I came across this interesting article a few days ago talking about how SaaS companies might be vulnerable in a recession. This was timely as yesterday I was having conversations with some entrepreneurs on a similar topic. These were all early stage startups and I was curious what their thoughts were about the current economic situation in the US and abroad.

This group didn’t have much though about the the current economy (Are we in a recession? Are we heading toward one? Are we coming out of one?). Largely, this is because in an early stage startup, all your energy is focused on just getting stuff done. Recession or not, it’s still a struggle for a startup to close those first few customers, build that buzz. One interesting bit that came out of the question was a sense that the cost of outsourcing will continue to go up over the next year. There are indications that outsourcing to Eastern European locations will catch up to the cost of outsourcing to India within a year. A rising tide raises all boats…eventually.

I find it interesting that this article focuses primarily on SaaS for the enterprise. If/When there is a recession, SaaS offerings for consumers would be the first ones to be hit. If a consumer is spending $25/month or $150/year for a SaaS service, they may start asking themselves if they really need it. And that is the beauty of it, if they don’t or can’t afford it anymore, cancel it.

The really interesting question is will consumers do that?

As the economy shifts, you will start to see the true management abilties of the leaders behind all SaaS offerings. How efficient is their operation? Do they have a cash cushion to weather the storm? What will they do during that storm? There was an interesting interview with the CEO of SaaS provider Zoho who boot strapped his company and continues to do so. I found an interesting correlary to the previous questions and how AdventNet (who own’s Zoho) weather a few previous storms in their past. I find it interesting how they used downturns in their market and economy to spin up other SaaS based offerings. I also found the comment about the number of Engineers at SalesForce very interesting.

SaaS will be an interesting area to watch in the next 9-18 months.

Lately, in my discussions with IT executives as well as small and medium sized technology company executives the topics of Open Source and Software as a Service (SaaS) customer services has been coming up. It seems that some Open Source ans SaaS providers have lost sight of the importance of the Customer. I have heard of SaaS providers that provide a level of self-support in the, now standard, form of Community Forums but fail to actively participate in the community themselves. I have also heard stories of Open Source users contacting the Open Source provider for support, even willing to pay for onsite consulting, but being ignored unless they purchase a multi-year support contract first.

It appears that the Technology business models may have changed, but many business are still operating the same. Regardless of their size or type, the executives behind these technology companies need to relearn a basic premise of business: you only exist for the customer; without the customer the business doesn’t make money and you don’t get paid. I might be a bit more sensitive to this than most due to my entrepreneurial spirit and constant contact with customers as part of a sales team. But some of the stories that I heard start to border on the level of astonishment in regards to how these companies have ignored their customers.

Maybe these software executives should take a lesson from Whole Foods.

Now before you think I’ve flipped, listen to this story of customer support that I experienced tonight. My wife was shopping at whole foods and when she got home realized that the checkout clerk had not given her the packages of meat that she purchased. When I ran back to the story to pick up the package at the Customer Service desk, the clerk who helped me was sincerely apologetic and also gave me a bag of chocolate chip cookies for my troubles.

When you look at this at the surface, you realize that this is the type of response one would expect from a business focused on keeping a loyal customer. All jokes about “Whole Paycheck” aside, I’m sure the clerk wasn’t even thinking about how much money we spend at Whole Foods regularly or about the $60 we spent there that day. She wasn’t thinking about the fact that the free bag of cookies (which costs $5.50) was almost 10% of the value of the groceries we bought that day. What she was thinking about was just keeping a customer happy and making amends when the business as a whole made a mistake.

Now translate that same thinking to the much more business savy technology industry. When an executive in an Open Source firm doesn’t want to send a consultant out to a user of that company’s Open Source software for a paid engagement (typical rates run between $2000 and $3500 per day) because the user doesn’t have a support contract (which typically runs between $20,000 and $40,000) who is the executive focusing on? Obviously not the best interests of their company.

Here is a chance to show a prospect the level of support you can provide…while getting paid for it…and earn the right to sell the customer a support contract. It’s earning 10% now in order to earn 100% later…who wouldn’t do that? It’s possible that there were absolutely no one available who could provide this consulting. Possible…but customer focused companies always seem to find someone who can wear multiple hats or be re-prioritized to earn a new customer. So, if the executive wasn’t focusing on what’s best for their company or what’s best for the customer…who or what were they focusing on?

Maybe some of the software executives behind some Open Source and SaaS companies should step out of their offices and into the real world once in a while. They could start out simple, lets say Business 101, by actually going out and visiting a customer and learning what’s it like in their customer’s environments. And if they really want to challenge themselves by taking Business 201, they could try working for a while at Whole Foods…

Lately, I have been doing some advising for a friend of mine on a new technology business. They are in the early stages of building out a new SaaS offering and they are planning out their technology infrastructure. The discussions that we have been having would be all to familiar to those of us who sold through the “bubble years”. How big do you plan your infrastructure?

The enthusiastic ones talk about the thousands upon thousands of possible customers and millions of visitors per day (at least that part is different from the bubble…back then it was millions of customers and 100’s of Millions of visitors…at least I was fortunate enough to work with a couple of the companies who actually did that type of volume). The cautious ones talk about minimizing the number of moving parts and not make it too complicated. The pragmatic ones (I consider myself part of this group) try to strike a balance between the two.

During the bubble you needed to spend literally millions on infrastructure to run an Internet company. Today, open source packages enable you to do this for close to nothing. You can build out a very robust, flexible, and scalable infrastructure based on open source (can you say Google?). But the question still exist, how much do you need and at what point.

The specific question comes down to a single source for user information (most specifically their authentication) for the customers and visitors to the web based service. One thought is to implement an LDAP system right away for future grown and flexibility. Another thought is to just build it into the web site.

For the record, I’m part of the LDAP camp. I think it will provide the flexibility of a single source of truth for users right now and is standard enough that most open source packages can hook into it for authentication. The plan includes adding multiple services that are either free or for charge, and a users set of services could belong to both groups. The thought of trying to synchronize user authentication information between multiple systems across each service just adds too much complexity.

If anyone has any opinions to share on this topic, I look forward to hearing them. How are others out there implementing their infrastructure for similar situations?