a short time, and as long as SaaS businesses subsist on both high retention rates and high annual growth rates simplicity will be a key success factor. In order to attract as many customers as possible and eliminate barriers during the decision-making process many freemium business models have demonstrated how well this works. Generally, a low price – or low average prices – will lead to a high operating range of fire in sales. In the case of CashOnePro, a hybrid approach in terms of both a license selling business model and Software as a Service option are supposed to be valid options too, but in fact it is too early to conclude that a hybrid option is a good idea for a start up too. However, hybrid models can be a good tactic for a current transition period as long as the market demands both online and on premise variations. What characteristics show markets and target groups that are best suited to SaaS

offerings?

First of all it, is important to consider who makes the decision. When companies decide to implement and integrate a new software solution, the IT department is typically involved and the decision is made by a consortium consisting of the IT department, the specialty department and the purchasing department. In most cases, the executive board or a representative of the board is also involved.

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SaaS offerings are most often designed in such a way that the decision can be finalized just by the person, team or division that will use the service. So the SaaS provider can assume that the user simultaneously makes the decision.

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Small companies or small entities of medium sized and large enterprises tend to consume SaaS offerings in particular. Against this background potential SaaS subscribers tend to be more or less closed groups or even single users. Potential SaaS subscribers tend to search for easy and uncomplicated solutions that make their day-to-day business easier. Therefore, they search for solutions that help to process recurring tasks, humble purposes or business processes. According to the interviews with potential SaaS subscribers, expenses and usability experience are the most important characteristics that have an impact on the decision. What kind of new opportunities come along with the offering of SaaS? From the perspective of a vendor the main opportunities in SaaS ventures are: 

A fast and easy way of internationalization due to no physical barriers and easy distribution via cloud computing facilities



The potential of scaling and accelerating a business sooner than in traditional industries



The phenomena that successful SaaS businesses were particularly successful with a moderate set of functionality. What Fried and Hansson described with “Underdo your competition” (2010) is in

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fact the much-cited simplicity. Customer´s, on the other side, can benefit from: 

An easier and faster access to new software solutions



Scalable pay-as-you-go models

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Software usage without upfront investments which leads to lower total costs of ownership (TCO)



Per-click trial versions that make it easy to find out whether the service meets the requirements

Which marketing and sales approaches have created better results? 1. Knowing the target group: as CashOnePro´s partner manager stated in one of the interviews with CashOnePro, there is nothing more important than understanding your customers. Understanding does not mean only to have functionality available that solves the problems of the companies that pay for the service. It also means how to understand who – in terms of what type of humans (i.e. executives, engineers, consultants, men, women, etc.) will be the majority of the users, understand what the users will do exactly, how they will do it and what results they need in order to be successful.SaaS vendors need to understand that users and user groups make the decisions on SaaS offerings. The traditional procedure in buying on premise software licenses when IT departments and purchasing agents made the decision is obsolete when subscribing to SaaS offerings. As SaaS vendors have the chance to get in contact with the users and

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decision-makers at the same time, there is no time to lose, which means that the service has to be available immediately for a demo or test scenario. 2. Value, value, value: two of the four anchors add a special value to the customer and address a certain problem, which is more

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

vital than ever before (Timmons & Spinelli, 2010, p. 150). In terms of delivering value it is not relevant to deliver as many features as possible or try to attract customers with extensive whitepapers. The key in terms of value is visibility of value. Customers must realize HOW the SaaS solution helps to improve a situation. 3. Pricing: as SaaS vendors receive the infrastructure that is required to run the services from a cloud datacenter, they typically benefit from an Infrastructure as a Service (IaaS) offering, which means that they are also subscribed to a pay-as-you-use model. This, plus the general concept of providing SaaS, leads to economies of scale and the vendor is then in a situation where the margins grow with the number of subscribers (Comstock, Jiang & Davies, 2011). It means in effect that the vendor is able to offer the service at a very low price per user and month, which leads to a low hurdle for the user/decision maker in terms of low investment, low total costs of ownership and low risk due to easy ways of unsubscribing. 4. Easy and simple sales strategy: as illustrated in the CashOnePro case, a sales strategy for a SaaS business subsists on easiness and automation. To be more specific, the sales strategy has to be simple and easy in order to realize a high level of automation, Copyright © 2013. Diplomica Verlag. All rights reserved.

which is important to accelerate revenues. The aim here is not to be responsive to every potential customer, but rather quite the opposite: to have a sales strategy that approaches as many potential customers as possible. The SaaS vendor needs to focus on sales strategies that can be replicated easily and ramped up and down on demand.

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

5. Lighthouse projects and success stories: in accordance to Rogers´ theory on diffusion of innovation (1962, pp. 282 - 283), it is obvious that the most profitable segments are the early and the late majority. The early majority can be motivated to opt in with some lighthouse projects and the early adopters need to get special treatment (i.e. friendly user phase, co-creation opportunities, etc.), because this group will bring up the following majorities. The early majority wants to see a couple of famous or well-known companies that make use of the service. The late majority is late because they want to ensure themselves against every conceivable type of risk. They cannot be convinced with high quality marketing materials, brilliant websites and some newspaper articles. To get the late majority the SaaS provider needs to bring proof over a longer period that the service does exactly what it says on the tin. The best way to bring this proof is a big number of early adopters and a big early majority and – that´s the point here – they must be absolutely convinced, which is indicative of value propositions and a sustainable concept and again can be proven with a high retention rate. 6. Viralization, multiplicators, partner models: it bears repeat-

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ing, but every successful SaaS business or cloud based platform, like Dropbox, Facebook, Twitter, Salesforce, NetSuite, 37signals, … you name it … has something that automatically increases the potential number of leads. Whether it is the trivial but ingenious mode of a snowball system (one user invites many others), a viable partner model like the case of CashOnePro, Salesforce or some Microsoft

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Online Services, or a variety of upselling opportunities along the value chain (in the best case cross-company) a good SaaS business concept will become outstanding throughout some of these accelerators. How important is uniqueness in relation to the business concept? There are no indicators that uniqueness in terms of core functionality or core service is more important for SaaS start ups than for others. Of course, it would not make much sense to show up with the fiftieth me-too service for document sharing and collaboration but as SaaS offerings are typically not very rich in functionality, to the benefit of simplicity, it could make sense to bet on a existing and successful concept and just add a differencing characteristic. Uniqueness becomes more relevant in terms of marketing and brand proposition. To take the file sharing and collaborating example again, it could be possible that a person searching for a service to share confidential documents with others wants to be approached with a different marketing presence than a person searching for a service to share public webcasts. What steps of common business planning are the most important? As a matter of course it is not the author´s intention to create an impression that there are steps of business planning that can be ignored. To a greater degree Copyright © 2013. Diplomica Verlag. All rights reserved.

the question here is what steps are more important compared to establishing a venture in traditional on premise software business. The question can be answered by noticing that shortcomings in the fields of product development and marketing / sales strategy would have bigger impacts on business success in a SaaS environment than for a license selling software. That is because if an

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

on premise software vendor has sold a license once the job is done for the time being, as the customer would pay it all upfront and the customer knows that he needs to cope with this cost. The SaaS subscriber does not take these risks, because if it turns out that it was not the best decision the service can just be unsubscribed from. The components “value to the customer” and “business accelerators” are fundamental, especially for SaaS services and belong to the part of product development. The second most important step is a brilliant sales and marketing strategy, which focusses greatly on the appropriate target group(s) and needs to add an autopilot to the sales system. Compared to on premise software businesses again, these two factors won´t be equally essential.

Conclusion The summarized information on business development in a SaaS environment herein provided an overview on what aspects of business development in general software industries are still valid for in regard to SaaS start ups. In a second step the opinion of software decision-makers was added to get a closer understanding from the customer´s perspective. Finally, the author investigated a successful SaaS provider by realizing a case study. The following chapter will

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bring the results together and derive key findings and recommendations.

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Chapter 5: Conclusion Introduction Chapter 5 includes a comparison of customer´s expectations with the methods used by CashOnePro and highlights the factors that influence IT purchasing decisions in general in comparison with the results in Chapter 4. Finally, it provides key findings and success factors and unveils the scope for further research.

Key findings The characteristic payment model for SaaS offerings is based upon monthly usage fees. Compared to traditional on premise software or even to custom made software development, SaaS business start ups require a higher quantity of paying users to break even. In further consequence, SaaS offerings should attract as many potential customers as possible. Generally speaking, every limitation related to niches or special industries carries a limitation of the potential market volume with it. Therefore, the importance of the concept of focusing on niche markets (Romanelli, 1989, p. 385) is not the same as it is for on premise software development. In terms of business development this means coincidentally that the level of customization opportunities in SaaS offerings is

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much lower than in on premise software. The existence of an operative accelerator in terms of increasing the number of subscribers is crucial for SaaS businesses. As such, some proofs for adequate accelerators are

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects



Viral distribution models by motivating existing subscribers to invite other, new subscribers



Partner models, which allow partners to receive commissions for selling or recommending a service to other subscribers



Marketing driven sales engines, which are nothing more than clever marketing activities with the obvious goal of gaining more subscribers to the service.

The type of accelerator needs to be defined before starting a business as it takes a core position within the business model. For this reason, another aspect within SaaS offerings is mentioned: simplicity. Potential subscribers need to understand functionality, value, feature set, pricing models and the cost-benefitratio at a first glance. Only a straightforward SaaS offering will be able to bring masses of new subscribers into the arena. Besides cost and functionality IT decision makers named flexibility and security as the most determining factors in relation to SaaS offerings. Though security is not the only concern SaaS start ups are well-advised to prove the possibility of offering their service in private cloud environments too. Just as in the case of CashOnePro it is a good idea to take a hybrid approach

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by offering both a SaaS and an on premise solution so the customer can easily pick out the favored way. This is to say that the difference between SaaS and on premise business is – especially from an ISV´s point of view - not just the different pricing or distribution types. There are so many differences in the companies´ philosophies, business models and key aspects of activity

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

(Dinsmore & O´Connor, 2005, pp. 14 - 15), that a hybrid approach can only be an interim solution even if the efforts to practice two types is minimal.

Recommendations The subsequent recommendations are valid to CashOnePro as well as for other other SaaS start up ventures. As discussed earlier, SaaS is very advantageous for small and medium sized businesses. SMB´s in particular don´t tend to implement heavy ERP systems because of the high implementation expenses. CashOnePro was one of the first movers who were offering a cloud-ERP as a service and succeeded coincidentally in bringing great values to SMB´s. This is a great USP for CashOnePro. Even if the CashOnePro solution still requires a more or less high customizing effort, they should take the opportunity of a freemium pricing model (Kincaid, 2009) into consideration. The aim of a free model is to win a higher number of interested parties and subsequently motivate them to go implement a professional plan. By way of example the free model could consist of only a simple, limited and trimmed “MINI-ERP” service, but this could help to get some kind of automatism into their sales process and accelerate their sales opportunities. The high level of customizing comes along with a high level of training and

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instruction efforts for the customer. CashOnePro needs to improve in this regard and should define a special customer onboarding system that makes it easier to introduce the service to a company. CashOnePro needs to find a way to enthuse the early majority (Rogers, 1962, pp. 282 – 283). Therefore, they need to establish and promote lighthouse

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

customers by supporting large and visible customers, leading brands and trendsetters to a successful use of CashOnePro and exploit success stories out of this. In the special case of CashOnePro, which makes use of a coherent Microsoft technology stack, CashOnePro should do more partnering with Microsoft, who could offer them a large platform to attract more customers. Generally, CashOnePro should make huge efforts in marketing and sales as they do not have a business accelerator within their business models. As marketing within the SaaS industry should be seen as a holistic concept (Kotler, 2009), they should introduce SaaS optimized support and service level agreements. In particular, the quality of SaaS vendor support and the speed of finding a solution for the customer indicate the overall level of customer service. As SaaS subscribers typically get in personal contact with the SaaS provider for the first time in reference to a support request, the SaaS provider should take this opportunity and fascinate the customer with a good performance.

Key success factors Particularly with regard to the research question: What aspects of business development do entrepreneurs of Software as a Service start up companies regard as the most important? it can be said that SaaS start up should pay

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much attention to product development and sales strategy. As certain business accelerators (partner model, viralization, freemium, marketing-driven sales, etc.) can be seen as the glue between product development and sales strategy the overall business concept should consider this special connection. A powerful sales strategy itself can be compared with the known and established approach that is used by cell phone carriers in their b2b area. They have a widely used

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model that consists of hunters that are aligned to acquire new customers and farmers that are aligned to keep up the retention rate by maintaining and developing existing customers (Hannaway, 2008, p. 12). Closely related to the sales strategy is of course the marketing strategy, as customers are not typically activated by direct selling but by marketing driven sales. In terms of marketing by extension, SaaS providers need to focus on managing trust, on one side because of the general prevalent distrust in cloud computing and on the other side because of the anonymity between SaaS vendors and subscribers. Therefore, SaaS vendors should offer short unsubscribing periods and testing phases.

Scope for further research As the field of cloud computing and Software as a Service is anew vein the scope for further research is wide. The current book was focused on start up companies and business development from scratch, but all existing software vendors with an on-premise business model they are still working on are facing the question of whether they should transfer their business to a cloud business. Consequently, a wide range of questions will arise that can be subject to further research.

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When continuing the concept of cloud computing, potential SaaS subscribers won´t decide between on premise and SaaS but probably will decide exclusively between different SaaS offerings. The question raised is how potential subscribers would proceed in this case.

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Considering that companies will sometimes being subscribed to a wide range of different SaaS services, there will be some need for semantic interoperability. Currently, SaaS offerings exist just for themselves and most SaaS providers do not care for interaction with other SaaS services. This could be another field for further research by screening the demand for standardized cloud interfaces.

Conclusion This project found an answer to the research question: What aspects of business development do entrepreneurs of Software as a Service start up companies regard as the most important? It also shaped a set of recommendations and key findings generally for any new venture creators in SaaS business as well as the operators of CashOnePro. Further research on business development in the cloud can be done for ISV´s with existing on premise offerings as well as for SaaS vendors who will be soon confronted with new challenges in terms of the integration of various SaaS offerings or competing with comparable

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SaaS vendors.

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Annexures Questionnaire analysis Question 1 Would you say that you know what Software as a Service actually is? Yes

No

31

4

35

=n

89% 11% Question 2 How would you describe Software as a Service? ASP

16

52% 31

Rental software

7

23%

Other

8

26%

=n

Question 3 Is your company already subscribed to one or more SaaS offerings? Yes

No

Don´t Know

21

7

4

31

=n

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68% 23% 10% Question 4 What characteristics are the most important regarding decision making on new software purchasing in general? (Multiple answer; at the most 3)

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Cost

17

49% 35

Quality

11

31%

Usability

13

37%

Functionality

14

40%

Lifecycle cost

10

29%

References

9

26%

Reputation of provider

6

17%

Others

22

63%

=n

Question 5 And now think about a SaaS offering. What characteristics

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are more important now in decision-making? Lifecycle cost

21

68% 31

Security*

14

45%

Usability

14

45%

Flexibility

11

35%

Risk reduction

8

26%

Update automation

5

16%

Short implementation time

5

16%

others

16

52%

=n

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Question 6 Which divisions of your company already use SaaS offerings? Sales

16

73% 21

Marketing

14

64%

Human Resources

9

41%

R&D

4

18%

Management

13

=n

59%

Manufacturing

6

27%

Service

3

14%

Question 7 Is your company planning to subscribe to (further) SaaS offerings? Yes

27

87% 31

No

2

6%

Don´t know 2

6%

=n

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Question 8 What advantages would you expect when using SaaS? Scalability

23

74% 31

Cost reduction

22

71%

Flexibility

20

65%

Easy to use services

13

42%

=n

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

Fast access to services

12

39%

Short implementation period

11

35%

Data security

19%

6

Question 9 What disadvantages would you expect when using SaaS?

Reliance on SaaS vendor

19

61% 31

Data security

21

68%

Low level of functionality

19

61%

Integration problems

17

55%

Low level of customization

14

45%

Performance risks

7

23%

=n

Question 10 Do you expect a bright future for SaaS vendors? 28

90% 31

No

2

6%

Don´t know 1

3%

=n

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Yes

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How To Start Up A Software Business Within A Cloud Computing Environment: An Evaluation Of Aspects From A Business Development Perspective : An Evaluation Of Aspects

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