Why SaaS Is More Dangerous Than it Looks
The promise of the cloud can be very seductive. Who doesn’t like the prospect of reduced capital expenditures, a smaller IT staff (okay, probably not IT people), ubiquitous access and perpetual uptime?
Most of the major players have concentrated on infrastructure plays, while most of the new, interesting, and potentially highly-disruptive software solutions come from young players who are riding on all that newly-available infrastructure.
But those new entrants present three serious risks to businesses looking to move to the cloud. Every CEO needs to appreciate and evaluate these risks. Before you bet your entire business and begin to migrate mission-critical services and offerings to the cloud, ask yourself the questions below. In many cases, the devil you know and have worked with for years (warts and all) may still be a better bet than a crapshoot on a company that’s still getting its act together.
Who Are These Guys, and Are Their Interests Aligned with Mine?
When you’re first trying to build a new business, there’s tremendous pressure on management to keep increasing revenues. Make the sale and move on to the next. But, for the customers, the rubber really meets the road when it’s implementation time.
That’s when the SaaS sales guys tend to be long gone. And, because installations, training, configurations and the entire process of customization for individual users don’t drive new revenues, the senior management and top sales guys at too many of these SaaS start-ups have little or no interest in the migration process. They are focused solely on the top line, and compensated accordingly.
Even if you want to give these companies the benefit of the doubt, it still doesn’t make life any better for their customers. The basic SaaS modus operandi is to sell the stuff and then leave the rest of the work to third-party consultants or to the customer. Even under the best of circumstances, you can easily end up with a partial solution and a load of headaches.
What Am I Getting and What Do I Think I’m Getting?
Not only is the SaaS solution sometimes half-delivered; it’s also often half a loaf. Entrepreneurs regularly bite off too much and promise far more than they can deliver. Sometimes, especially with first-generation software programs, the initial set of buyers are involuntarily turned into the last beta testers. That doesn’t make for happy campers. In this context, I like to say that SaaS software changes and upgrades aren’t released; they escape from the engineers.
Newbies seize on the jargon of lean start-ups and use it as an excuse to launch all kinds of under-cooked and half-assed products. By “lean,” they don’t even mean simply-designed minimum viable products; they mean that they plan to learn what works and what doesn’t by leaning on the users and letting them live through all the mistakes.
Young entrepreneurs rarely understand the difference between a software program and a software product. Developing a robust and stable software product to be used by thousands of customers in a wide variety of ways and contexts takes at least ten times longer and far more effort than developing a basic software program or solution for a private user. This where all that nasty, time-consuming, and highly-detailed work called implementation, configuration and customization comes in, which, by the way, rarely scales.
Are the Savings, Flexibility and New Functionality Worth the Risks?
Drivers of electric cars suffer from “range” anxiety. They worry about whether their current charge will last long enough to get home or to the next charging station. Thoughtful and attentive SaaS users should suffer constantly from “change” anxiety, for two reasons.
First, as a SaaS customer, you only get effective control over your part of the total package. This makes for the serious likelihood of some very nasty surprises whenever the main operating system in the cloud is changed, updated or revised - with or without ample notice to you, and rarely with the testing that would confirm the new versions will work with your install. Think of the overall installation as having two parts, theirs and yours. Any time that the two parts get out of sync, you’re screwed.
Ultimately, the vendors are worried about enhancing and improving their main set of offerings, and you’re praying that whatever changes they make won’t damage or disrupt your operations.
It gets worse. No small start-up can afford to build and be running a completely separate development environment alongside their production systems. They release their changes into the production environment and do their testing on you and your business in real time. This is the fundamental risk of a cloud-based solution. One size and one version will never work for any serious number of customers, and frankly, the attitude in the SaaS world isn’t to make the system work for the customers. Once these businesses have any real traction and installed bases, their attitude is that you need to decide whether their system will work for you. If it doesn’t, they respectfully suggest that you change your business processes until it does.
What About Your People?
And remember one final thing: You have to weigh and consider the agendas and the motivations of the people inside your company as well. In every case I have seen or suffered through, there are well-intentioned and sincere people on both sides of the decision. Then there is usually another collection of people who are scared to make any decision that they might be blamed for; afraid to rock the boat; committed to prior solutions that they endorsed; protecting their own job or fiefdoms; or just too lazy to do one of these migrations well. You are rarely going to get the straight scoop from them.
Information (along with hard questions and sharp edges) has a way of getting smoothed out and softened as it wends its way to your desk. Be sure you have all the facts before you make your move.
HOWARD TULLMAN | Columnist
Howard Tullman is the CEO of 1871 in Chicago where, at the moment, 260 digital startups are building their businesses every day. He is also the general managing partner of G2T3V, LLC and Chicago High Tech Investors – both early-stage venture funds; a member of Mayor Emanuel’s ChicagoNEXT Innovation Council; and Governor Quinn’s Illinois Innovation Council. He is an adviser to many technology businesses and an adjunct professor at the Kellogg Graduate School of Management. @tullman