The Smedvig Capital team have been doing some reading around the role of Professional Services (PS) in the evolution of SaaS companies as they search for Product Market Fit and the holy grail of long term recurring revenue.
This was prompted by the observation that some of our SaaS investments have seen higher churn than expected despite strong new sales activity. This implies a mis-match between value expectation at sale and realisation in practice. Our hypothesis is that Professional Services is an essential tool to bridge that ‘expectation — reality gap’ in the early days of company scaling.
Below is an email I sent to a handful of SaaS CEOs I work with, summarising some reading we have been doing on the topic.
Whilst we would all rather have a 100% SaaS business with no Consulting or Professional Services (PS), the reality is that most SaaS businesses lean heavily on PS as they create their category and refine Product Market Fit.
I want to be clear that we shouldn’t see Professional Services or Consulting as “bad” at this stage.
For sure the economics need to “work” and we should strive to get paid for any consulting that we do.
For sure, we should continue to automate as much of the product as possible and to productise our service offering to improve our margins and reduce the level of PS that is needed. But it may be that a significant amount of PS is needed for now to ensure that clients actually see value and become sticky.
We should keep an open dialogue on this.
Some key considerations:
Why we may need to consider a PS practice
- We are both a green field category AND a complex business application where we are trying to become an operational workflow touching many users and processes AND we require integration with multiple systems — all of this suggests a strong need for Professional Services
- This doesn’t mean we should spread ourselves thinly doing lots of tangential projects for clients, but it does me that we may have to provide focussed and targeted support to help customers get value from the core SaaS tool and ultimately become sticky
Some helpful ideas on how to shape a PS offering:
- Our tight sector and use case focus means A) we have much domain knowledge and B) we are likely to see many common implementation and usage tasks. This implies Fixed Price service packages may be a good idea.
- We have wide range of customer sizes and so will need to offer different packages for different customer types. I suspect our ACV will only support a PS offering for our Enterprise clients
- Whilst a period of free PS is a good investment to refine product-market-fit and to build advocacy and a sticky ARR base, we should aim to charge and make margin on consulting as the economics won’t work otherwise
- Pre-built integrations can help and should be charged for eventually
- Pre-loaded business process templates are an excellent idea to quickly get to actionable outputs
- Keep the Exec Sponsor in the loop. We have had issues with key sponsors leaving, so ensuring multiple users and stakeholders is key. CS could be incentivised to increase the number of users at a client? I like the idea of extended best practice workshops post ‘go-live’ with focus shifted to performance and ROI. Creating presentations for sponsors to communicate up the value of the product is also a good idea
- A well defined set of simple performance metrics, agreed with sponsor is vital; metrics must align with actual and perceived value. Internally, we could target Day 30 NPS and twice weekly usage from all users as part of a PS package
- Instrumenting the app to monitor usage and track performance metrics in real time is a vital step. We touched on this as part of our last product discussion so I understand this is in-progress but I cannot emphasise enough the value of usage data. This will help to refine PMF but also to demonstrate the value of the product to clients and help spot where they can get more from the product or where there are workflow bottlenecks
I know you are thinking about this already, but I found these articles helpful for crystalizing a few thoughts on the topic. There is clearly a balance to strike between what we would like, that is a fully self-serve SaaS tool, and what the market may want. Does a user actually have any time to learn to use a tool, would they rather have it in place and then have us or a third party tell them what the “answer” is through a PS offering?
A train the trainer type model can be a good half-way house but relies on there being a persona we can target who has the bandwidth, capability and inclination to be that level of sponsor.
I highly recommend reading these trio of short articles on the topic of PS in SaaS:
SaaS Myths (#1) — Great SaaS Companies Don’t Have Professional Services
The most pervasive and pernicious SaaS business model myth? It’s that “Professional services revenues are ‘bad’ and…
SaaS Myths (#1) — Great SaaS Companies Don’t Have Professional Services (Part 2 of 3)
In the first installment, we showed how professional services are a key component in most successful SaaS company…
SaaS Myths: #1 — Successful SaaS Companies Don’t Have Service Revenues (Part 3 of 3)
We’ve established in Parts 1 & 2, that professional services are a significant part of many successful SaaS company…