SaaS Revolt Part 3 - The Universal Tux

Perhaps you’re the victim of the latest bad idea from Wall Street. Have you noticed that software companies, particularly SaaS companies, have made it a practice to outsource the installation and implementation of their tools? The rise of consultancies focused on the implementation of software is the best evidence of the trend.

So, the software company designs and improves its products based on what?

The key to understanding customer needs and requirements isn’t a focus group or a survey. It’s the hands on experience that comes from knowing your customer well enough to anticipate real world needs. Without a deep understanding of the details of implementation, integration and operational reality with the software, the product management function is left blind and helpless.

The result of outsourced implementation is the functionality herd mentality that dominates the marketplace. Ask anyone who was on the expo floor at HRTech to tell you the difference between vendors and you’ll discover an astonishing blank stare. Without a clear understanding of the world in which software is actually used, vendors use voodoo methodology to determine market requirements. Then, they applaud themselves for their achievement.

In the world of SaaS offerings, it’s as if all of the Tuxedo rental shops agreed on the one universal Tux. In order to fit any size male renter, the Universal Tux would need a mind bending array of buttons, hooks, elastic pieces, zippers and velcro in order to accommodate all of the possible users. It would have to be made of Lycra and feature Sansabelt pants.

By outsourcing the actual fitting of the garment, the manufacturer of the Universal Tux would be stuck imagining the variety of renters and introducing colors and features without actually checking into the user experience. (Hmm, now that I think of it, that might explain a lot about the tuxes I’ve seen recently.)

Tuxes are one thing. They are useful at the start of the marriage and occasional during it. HR Software, on the other hand, defines the daily operating environment of the people who use it. If HR Software were a tux, it would be the uniform you wore to work every day.

By intentionally blinding themselves to user reality, software companies are increasingly out of touch with the consequences of actually using the products that they sell.

In recent weeks, I’ve been party to a number of deep conversations with product managers from a variety of HR software houses. They were almost uniformly unable to imagine the actual costs of implementing their solutions (My guess is that the Total Cost of Ownership is something like 15 times the acquisition cost of a SaaS tool.) They generally preferred to brainstorm new product features to gathering coherent market data. Their relationships were more likely to be with buyers than users.

Software companies deal with buyers. Implementation consultants deal with users. The two groups don’t communicate in coherent ways.

Why is this?

Generally speaking, Wall Street (and Venture Investors) peg software company valuations (what you’d pay to buy the company) to a multiple of pure software revenues. SaaS companies are very attractive because it seems like you can rent that same ‘universal tux’ over and over again. (This is known as multi-tennancy). The costs associated with making the product fit a given customer always come at the expense of repeatable high-margin revenues. Software company owners and executives strive to move those costs off the books in order to maximize shareholder return.

It makes for great shareholder returns and bad market realities.

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