Marginal cost of SaaS is not near-to-zero

I just happened to see a post on LinkedIn referring to a strategic advisor’s page on SaaS strategy. The picture wants to focus the reader on stimulating growth to outpass the operational fixed costs of a start-up in SaaS. I agree that one has to ensure the turnover gets bigger than the operational costs. Not arguing that part of the picture at all. But … the same picture shows the biggest lie in the SaaS industry. The marginal cost is NOT near to zero. And that is really bad news.

The first months are all about servicing the customer to keep them

Let’s redesign the above picture to a graph that is closer to reality. Often, SaaS companies will offer their software as a service for free for a while. You can plan that part, and estimate the cost for developing and marketing the offering. That’s the guaranteed cash burn. That’s why you attract investors in the first place. The issue is, customers will not stay if you do not spend time with them. You have to help them capture the value from your offering, and that costs a lot of time. Huge amounts of time, in comparison to the price you are planning to charge for the software in the future. Marginal cost at that point is far from zero. It’s probably the unexpected and biggest cash burner for months in a row. That’s really bad news.

 

 

From a certain moment in time, you will decide that you have had enough of the free users, and want to start charging money. Of course, you will loose some users, but hey, you also gain money from the others, so why bother, because the biggest challenge in the planning is to estimate the turn-over for the coming months. Again, you do not want to loose clients, and by now you will have learned that these clients need services too. Be sure though, that the clients will also be needing much and much more services than you expected in the beginning. Do not forget, they are now paying for the offered SaaS, and you do not want to loose the scarce clients you have convinced to stay with you until this point in the history of your start-up. So be sure, again, the marginal cost will be huge, and much more than anticipated.

Result: the lie about marginal costs puts break-even beyond expectations

There is a way to cope with the marginal cost: include it in the financial plan from day one. Or, even better, sell customer value services to the clients, and add the SaaS subscription as a plus. That way, your client services generate a real gross margin, and your SaaS increases the repetitive character of the generated margin per client.

Yes, this is the business model that is Participium’s favorite. And no, it is not easy. As is no business model that ever leaves the academic books, and is put to the test in real life.

Self-steering, teal, holocracy, fluid organization, … what model fits your organization best?

What model is the best fit with your (future) organization? We can’t tell. There is no one size fits all organizations solution. You have to discover your own model. The good news is, that you can get inspired by various existing models to design the self-steering approach that might be the best match with the DNA of your organization.

Getting a quick overview of the existing models and getting a much better understanding of their ins and outs, is why you would have to participate in the open session on self-steering on Thursday February 8, 2018. It’s an initiative of The Argonauts and Unizo, supported by Participium.

More info and registration

Program

• Thursday February 8, 18.30h: welcome
• Jan De Visch: introduction
• Jan Lagast: my personal entrepreneurial adventure towards self-steering
• Jan De Visch: existing models and their ins and outs

Data

• Location: De Serre, Lange Gasthuisstraat 29-31, 2000 Antwerp
• Fee: €50 (VAT excl)
• Dutch spoken
• Limited to 60 participants

Speakers

• Prof. Jan De Visch, Flanders Business School
• Jan Lagast, Managing Partner Participium

Partners

• The Argonauts
• Unizo
• Participium
• Vivaldis Interim
• Flanders Business School

 

We learned a lot about self-management

On November 22, Jan De Visch gave a crystal-clear explanation on self-management and other new organizational forms that will become necessary as soon as Industry 4.0 breaks through. These new organizational forms put ‘learning and sharing’ in the place of ‘commanding and controlling’. The ‘we’ becomes more important than the ‘me’. And that is exactly what we have to do at Participium.

This first intro session was particularly useful. Not only because we were able to present Participium as a purpose-centric investment company, but also because we  were present with some of our managers and got inspired by Prof. Jan De Visch and the two cases from Carglass and BNP Paribas Fortis.

Away from command & control

Jan indicated that many new organizational forms are starting to see the light of day. All these new forms are based on the same basic principle: away from command & control, but with more responsibility and engagement. Self-management is not the same as ‘doing as I like’. On the contrary. Self-management means that people have to take  responsibility, reflect on what they do and how they do it, make decisions together. This means that the top of an organisation is no longer the classic top or middle management, but a coaching framework.

At Carglass, forming that coaching framework was hard job. Getting the coaches to adapt to this new mindset of coaching, rather than managing seemed very hard.  Carglass started bottom-up and now sees its figures improve drastically. BNP Paribas Fortis is a pioneer in the Belgian banking sector. They received carte blanche from France to introduce a totally new self-management concept. According to them, that is the only way to deal with the current challenges.

Fascinating things happen nowadays. Also for Participium. We are in full learning mode and are looking to introduce these new methods into our own organizations and we want to build great companies that make it pleasant to work at other companies. Those who want to participate in that adventure are always welcome for a chat.

Download Jan’s presentations: Liquid organisations and self-management

The ideal group size is 150

When building great companies where people love their jobs, it seems we cannot cross the magic number 150. “I read an article some time ago about Goretex, where all US  offices have a maximum of 150 parking spaces. Every department with more than 150 employees has to split”, Jan Lagast says.

“I was just reading in ‘De corporate tribe’ that 150 is the magic number for a maximal natural group cohesion. Several tribes in Greenland and Australia seem to consist of 150 members. Growing furhter means splitting. There is a religious that uses the same numerus clausus.”

 

Usefull information for directors, in a book that Jan  warmly recommends!

More information on De Corporate Tribe (in Dutch)

Download an extract (in Dutch)

The tilted organization at the time of emperor Augustus

And man created God (dutch titles is En de mens schiep God) by Selina O’Grady is a very interesting book. One chapter is on the metamorphosis of Rome at the time of Emperor Augustus, who managed to unite an incredibly diverse empire by introducing an emperor cult. He was clearly not a micromanager. Some interesting fragments:

“By the end of the first century BC, the empire was a patchwork of semi-autonomous cities run by wealthy, local landlords. They were brought together loosely in provinces under Roman rule. The Roman imperial administration was in fact minimal, even towards the end of the second century after Christ. There was only one Roman governor per four hundred thousand inhabitants. ”

“Partly in order to limit the power of the senators, Augustus deliberately strengthened the equestrian class by number and status and incorporated it more and more into the government of the empire. […] Augustus now appointed many Knights, especially in posts concerning the essential task of taxation. ”

“The leasing of tax collection had been a way for the Roman aristocracy and local elites to finance the costs of public life and their own system of patronage. […] Augustus appointed knights for tax collection, with the strict instructions ‘not to claim more money than the fixed amount’. These tax collectors, and even the chivalric governors whom he appointed, were given a fixed salary for the first time. The Augustan regime could thus claim that it liberated the provinces from the worst excesses of Roman exploitation. By allowing them to benefit from their own prosperity, the pax Augusta gave the provinces an incentive to remain loyal to the central authority. ”

This is very similar to a tilted organization, giving teams and people a final responsibility to be dedicated in order to give customers a concrete added value and stimulating them to achieve strong performances within the team, by offering the opportunity to reap the benefits of their work.

This book is highly recommended. ISBN 9789059778436

Ethion presents ‘participatory entrepreneurship’ as a solution

Interesting interview on Kanaal Z with Geert Janssens, economist of Ethion (the former VKW). He brings participatory entrepreneurship as an alternative to the current social dialogue and questions the role of the works council, using statements such as: “today, the works council is still too often in the trenches”. The questions from Veronique Goossens indicate that in order to change things there is still a lot of work to do.

To Jan Lagast it was particularly remarkable that profit participation of the staff was seen as something very dangerous. Strange, because in this particular trench warfare it is quoted that the entrepreneurs’ thirst for profit would be the danger of this century. As soon as you turn the tables and let the personnel also take part in profit, the gun is suddenly swapped over to the other shoulder and there is being indicated that profit participation entails dangers such as making loss. Could there be a fundamental and good reason after all for entrepreneurs who want to take that risk, to get the chance to earn just a little more money than the ones who do not want to take any risks?

Watch the interview via the Kanaal Z website.

KVI as most important administrative measure

Today the ExCo meeting of Participium took place. Participium’s evolution is constantly observed through a number of parameters. One of these parameters is the particular status of the companies that it helps to grow.

The most important parameter is the Key Value Indicator (KVI). KVI is a method developed by the people at management consultancy Forte to check whether customers are satisfied with the added value that they were promised during the sales talk. The KVI not only measures ‘supplier delivery’, but also ‘client perception’.

Recurring business

KVI is the most important predictor of recurring business. After all, if customers realize that your company truly offers them added value, they will most likely want it again. This is so important for a healthy company that it is a crucial part of any advice Forte gives its clients. It is so important for a stable growth that Participium has decided to follow not only its own KVI closely, but that of every company it guides through growth.

The fastest grow happens when focusing on customer value

Participium was a guest at Forte with share#square on 23 October, where managing partner Jan Lagast explained the way Forte has been assisting the growth of companies for years. In essence, it comes down to this: if an organization from the highest top in the decision hierarchy, focusses on customer value, then growth can be achieved more easily. In fact, if the organization continues to maintain that focus and regularly communicates with its customers, then growth becomes almost self-evident. Forte’s earliest customers prove this case, because they have succeeded in realizing growth year after year.

Share # square itself is also starting to take off. With more than 30 participants, the place was stacked at Forte. It is becoming an interesting network.

Next year Participium is planning to have four editions. More news later on.

New book on inspiring leadership by leader Sam Furnier

After the information session led by Jan Lagast on share#square at Forte last week, Sam Furnier handed him a small booklet with an elephant on the cover. Sam is CEO of Maes Compressoren in Deinze. He recently wrote a candid book about his personal experiences as a leader, intriguingly entitled ‘The elephant in the room’. The elephant represents important things that anyone sees, but do not dare to face. With that elephant Sam introduces leadership in the first chapter as completely dedicated to introspection.

At Participium you will find the book on the guest toilet, as you might guess from the photo (Sam, that is a gigantic honor, for real). It reads very smoothly and it encourages you to think. The chapter on introspection confirms why Participium has two foremen. That first chapter says  that you have to honestly decide for yourself who you are: “I am ….” and fill in the blank. Participium founder Jan Lagast does not fill in the dots with ‘inspirational leader’, but with ‘inspirational inventor’. Because he is a better advisor than a leader.

That’s why Jan is better at ‘inventing’ new companies than at manage big companies. And that is why there are two people leading Participium: Jan, who focuses on thinking up new companies, and Herman who realizes the growth within these new companies. They even have a name for these two phases in the companies’ life: “Creating” and “Running”. They both do what they do best.

Thank you Sam, for putting it so clearly in your book.

The elephant in the room, 7 steps to inspirational leadership, Sam Furnier, Witsand Publishers, ISBN 978 94 9201 104 6. 

Free whitepaper on growth in b2b companies

At the end of last year, management consultancy company Forte published a whitepaper on growth for B2B companies. The document provides an effective way to reconnect with growth. Clue: it starts at the top, with a strategic focus on realizing customer value. On these few pages you will find out how your company can start thinking about growth again.

This whitepaper was given to all participants of the share # square event at Forte today. The document provided the attendees with a synopsis of the enthusiastic presentation of Jan Lagast (Managing Partner of Forte and Participium).

Quickly request your free copy!