If you were a classic roll-up-your-sleeves, get-it-done type of entrepreneur in the early '90s, the road to success would have been more complicated and long-winded than today. If you were a seer and were able to see the potential of software and the scope it provided in scaling and automating your small manufacturing unit, then you know how it rolls. Purchasing software in the early '90s was almost a complicated and expensive affair. It meant buying licences from a software publisher which were definitely pricey. You would need a one-time licence for every computer node running the software. In addition, most software publishers would charge an annual maintenance fee, a customisation fee, etc. Every couple of years, the software publisher would roll out updates and newer versions, and this cycle would repeat ad nauseam. Something as commonplace as payroll management would need months of budgeting, extensive licence purchasing, associated hardware and training costs, and developing a love-hate relationship with your IT team. Pricing models weren't compatible with the average SME budget, leaving them to stick with the traditional 'pen and paper' business culture, and that left a wide and rather competitive gap between SMEs and large enterprises. Recent developments in technology, specifically in cloud computing, have led to reduced entry and exit barriers, and minimal costs, consequently enabling SMEs to grow their businesses faster and punch above their weight to compete against larger businesses.
The competitive landscape for businesses is rapidly changing. Larger enterprises that have relied on large-scale investments in IT infrastructure as a source of advantage in the past are now seeing a re-balance in power. What seemed to be an advantage then is no longer seen as an advantage.
Until recent times, the prohibitive cost of on-premise solutions and limited resources in skilled IT manpower were putting technology out of reach for SMEs. The tables have now turned with the advent of SaaS and Cloud, giving SMEs access to cutting-edge software, bringing about a democratisation of technology. Many SMEs are increasingly embracing cloud-based SaaS applications. The difference between on-premise and SaaS is akin to the difference between a bulky, old-school cruiser and a snazzy, 'fill it, shut it, forget it' economical motorcycle.
A World Bank study estimated that SMEs account for nearly 95 per cent of existing businesses, and their products and services account for 49.8 per cent of the global economy. According to a report compiled by Google and venture capital firm Accel, global SaaS is projected to grow from $68 billion in 2015 to $132 billion by 2020, driven by demand from SMEs.
The advantages of embracing cloud-based SaaS applications for SMEs are manifold. For most SMEs, getting maximum returns and efficiency out of every resource is vital to their long-term success and profitability. The nature of the SaaS market means there are no physical infrastructure costs and that one pays only in predictable monthly or annual outgoings, rather than a large upfront capital investment, helping with budgeting and cashflow i.e., a nearly zero capex and minimal opex model. Updates to cloud-based SaaS applications are automatically administered as well, thereby saving businesses valuable time and maintenance costs. Cloud-based SaaS applications are inherently built to be accessible round-the-clock and configurable in minutes, reducing the deployment time vis-à-vis on-premise solutions.
Another often cited advantage for SMEs to hop onto the SaaS bandwagon is the lack of a fixed-term contract. Most services are offered on freemium plans or on a rolling monthly basis, which gives businesses the freedom to walk away, absolutely no strings attached, if a particular solution does not fit their business needs. Most SaaS providers also allow a risk-free, try-before-you-buy purchasing mechanism, so that businesses can ensure that the solution that they are evaluating meets their business needs before they pay.
The biggest need for a fast-growing SME is that they need a scalable solution. SaaS services can be scaled with one's business growth, making them ideal for fast growing SMEs. Extra capacity can be purchased on a need basis, rather than making over-allowances for future requirements. To quote an analogy, buying an on-premise solution is like buying a cow, when all you want to do is make a cup of coffee; whereas a SaaS solution is like buying a small quantity of coffee powder, milk and sugar for your cup of coffee.
As technology, talent, and globalisation reshape the nature of work, businesses are shedding layers, widening spans of control and moving towards a more collaborative work environment. Considering that millennials will account for 75 per cent of the workforce by 2025, businesses that provide tools, structures and mechanisms that enable employees to collaborate will have an easier time attracting and retaining talent. A culture of collaboration also supports agility through improved communication and greater ability to change. The adoption of cloud-based SaaS applications makes it easier to distribute information across the organisation via the web in real time, promoting teamwork and collaboration, not only among employees but also with customers.
However, taking this leap for SMEs can be a daunting step which may explain why adoption of SaaS in current times is still limited. The benefits for SMEs, however, are undeniable and the sooner small businesses realise this, the faster they can lay a solid foundation for future growth.
The immediate future for SaaS looks to be an extremely exciting one. India currently accounts for 2.6 per cent of the $23 billion global SME market for SaaS products. Indian SaaS companies have the potential to garner 8 per cent of the global SME market for SaaS products by 2025. The booming, vibrant Indian SaaS start-up ecosystem has already seen the rise of a few start-ups that are crafting world-class products for the global SME market. With the ideal mix of strong leadership, quality talent, favourable unit economics, and a conducive ecosystem, we can expect many more Indian SaaS start-up success stories in the future.
According to Nicholas Carr's thesis in The Big Switch, we are in the midst of another epochal transformation of "democratisation of technology" that parallels what happened with the "democratisation of electricity" a century ago: "What happened to the generation of power a century ago is now happening to the processing of information. Private computer systems, built and operated by individual companies, are being supplanted by services provided by a common grid - the Internet - by centralized data-processing plants. Computing is turning into a utility, and once again the economic equations that determine the way we work and live are being rewritten."