This presentation will provide best practices for SaaS profitability.

1. Building a Profitable SaaS Business
Presented by Montclair Advisors, LLC Sponsored by OpSource
February 9, 2011
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© 2011 Montclair Advisors, LLC All Rights Reserved

2. Successful SaaS Companies are Profitable
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© 2011 Montclair Advisors, LLC All Rights Reserved

3. SaaS Business Model Drivers
Market factors are changing buyer behaviors
• The Great Recession has changed the software buyer’s behavior
• Buyers want to purchase using OPEX not CAPEX
• Market growth is with SaaS firms, 30%+ CAGR
• SaaS company valuations are 3-10X ttm revenues
• New technologies like Cloud Computing make it easier to launch SaaS
products and services
• Aligns well with software consumerism of Facebook and eBay
• VC’s only fund SaaS-based software companies
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4. Montclair Advisors’ Software Business Continuum
Subscription model requires agility and efficiency
Software Continuum
Software Continuum
Business Model Traditional Hybrid Cross Over SaaS
On-premise Focus LT both on-premise & SaaS LT move to SaaS Exclusively SaaS
Strategic Intent
Drivers: Large on-premise Drivers: Existing customer Drivers: Competition, new Drivers: Newer business,
customer base, market, or base, new and existing markets, products or competition, products or
solution type markets or solution type company value markets
Customer Selection Enterprise Enterprise and SMB SMB > Enterprise SMB > Enterprise
Perpetual License License & Subscription Subscription Subscription
Value Capture
Services Services
Strategic Control Long term license deals, Customer support,
large replacement costs control of data
Deployment
Deployment Time Months or Years Weeks or Months Days or up to Months Minutes > Weeks
Complex Customizations Customizations & Configurable Highly Configurable
Customizability
Configuration
Difficult to Integrate Moderately Complex to Packaged Integration Packaged Integration
Integration Difficulty
Integrate
Source: ©2008-2011, Montclair Advisors, LLC
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© 2011 Montclair Advisors, LLC All Rights Reserved

5. SaaS Business Model Comparison
Significant Differences Across Business Processes
Traditional Software Software-as-a-Service
Financials
Revenues License Subscription
COGS 10-15% 30-35%
Product Development
Methodology Waterfall Agile
Releases Annually Quarterly
Architecture Single Tenant Multi-Tenant
Services
Implementation Customization Configuration
Fastest Time to Value Months Hours or Minutes
Sales
Methodology High Touch Low Touch
Pricing License Subscription
Trials No Yes
Marketing
Lead Generation Tradeshows, Email Campaigns Email, Social Networking
Source: ©2008-2011, Montclair Advisors, LLC
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© 2011 Montclair Advisors, LLC All Rights Reserved

6. Montclair Advisors’ SaaS Business Maturity Phases
Sales momentum and operational efficiencies are key to reaching profitability
Source: ©2010-2011 OPEXEngine and Montclair Advisors. Chart based on 2010 public and private financial data.
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© 2011 Montclair Advisors, LLC All Rights Reserved

7. SaaS Tips and Tricks
Key themes to consider and some ways to avoid the big mistakes
Key Considerations Some Best Practice Ideas
Customer satisfaction and renewals Know your Customer Retention Rate
Revenues and cash flows Understand your actual hosting costs
Expense management and COGS Calculate Your CAC
Sales structure and compensation Define SaaS-based comp plan
Roll-out a reasonable customer SLA
Internet marketing and social networking
How quickly can you deploy your products
Development methodology and releases
Hire some SaaS DNA
Hosting infrastructure and management
Obtain board buy-in before moving
Business metrics
Continually measure everything
Build a break-even financial model
Source: ©2008-2011, Montclair Advisors, LLC
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© 2011 Montclair Advisors, LLC All Rights Reserved

8. Organizational Efficiency’s Impact on SaaS Profitability
Automation, process improvements lead to lower COGS over time
Cost of Goods Sold (COGS) Income (Loss) What’s in your COGS?
(% of Revenues) (% of Revenues) Expenses often included
10%
30%
Source: ©2008-2011, Montclair Advisors, LLC
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© 2011 Montclair Advisors, LLC All Rights Reserved

9. Successful SaaS Transitions
The market shift to SaaS is clearly underway
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© 2011 Montclair Advisors, LLC All Rights Reserved

10. Successful SaaS Transitions
Leading SMB Business Applications Provider
• Primarily services companies with less than 100 employees
• Very successful QuickBooks, Quicken and TurboTax franchises
• Slow and steady launch of a number SaaS-based solutions
• Rebuilt offerings and launched PaaS (IPP) and marketplace
• Hybrid business model but pushing towards SaaS
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11. Successful SaaS Transitions
Leading Talent Management Systems Provider
• Targets large, complex organizations and governmental institutions
• Started in 2005-6 and took about 3 years to reach breakeven
• Managed transition for existing cash and operating income
• Architectural change and re-platforming of suite
• Targeted hiring of key talent
• Offers hybrid option
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© 2011 Montclair Advisors, LLC All Rights Reserved

12. Deep SaaS and Cloud Industry Expertise
Representative clients various sizes and segments
SaaS Cloud Global ERP HCM SCM Infrastructure
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© 2011 Montclair Advisors, LLC All Rights Reserved

13. Montclair Advisors provides personalized Software-as-a-Service business advisory services designed to help
software companies to develop and optimize their SaaS business models, improve revenues, control costs and
deliver world-class software.
Visit us at our website, check out our Smart SaaS blog at www.montclairadvisors.com/blog or follow us on Twitter
@Montclairadvrs.
Worldwide Inquiries: Contact:
Phone: +1.510.336.0019 Kevin Dobbs, Owner and Managing Partner
Fax: +1.510.336.0219 kevin.dobbs@montclairadvisors.com
www.montclairadvisors.com
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© 2011 Montclair Advisors, LLC All Rights Reserved