Web Apps don’t get forked without a massive payday as motivation!
When you draw the line in the sand and adopt the SaaS business model, you might be tempted by people asking you to break that model. These requests could include:
- A competitor wants to license your application
- A client wants a copy of your product on-premises
- A client wants one-off customizations & require their own instance
- A client has security concerns & wants their own separate instance
It was announced this week that the United States government wants to use Google Docs but had some security concerns. Google said they will overcome those concerns by building a private “cloud” to meet government requirements. This is probably a pretty good deal for Google, but it is not the way they normally operate. In fact, would they do this for a smaller customer with similar privacy or security concerns? No. They’d tell them to go find someone else who will break their model for them. The government wanted Google to break their model and to Google, the deal was big enough that it made sense. The government broke the model, and they bought it.
SaaS is a Business Architecture, not just another way to deliver software; at least when implemented correctly. People will always want you to make an exception for them, but as I posted yesterday, SaaS is about rules, not exceptions. We’ve all seen the sign in an antique store that says “if you break it, you buy it.” As SaaS vendors, especially early-stage companies looking for any and all deals, we need to plaster this message around the office (unless you “office” at Starbucks… just make your Mac OS background say those words).
When presented with an “opportunity” to do something beyond the model you have chosen, remember those words and tell anyone who will listen “If you want me to break the SaaS business model, then you will have to pay a premium for that.” As a SaaS vendor you need to cover the risk associated with the increase in overhead due to a decrease in operational efficiency, the need to maintain separate source code forks, etc.
You also need to be compensated for the hit to the other revenue streams derived from the Network Effect and Ecosystem that are now not available to you by this new arrangement. The Network Effect and Ecosystem provide two of the most important Revenue Streams for a SaaS vendor and when you cannibalize these due to early mis-steps – like breaking the SaaS business model for a quick buck – you will miss out later on; potentially when it really counts.
The risk to your business is too high to make these decisions on a whim. Don’t let the temptation of a large cash influx now hurt the overall growth potential of the business. Too many SaaS vendors are met with this dilemma early on. Those that make it stick to their guns and stay on course or, if pressed, set limits on the one-off deals they’ll do and of course, make those who break it pay a premium. I’ve seen many vendors get stuck supporting a handful of early one-off customers because they made some bad choices. These bad choices caused the businesses to stagnate and, in more than a few cases, fail.