We’ve spent the better part of the last decade marketing and selling AI software, and are now helping startups everyday. We come across the same question in meeting after meeting: ‘how to sell AI Saas and avoid becoming a consultancy”. The vast majority of AI startups we meet share a major challenge: they want to sell software but end up becoming a professional services company. This means gross margins much lower than comparable SaaS companies and lower ARR as % of revenue.
The cycle begins harmlessly. To generate some cash and engage with big companies, startups accept a few consulting missions and hire accordingly. These new consultants “only” ingest and clean up the customer’s data to deploy the AI tool. Once the product is implemented, consultants also add a few custom features the customer asked for. And the extra cash feels great. After a few months of Consulting/Proof of Concept/Pilot phase, sign a giant deal and become the next Microsoft!
If it sounds too easy, it’s probably wrong. We’ve heard of amazing local AI companies with Profit & Losses which look like Palantir’s.
Market and Sell Recurring SaaS Revenue:
VCs only care about ARR (Annual Recurring Revenue).
Why is it important to market and sell AI SaaS instead of services? When VCs value your company, they apply metrics to your revenue. While economic situations change, publicly traded SaaS companies are worth 8.2x revenue, while a consultancy like Accenture is worth 2.7x revenue as I’m writing this article.
Startup funding is all about managing risk: “will this AI SaaS startup take distribution before [old-school company] takes the innovation”. If your company is identified as selling SaaS revenue, each dollar signed allows you to raise more, hire the best and create a positive momentum to raise barriers to entry faster. When executives (you) focus on the next product version rather than the next project delivery, your company goes further. There’s only so many fires a human can put out at the same time.
How do you market and sell AI SaaS, and avoid this services trap? It’s not a “one more feature” tech problem, it’s a marketing problem.
Understand what your customers need better than they do, evangelize a vision and sell a tool which is the first step towards that vision.
Don’t Ask Customers What They Want, Tell Them What They Need
Too often AI companies ask customers, ‘here is our keyword-cramped technology, what features would you like’?
Poor marketing results in lots of custom features that were not on your roadmap and not tested for the market. They won’t help you sell in future. One person in an enterprise account may be convinced a feature is essential, but is it important for any other prospect or customer? If you’re not, then why build it?
When AI startups ask customers what they want rather than pitch your vision and tell them how to reach it, you’re taking the risk of having to explain why “not”.
If you invented small IKEA nails, sell the ability of making amazing furniture with them. Don’t ask if screws would also be nice.
Market and Sell AI SaaS Solutions to Specific Problems
Often services aren’t sold to add features but to connect different data sources and clean the data. This is particularly true in AI, as any AI solution is also a data solution:
We’ve read seemingly hundreds of articles explaining that there is no way to work around this lack of scalability. To generate value, “each project requires understanding the customer and the data available before beginning the data ingestion step.”
Lack of scalability is the result of a lack of focus
If you specialize your offer, marketing, and sales on a specific use case and buyer then you will be able to drastically limit customization. Know which data is necessary to solve a specific use case and which tools your customers use. This will allow you to build your data models ahead of time and know what data to expect from your customers. Finally, don’t hesitate to work with data providers to leverage the same third-party data for customers. If you need GDP growth forecasts for multiple markets, work with the same provider for each customer.
Our Founder, Matt Rauscher worked in the past with a handful of French professional printers in southwest of Paris. 90% of these professionals had the same ERP, printer and quality assurance processes. Not every company is not unique. Trends exist and focus creates value. You just need to know your market.
Specialization is not about your tech, it’s about marketing and understanding your customer and the problem you solve for them.
Become Self Service!
Too often, AI companies focus on building software that is too complicated for self- service. This is a by-product of “just one more feature” syndrome. As a result, the only people who can configure the tool are those who built it. By definition, it means that all of the professional services will remain with the software company.
Self-service, whether you are targeting business users or technical, allows you to limit your consulting. The more specialized you are, the less features you need to make a sale, the easier it is to build a self-service tool.
These are just three simple strategies to market and sell AI SaaS which will help you remain a SaaS startup. The changes you need to undertake will impact every part of your team from product to sales and marketing, all of which will require a change in attitude and approach from each team member.
Remember, tools have no value unless they solve a problem.