This week, Ottawa hosts the inaugural SaaS North conference, featuring hundreds of key players in Canada’s software-as-a-service industry. The event reflects the importance of SaaS to the city, the country and to the future of software worldwide.
“It’s kind of exploding, to be honest,” says Mark MacLeod, founder of Surepath Capital, a financial advisor for startups.
MacLeod says Surepath is “very focused” on SaaS, a model he’s no stranger to – he served as chief financial officer to both Shopify and FreshBooks, two of Canada’s biggest SaaS businesses.
“Nobody is starting an on-premise software startup these days. SaaS is the default,” MacLeod says.
A model for the modern era
There are a few reasons why the model has become the standard both for providers and consumers.
For starters, the explosion of cloud-based and open-sourced software has significantly reduced entry barriers. Software companies can develop a market-ready product at a much lower cost than traditional on-premise offerings.
That didn’t happen overnight, though. Mike McDerment, CEO and co-founder of FreshBooks, (which he says was “SaaS before there was SaaS”) says that there was a hesitation in adopting the cloud, where software is not hosted on local servers.
McDerment compares the slow adoption to banking: For a while, people preferred to stuff cash in their mattresses, but time eventually convinced the masses that banking was reliable and useful.
Time, along with the emergence of mobile and the millennial generation, has also convinced consumers that the cloud is the place to be.
“This is what’s expected now. If it’s not working this way, something’s broken,” he says.
Alex Baker, partner with Toronto’s Relay Ventures, says that the on-premise model, with its high upfront licensing costs followed by maintenance fees, is outdated. Reduced development costs mean companies don’t need these revenues to develop their next product: Iteration is constant.
He adds that the number of SaaS companies he sees is on the rise, as one-third of Relay Venture’s investment portfolio is currently SaaS-based.
MacLeod says the predictability of recurring revenue is an enormous benefit to companies and to investors, who can better anticipate growth and rely on a minimum revenue from already-onboarded customers.
“I think the other interesting thing is, because of the nature of SaaS, the company is getting a lot of data,” says Janet Bannister, partner at Montreal- and Toronto-based Real Ventures.
She says that companies can better track how customers are actually using their product and where gaps in service are expected to arise. She’s excited about companies - such as Ottawa’s MindBridge AI, a member of Real Ventures’ portfolio - using artificial intelligence to help iterate better products based on this readily-collected data.
From the customer standpoint, MacLeod says you can just “try it and go,” without going through a complex installation or having to make a commitment. If the product isn’t working after the first few months, cancellation is simple. Accordingly, he says many companies have shifted from “customer service” towards “customer success,” a more result-driven focus, in an attempt to reduce that churn.
There’s always a catch
The conditions have never been better for SaaS-based companies, but that doesn’t mean SaaS is flawless.
Many sectors have become bloated with SaaS companies: Both MacLeod and Baker specifically mention marketing technologies as crowded markets to break into.
In general, Baker says that getting attention and focus from customers' is becoming increasingly challenging for SaaS firms.
“There are so many products out there that either do something similar or that are nice-to-have, but not need-to-have, that it’s hard to get the attention of the buyer.”
MacLeod adds that the competition makes it harder and more expensive to become a market leader in many areas of the industry.
McDerment says that while most companies today are ready to trust their data to the cloud, he has seen more reticence from the government in adopting cloud-hosted solutions. While FreshBooks doesn’t sell directly to that sector, he recognizes it as a big buyer that could have an enormous impact on the industry if it were to more regularly patronize SaaS companies.
SaaS Valley North
Every source we talked to for this article echoed two main benefits for anyone attending SaaS North this week: The first is the content from the many speakers at the conference, which includes all of the names mentioned here; the second is connecting with the Canadian SaaS network.
Baker says that SaaS North is rife with business opportunities, including finding potential integration partners. Connections made at the event could lead to partnerships between companies integrating data, leads and even software applications to deliver a combined customer solution.
MacLeod believes that Ottawa is an apt location for a SaaS-focused event. He credits Shopify with showing Canadian companies that “it can be done,” and highlights local companies such as Klipfolio, Pagecloud and Fusebill as examples of local companies that have been on the minds of investors in recent years.
“This event will be putting Ottawa on the map for people,” he says.
SaaS North runs from the Shaw Centre with a series of talks, panels and parties over the next two days.