The Dichotomy Between Services and SaaS

Key Points
· Misaligned accountabilities and incentives cause internal and external tensions in partnerships
· There upside in addressing this for customer success / retention and product positioning
· Effective programs capitalize on complementary elements and mitigate conflicting structures of these two dichotomous business models

Examining Complements and Conflicts

I was first introduced to the Business Model Canvas as an Associate at Pariveda. I took an internal course called Strategic Thinking, led by Susan Paul, one of our Managing Vice Presidents in Dallas. To this day, I continue to reference and adapt this framework, which is a particularly fitting tool to help examine partnerships.

One of the most straightforward ways to get to the root of potential value-add is to look at which elements have synergies, and which do not. For this exercise, I took a subset of the canvas and compared the two archetypal business models for a SaaS Company and a Services Firm.

My observation is that the strongest complements exist between SaaS Companies and Services Firms within Value Proposition, Key Activities and how Customer Relationships are approached.

Customer Relationships - SaaS Companies are often good at building strong communities, robust documentation, and driving scalable self-service behaviors for their core Personas. Differently, Services Firms are typically focused on nurturing long-term, trust directly with individual end-customers who reward them with repeat business. This is a great example of where complementary strengths can be leveraged through a partnership to meet the varied needs of customers depending on the circumstances.

Revenue and Cost Structures – These are significantly different between the two organizations and shape much of the core operations. For example, SaaS companies naturally reap exponential economies of scale. There is no such thing in the Services world, which is more linear. If not mitigated through the partnership model, the discrepancies here can be a major problem.

Overall, this is not an exhaustive comparison, but I want to illustrate that we need to look critically at the business models to align partnerships to value for the partners and, ultimately, the customer.

Examining Complements and Conflicts in Business Models

Another incredibly important angle is the aspect of trust, which is at the core of advisory work such as Professional Services. A time-tested framework that I really like is the Trust Equation. This comes from the book The Trusted Advisor by Maister, Green and Galford.

Effective partnerships with Services Firms must fill the need for credibility, reliability, intimacy and self-orientation.

Trust Questions

How do I demonstrate that I am credible enough on this subject and solution?
How do I ensure that the solution is reliable and does what I say it does?
How can I give my customers a sense of safety and confidentiality?
How do I prove that I am truly focused on the client and not my own selfish objectives or appearances?

Couple the trust questions with the questions regarding the value proposition for the partnership:

Core Partner Value Proposition Questions

What is the market demand for the product and partnership?
What potential services revenue exists for me?
How much utilization will it cost to upskill a practice?
What current skill sets or practices will I need to displace?

We also need to address internal tensions that arise within the SaaS company. Below is a handful of the most common concerns internally, particularly with sales and account management:

What if I was already talking to that client?
Why should partnerships be my job?
What if the partner boxes me out, slows me down, or blows up my deal?
Why should I trust a partner to know our product better than me?
How do I even work with a partner?

Services Gaps are Responsible for Churn

But why does strategically aligning with Services Firms even matter then? Because this Service Gap causes churn. According to Bain & Company, a customer is four times more likely to defect to a competitor if the problem is service-related than price- or product-related.

Accenture Global CSR

Furthermore, Defaqto Research finds that 55% of customers would pay extra to guarantee better service. This means that by addressing the Service Gap we can reduce churn, drive topline revenue and unlock a scaling mechanism for the most un-scalable resource-intensive component of the SaaS business model: customer success and professional services.

Some immediate questions come to mind for how to quantify the cost of a Services Gap:

How much churn could I eliminate through Services Partners?
How can Services Partners help improve retention and scale adoption?
How will Services Partners help me improve my NPS?
How can I elevate pricing and positioning through Services Partners?

Focus on the Whole Product

A Services Gap is typically a symptom of incomplete focus on the Whole Product, a widely known concept described in Geoffrey A. Moore’s Crossing the Chasm. Moore shines a light on the holistic needs surrounding a generic product, such as training, support, standards, procedures and integration. Failing to deliver a Whole Product often leads to disillusionment and eroded customer relationships.

Services Firms may be a viable solution to address the broader, non-core needs that your customers have. In the final article of this series, I’ll lay out my approach for how to take action, design, and manage partnerships through a product-led approach.

Next up: Building a Better Model for SaaS and Services Collaboration

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