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Scalability and Technology Consulting Advice for SaaS and Technology Companies

SaaS Migration Challenges

March 12, 2018  |  Posted By: Dave Swenson

More and more companies are waking up from the 20th century, realizing that their on-premise, packaged, waterfall paradigms no longer play in today’s SaaS, agile world. SaaS (Software as a Service) has taken over, and for good reason. Companies (and investors) long for the higher valuation and increased margins that SaaS’ economies of scale provide. Many of these same companies realize that in order to fully benefit from a SaaS model, they need to release far more frequently, enhancing their products through frequent iterative cycles rather than massive upgrades occurring only 4 times a year. So, they not only perform a ‘lift and shift’ into the cloud, they also move to an Agile PDLC. Customers, tired of incurring on-premise IT costs and risks, are also pushing their software vendors towards SaaS.

But, what many of the companies migrating to SaaS don’t realize is that migrating to SaaS is not just a technology exercise.  Successful SaaS migrations require a ‘reboot’ of the entire company. Certainly, the technology organization will be most affected, but almost every department in a company will need to change. Sales teams need to pitch the product differently, selling a leased service vs. a purchased product, and must learn to address customers’ typical concerns around security. The role of professional services teams in SaaS drastically changes, and in most cases, shrinks. Customer support personnel should have far greater insight into reported problems. Product management in a SaaS world requires small, nimble enhancements vs. massive, ‘big-bang’ upgrades. Your marketing organization will potentially need to target a different type of customer for your initial SaaS releases - leveraging the Technology Adoption Lifecycle to identify early adopters of your product in order to inform a small initial release (Minimum Viable Product).

It is important to recognize the risks that will shift from your customers to you. In an on-premise (“on-prem”) product, your customer carries the burden of capacity planning, security, availability, disaster recovery. SaaS companies sell a service (we like to say an outcome), not just a bundle of software.  That service represents a shift of the risks once held by a customer to the company provisioning the service.  In most cases, understanding and properly addressing these risks are new undertakings for the company in question and not something for which they have the proper mindset or skills to be successful.

This company-wide reboot can certainly be a daunting challenge, but if approached carefully and honestly, addressing key questions up front, communicating, educating, and transparently addressing likely organizational and personnel changes along the way, it is an accomplishment that transforms, even reignites, a company.

This is the first in a series of articles that captures AKF’s observations and first-hand experiences in guiding companies through this process.


Don’t treat this as a simple rewrite of your existing product - answer these questions first…

Any company about to launch into a SaaS migration should first take a long, hard look at their current product, determining what out of the legacy product is not worth carrying forward. Is all of that existing functionality really being used, and still relevant? Prior to any move towards SaaS, the following questions and issues need to be addressed:

Customization or Configuration?
SaaS efficiencies come from many angles, but certainly one of those is having a single codebase for all customers. If your product today is highly customized, where code has been written and is in use for specific customers, you’ve got a tough question to address. Most product variances can likely be handled through configuration, a data-driven mechanism that enables/disables or otherwise shapes functionality for each customer. No customer-specific code from the legacy product should be carried forward unless it is expected to be used by multiple clients. Note that this shift has implications on how a sales force promotes the product (they can no longer promise to build whatever a potential customer wants, but must sell the current, existing functionality) as well as professional services (no customizations means less work for them).

Single/Multi/All-tenancy?
Many customers, even those who accept the improved security posture a cloud-hosted product provides over their own on-premise infrastructure, absolutely freak when they hear that their data will coexist with other customers’ data in a single multi-tenant instance, no matter what access management mechanisms exist. Multi-tenancy is another key to achieving economies of scale that bring greater SaaS efficiencies. Don’t let go of it easily, but if you must, price extra for it.

Who owns the data?
Many products focus only on the transactional set of functionality, leaving the analytics side to their customers. In an on-premise scenario, where the data resides in the customers’ facilities, ownership of the data is clear. Customers are free to slice & dice the data as they please. When that data is hosted, particularly in a multi-tenant scenario where multiple customers’ data lives in the same database, direct customer access presents significant challenges. Beyond the obvious related security issues is the need to keep your customers abreast of the more frequent updates that occur with SaaS product iterations. The decision is whether you replicate customer data into read-only instances, provide bulk export into their own hosted databases, or build analytics into your product?

All of these have costs - ensure you’re passing those on to your customers who need this functionality.

May I Upgrade Now?
Today, do your customers require permission for you to upgrade their installation? You’ll need to change that behavior to realize another SaaS efficiency - supporting of as few versions as possible. Ideally, you’ll typically only support a single version (other than during deployment). If your customers need to ‘bless’ a release before migrating on to it, you’re doing it wrong. Your releases should be small, incremental enhancements, potentially even reaching continuous deployment. Therefore, the changes should be far easier to accept and learn than the prior big-bang, huge upgrades of the past. If absolutely necessary, create a sandbox for customers to access new releases, but be prepared to deal with the potentially unwanted, non-representative feedback from the select few who try it out in that sandbox.

Wait? Who Are We Targeting?
All of the questions above lead to this fundamental issue: Are tomorrow’s SaaS customers the same as today’s? The answer? Not necessarily. First, in order to migrate existing customers on to your bright, shiny new SaaS platform, you’ll need to have functional parity with the legacy product. Reaching that parity will take significant effort and lead to a big-bang approach. Instead, pick a subset or an MVP of existing functionality, and find new customers who will be satisfied with that. Then, after proving out the SaaS architecture and related processes, gradually migrate more and more functionality, and once functional parity is close, move existing customers on to your SaaS platform.

To find those new customers interested in placing their bets on your initial SaaS MVP, you’ll need to shift your current focus on the right side of the Technology Adoption Lifecycle (TALC) to the left - from your current ‘Late Majority’ or ‘Laggards’ to ‘Early Adopters’ or ‘Early Majority’. Ideally, those customers on the left side of the TALC will be slightly more forgiving of the ‘learnings’ you’ll face along the way, as well as prove to be far more valuable partners with you as you further enhance your MVP.

The key is to think out of the existing box your customers are in, to reset your TALC targeting and to consider a new breed of customer, one that doesn’t need all that you’ve built, is willing to be an early adopter, and will be a cooperative partner throughout the process.


Our next article on SaaS migration will touch on organizational approaches, particularly during the build-out of the SaaS product, and the paradigm shifts your product and engineering teams need to embrace in order to be successful.

AKF has led many companies on their journey to SaaS, often getting called in as that journey has been derailed. We’ve seen the many potholes and pitfalls and have learned how to avoid them. Let us help you move your product into the 21st century.

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Technical Due Diligence Best Practices

January 23, 2018  |  Posted By: Marty Abbott

Technical due diligence of products is about more than the solution architecture and the technologies employed.  Performing diligence correctly requires that companies evaluate the solution against the investment thesis, and evaluate the performance and relationship of the engineering and product management teams.  Here we present the best practices for technology due diligence in the format of things to do, and things not to do:


The Dos

1. Understand the Investment/Acquisition Thesis

One cannot perform any type of diligence without understanding the investment/acquisition thesis and equally as important, the desired outcomes.  Diligence is meant to not only uncover “what is” or “what exists”, but also identify the obstacles to achieve “what may or can be”.  The thesis becomes the standard by which the diligence is performed.

2. Evaluate the Team against the Desired Outcomes

The technology product landscape is littered with the carcasses of great ideas run into the ground with the wrong leadership or the wrong team.  Disagree?  We ask you to consider the Facebook and Friendster battle.  We often joke that the robot apocalypse hasn’t happened yet, and technology isn’t building itself.  Great teams are the reasons solutions succeed and substandard teams behind those solutions that fail technically.  Make sure your diligence is identifying whether you are getting the right team along with the product/company you acquire.

3. Understand the Tech/Product Relationship

Product Management teams are the engines of products, and engineering teams are the transmission.  Evaluating these teams in isolation is a mistake – as regardless of the PDLC (product development lifecycle) these teams must have an effective working relationship to build great products.  Make sure your diligence encompasses an evaluation of how these teams work together and the lifecycle they use to maximize product value and minimize time to market.

4. Evaluate the Security Posture

Cyber-crime and fraud is going to increase at a rate higher than the adoption of online solutions pursuant to a number of secular forces that we will enumerate in a future post.  As such, it is in your best interest as an investor to understand the degree to which the company is focused on increasing the perceived cost of malicious activity and decreasing the perceived value of said malicious activity.  Ensure that your diligence includes evaluating the security focus, spending, approach and mindset of the target company.  This need not be a separate diligence for small investments – just ensure that you are comfortable with the spend, attention and approach.


The Don’ts

1. Don’t Waste Too Much Time (or money) on Code Reviews
The one thing I know from years of running engineering teams is that anytime an engineer reviews code for the first time she is going to say, “This code is crap and needs to be rewritten.”  Code reviews are great to find potential defects and to ensure that code conforms to the standards set forth by the company.  But you are unlikely to have the time or resources to review everything.  The company is also unlikely to give you unfettered access to all of their code (Google “Sybase Microsoft SQLServer” for reasons why).  That leaves you at the whims of the company to cherry-pick what you review, which in turn means you aren’t getting a good representative sample. 
Further, your standards likely differ from those of the target company.  As such, a review of the software is simply going to indicate that you have different standards. 
Lastly, we’ve seen great architecture and terrible code succeed whereas terrible architecture and great code rarely is successful.  You may find small code reviews enlightening, but we urge you to spend a majority of your time on the architecture, people and process of the acquisition or investment.

2. Don’t Start a Fight
Far too often technology diligence sessions start in discussion and end in a fight.  The people performing the diligence start asking questions in a way that may seem judgmental to the target company.  Then the investing/acquiring team shifts from questions to absolute statements that can only be taken as judgmental.  There’s simply no room for this.  Diligence is clinical – not personal.  It’s not a place to prove who is smarter than whom.  This dynamic is one of the many reasons it is often a good idea to have a third party perform your diligence:  The target company is less likely to feel threatened by the acquiring product team, and the third party is oftentimes more experienced with establishing a non-threatening environment.

3. Don’t Be Religious
In a services oriented world, it really doesn’t matter what code or what data persistence platform comprises a service you may be calling.  Assuming that you are acquiring a solution and its engineers, you need not worry about supporting the solution with your existing skillsets.  Debates around technology implementations too often come from a place of what one knows (“I know Java, Java rocks, and everything else is substandard”) than what one can prove.  There are certainly exceptions, like aging and unsupported technology – but stay focused on the architecture of a solution, not the technology that implements that architecture.

4. Don’t Do Diligence Remotely
As we’ve indicated before, diligence is as much about teams as it is the technology itself.  Performing diligence remotely without face to face interaction makes it difficult to identify certain cues that might otherwise be indicators that you should dig more deeply into a certain space or set of questions.  Examples are a CTO giving an authoritative answer to a certain question while members her team roll their eyes or slightly shake or bow their heads.

You may also want to read about the necessary components of technical due diligence in our article on optimizing technical diligence.


AKF Partners performs diligence on behalf of a number of venture capital and private equity firms as well as on behalf of strategic acquirers.  Whether for a third party view, or because your team has too much on their plate, we can help.  Read more about our technical due diligence services here

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Definition of MVP

April 3, 2017  |  Posted By: AKF

We often use the term minimum viable product or MVP but do we all agree on what it means? In the Scrum spirt of Definition of Done, I believe the Definition of MVP is worth stating explicitly within your tech team. A quick search revealed these three similar yet different definitions:

     
  • A minimum viable product (MVP) is a development technique in which a new product or website is developed with sufficient features to satisfy early adopters. The final, complete set of features is only designed and developed after considering feedback from the product’s initial users. Source: Techopedia
  •  
  • In product development, the minimum viable product (MVP) is the product with the highest return on investment versus risk…A minimum viable product has just those core features that allow the product to be deployed, and no more. Source: Wikipedia
  •  
  • When Eric Ries used the term for the first time he described it as: A Minimum Viable Product is that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.
    Source: Leanstack

I personally like a combination of these definitions. I would choose something along the lines of:

A minimum viable product (MVP) has sufficient features to solve a problem that exists for customers and provides the greatest return on investment reducing the risk of what we don’t know about our customers

Just like no two teams implement Agile the same way, we don’t all have to agree on the definition of MVP but all your team members should agree. Otherwise, what is an MVP to one person is a full featured product to another. Take a few minutes to discuss with your crossfunctional agile team and come to a decision on your Definition of MVP

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Build v. Buy

April 3, 2017  |  Posted By: AKF

In many of our engagements, we find ourselves helping our clients understand when it’s appropriate to build and when they should buy.

If you perform a simple web search for “build v. buy” you will find hundreds of articles, process flows and decision trees on when to build and when to buy. Many of these are costcentric decisions including discounted cash flows for maintenance of internal development and others are focused on strategy. Some of the articles blend the two.

Here is a simple set of questions that we often ask our customers to help them with the build v. buy decision:

1. Does this “thing” (product / architectural component / function) create strategic differentiation in our business?

Here we are talking about whether you are creating switching costs, lowering barriers to exit, increasing barriers to entry, etc that would give you a competitive advantage relative to your competition. See Porter’s Five Forces for more information about this topic. If the answer to this question is “No – it does not create competitive differentiation” then 99% of the time you should just stop there and attempt to find a packaged product, open source solution, or outsourcing vendor to build what you need. If the answer is “Yes”, proceed to question 2.

2. Are we the best company to create this “thing”?

This question helps inform whether you can effectively build it and achieve the value you need. This is a “core v. context” question; it asks both whether your business model supports building the item in question and also if you have the appropriate skills to build it better than anyone else. For instance, if you are a social networking site, you *probably* don’t have any business building relational databases for your own use. Go to question number (3) if you can answer “Yes” to this question and stop here and find an outside solution if the answer is “No”. And please, don’t fool yourselves – if you answer “Yes” because you believe you have the smartest people in the world (and you may), do you really need to dilute their efforts by focusing on more than just the things that will guarantee your success?

3. Are there few or no competing products to this “thing” that you want to create?

We know the question is awkwardly worded – but the intent is to be able to exit these four questions by answering “yes” everywhere in order to get to a “build” decision. If there are many providers of the “thing” to be created, it is a potential indication that the space might become a commodity. Commodity products differ little in feature sets over time and ultimately compete on price which in turn also lowers over time. As a result, a “build” decision today will look bad tomorrow as features converge and pricing declines. If you answer “Yes” (i.e. “Yes, there are few or no competing products”), proceed to question (4).

4. Can we build this “thing” cost effectively?

Is it cheaper to build than buy when considering the total lifecycle (implementation through endoflife)
of the “thing” in question? Many companies use cost as a justification, but all too often they miss the key points of how much it costs to maintain a proprietary “thing”, “widget”, “function”, etc. If your business REALLY grows and is extremely successful, do you really want to be continuing to support internally developed load balancers, databases, etc. through the life of your product? Don’t fool yourself into answering this affirmatively just because you want to work on something neat. Your job is to create shareholder value – not work on “neat things” – unless your “neat thing” creates shareholder value.

There are many more complex questions that can be asked and may justify the building rather than purchasing of your “thing”, but we feel these four questions are sufficient for most cases.

A “build” decision is indicated when the answers to all 4 questions are “Yes”.

We suggest seriously considering buying or outsourcing (with appropriate contractual protection when intellectual property is a
concern) anytime you answer “No” to any question above.

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