Transitioning to SaaS, Best Practices and Lessons Learned

February 2, 2021

Last week, FLG Partners, a group of experienced CFOs in the Bay Area, put on a webinar called “Pivoting to SaaS: Best Practices, Lessons Learned, and Case Examples” for traditional software and hardware companies. I participated, along with a terrific panel moderated by CFO Eric Mersch, to talk about the lessons learned over the past decade of companies transitioning to SaaS.

  • Ron Fior, former CFO of Callidus, described from his perspective as CFO the why and the how of a public software company shifting to SaaS under the limelight of analysts and investors.
  • Mike Park, VP of operations at Datrium/VMware, described the shift from a hardware/appliance-based business to a cloud-based SaaS delivery model.
  • Ken Chow, CFO, and COO of several private and public companies spoke about transitioning Nominum, a private on-premises software company selling to telecommunication companies and service providers, that shifted to a SaaS subscription model because of its revenue growth and enterprise value had stalled.
  • Erik Suppiger, an equity research analyst at JMP, shared some of his thoughts about SaaS leaders in cybersecurity and IT, as well as an investor perspective of the metrics that drive valuations.

I described what it takes to make the transition successfully and the following three strategies that I’ve seen companies take over the past decade when transitioning to a fully SaaS-based model.

1. Complete Transition, where a company’s management and the board decide to move over to SaaS completely, usually by a certain date, and announce it to the world. Adobe’s reinvention of the company and transition to Adobe Creative Cloud is a good example of this strategy.

2. Gradual Transition, where a company strategically decides to transition to a SaaS delivery and business model but starts gradually, often straddling both the old world of perpetual and the new world of SaaS delivery and sales for an unforeseen period of time. Customers are transitioned at their own pace, and some level of resources continues to be committed to legacy products and customers. Roughly 80% of transitioning companies fall within this category.

3. Dual Strategy, where two lines of business, perpetual license, and SaaS, coexist as equal partners. Essentially, these companies let the customer decide which product path to take and actively manage both business models. Usually, this approach is taken by companies selling into customer segments slow to adopt cloud offerings. This category is becoming smaller and smaller, especially after the pandemic caused a rapid acceleration of global digitization and use of cloud-based products and services.

I also shared some of the lessons that large tech companies have learned when acquiring pure SaaS companies and incorporating them into their larger organizations.