Your SaaS vendor's margin is your opportunity

I promised to share the lessons as I learn. This is one such, from my recent, intense field conversations.

A few weeks ago, I met 300+ traditional, old-school industry executives. They were all from wildly successful companies ($100M - $2B) that still fondly remember Lotus Notes and ask you to do a Skype call. I loved how they pretend-danced on the floor with 25+ AI product companies that tried to woo them with AI ERPs, AI CPQ software, and what not.

There were even a couple of robotic-sounding IVR demos which we had to pretend-acknowledge that they were sounding human.

I loved that dance floor. I was in it for three days. It was better than the ‘LaCroix’-powered Databricks conference in the valley where everyone wore a t-shirt size smaller than they should. It is not an important detail that I like the boomer industry song and dance party because they were cutting checks.

Or were they?

I spent some time with a handful of YC companies (the gold-standard startup pixie-dust that gets you $10M seed round) at the event. Between crushing some croissants, I saw them pitch their wares. Boomer CXOs were intently taking notes on their cliffpads.

This is when I smell blood. This is dogma selling dogsh*t. I know exactly why startups do this. The products are merely demos. They are not enterprise-ready. The $100K setup fee is a ‘Hail Mary!’ to ensure they just don’t go under the water trying to untangle the data mess.

What they really want to say is ,“Bob, we want to do a workshop to understand your goals, review your data, present a data maturity assessment, and then we will go from there.”

God, I missed Accenture in the room. They would have sold a $2M deal right there.

Instead of pitching a consulting service, the startup packages the goo into a set up fee. More goo gets packaged as annual contract because who knows how many workflows, what tokens, and how the company wants the toast buttered.

It’s either this or a set up fee and a $0.5 per item in the catalog or some such ‘outcome or consumption’ sounding pricing.

Sadly, enterprises don’t study tech from YC or Twitter/X. Some of these industries don’t even know Gartner from Gutenberg. So their assessment I simple – how much grunt work am I saving; does it improve my NPS; am I generating a quote faster, and suggesting substitutes early on – all without doing an internal ping-pong between supply, pricing, and sales teams.

They are skeptical about this whole thing working but they smell cost-savings. The VC-orchestrated, dogmatic school of SaaS–pricing–trained founder has some unseen boundaries they play within. They will only sell if it’s a product and professional services is a no-no. Outcome and consumption pricing are new-fangled, imaginative half-way midpoint where they meet the industry. Well, the industry does not care.

What should have happened is:

1. A two-day workshop, followed by

2. Data and Process/workflow assessment (with as much digging as possible, into what $ figure outcome that this initiative can generate)

3. A cost + margin internal quote based on FTE, AI costs and a value-based quote that ‘the client won’t fall off the chairs hearing it’

4. Followed by a 'negotiation song-and-dance’ not just for the pricing but how the program can be stacked in cycles of incremental de-risking through intermittent, verifiable outcomes (and not some meta, end-of-the-chain outcomes)

The price could be more or less or equal to the packaged ‘Setup and recurring annual contract’ pricing from the SaaS company, but pricing isn’t the point. It is the approach, setting up for success, and capturing value.

Dogmatic approaches are lose/lose for both the sides:

1. A risk-averse enterprise buyer may not trust a startup and it only gets worse when transparent-sounding-but-useless pricing communication and templated onboarding is how far a product company is willing to go. A failed program is a failed career for the buyer. Worst yet, it’s how AI gets shut off from the org.

2. The startup or the product company leaves a lot of value on the table because they won’t do what is right but they would have to fit everything into a neat setup and onboarding cycle

Well, I am glad we took a consulting approach to Moative because we anticipated exactly this. Enterprises need someone at their conference room in Oklahoma presenting and reviewing phased implementations over onion burgers and pecan pie – every two weeks. They need to feel in control. They need to see a steering committee presenting ‘red, yellow, and green’ traffic signals.

While I said that the pricing does not matter as much as the approach, I have a good feeling (informed by comparative quotes) that it’s a lot more affordable for enterprises to do one-time builds and incremental updates through consulting cycles delivered through specialist AI shops than buying from a star-spangled YC company that runs with a ‘grow or die’ motto.

The enterprise on the other side worked on a ‘Never Die’ motto since World War I and their fasteners are still the same and their catalogs are still in paper files.

Happy Independence Day, America!