Spinning up SaaS in an service business : Lessons Learned

Over the last twelve or so months I’ve been working to spin up a new line of revenue at Explorate. The company has, for most of its history, been focused around growing a freight forwarding services business. Rather than use off the shelf software, we developed our own. Fit for purpose but also as a differentiator.

I joined the business about three years ago, originally as head of product and now as director of growth. My role has been, since the beginning, focused around how to do more with our software. Around a year ago we decided to take a bet on spinning out our in house platform as a stand alone supply chain management tool. We’re still early in the process but there’s been interesting milestones over the last year of setting up a new line of revenue in a seven year old business.

For some further context, the business did start as a technology business. As with most changes, it’s shift into services came due to good timing. The pandemic led to some truly unheard of freight prices and offering freight services was too good an opportunity to pass up. We’ve built a very good freight services business over that time but we see the somewhat tantalising allure of a revenue line that we can scale more independently from global freight prices and headcount.

Side Projects and Ownership

About six weeks into joining the company, I put together a presentation with the main point being ‘we should monetise our software’. I’ve spent a long time building software, with a fair chunk of that combining software an services. This wasn’t news to the founders either, they were keen to diversify revenue and had started the company wanting to build technology.

Despite that, it took a while for things to take off with any real force. A lot of that was because while we were all keen to see it happen, it was fairly low on the priority list. Specifically, nobody was really on the line for making it happen. We had meetings, working groups but no strong ownership.

Furthermore, services were continuing to grow. It wasn’t that we had hit a ceiling or had run out of steam, we just had enough SaaS veterans in the business to know we were leaving opportunity on the table.

Eventually we made that call to put someone, me in this case, in charge of the initiative. My role moved from product to growth with a broad remit of ‘find ways to expand new revenue, starting with SaaS’. I still led product but now had marketing and sales resources in my team as well.

This is not an excuse to toot my own horn but with someone on the line, things started moving. It was far from an instant success but we now had an organisation structure that meant decisions were made. Not every decision I made has been perfect, growth is never that simple, but having the goal of launching SaaS tied to a person, things moved forward.

My advice here is that if you’re serious about a new initiative, give it to someone. With a clear ownership of an initiative, things will move faster. If they don’t there’s someone you can point to rather than a vague sense of ‘we should really do something about this’.

Knowing when to double down

Whenever you start something new you need to size up your bets. This goes double for new revenue lines in an existing business. It’s rare that it makes sense to hard pivot into a new idea and devote all your resource to it. You need to find ways to validate the next reasonable assumption before doubling down. Timing that process is tricky but critical.

If you end up doubling down to early you risk both an internal and an external mess. There’s a lot of work to do in extending a business’s product line. Things need to fit together well or you may end up confusing your team , your investors, and your customers.

You also run the risk of investing too heavily into something that’s half baked. New projects are, by their very definition, new. For most companies you’ll want to experiment with plenty of ideas and GTM motions before settling on something new. You need to find the right time to take your experiments and shift them into definite new products.

There is also the very real possibility of taking things too slowly. Experiments run on experimental budgets. Most new initiatives are intentionally light on resources in order to match the risk with the expenditure. When you’ve decided on measures of success and subsequently seen then, you need to make the call to double down. If you don’t, you’re new idea will remain an experiment.

If that’s all you have the appetite for, its fine to keep things experimental. What I have seen however, both in companies I’ve worked with and others I’ve talked to, is that expectations can move faster than resources. If this happens, your team, investors and customers might end up expecting your experiment to perform like a fully rolled out new product. That is a risky situation to be in.

Keep your resourcing in lock step with your progress and you’ll do okay. The timing is always a little rough around the edges but you’ll feel it in your gut if its way too early or too late. It can help to write down a list of results or metrics you’d need to hit to double down and reinvest. That way you’ll have a preset and objective way to judge if its time to add more resources without being biased to the emotions of the moment.

Finding Overlap

A particular challenge in spinning up a new product in an existing business is ensuring there’s overlap with the existing customer book. Sometimes this can be a new product intentionally aimed at new customers but the key thing here is to be intentional.

In our case, we built out a set of new tools for our existing customer base. We didn’t make it a strict criteria that you were a services customer but by focusing on the same customer demographic we had an advantage in marketing and targeting.

Similarly, we were very intentional in making sure that our services customers were not worse off with the introduction of new product. This was a slow and carful process to make sure we found the right split of features to keep customers old and new happy.

You can go the other way and use new product lines as a way to target customers outside your existing customer base. In a way we did this too by offering software to customers who weren’t ever going to be a services customer of ours.

The overall message is to be intentional. Treat your new thing, as a new thing. Go back to the drawing board on who to target and you’ll be okay. Expect things to happen on their own and you’ll be in a bind.

Navigating the Innovator’s Dilemma

If you have more than one product you need to ask yourself if one will cannibalise the other. It isn’t a sure thing, but if there’s a chance that it will, you need to be prepared. The Innovator’s Dilemma is a book on this topic, its worth reading in its entirety but the sort of it is that if you hang on too tight to the old then the new will put you out of business. Usually because someone else took all your customers.

The hard thing about navigating this situation, the reason its called a dilemma, is that the two forces at play are both very strong. On the one hand, you have existing revenue and customers, if you’re going to whittle that down you need to be sure that what you’re replacing it with is going to have more upside.

On the other hand, if you cling to tight to what you’re doing there’s a risk someone else will beat you to what’s new. If you play that game and lose then all the revenue still disappears but it now goes to someone else rather than to your own new initiative. As the book outlines, the mindset of hanging onto what you have often wins out so you need to be intentional with this one.

Where you can avoid directly cannibalising your own revenue, stick to it. If you can’t avoid it, be intentional and careful with the process. Chances are you have entire reporting lines tied to what you’re already doing and it’s in nobody’s interest to sabotage internal support structures.

Positioning is difficult

One you’ve worked out what you’re building, how it aligns with your current offering and how to pair things up, you’ll probably soon realise that launching new product is tough. In our cause, we had to work out how to communicate to the market that we were now both a software company and a services company. We’d always been focused on technology but it made our market positioning difficult.

While you’re in the early experiment phase its largely irrelevant. At that point you probably don’t have the resources to push to hard on brand or marketing and you should mostly be reaching out to potential customers directly. Once you graduate into wanting to seriously test product market fit it starts to become important to put out a consistent message.

You can achieve this in a lot of ways. You can launch whatever you’re doing next as a new brand with a new name. You can work to make the company position grow to encompass the new product or you can shift your position to encompass your new thing.

In our case, we had always tried to position ourselves as a technology company first and foremost. We provide an excellent service but, while the company wasn’t selling traditional SaaS, we were a technology company.

With this position in mind our new SaaS offering was only a minor course correction in our overall brand position. We went from a services company that sold software to a software company that provided services. This one is still very much a work in progress for us. Positioning a company takes time.

Company Metrics and Fitting in a Box

When reporting, especially to shareholders and the board you’ve usually got a limited opportunity to present a condensed view of how the business is going. When you start running two different business models this becomes tricky. Picking the right combo of metrics and then clearly communicating them is essential to ensure you don’t end up causing confusion or a misinterpretation of what you do as a business.

SaaS metrics are pretty well established and for the most part I’d recommend sticking to a standard set in line with your progression. When your new product line is in its infancy, report it as an R&D project, then once you’ve got some repeatability in sales you can start to drift towards metrics like CAC and NRR.

One thing I strongly recommend is not blending metrics together. New customers in your existing product and new customers in your new product likely have very different behaviours, unit economics and relevance. The same goes for things like CAC, ATV and any other SaaS metric. If you are spinning up a second SaaS product then this advice is slightly less applicable but there’s are plenty of differences between SaaS and service KPIs.

If you do start offering services and SaaS you’ll probably quickly be asked “so what kind of business are you? Technology or services?” This can be a very annoying question to answer. For the right kind of business, the answer should be ‘both’ but many people are looking to pattern match you against something they’ve seen before. When that happens, whoever you are talking to will likely see the other portion of your business as either unimportant or a distraction. You’ll need to be ready for this and have a clear picture in your mind as to why you’re doing it. Your best bet may be to keep your new SaaS offering in stealth until you have enough traction to show that its more than a pet project for someone internally.

In our case at Explorate we had positioned the company from day one to be a technology company. Services ended up coming later during the mania that was COVID supply chains. Because of that there were expectations around us being a technology company from the very beginning. As our services arm grew we certainly shifted to reporting more as a traditional services business but positioning our new offering was easier because we had our origins in technology.