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Bessemer’s 10 Laws of Cloud Computing and SaaS

yellow metallic number 10 on white background.digitally generated image.--Laws of Cloud Computing and SaaS

As the leading cloud and SaaS venture capital firm, Bessemer Venture Partners (BVP) knows a thing or two about cloud computing. So people took note when Bessemer published its 10 Laws of Cloud Computing and SaaS several years ago.

The goal was to point out that, in order to run on-demand businesses, business leaders must abandon many of their legacy “best practices” in favor of new principles suited for a new type of market.

A lot has changed since the original presentation went viral. A few years back the cloud industry reached $100 billion in net worth. Bessemer’s cloud investment portfolio has grown with the industry and includes many of the fastest-growing cloud companies today (including yours truly). Meanwhile, just about every business process is being cloudified and those startups that hit it big are scaling faster than ever before.

But while the market has changed, Bessemer’s ten tenets have not. In fact, the firm’s 10 Laws of Cloud Computing and SaaS are a major reason why BVP is still atop the cloud investment market. When the firm published an updated edition of these rules in 2012, it read very similar to its original publication two years prior.

Watch the webcast, “CFO Playbook: 3 Ways to Embrace the Cloud”

Every once in a while, we all need a little reminder of core principles that are as essential to success as they were when they were first published. So today, let’s review laws 1-5 from Bessemer’s 2010 edition.

1. Less is More

Bessemer Venture Partners (BVP) 10 Laws of Cloud Computing and SaaSSay no to on-premise, whether for internal systems or for product offerings, at every level of the company. Two reasons for this:

a. If you’re selling a cloud offering, using cloud tools will give you a better understanding of your customers’ experience.

b. The time you save using cloud systems compared to on-premise will free-up your entire team to focus on product development and customer satisfaction.

2. Get Instrument Rated, Trust the 6 C’s of Cloud Finance

Committed Monthly Recurring Revenue

Cash Flow CMRR (Committed Monthly Recurring Revenue)
Customer Acquisition Cost (CAC)

Customer Lifetime Value (LTV)

Build your CEO dashboard to include all of the six key business metrics above, and trust that this dashboard is giving you an accurate account of your overall corporate performance.

3. Study the Sales Learning Curve, Only Invest Behind Success

Bessemer Venture Partners (BVP) 10 Laws of Cloud Computing and SaaSThe idea of the Sales Learning Curve in a nutshell: Software companies fail when they staff their sales team much too quickly, before the sales model has been refined. When you ramp up too quickly, you burn your cash reserve and can sink rapidly. So only hire enough sales reps upfront to focus on your core geography. Make that next level investment in sales reps once the business has significantly scaled.

To keep up with the pace of change and learning, it’s critical for SaaS companies to plan effectively and easily.

4. Forget Everything You Learned About Software Channels

According to Bessemer, “The Internet is your new channel and Technology Enabled Service Providers are among the few partners that actually care if you succeed.”

If you’ve spent years building relationships with execs at major software and integration companies, those connections aren’t very helpful when it comes to cloud businesses. Because cloud products don’t require a lot of professional services help, hardware, or infrastructure software, legacy vendors won’t exactly be chomping at the bit to help sell your product.

As a cloud business, your best bet is betting on yourself. Accept and be comfortable with knowing that you will live or die based on your ability to directly sell your product.

5. Build EMPLOYEE Software

Bessemer Venture Partners (BVP) 10 Laws of Cloud Computing and SaaSGone are the days of managers being your most powerful target customer. Employees are now just as powerful in this age of the “Consumerization of Software”. Ease-of-use is the primary focus now. Bessemer’s Law explains this better than anyone:

“The gig is up. Pandora’s box is open. Your customers all know that software doesn’t have to suck anymore…Your customers are looking for “cheap and cheerful” products in a violent revolt against the years of oppression by the likes of SAP and Oracle.”

Take THAT legacy software providers.

Read Part 2 of Bessemer’s 10 Laws of Cloud Computing and SaaS.

Our CFO Indicator Q3 2017 survey explores CFOs’ confidence relative to data and technology, as well as their progress in moving toward a “single source of truth” (single source of financial and operational data). Results reveal that Finance has successfully cleared what we believe to be one of the most significant hurdles—their hesitancy to store data in the cloud. Read our other CFO Indicator reports here.

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