Tag Archives: HR software

How Do You Make SaaS Defensible?

4 Oct

I’ve been thinking about SaaS and what makes it defensible.  SaaS is an extremely broad term.  Evernote, Linkedin’s recruiter product is SaaS, Basecamp, Salesforce, etc. are all SaaS and are all very different.  But I think many of these products share a common challenge.  If someone comes up with a new SaaS product and it starts to gain market traction, these products can be and often are copied.

Let’s look at the HR software market as one example.  HR and the associated “Human Capital Management” software space is a massive segment with billions of dollars of annual spend by companies large and small.  Any company small to large in size has some potential need for HR software.  Inside the HR software suite, there are lots and lots of different types of products.  Applicant tracking software for recruiting.  Performance review and tracking software.  Time sheet management.  Org design tools.  Benefits administration software.  Employee on boarding and off boarding software.  Etc etc.

Many times these components are bundled together into a single suite of SaaS products, which is what you find from the bigger players like Taleo (now part of Oracle), SuccessFactors (now part of SAP), SilkRoad, Workday, and others.  Other times they are separate point solutions.  For instance, there are literally dozens of providers of point solutions for Applicant Tracking (ATS).  Why?  Because it’s fairly easy for even a single good developer to copy the design and functionality of existing ATS products in order to put together their own serviceable SaaS offering.

The result may not be as feature rich or stable as more established products, but can be enough to gain some market share, albeit often small.  When you have a large enough market, there’s enough spend to support several large players offering  variations on essentially the same SaaS product.  And that same large market can support a very long tail of smaller copycats.  The latter may not be large, VC-supportable growth companies, but they can be very nice, profitable enterprises for their owners.

Another example of this is in the customer service management software space.  Zendesk created a “next gen” SaaS product for customer service agents to better manage customer service tickets through multiple channels (email, phone, social media, etc.) from anywhere.  Freshdesk, an India-based company, started in 2010.  While I’m not a user and I haven’t looked at either company in detail, best as I can tell there is limited differentiation between the two companies.  And there is a whole host of smaller companies with similar general product offerings.  Google it.

Like the HR and ATS examples above, the customer service management space is very large.  It can support more than one large player and long-tail of smaller providers who compete with the bigger guys through cheaper pricing, a specific vertical focus, or simply taking a tiny bit of market share in a very large market.  Often times it’s the latter and customers and some portion of customers just don’t know better that there’s a potentially better, more established product out there.

I could go through other examples with similar characteristics.  CRM, accounting software, social media management for marketers, email marketing, you name it.

An important point to make here is that these typically aren’t winner-take-all situations.  These usually aren’t marketplace businesses where there’s a network effect where increase scale creates a bigger and bigger moat around your business until the point where it makes no sense for either side of the marketplace to use any service but yours.  So how do you differentiate yourself?

A few ideas:

  1. Scale allows you to invest in a better product, and there’s not better business advantage than a better product.  I think the real benefit to scale is the ability to create a better product.  When you have more dollars to invest and you can attract better tech talent, you can build a better product.  More stability, more core features, more integrations, etc.  The more this happens, the harder it is for someone to simply copy what you’re doing.  It’s also hard to engineer for scale, so being able to create an awesome, reliable product that works at scale (think Evernote, Dropbox, etc.) is an advantage in and of itself.
  2. Try to create platforms, which in turn generate network effects.  Salesforce’s Force.com is a great example of this.  Salesforce essentially has thousands of developers doing R&D for free on their platform.  Salesforce can’t possibly think of every potential feature or customer need, and they don’t have to.  Others can experiment and do this for them.  This is very hard for competitors to replicate.
  3. Similarly, creating some type of network and then placing a SaaS service on top creates defensibility.  Linkedin is a cardinal example of this.  The core software tools Linkedin provides to recruiters aren’t anything special in and of themselves.  But they are incredibly powerful and proprietary given the network they’re built on top of.
  4. Having a unique angle and/or world class capability in Sales & Marketing is huge.  Selling to large, enterprise grade customers requires sophisticated sales teams and strategy.  Building this isn’t easy or quick, nor is it the realm of “copycats.”  Similarly, for people selling into consumers or SMBs, creating a great online marketing capability, perhaps supplemented with some inside sales, is tough.  It requires talent, full-time effort, the ability to experiment with multiple channels, etc.   If you can build this, you’ve created a big moat for yourself in terms of sales and distribution.

If you can nail 2 out of 4 of these, I think you’re on your way to building a SaaS business with a chance to occupy market share at the head of your market rather than the tail.  What other concepts would people add to this list?

Advertisements

Linkedin & The Future of Recruiting – Part II

1 Aug

In Part I of this series on Linkedin, I talked about how traditionally corporate recruitment has been driven by job boards – which are a combination of job postings and resume books – and the professional headhunter offering.  The third and fast-growing juggernaut in the recruitment space is, of course, Linkedin.  In this post I’ll talk about how Linkedin is disrupting traditional recruiting.

As a professional, Linkedin is one of my favorite web services.  For work, I probably use it more frequently than any other service besides Gmail.  As a work utility, it outshines Facebook by miles.  The ways in which it helps business professionals to meet and to interact is clear to anyone who uses the service.  If you don’t follow the company or recruitment industry closely, though, Linkedin’s impact on the recruitment space isn’t as obvious.

Linkedin’s primary innovations vis-a-vis the recruitment space are really two-fold.  The first is that Linkedin has basically created a public resume book. Your Linkedin profile is the modern-day resume.  It has all of the same information, but it’s there for all to see.  When you submit a resume to Monster or some other job board, it goes into a proprietary resume database.  Once submitted, there’s no real incentive for you to continue to resubmit your resume as it gets updated.  Your Linkedin profile, in contrast, is public and therefore there’s an incentive to have up-to-date information.

So now individual or corporate recruiter has access to the same set of public profiles.  The proprietary resume databases of the job boards and the value of the “proprietary networks” of the headhunter are now highly diminished, some exceptions of course withstanding (e.g., board level retained search).  Not only is the Linkedin “resume book” public, but it’s also more up-to-date than the traditional resume sources.  Linkedin therefore scores on two fronts.

Linkedin’s second and related innovation is it’s emphasis on social, which is all based off the fact that profiles are public and have a real life identity attached to them.  You come back to Linkedin again and again because of the social features – seeing who’s connected to who, commenting on messages, following companies, joining groups, etc.  The traditional job board tries to bring people back with industry news, which is less valuable, easier to replicate, and less frequent a use case than social.

What all of this creates is a rich database of professional profiles that are generally up-to-date.  This, of course, is fertile hunting ground for recruiters.  With a subscription to Linkedin Talent Solutions, a recruiter gets the ability to search Linkedin’s entire database of profiles and to message anyone on the network.  This shifts significant power into the hands of recruiters and away from the job board and the headhunter.  Talk to any corporate recruiter and they’ll talk about how Linkedin has become an indispensable tool.  It shows up in Linkedin’s financial results as well.  Last quarter, nearly 60% of revenue came from Linkedin’s recruiter focused SaaS offering vs. <40% of revenue in Q1 2010 (see chart below from Linkedin’s Q1 2013 earnings slides).

LNKD Chart

Whether large or small, it’s harder now for a company to justify the cost of using a 3rd party recruiter or heavy use of job boards, though the latter is still quite prominent (see Part I where I discuss how the “death of job boards” is really the death of Monster/CareerBuilder/other generalists).  Companies are increasingly favoring hiring of in-house recruiters versus paying contingent search fees.  After all, it’s not just in-house recruiters who are using Linkedin but headhunters as well.  Everyone’s fishing in the same pond now.

Linkedin is now the tool for recruiting passive candidates.  Recruiters signed up for Linkedin’s Talent Solutions have the ability to message any person on Linkedin’s network.  Linkedin’s network is stronger and more up-to-date than any resume book.  It also allows recruiters to see who’s connected to who, which is important as companies increasingly try to turn their current employees into recruiters.

All of this has created an awesome revenue trajectory for Linkedin and really put pressure on traditional recruitment offerings.  Having said that though, Linkedin’s success and some of its product design choices are creating challenges for both users and recruiters.  This is creating opportunities for startups to try to address some of Linkedin’s shortcomings.  In Part III of this series, I’ll go into some of the challenges that I see Linkedin facing in the recruiting world and some brief thoughts on how they might go about addressing these.

Gigaom

Technology news, trends and analysis covering mobile, big data, cloud, science, energy and media

You Do The Dishes.

Just remember that the things you put into your head are there forever

Regarding Work

Thoughts on productivity, collaboration and maximizing talent

juggaloforbooks

...readin' books, watchin' movies, and drinkin' Faygo

50 Marathon Quest

Running 50 Marathons By The Time I'm 50

ex post facto

by tom tunguz of redpoint ventures

Taylor Bollman

Just another WordPress.com site

Simpletom

Explorations of simplicity and simple living

Haystack

@semil's blog, building a community around technology

Lightspeed Venture Partners Blog

Lightspeed is a leading global VC firm focused on partnering with exceptional entrepreneurs to build high-growth market-leading companies globally.

Steve Blank

Entrepreneurship and Innovation

VentureBeat

News About Tech, Money and Innovation

%d bloggers like this: