Like all business operators and investors, I value recurring revenue. From my time as president & CFO of Shutterstock and in many other positions over the last 15 years, I have seen just how powerful a pitch-perfect subscription model can be for scaling quickly and responsibly.
However, Software-as-a-Service (SaaS) has perhaps become a bit too interchangeable with subscription models. Every software company now looks to sell by subscription ASAP, but the model itself might not fit all industries or, more importantly, align with customer needs, especially early on.
New categories make for skeptical customers
In established categories, customers have preconceived ideas as to what a software product should look like and how it should work and be sold. In most cases, this aligns with subscriptions. Customers are just used to it.
However, newer categories of software that address fresh problems-to-solve bring more skeptical, or at least, less experienced customers. They usually want to try a variety of solutions before they settle on the one that works for them. This means they will naturally value flexible terms more than the companies in established categories might.
Requiring commitment via subscriptions or larger agreements up front, in this environment, might actually hurt you rather than help you solidify your value proposition. Moreover, it certainly does not align with the customer’s need to identify the best solution for them by trying several.
A great example of this is the virtual events category. The COVID-19 pandemic instantly created a massive need for better virtual event software. Initially, people tried to use standard video call software for this purpose, but quickly came to the conclusion that they needed more customized solutions, since, as we all now know (and event planners knew all along), events are not meetings!
What happened? Lots of new virtual event companies and products sprang up, and with no established favorite and no clear understanding of the category, customers wanted to try out a variety of solutions. A similar series of events unfolds regularly in many other categories.