SaaS expert, Lincoln Murphy, shares his most valuable lessons learned
Lincoln on the importance of SaaS for Small Businesses:
How it all began with his SaaS consulting business
Cloud services and SaaS have formed the basis of my business for the last 10 years. I’ve worked with some traditional software companies and other subscription-based non-software companies or membership sites and things like that. My background—I mean how I got into it—is kind of interesting.
I was working at a gas station, got held up, and I quit. I knew I needed to find an office job, so I went to a temp-service and they put me in a cold room with an AS400. I didn’t know what I was doing. I was just operating the print queue, but it turns out that it was in the supply chain, and I could easily move into different parts of supply chain management from there.
Fast forward to 2004 and I was working at McKesson Corporation, which was a Fortune 17 company, selling pharmaceuticals. I was a business architect and everything we were doing was network-centric. If you think about supply chain management, it’s a network-centric business model. Nothing works without all the other players being involved.
And about the same time I was doing stuff on the web, E-commerce and B2B (business to business) primarily, that it is when I saw a real opportunity for this next generation of software.
There were others that were already SaaS companies. I don’t think SaaS was really what turned me on, but they were already doing it; they were mostly delivering software over the web versus using the web as a true network. I perceived it as a way to really innovate and have this network-centricity. And I thought that it was a really awesome opportunity, so I created a startup. It came out of that.
I quit my job at McKesson and started the company. It failed. But I learned a lot about SaaS and a lot about how others sell SaaS to big enterprise companies. It was very difficult, especially at that time. I thought of some things that other people might want to learn from. I joined some other startups. By 2008, I had formalized 16 ventures and just went down the track from consulting, right to SaaS companies.
SaaS is a gamechanger for Small Businesses
I don’t come from a traditional enterprise software background or anything like that. That’s one of the unique things—the reason that I’m looking for stuff a little bit differently than most people (or) at least the way most people used to. We’re starting to get to that point now where the network-centricity of SaaS is really being built-in from the ground up.
SaaS itself has a disproportionate impact on smaller businesses. Really big businesses, when they rip out something like PeopleSoft and replace it with SaaS, the benefits are that they don’t have to try to handle the connecting of all the remote offices. They get a little bit of savings by everybody just going to work via their website.
Aside from the foregoing, and basically having to run their own infrastructure, from a cost perspective, the benefits are negligible. Really what they get is access to a constantly updated system, especially useful where compliance is an issue. You don’t have to worry about keeping things up-to-date. It’s great but it may not be world-changing to a larger enterprise.
For small businesses, today’s SaaS opportunities are life changing… For example, my Mom has a personal training business and a Boot Camp gym in Alaska. She has between 5 and 7 other people that are trainers. It’s a very small business. I think about all the tools that she has access to, to market her business, to run her business, things like that—it was impossible.
Whether it was impossible from a cost perspective or impossible from managing the software—even if you could afford the software, the running of the infrastructure and the maintenance and all that stuff was outside the scope of what she could do.
She would have to bring in somebody to do that, either a consultant who would charge way too much money or a new employee which would just not be economical. Instead, via SaaS, she gets to put the vast majority of her resources into doing what she loves, and what her clients paid her for, rather than running extraneous IT infrastructure.
Why is SaaS so important for business?
Ultimately SaaS is transformative. The network effect drew me to this new business model, or this new business architecture, really. That’s so there’s an actual financial way of looking at it. We could say that it is the economies-of-scale that allow us to create what we call a single-instance multi-tenant environment, meaning quite simply that everybody logs into the same affordable system.
When everybody does that, and we do it en masse, we theoretically get some economies of scale out of that. However, you don’t have to have a massive system to really achieve those economies of scale; this means I can go out and build a relatively niched service and be able to take advantage of all the cloud services that are out there. I can spend something up, as we say on AWS (Amazon Web Services), very quickly, very inexpensively, and it could be very specific to a specified niche.
And then there are all the different ways that I can target people, within that niche in a relatively inexpensive way, and start to build that critical mass of users on my platform. I can reach those of economies of scale very quickly.
I don’t need to have millions of users—I can have thousands—I can have hundreds of users, if it makes sense–if there’s an audience for it and I can build it, if that audience is in any way reachable, then I might also have a viable business. There are lots of entrepreneurs out there that are technology-focused who have done that across several different niches.
There are companies that will just take the same product and re-skin it for different industries, which is cool. One of the guys in the fitness business that I know basically has a white label version of iContact which he loads up with content for personal trainers. He sells that to personal trainers who then use that pre-written content to market to their audience. He has three or four thousand customers happily paying $30 per month, because “all the work is done for you”.
Who is your audience and what kind of advice do you offer them?
The vast majority are startup founders, people who work in SaaS startups, or they work for larger and more established SaaS companies. There are a few that are maybe just entrepreneurs. They don’t really know—they’re interested in this model, but not quite there yet. Maybe some people found my take on pricing, or customer success interesting even though they’re not in the SaaS space.
When I first started, I talked a lot about the business architecture because that wasn’t something that was very well-understood or even well-thought out. And then I kind of moved from just overall business architecture into what I called revenue modeling which was just when I had the realization that everybody thought SaaS was just subscription pricing.
I thought, “Well, I don’t think that’s the case.” It turns out there are lots of different ways that you can make money but it still fits into the SaaS business architecture. Soon I got bored with that. From there it evolved into other things around marketing and mostly because companies were coming to me and saying, “Hey, we’re having this issue.” I’d say, “Well, this is our answer” and I would work through that and when it worked I’d think, “OK. Maybe that’s something I can share with everybody else.”
I evolved, and in some ways, evolved with the industry. These things became really solid, and to me, it was just not as interesting. Everything continues to evolve but some things move more rapidly than others. For me, that’s the time to move on to something new.
I’ve talked a lot about pricing over the years. I’ve talked about marketing, growth hacking, and really where I’m focused lately is on customer success.
This really means, if you look at the trajectory, that we understand the business. Now, we have to go get customers and we need to keep customers. Now, that we’re keeping them, we need to expand their use and the revenue that we get from them, and then, by gosh, if we’re doing that, maybe we should have them et cetera… It’s a building process and you make your customers into your advocates. So that’s where I’m at now. I talk a lot more about customer success these days.
Customer success permeates everything
What is interesting to me is that customer success permeates everything. I’m talking about customer success, but it’s not at any particular stage of the customer lifecycle. So I can talk about sales; I can talk about marketing; and even early stage customer acquisition. I can talk about on-boarding; I can talk about all the things that happen after they become a customer.
Then once they are a customer, they’re going through the process of achieving their desired outcome, they’re expanding their use, and they are becoming advocates for us. And customer success permeates every single part of that lifecycle. I think at some point, customer success would not really be something that we can talk about much on its own anymore. It will just be the accepted way that we do business.
The initial sale is not the only thing that matters: It’s all about repeat business
Look, here’s the deal: We want to make sure that we think Customer Success. We want to make sure, that once we have our customers that we think about them—not just when we’re trying to acquire them—but that we think about them after they become a customer on an on-going basis.
I don’t care what your business model is. I don’t care if it’s subscription or if it’s transactional. If you sell a cup coffee—I always tell people—the analogy I’d like to give is I’ve been drinking Starbucks for longer than I’d like to admit and I probably spent millions. If I stopped going to Starbucks, they would notice.
But here’s the deal. The very first time 20 years ago that I went into a Starbucks and I bought a $2 cup of coffee I didn’t know what I was doing. I probably didn’t use their language. I probably said I want large or something like that. And they treated me great and it was a great experience. And I gave them $2. And I kept coming back over the next 20 years and spent a ton of money with them. And I still do.
My point is if they had only thought about that initial $2 drink—maybe even pressured me into giving them $4, really trying to hard-sell me on something else—if it hadn’t been a great experience and if all those other things hadn’t worked, they might have missed out on a significant amount of revenue from me. And that’s probably the same for every single one of their customers.
So we can’t think of that initial sale as the only thing that matters. Too often, when we are so focused, I think “We’re just getting that initial sale. We’re losing sight of all the stuff that happens afterwards.”
And you certainly see this in bigger companies, where we would say that they’re a sales-focused organization, or sales really has a strong input into the way things are done.
You even hear it in the language we use. We say something is post-sale, which is a very poor way of looking at things. If you’re going to stay my customer for seven years, then yes, that initial sale is important. We had to start a relationship somehow. But I can’t say that all those 6.99 years are post-sale.
That defines the relationship with the customer. We need to be thinking about that, not optimizing for maximum revenue from that first sale. That is not to say that we don’t want that sale to be lucrative, or we don’t want to make money from that sale, but we don’t have to get everything from that customer right then if we think about the fact that that customer could stay with us for a long time.
And so I’d say customer success is for people that either have a subscription business or want to do business with their customer more than once. And if you don’t fit into either one of those categories, I can’t help you. Even somebody that operates a graveyard wants to provide service for somebody else in your family later on. No business is immune to that sort of thinking.
Nurturing customers properly, fully understanding their needs and giving them what they want is the secret to success
I would like to see more consumption of tools that help to keep engagement high across the entire customer lifecycle. You’re probably using a tool like that right now in your email marketing, where you’re sending your prospects information.
We usually know more about our prospects than we do our regular customers. We need to think about all that stuff we do—all that segmentation etc., that we do in our e-mail marketing right now for our prospects—and just start thinking about how to do that with our customers.
Our customers came to us because they read something that we posted online. Who would say they came to us because of our thought leadership? That was the catalyst; they came to us because we were teaching them, and they trusted us; and that doesn’t stop. That doesn’t change once they become a customer.
So we need to continue to give that information. In fact, if you ask your customers, if you talk to them, you may find that their expectation was that contact would increase. They imagined it would even happen on a more regular basis; that they would get even more information from you because they’re now your customer.
I don’t know where I’ve heard this, and I feel really bad about not remembering, but I say it all the time, and I modified it to be my own which is, “people don’t buy from you because they understand what you do, they buy from you because you understand what they do”. And that’s a really big deal.
This is one of the reasons why you shouldn’t try to be all things to all people. It is then very difficult for you to really understand what they do because they are everybody; you’re not going to really be able to resonate very much. And what happens is you start talking about yourself because you can’t talk about them.
Lincoln’s favorite cloud services are Buffer, Google Apps & SumoMe
Several tools that I use are what I would consider to be horizontal. They apply to just about everybody. I use Buffer which is one of my favorite for social networking. It’s a very simple tool. It does what the name says, which is it allows you to buffer your social media shares.
And some of the other tools that are out there like HootSuite and the like, I think add several layers of complexity to it. And basically I have it set up so that I have @LincolnMurphy and @16V twitter accounts. I have my LinkedIn, my Google Plus page, my Facebook page and Facebook personal account, and it coordinates all of those.
They’re an interesting company with a great product. They also have an image editing program called Pablo – a very simple image editor so that I can add all of the images on my posts. I don’t know if it’s free for everybody but it’s included with their subscription.
I also use Lucid Chart, which is for diagramming. And I just thought it’s a great alternative to Visio. I use Google apps across the board.
And, of course, all the SumoMe products— if you look at 16Ventures.com, you’ll see all the different opt-ins. That’s all powered by SumoMe.
When you choose a tool, really think about what you’ll use it for and if it’s worth the investment
I always tell people, tools are just tools. And if you don’t use them, well, they’re not magic. You always need to know, especially as you start getting into marketing or customer lifecycle messaging or whatever, what these things are and what you might be able to do; take a step back and learn why you’re doing this and how the stuff actually works, not just the tool but what you’re automating with the tool.
Social sharing, that’s great using Buffer. But if you don’t really have an idea why you’re doing this, or you’re just sharing random things, and you’re not really building a narrative in the area that you’re trying to become an expert in…it can be a wasted effort. Even if all you’re doing is gathering information, gathering stories, and sharing them through curation, even if you’re not creating your own content, you should have some idea of how you want to be positioned.
If you want to be the lead in the fitness industry position, as the go-to person for knowledge, and you’re not creating any content on your own, what you’re curating had better be high quality stuff, and you had better have some idea how you’re going to use this tool. If you just use it willy-nilly, it’s just like any tool; it’s not going to create the desired effect.
Lincoln’s favorite business books
A book that I would say changed my life is a book called Influence: The Principles of Persuasion by Robert Cialdini.
I would drop everything and go get a copy of it on your Kindle or whatever and just consume. I’ve read it several times over the years. It talks about all the different ways that we can be persuaded to do things; it talks about social proof; it talks about liking. It has all these different so-called principles of persuasion.
Cialdini talks about it from a scientific point of view but in a way that’s very easy for everybody to grasp. And he talks about it from two angles. He seems to say, I’m going to show you that this is how it persuades. If you choose to use it this way in your marketing, OK. But also, this is how it’s used so you can perhaps not be persuaded yourself by these things,” which is very, very, interesting.
I actually had a chance to spend some time with Dr. Cialdini in his group in Phoenix. Their group has put out several books, which takes his core findings and expands on them. These findings were quite revealing.
One book that I’m in the process of reading is called Nonviolent Communication and it was recommended to me by a leader of Customer Success at a company in Brazil when I was down there. And it’s all about communication, and doing it in a way that doesn’t immediately put the other person on the defense.
Amazon stands out the most amongst the online tech giants… Steve Jobs & Henry Ford are both iconic.
Amazon is probably the one that jumps out the most even though I use the products and services of just about everybody out there. Amazon is one of those companies though where there is a trust that I don’t think they have violated…at least yet.
When I buy something from them, I just know it’s going to be a good experience. I know it’s going to be what I ordered, and that if there are any problems, it’s going to be resolved.
And so from a consumer standpoint, when they came out with their payment button, I really thought, “This is it. This is going to be one of the things that really takes-off”. It didn’t really seem to go anywhere, which surprised me, but maybe it still will—they may just be rolling it out slowly.
From a business standpoint, they’re an interesting business to follow. Just as Google, Apple, Facebook, and Microsoft are; they are case studies, and obviously being quite successful, but also building these large conglomerates that do many different things. I saw a chart the other day that had the different org structures of all of them…it was very enlightening.
Facebook is the youngest. I’m watching how it has evolved. It has been fascinating, too. I’m quite intrigued by Zuckerberg, to see how he is maturing and growing into his skin and comfort. He is more than just a bright guy.
I’m not sure Yahoo deserves to be mentioned in the same breath as Google, Apple, Amazon, Facebook, Microsoft—they were all products of these iconic individuals. And it is quite fascinating that they’re a unique group of companies, technology yes, but more than the technological impact, they really were part and parcel of these personalities. And all those individuals really grew into themselves and created brands that I think it’s fair to say that were extensions of themselves.
One of the things I hear about very often is this thing called desired outcome which consists of understanding what the customer is trying to achieve in their relationship with you, which ultimately is the basis for what we call customer success.
A lot of times, I get some push-back on “how do we know what the desired outcome is”? And then inevitably, we’ll talk about how, if Henry Ford has asked people what they wanted, they would have said “a faster horse”. Steve Jobs is famous for never asking anybody what they wanted—he just knew that the thing that he was going to put out there was going to change the world.
However, I think that’s missing some pretty significant pieces of the information pie there, which is Henry Ford, if he asked people would they want a faster horse, they would probably have said “yes”, but if he asked what they were trying to accomplish, and they didn’t really talk about the modality of transportation, he would have inferred from that that they wanted a car.
I think what Henry Ford, Steve Jobs, and all these iconic founders did better than other people is that they knew what the customer wanted better than the customer knew themselves.
We all have the ability to do that to a certain extent. I think a lot of the time, we (myself included) fall down as we get so focused on the technology, or the product, or the service that we’re selling. We get so caught up in the details of it that we forget that we are not the consumer.
We forget about the consumers’ point of view. And so, a sanity check: “Is this product that I’m building, the service that I’m going to create, this new offering, is this really going to help the customers achieve their desired outcomes? And if not, why am I building it?”
Amazon has tried and sometimes it hasn’t worked out. They’ve probably killed more services than they put out there, but still have all the remaining ones because even they don’t get it right every time. But they get it right more often than not. And when they get it right, they knock it out of the park.
Focus on your higher purpose and the rest takes care of itself
That has been a recurring theme for me lately, as I try to figure out why I do what I do; that includes just why I’m here on a daily basis, on this planet; I am figuring out that purpose. And I think a lot of these folks had an idea from the beginning, maybe not with any specificity, or maybe it was, but this is what they were going to do.
This is the reason they are building the software company—not because they want to build a software company—but because they want to go stop hunger in this country, or they want to stop this disease somewhere; maybe they just want to help do something bigger in the world. They’re not sure what that is but this is the catalyst for them.
Going back to the core idea, which is having that purpose or having that connection with something else, and having that be your motivation, if you look at all the people that are just very successful on a different plane, then what we might say is that they seem to be purpose-driven versus profit-driven.
I started out pumping gas so I also understand when you’re coming up and there’s a lot of scarcity in your world, that having that purpose and being driven, it can seem like it’s not ever going to work out or what the point is. And I just think that some of these really successful folks have been able to overcome that and get out of their own way. I know that I get in my own way sometimes and overcoming that is a big step in the right direction.
I think when we keep the focus on that, it also helps. This could get a bit esoterical, but I think having that focus on a higher purpose for you and your company, and for the people that you’re working with, also tends to keep other things top-of-mind. This in turn is making sure that you’re doing the right things for your customers; that you don’t see that the people you are working with, your partners, your customers, your other ecosystem partners as taking from you. You come at it with a different point of view.
I just wrote a piece last night on how to work with grandfathered customers, the people you gave a deal early on and now they’re not paying you what a new customer would pay. You need to make sure that you don’t look at them as a burden; they were a gift because you learned from them, and they came there when nobody else would trust you with their business.
Final piece of advice for a startup company
Lincoln, thank you so much. I have one last question for you, which is, if you could, in just one or two sentences, really tight, speaking to someone who is about to launch a business or perhaps just launched a business, from your universe and your expertise, what piece of advice would you offer to them? What’s the most important thing?
I would get really clear on who my ideal customer is and understand deeply what their desired outcome is and then operationalize around that.
Wow! I love how you described that. That’s beautiful. That’s very powerful. Thank you, Lincoln. I thoroughly enjoyed this. I hope you did half as much.
Yeah, this was awesome. Definitely. Thanks for thinking of me and including me.