An article we wrote called, “How to Actually Make Money in the Cloud” was featured on Inc.com, the web presence of Inc. Magazine, which has been the premier print publication for entrepreneurs and business owners for more than 30 years. In this article, we provide a brief background into the emergence of cloud-based business models, explaining that even though they attract the financial interest of visionary entrepreneurs, many are struggling to be profitable. Using examples from our newest book, “Technology-as-a-Service Playbook: How to Grow a Profitable Subscription Business,” we discuss the emerging financial patterns that can help business leaders think more completely about their journey to creating a profitable SaaS business. Here's an excerpt from the full article, which you can read here on Inc.com.
It seems that everyone from VCs, to cloud CEOs, to the media, to our own high school kids have all expressed a clear preference for wildly fast-growing companies over slower-growth but solidly profitable ones. The logic is that if you are fast growing, there will be plenty of investors around to fund your losses.
While that may be true for most Silicon Valley start-ups, it may be less true for many small and mid-size companies who don't have the investor connections or who don't promise the gigantic upside they seek.
Perhaps most importantly, traditional companies who want to enter the world of cloud-based, subscription business models usually don't have the patience (or the capital) to continue to fund money-losing new businesses indefinitely. They want profits and they want them sooner, rather than later. So is it possible to get both solid growth and high profits in a cloud-based business model?
By studying the financial performance of hundreds of the world's most successful tech and near-tech companies and comparing them to many of the world's hottest cloud companies, we see some clear patterns emerging that can help business leaders think more completely about the journey to profitable SaaS.
Follow these principles of the Friction Curve:
Cloud offers will live through three stages of evolution where the priorities for management decision-making are vastly different.
About the Authors
Thomas Lah is executive director of TSIA. Since 1996, he has used his incisive analysis, strategic thinking, and creative solutions to help some of the world’s largest technology companies improve the efficiency of their daily operations. He has authored several books, including, Bridging the Services Chasm (2009), Consumption Economics (2011), B4B (2013), and Technology-as-a-Service Playbook: How to Grow a Profitable Subscription Business (2016).
J.B. Wood is president and CEO of TSIA. He is a frequent industry speaker and author of the popular books, Complexity Avalanche (2009), Consumption Economics (2011), B4B (2013), and Technology-as-a-Service Playbook: How to Grow a Profitable Subscription Business (2016), and has appeared in leading publications, such as Fortune, The New York Times, and The Wall Street Journal. He works with the world's largest technology companies on strategies to extend their innovation platform beyond the lab and into the customer experience, particularly in the age of cloud and managed services.