The perils of single-client SaaS products
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Subscription revenue is the gift that keeps on giving; who doesn’t value long-term and predictable income? Multi-billion-dollar companies like Adobe have transitioned their products to subscription-based payments for good reason.
Even so, product creators might be overly-disposed to conforming to this model- alternate pricing systems often make more sense depending on a few aspects of the user-base.
When SaaS prevails
For simplicity, we refer to recurring-payment SaaS products simply as “SaaS products”
In ascending order of importance, successful SaaS products typically are:
- low-touch from an end-user perspective;
- non-trivial from a software perspective, i.e., the proverbial moat that fends off cheaper alternatives; and
- marketable to a large enough (or price-insensitive enough) contingent of users.
A small cohort of “high-touch” SaaS products thrive. Some nascent services require a conversation with a salesperson to enroll, and other specialized products mandate license keys and installation processes. And once in a blue moon, a fairly trivial service wins business—a function that checks your website’s uptime every minute in 10 lines of code comes to mind. But even rarer are SaaS creators who enjoy subsidizing an insufficient revenue base (indefinitely, that is).
Realities of software maintenance
Software demands maintenance. Even bug-free code has dependencies that break over time; if not libraries and frameworks, then interpreters and run-times. The 1994 Space Jam site has famously survived the past three decades unchanged, proving the exception and not the rule.
That brings us to the catch-22 of SaaS products: they tend either to be an essential piece of customer infrastructure—monetizable but quite needy in terms of maintenance—or inconsequential add-ons that are low-maintenance but less valuable. No, neither of these attributes is binary, but one may consider a moderately valuable and moderately needy SaaS product as closer to the worst of both worlds than the best.
The most ideal SaaS product is mission-critical but sufficiently robust that it necessitates little maintenance.
Is perfection attainable in software? I think yes; The Flask project recently had zero open-issues and is considered by many to be “feature-complete.” It also powers countless web applications. I’d define that as perfect. But this type of perfection took years and many contributors to achieve. If for some reason your end goal is minimizing maintenance, perfection may be self-defeating by virtue of being resource-intensive.
And one cannot prove perfection, only imperfection. Since absence of evidence is not evidence of absence, a so-called perfect SaaS product still demands a watchful eye. After all, it’s little consolation to a customer that the seller really thought their product was perfect and consequently offered no line of support.
On a final note, even perfect software requires maintenance to service discrepancies between function and customer-perceived function. “You create invoices from your profile page, not the history page” is best delivered via a bot or FAQ, but we must admit that human support fallbacks belie the ideal of automated service. Just ask any aggravated customer struggling to talk to a real person.
Economics of maintenance
K-Optional Software builds SaaS products for our clients, so we’ve seen firsthand various maintenance setups. Getcho, for example, warrants a support role virtually around the clock, whereas some other clients retain an “as-needed” maintenance contract.
We’ve seen one model consistently fail in the SaaS landscape: subscription-based billing to a single customer. Crucially, I’m excluding the following business models:
- Custom retainer agreements, which imply customer service as much as software-as-a-service, i.e. not SaaS in our opinion.
- The single-customer launchpad, where targets extend beyond the transient one-customer state. We do, after all, need to start somewhere.
What appears as a golden goose perpetually laying eggs turns into a low-margin headache. A single customer aware of their only-child status will continually request niche features, reducing the general attractiveness of a product and increasing maintenance needs. Put differently, in the single-customer SaaS model, gravity pulls towards a retainer dynamic with SaaS revenue.
How do we get there
Readers may fault the naivety of even considering such a model. But we find a well-trodden path this way, usually developing like so:
- A domain expert identifies a formidable problem in her business via tech + consulting.
- Said expert crafts and successfully pilots a solution from the lens of the business rather than the industry.
- Expert typically considers a 4-to-5-figure lump-sum plan alongside 3-to-4-figure monthly subscription; the latter ultimately seems more appealing from a net-revenue perspective.
- The pilot business strikes a recurring deal and the expert is surprised to find herself on the hook for the liabilities of maintenance and technical debt.
- The successful expert either generalizes her platform for other businesses in the industry, or transitions to a better-suited retainer plan with the current business.
In exploratory consultations, K-Optional Software counsels SaaS-slinging clients to either develop a strategy to generalize or to pursue a retainer dynamic.
Strategy to generalize
Clients who craft a strategy to generalize adopt the notion that the single-customer phase is just that, and that it mainly provides utility as validation. They document key details which ensure they maintain such a mindset:
What core value proposition will apply to all potential customers? (See the Business Model Canvas)
- Apply this heuristic to all feature-requests and try to root-out wish-list items from the pilot company.
What signals will indicate that the product has passed validation?
- Is there a concrete timeline?
What sequence will you initiate when the product has passed validation?
- Can you market even during the pilot phase?
By prioritizing features that apply to one or more potential customers, we ensure that new code is an investment and not a liability.
Some great ideas inherently apply to a particular business. In this case, we recommend a retainer which signals that the business is paying the builder rather than paying for a product.
The distinguishing factor between a single-customer SaaS deal and a retainer is technical debt: In a retainer, technical debt responsibility falls on all parties whereas a SaaS company owns the liability in the alternate dynamic.