A situation I’ve increasingly encountered over the past few years: a CEO of a software company wants a little digital transformation for himself to pivot their their business from selling on-premise software to a cloud-based, SaaS model.
This never comes as a surprise to me. Cloud computing is in our lives more than ever before, and is enabling businesses far and wide to tackle increasingly complex challenges with far fewer resources. What may come as a surprise is my message to a CEO in this situation: Take a conservative approach and assess this transformation through a business lens first before making any migration or technical decisions.
The first step is always understanding your business and what it could stand to gain from a cloud migration. Even more important is the need to develop a realistic and achievable financial model that will deliver on the promise of SaaS for you and your shareholders.
Why move to the cloud?
From my experience, there are three primary reasons businesses make the decision to move to the cloud (more details on this plus the hidden costs associated with a cloud migration here).
It starts with the flexibility of the cloud, and the initial setup cost and effort required by a customer during onboarding. With on-prem, multiple teams are involved, and it can take weeks or months to get the right equipment in place or the right environment spun-up and lit-up. With cloud infrastructure, regardless of your current technology set or architecture, you can provision a new instance for a customer in a matter of hours. Beyond reducing provisioning time, effort, and complexity, this also provides the indirect benefit of better composure in early interactions with your customers.
There would not be this global push to the cloud without some form of cost benefit. Whether part of the cost is borne by you or your customer, it digs at your bottom line. Cloud provisioning can instantly be scaled up, down, or out to meet the demands and needs of your customers. With this, companies are empowered to get smart about their infrastructure setups and only pay for the storage or computing being used. As a famous insurance company’s tagline goes: “Only pay for what you need.”
Lastly is the world of opportunity provided by the cloud. With modern cloud stacks, you have access to services, modules, and platforms that would have otherwise taken months or years to build. And by connecting your existing on-prem deployments to new cloud-based solutions, you can unleash your customers’ data in ways you simply couldn’t before.
Sounds pretty enticing, but unfortunately it’s not always that simple. What every CEO needs to know is there are business needs that are to be considered before any technical changes.
Before you migrate…
1. Understanding the customer base and scale needed
I often ask our clients whether they understand which market segment they want to attack with the cloud offering. Are we talking about enterprise clients, the mid-market or small business? This helps to characterize customer needs and figure out which capabilities/features/modules would generate the most incremental recurring revenue from any investment in cloud migration/enablement.
These days it’s cheaper to fire up and maintain a cloud server than a regular, on-premise server. The caveat to this is that over-provisioning server resources or failing to identify additional cloud services that will be required quickly eliminates that advantage. It’s important to understand the scale you need, and how to approach customer provisioning to minimize risk and cost. Before you attack the technology, understand how many customers you’ll be servicing on the platform and whether you want to offer the same user experience that you do today.
2. See what it will cost the customer
Customers will likely see significant changes to their cost structure from a migration to the cloud. Some that could even include personnel changes. Many customers want a turnkey solution that lowers ongoing maintenance costs. Regardless, you have to put yourself in the shoes of the customer and understand what a migration to a SaaS model will mean to them, financially, from an SLA perspective, and also any impact this may have on their support personnel.
3. Know your systems
It is absolutely crucial to understand your systems and the data access and transfer patterns used by your customers. Measuring and characterizing the resource utilization for customers of varying size and needs is crucial to right-sizing your cloud environment to control costs, meet your SLAs, and make monitoring and maintenance easier and more cost-effective. Not doing this will blow up your financial model, guaranteed.
4. Determine a viable pricing strategy
Regardless of your tech stack, and even if your solutions aren’t multi-tenant, this can be a beneficial practice. Find out how your customers fall in terms of tiers and develop a bracketed financial and technical model for each tier. Generally, you want to see 80% on one major service level, 10% wanting smaller and cheaper, and 10% being the enterprise companies wanting the full, uncapped suite of services.
Cloud infrastructure has multiple pricing models, and finding the right balance for your business is essential. Companies are experimenting with tiered models, usage and per-user pricing, and feature combinations. It ultimately comes down to making sure you’re still able to be profitable across all customer tiers and usage levels. This modeling effort will also tell you which customer/market segment you should focus on first. It’s would not be surprising if it turns out that a certain class of customers can’t be serviced through SaaS. Don’t be a purist…you don’t have to go all-in.
5. Have a transition plan for the business and your customers
Any change of this size involves a transition that the business and customers alike must become acclimated to. Release schedules, data flows, hardware, and communication cadences are a few of the many things subject to change. Having a transition plan in place helps smooth the road for a cloud migration. Remember that customers generally love cloud/SaaS solutions for the same reason you do: they’re quick to light-up, require zero or near-zero footprint in their environment, and the monthly cost is not too painful. They also feel they have the ability to terminate the agreement at any time. The great Ron Popeil had it right when he said “Set it and forget it.” That’s what you’re going for.
Considering a cloud migration? We can help.
A switch from on-prem to cloud is a decision that involves the entire business. There are multiple factors to be considered, but it’s often the right thing to do to drive net new revenue and increase the valuation of your business. Modularis has the tools to help you de-risk and accelerate the entire process for cloud migration. Check out our resources page to learn more.