Should we build or should we buy?
The current "Corona climate" is forcing SaaS vendors to ask questions about their cash management practices. Should they be maintaining the burn and sticking to delivery dates, or should they be trying to bring revenue forward by spending more? More and more companies are taking a second look at the cash management implications of their cloud infrastructure management decisions. This isn’t a surprise, as every SaaS company has to deal with cloud infrastructure, and, after the core application, it’s the most complex and energy-sucking component to manage in-house.
If you’ve built your cloud management infrastructure yourself, you know how difficult it was to do so and how expensive it is to maintain. Once you become aware of the PaaS capability on the market today—and how easy it is to switch—the decision whether to continue with your self-managed hosting effort quickly becomes the elephant in the room. And judging by how frequently people talk to me about what the right decision to make is, I reckon there are whole herds of elephants out there.
Taking a step back to go two steps forward
Anything you invest in—including cloud infrastructure—that isn’t core IP will never return the 10X business value you should be aiming for. That’s why early-stage software builders, when they acknowledge the elephant, choose to entrust their cloud infrastructure management to a Platform-as-a-Service (PaaS). They realize that buying a cloud infrastructure management service will provide them better quality and a quicker return on their investment, which, in turn, will win them more deals.
But what if you previously made the decision to build instead of buy, but now realize that you have to backtrack on that decision? How can you justify such a big change of gears, first to your board and then to your engineering team?
Crafting a message to the board
You stand in front of your board. With a flourish, you pull back the curtain and reveal the elephant. "We made a bad decision to invest so heavily in something that wasn’t going to return a 10x business value. So we’re switching our cloud infrastructure to a PaaS." Eyebrows rise. To lower them, here are the messages you need to deliver:
It will start us on the "SaaSify everything" path
"By switching to a PaaS, we’ll dramatically increase our cloud infrastructure ROI, as well as our ability to make CAC and ARPA improvements. All of which will allow us to immediately effect a 'SaaSify everything' strategy."
A PaaS will give us the full function CMP we've always wanted
"We will have a full blown container-based global SaaS cloud infrastructure at our disposal overnight, ready to run our applications. Set-up effort is minimal, as we are effectively pointing our application repositories (Git, Bitbucket) at the PaaS and setting up some new infrastructure definition files. The PaaS will do all the environmental management and will take care of the build and deployment process, as well as live service management."
It will reduce our cash burn
"The PaaS will negate a large chunk of engineering cost now and into the future (for both build and operate), which will have a huge downward impact on the burn. We'll reduce our AWS expert headcount. And we'll be able to more efficiently utilize our cash by moving a large chunk of budgeted CapEx to per-client-OpEx."
It will bring deals forward and make them bigger
"We can throw applications of all sizes and complexity at the PaaS, and it will just swallow them up and scale them when required. We'll have no need to build extra capacity or systems to support them. And we will have a load of extra business value we hadn't planned to build, adding additional workflow and automation not in the build plan. These attributes can be easily translated into added value and upsell."
It will improve productivity and reduce workloads across the board
A PaaS will also reduce effort, problems, tickets, and wait times for subscribers and internal support teams. Productivity will improve all around. In addition, a PaaS will give us fleet management capabilities that will allow us to apply enhancements and fixes quickly and safely across the estate."
Crafting a message to the engineering team
Now it's time to parade the elephant before the engineering team. While your arguments to the board for switching to a PaaS could rely on pure cold investment numbers, convincing your development team will be tougher. You're trying to take away something they invested something more valuable than money into: they invested their sweat and tears into building a cloud infrastructure.
Core IP is 10X value; generic functions are not
"The current climate has determined some priority changes, and we have decided to refocus our engineering efforts on core IP, which hosting infrastructure management is not. It's a generic function, and we don't believe it is adding 10X to our business value. It doesn't comprise specific concepts, content, and process knowledge that help us differentiate. It's actually consuming a lot of energy, which we could redirect into core IP that will bring us more sales at bigger deal values. And this will boost our chances of further funding."
Are we building business value?
"Is continuing to build and manage our own cloud infrastructure getting us a measurable 10X return ? Are we seeing more revenue, customers, or cost savings as a result ? Is what we're doing providing a better experience, better performance, or a higher degree of functional relevance?
I know it's your job and that's what we hired you for
"You may have some good expertise in this area, but it's going to take a long time to get to the ultimate goal. There are vendors out there already doing this, and they're doing it way better than we are. In any case, how can we be certain new functions will scale out with volume? Unless you're confident of getting close to third-party product quality, we'll inevitably miss things that will hurt us later on. We're not a specialist product vendor, so let's not continue trying to be one."
When you don't know what you don't know, let the market tell you
"Let’s deep-dive into a selection of different vendors’ products. If none are quite good enough, then at least we will understand both how difficult it is going to be to build and the true value of buying it. Anecdotal evidence tells us that 99.9% of companies should not be doing their own cloud infrastructure, unless they’re a specialist software vendor and really need to. Are we? Do we?"
There will never be a better time
The current economic havoc makes any argument for reducing capital expenditure and the cost of goods, whilst bringing forward core IP and new customer sales, a crucial one to consider. With the pressing need to survive, there is no better time to get the backing of your board and the support of your engineering team to reverse any prior decision to build a cloud infrastructure. Such a thoughtfully considered change in direction may not only save you now, but also propel you to greater success in the future.
If you’d like to open a conversation about your SaaS business model or the value of a PaaS cloud infrastructure on the rest of your business model, you can find me on LinkedIn or contact me at firstname.lastname@example.org.