Building B2B SaaS Products
The first part of the 3-article series of building B2B product in Fashion-Tech
First and foremost, a big HELLO! to all you amazing people out there. I am Nikhil Kedia, working as a Product Manager at Adobe in the creative cloud team. I have spent quite some time doing research on the fashion-tech ecosystem out of interest, and as a result, realized the immense scope of B2B SaaS business in fashion. This blog series is a result of this research and my conversations with industry stalwarts. I have broken the series into 3 segments - The first article lays the foundation of the B2B SaaS world. The second one takes a dive into the fashion-tech ecosystem and finally, we use insights from these to see how to build a B2B SaaS product in Fashion-Tech.
What is all this Jazz with SaaS
“The industry will disrupt, but every technology has a slow start, and we are the evangelists of fashion-tech”.
Philippe is my guest for the day and I am truly honored. As he turns on his Teams video, he waves an energetic Hello and I can’t ignore but observe the wrinkle lines on his face and the shelf full of books in his room, both of which point out his vast experience in the field. I am humbled. Over 30 years, and given his energy, I am sure so much more. Philippe is the innovation head at Lectra, which is one of the leading B2B tech companies of Europe in the fashion and automotive segments. He is responsible for transforming the company into a SaaS business (providing Software as a Service). As he starts speaking, I tell the most overused phrase of the last 2 years - “You are on mute”. Before we jump into the disruption that Philippe talks about above, let us explore B2B SaaS and the Ho-Halla around it a little more.
For the Long Haul or a Bubble?
Think of a recent unicorn or a startup that has raised a big round. High chances that it is a SaaS startup, and that too B2B in all likelihood. Be it Darwinbox, Gupshup, Blackbuck, Fractal or be it big names like Hubspot, Google Cloud Platform, Microsoft, or Mailchimp. When one industry yields over $6.5 billion investment in a single country alone in one year; when it yields over 800 new startups within one year, when that industry is bound to grow at 55 to 70% in terms of revenue - you know you are talking business here. Whether that business is a SaaS bubble or whether the momentum will carry forward is a question yet to be answered. But one thing is for sure- The era of on-premise is over. SaaS doesn’t just allow for scalability and ease of integration but also better analytics and pricing. SaaS business segment is one of the fastest-growing and the largest market segment since 2019. A Gartner research estimated that the SaaS market segment will be worth nearly $150 billion by 2022. According to Statista, this number will be $300 billion by 2023.
*(On-premise is basically how data infrastructure has always been. Processing happening on big machines within the company compounds, even when the processing is happening for a 3rd party software that you have licensed out.)
However, what is to be noted here is that today everyone realizes the boom in SaaS, the focus of investors. This has resulted in companies pivoting without a reason, and in creating another SaaS startup without knowing the pain point being addressed. One thing to remember is that SaaS is the true example of product-led growth. Unless you have a great product, you are only riding a sinking ship. But, in the world of building products, the first step is knowing the customer and the journey.
To be a SaaS or not to be - That is the Question
Moving to cloud has a whole lot of advantages for companies. Be it saving on costs, or providing modular services, or flexible pricing, or easier scaling up and tracking.
But what’s in it for the customers? If you are a B2B company and you plan on taking your system to cloud, there are certain things that you need to keep in mind from a customer point of view:
Customer expectation
Ability to customize as per my needs
Easy integration into an existing system
Provide support for a new setup
Scalability (multi-language and multiple timezones)
Higher returns than the existing model
Security and compliance (local)
Reliable APIs and role-based access
Clarity on pricing and payment methods
What is driving this business apart from the cloud boom is the need for collaboration. Today, any industry does not want to operate in silos. Taking a leaf from Adobe, designers want to collaborate at times with marketers for review, with copywriters for seamless content and with other designers to provide them with necessary assets
Absolutely love the graphic below by UserOnboard. True for all types of products:
People don’t buy products; they buy better versions of themselves
Customer journey in a typical B2B SaaS world
Allow me to bring back Philippe and his company Lectra. The first page of his story starts with product ideation - which in this case is moving from traditional systems to a B2B SaaS model. This is something a lot of companies today are marching towards for a few reasons as mentioned above. Once you have decided on the unique problem you want to solve, or your MVP, which in Lectra’s case was providing an ERP for fashion companies and easier connecting/tracking of manufacturers and brands - the next step is to get your first set of users. When you are a company like Lectra, you have some clout already in the form of existing customers of on-prem solution. But even then, you need to convince the user on the so-many benefits you are going to provide them. These first set of customers are critical because B2B is a world of word of mouth. If you have a couple of big names to show to new potential customers - there is trust that is already established. This helps the sales team to make that pitch. These early believers who would also demand some level of personalization which we will talk about next.
Courtesy: Ashok Patsamatla, Darwinbox
Once the problems of your potential clients and the industry that you are targeting are fixated upon, then you go on to build a more scalable solution. What is most important in this ecosystem is providing support. This is exactly what Philippe and team ensured to focus upon. They leveraged the existing customer support team. Your customers will abandon you if there is no support, if there is no ease of integration with existing systems, or if the pricing mechanism is unclear. Finally, SaaS business will only reap benefits if the customers that you have acquired are being retained and your product is being expanded. What you had built was an MVP. What you need to move to is an exhaustive set of features that customers can choose to pay for. Net new ARR in a SaaS economy is heavily dependent on this aspect of feature expansion. In this regard - Lectra kept on bringing new products and features like Kaledo for Design, sensor-based cutting tools for easier tracking and operation, and exhaustive PLM Models. We will discuss about these in detail in the 3rd article.
Insights on B2B SaaS - Notes from Philippe
Standardization v/s Personalization
The above is Moore’s diagram of crossing the chasm. Leading from our above discussion, this is a very important thing to consider. Those few initial customers whom we called early believers are the evangelists of the product, and they would want dedicated service and some level of focused support and personalization. Once you have these people on board, it is important that you build a scalable model. A lot of time, early-stage startups, in an attempt to please their big client, go miles to make the service personalized. Afterall, who doesn’t like things being served to them exactly as they want. But here in lies the growth dilemma. You may please this one customer and dry up your prospects of acquiring 10 more who are slightly different. This is not the way that you will ever be able to cross the chasm.
Philippe tells me that as a startup, you might not have the leverage to call the shots. Infact, you are someone pursuing the client hard, probably giving out at far lower prices too. And you are desperate to get the big client on board so that you can pull in others. Important for marketing. So, non-personalized is also not an option early on. Instead build modular, so that they can customize. Create services, easy plug-ins, APIs. Give your customer the power without getting caught in a no-growth trap. And slowly, move to standardization to make profits.
Monetization - Perspective from Lectra
Lectra (formerly know as Gerber Technologies) garners over $500 mn in revenue across products annually and is valued in billions. Surely, there are lessons that this European giant can offer us. The 5 key important things to keep in mind in selling and making money Philippe pointed out to:
Change management: Digitizing an old existing company is not simple. The risks associated with tech companies - some things will work and some not. So when moving from on-premise to cloud, making sure the company and all stakeholders are on the same page is not straightforward.
Transparency: The core and crux of taking things to cloud is transparency. Ensuring that all points are connected and also visible to the customer. Without enabling that and ensuring security, you can’t build a reliable product and B2B market is all about reliability and WoM.
Hardware integration: Virga is a machine that they deploy for cutting. It is sensor-based. Basically, HW but SW product because of the Cloud connect. This is a challenge because it pivots the pitch. The only way to upsell this is to keep things modular. If you necessitate that your SW-cum-HW be sold and paid for along with your SaaS, it calls for trouble.
Negotiation - Selling is not straightforward either. WHY should I move to the cloud is a question the customer needs to be clear on. If she doesn’t see an ROI, a tangible outcome, risk-averse customers will avoid making the first move before they see everyone else has onboarded the ship
Personalization - When it comes to Lectra, I was told by Philippe that they were clear on not bringing too much personalization. In fact, some of their products are scalable across industries like furniture and automotive.
There are different pricing models followed by different SaaS startups/companies. Some do a recurring subscription, some licensing model, and some are based on the number of calls. For example, a video streaming SaaS product could charge based on time streamed. Lectra and most others follow the service usage model. There could be several variables even there - region, data size, security layer, processing power, etc.
Metrics and prioritization:
Net New ARR = New Acquired User - Churn Rate + Expansion
While tracking metrics like New v/s Renew v/s Upsell, the whole and soul of primary metric for a SaaS can be defined by the above equation. And none of this is straightforward. Churn rate for example, is complicated in SaaS. Take this instance - a customer who pays $X v/s another using the entire suite of products and paying $5X. Same churn rate if anyone leaves but different loss of revenue. Next, because we are selling the idea of modularity throughout this blog, it means we are giving the users the power to choose from and ourselves the power to expand and add on products and features. This defines my expansion. It also follows from the Ansoff matrix. There are two ways you exapand your business - either by entering new markets or by entering new product/feature segments. The second is what is expansion. So, even with the same user base, your business has the potential to see 100% growth.
Finally, Tracking Feature usage is important. Like if 80% customers use 20% features, therein lies the focus. This is important even when formulating the pricing and deciding on prioritization on what to focus on and what to make easily discoverable.
The buck does not stop here. There are several other things to keep in mind when building your B2B SaaS product. Some of this defines your key differentiators like - building the developer and partner ecosystem; collaborating with existing companies; understanding the customer profile and finding the unique problem; understanding the key stakeholders involved. We will get a taste of all of this in the upcoming blogs!
I guess this is what I had. Hope to see you people, again in the next few days and initiate a discussion on the fashion industry to build a foundation for the 3rd and final article of the series on building a B2B SaaS product in Fashion-tech.