Custom Application Development

I've written quite a bit about Software as a Service and channels as it is one of my top areas of interest - from my personal experience at Trigo, Postini and Intacct the prevailing wisdom that SaaS and channels don't mix just doesn't make sense. The common theme is that the channel is addicted to upfront service revenue - installation, integration, and implementation revenue from on-premises deployments - and since these activities are minimized with SaaS, the channel will stay with old dinosaur enterprise software and avoid SaaS.

We had a chance to spend some time with a long term Sage reseller this week who shared his own personal case for why SaaS makes sense from his perspective as a business owner.

This particular person has owned a large Sage reselling business for more than two decades. Like most of the rest of the business owners in the accounting VAR community, he's starting to think about retirement and succession. He talked about this quite a bit - the whole community (along with the legacy accounting vendors) is aging and starting to think about their next steps.

But here's the rub - while reselling and implementing Sage has been a great business for him over the years, it hasn't built an ongoing revenue stream. He's got great customer relationships, experienced employees and a respected brand, but he has to keep selling and installing and integrating and implementing new customers every year, and if he slows down he's out of business. He's concerned his business just isn't that valuable from an acquirer's perspective. As he starts to think about selling his business and retiring, he's getting more concerned about the valuation of his business and what he can do to to increase it.

His thought process was that by shifting his business to become an Intacct VAR, he's building an ongoing revenue stream that continues forever as long as he keeps his clients happy - since he gets a portion of every month's subscription fee for every one of his clients. Since the valuation of any business is driven by future cash flows, he sees how shifting to SaaS will mean a much higher valuation and selling price for his company once he's ready to monetize it. It means he can eventually sell a large client base with an ongoing, very high margin revenue stream, in addition to his brand and his employees and their expertise.

I hadn't thought about angle before - how moving to SaaS could fundamentally impact the personal financial outcome from the perspective of the owner of a channel business. Sage advice for those folks who think that channel and SaaS don't mix.