© 2014!
State of SaaS
18 February 2014
Bjoern Lasse Herrmann
Small Business Summit
© 2014!
Good news
© 2014!
First successful SaaS Players
© 2014!
The combination of SaaS, cloud
services and mobile “has the
potential to topple nearly every major
enterprise soft...
© 2014!
Easier than ever to launch a great SaaS
product
© 2014!
A lot of funding is pumped into Saas
Nearly half of SaaS
startups are funded
© 2014!
The SaaS market is growing 

3x faster than software
7%
Software
18%
Cloud
20%
SaaS
Source: Gartner, 2013 !
© 2014!
Growth will continue throughout the
decade
20% growth forecast through 2020
Source: Gartner, 2013 !
© 2014!
Global markets
$10B
N. America
$3.5B
Europe
 $1B
Asia
Source: Gartner, 2013 !
© 2014!
Salesforce is a shining star
+30% growth in 10 of the last 12 quarters
© 2014!
But
© 2014!
The SaaS pool is still very small
Less than 6% of the
overall software market
$2,700B
IT
$326B
Software
$131B
Clou...
© 2014!
Everyone wants in
© 2014!
Saas is very Competitive
Half of SaaS startups
either are choose growth
over profitability
© 2014!
The SMB market is fragmented
© 2014!
And crowded with competitors
© 2014!
Scale is hard to achieve
Less than 7% achieve
10k users
© 2014!
Distribution is the #1 challenge
No existing distribution ecosystems
© 2014!
Companies rely on direct sales
© 2014!
With small sales teams
Only the largest
companies have teams
of 5+
© 2014!
And without marketing funds
Only the largest
companies pay for
advertising
© 2014!
So companies fight for turf
© 2014!
And push from SMB

into lucrative

enterprise markets
© 2014!
Aiming to join the SaaS leaders
But is this really the competition?
$20-25B market cap
 $5-20B market cap
 $1-5B m...
© 2014!
This is who really dominates
Most SaaS revenue comes from industry titans
© 2014!
This is David versus Goliath
Except the David’s are fighting each other
© 2014!
Why do Goliath’s dominate?
They may not be as nimble,
but they have the support of
a whole distribution
ecosystem
...
© 2014!
Enterprises have deep needs
SMBs change software after reading a blog post
Enterprises require a change management...
© 2014!
The best product does not win
The best distribution does
© 2014!
So how can the Davids beat the
Goliaths?
© 2014!
Start with the right segment
CRM is fastest growing enterprise market
SaaS still only 40%
Source: Gartner, 2013 !
© 2014!
Start with the right technology
Mobile is new for
Goliaths
Web is accessed
27% more on mobile
than PC
Source: Gart...
© 2014!
Start with the right channel
Partners are 10x less expensive than other channels
Strength in numbers
© 2014!
Cross-sell
Not just for additional revenue
But to build distribution networks
Consultants
Licensed trainers
© 2014!
Scale fast, build a platform
Worry less about product, more about distribution
3rd party APIs stabilize and feed S...
© 2014!
Band together
Channel partners increase distribution
Stability & portability increase attractiveness to enterprise...
© 2014!
Alone The Davids 

have a hard time to Compete
© 2014!
Together they can win
Consultants
Saas Companies
Bjoern@compass.co!
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Saas State of the Industry Presentation At Small Business Summit 2014 by Bjoern Lasse Herrmann from Compass

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In the 10-15 years since the birth of SaaS as an industry, it’s now been planted firmly in the mainstream of conversation, but it’s disruptive wave is still getting started.

When we look into Compass data we see that nearly half of SaaS startups have received funding, which indicates a significant amount of investment capital being channeled into the category. There’s a clear reason why. Gartner forecasts the SaaS market will grow at 20% through at least 2020, almost 3 times as fast as software overall, and there remains ample opportunity for greater global penetration over time. Salesforce represents the shining star of possibility, consistently growing at more than 30%.

At the same time, at just 17 billion dollars, the SaaS pool is still relatively small and the field is very crowded. While Compass data indicates that half of SaaS companies are profitable, the statistic also measures a push for profitability over growth, often limiting size. Of all SaaS companies in Compass, only 7% achieve even 10,000 users.

The biggest challenge is distribution. Our data shows SaaS companies rely heavily on direct sales — at nearly twice the rates of every other channel, but can afford only modest sales teams of 1 or 2. The vast majority pay nothing for marketing or advertising.

This means many salespeople out there fighting, one by one, client by client, for the same turf. These crowded market challenges are also driving a push away from SMB audiences and into more lucrative enterprise markets. But it is primarily the packaged software industry titans that dominate SaaS revenue — Intuit, Oracle, Adobe, Microsoft, Google, SAP.

One can think of this as a David versus Goliath scenario, except that the David’s are fighting each other. The Goliath’s may not be as nimble, in many cases their products are inferior, but they have the support of an entire distribution ecosystem — from resellers to channel partners to consultants and trainers — who are dependent on the horse they bet on winning.

Enterprises, then, aren’t just larger small businesses. Their needs run far deeper. Any software solution must integrate effectively with multiple legacy systems. Security is a tremendous concern. Training programs must be rolled out. A small business may make decisions for the moment, but enterprises must have confidence in the long-term viability of the vendor.

All of this goes to reinforce the fact that history tells us, sometimes painfully, that the best product does not always win. The best distribution method does.

So returning to the David side of the equation, what can SaaS businesses do to beat the Goliaths?

Learn more in the presentation and at blog.startupcompass.co

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Saas State of the Industry Presentation At Small Business Summit 2014 by Bjoern Lasse Herrmann from Compass

  1. © 2014! State of SaaS 18 February 2014 Bjoern Lasse Herrmann Small Business Summit
  2. © 2014! Good news
  3. © 2014! First successful SaaS Players
  4. © 2014! The combination of SaaS, cloud services and mobile “has the potential to topple nearly every major enterprise software incumbent.” - Scott White, Andreesen Horowitz
  5. © 2014! Easier than ever to launch a great SaaS product
  6. © 2014! A lot of funding is pumped into Saas Nearly half of SaaS startups are funded
  7. © 2014! The SaaS market is growing 
 3x faster than software 7% Software 18% Cloud 20% SaaS Source: Gartner, 2013 !
  8. © 2014! Growth will continue throughout the decade 20% growth forecast through 2020 Source: Gartner, 2013 !
  9. © 2014! Global markets $10B N. America $3.5B Europe $1B Asia Source: Gartner, 2013 !
  10. © 2014! Salesforce is a shining star +30% growth in 10 of the last 12 quarters
  11. © 2014! But
  12. © 2014! The SaaS pool is still very small Less than 6% of the overall software market $2,700B IT $326B Software $131B Cloud $17B SaaS Source: Gartner, 2013 !
  13. © 2014! Everyone wants in
  14. © 2014! Saas is very Competitive Half of SaaS startups either are choose growth over profitability
  15. © 2014! The SMB market is fragmented
  16. © 2014! And crowded with competitors
  17. © 2014! Scale is hard to achieve Less than 7% achieve 10k users
  18. © 2014! Distribution is the #1 challenge No existing distribution ecosystems
  19. © 2014! Companies rely on direct sales
  20. © 2014! With small sales teams Only the largest companies have teams of 5+
  21. © 2014! And without marketing funds Only the largest companies pay for advertising
  22. © 2014! So companies fight for turf
  23. © 2014! And push from SMB
 into lucrative
 enterprise markets
  24. © 2014! Aiming to join the SaaS leaders But is this really the competition? $20-25B market cap $5-20B market cap $1-5B market cap
  25. © 2014! This is who really dominates Most SaaS revenue comes from industry titans
  26. © 2014! This is David versus Goliath Except the David’s are fighting each other
  27. © 2014! Why do Goliath’s dominate? They may not be as nimble, but they have the support of a whole distribution ecosystem Technology Resellers Channel partners Consultants Licensed trainers System integrators
  28. © 2014! Enterprises have deep needs SMBs change software after reading a blog post Enterprises require a change management plan Integration Security Training Data portability Long-term viability
  29. © 2014! The best product does not win The best distribution does
  30. © 2014! So how can the Davids beat the Goliaths?
  31. © 2014! Start with the right segment CRM is fastest growing enterprise market SaaS still only 40% Source: Gartner, 2013 !
  32. © 2014! Start with the right technology Mobile is new for Goliaths Web is accessed 27% more on mobile than PC Source: Gartner, 2013 !
  33. © 2014! Start with the right channel Partners are 10x less expensive than other channels Strength in numbers
  34. © 2014! Cross-sell Not just for additional revenue But to build distribution networks Consultants Licensed trainers
  35. © 2014! Scale fast, build a platform Worry less about product, more about distribution 3rd party APIs stabilize and feed Salesforce
  36. © 2014! Band together Channel partners increase distribution Stability & portability increase attractiveness to enterprise buyers Consultants Saas Companies
  37. © 2014! Alone The Davids 
 have a hard time to Compete
  38. © 2014! Together they can win Consultants Saas Companies Bjoern@compass.co!

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