Episode Transcript
Asia Orangio (00:00.088)
kick off.
All right, welcome to the End Demand podcast. I am your host, Asia Arangio, CEO and founder of Demand Maven, and I am joined by my lovely co-host, Kim Dilarzic. And we have a fun topic for you today. I'll, Kim, I'll let you kick off, but yeah, this is about something that I have observed, worked with over the last eight years now running Demand Maven. And I think that there's a way to avoid some of these pitfalls.
and make this more successful. But yeah, Kim, I'll let you take it away. Kick us off.
Kim Talarczyk (00:35.656)
Yeah, so our topic for today is when companies, non-SAS companies, want to create their own, either like a spinoff or within their company, their own little SAS business. So what are some of these businesses that you've heard from? Agencies, right, Asia? What else?
Asia Orangio (00:55.948)
Yeah, so I would say every year I have around 10 to 15 calls with companies that are like this, where it's usually a non-SAS company, again, that has decided to create a SAS product, and now they want to spin it off and sell it independently of the non-SAS business. This can be anything from agencies. I've seen marketing agencies, PR agencies, various consulting firms in a number of different industries, everything from like,
project management consulting firms to manufacturing consulting firms to, literally, I feel like I've seen almost every type of business. What I find to be a very interesting commonality or pattern here is it tends to be, services is definitely a very common trend. This is usually a large scale services business of some kind, it certainly could be more like an agency where they're focused on execution, but usually it's,
some type of strategic consulting service in some kind of way. And also it's usually in an industry where technology is not necessarily like the most common or like it's not like at the helm of innovation for that particular industry, such as things like, like imagine like construction or even like commercial real estate. Are there tech companies in those industries? Yes.
but it's not necessarily, like those industries are not led or guided by tech in the same way that you see marketing or sales or other software companies, et cetera. So I'm usually like there's a pattern here regarding like those types of companies and that's not to say that that's like a success or failure indicator. I'm just noticing like that seems to be like the common pattern.
Kim Talarczyk (02:42.095)
Yeah, OK. And so why does this happen? What is triggering these companies to say, OK, now it's time to get into SaaS?
Asia Orangio (02:51.136)
Yeah, great question. I think that there are a number of things. I think what ultimately ends up triggering a non-SaaS company, I think it's certainly more than twofold. and my camera just activated. Hold on one second. I'm turn that off. It likes to follow me. And when I make certain hand signals, I'm just going to turn that off really quickly.
Asia Orangio (03:18.734)
Pardon me while I disable this. It's a feature that's on my camera that likes to just randomly activate. And it's specifically when I do a hand signal. But every time my camera restarts, it turns on that setting and then I have to return it off. It's really annoying. But anyway, okay. Okay, so what I was saying was what triggers a non-test company to do this? Okay, I think there are a couple of things. The first is, usually what ends up happening is in, especially if they're a consulting firm or like a services firm,
usually what ends up happening is in order to deliver their service, they end up needing to build software of some kind. I like even when I was working at the technology consulting firm that I worked at in Atlanta a bajillion years ago now, we actually had examples of this. Like we had our own like time tracking software that we built internally. There were and there were other like little like micro tools that we had built that we would use for client projects.
And we would use it to facilitate or deliver, speed up the process in some kind of way. Cause obviously like from a consulting services perspective, you're incentivized to reduce the amount of investment, like reduce the amount of overhead it takes to deliver a service. So return. Yeah, exactly. Time is quite literally money in an agency or services firm or consulting firm. So, we were incentivized to build tools that would help.
Kim Talarczyk (04:33.426)
Time is money.
Asia Orangio (04:44.686)
Our delivery team deliver everything faster, more effective, cheaper, et cetera, while still maintaining quality. And I think a lot of services businesses out there, especially if they're large and they, they have maybe like larger scale size deals, like maybe, maybe their average contract, um, is upwards of like 250 to 500 K, maybe even a million or 2 million. They are absolutely incentivized to build systems and tools and processes that help them deliver their work faster, cheaper, et cetera. Um, and.
I think a lot of businesses kind of end up in that scenario where they're like, they're, they're delivering these 500 K one to $2 million projects. And part of that offering ends up being the software. And sometimes these firms will take it a step further and they'll say, let's now make it, like let's actually productize this and like give it a name.
and they might not even have intentions of selling it publicly like outside of a consulting project, but they still might like productize it in some kind of way. And I think that that sometimes that can go even further. And then they start getting the idea of like, like what we've productized this, what if we started to spin this off into its own brand and its own business unit? And now let's sell this publicly like outside of our consulting deals or outside of our services.
agreements or what have you. So it used to maybe be an add-on or a part of a service agreement in the consulting context, but now let's actually try to go to market with it outside of that as its own product. So that's, think, the first way that this gets triggered and how this actually starts and how it happens. The other way that I think that this kind of starts is
I see this in services firms that have many different types of service offerings and possibly even for many different types of industries. But we see this also with companies that want to diversify their revenue streams. I think you hear, well, I know for a fact that in the services world, and I say this from experience, because we would hear the same whisperings and almost like,
Asia Orangio (06:59.97)
almost like we were haunted by the fact that, you with a services company, you can only grow X percentage or whatever, whatever. It's very margins based. should have like software is so much better because it's not dependent on overhead. And like the people that you have on your team is dependent on the software. Like growth feels infinitely more scalable. And so I remember like back in the day when I was in my, when I worked at the consulting firm that I worked for,
I'll never forget. we would always, it was like a siren song. was like, soft grass is always going on the other side. Right. So like, software, like you guys should like, like build and sell software. Cause that's way better, easier, cheaper, faster than whatever the hell it is that you're doing now. And I, I think some consulting firms hear the siren song of software and they
Kim Talarczyk (07:43.157)
Right.
Asia Orangio (07:49.935)
start imagining a little bit of magical thinking and a little bit of wishful thinking of like, oh, this is gonna be so much easier and better and blah, blah, blah, blah than what we're doing. So we should diversify our revenue streams and build something and sell it outside of our consulting services or whatever it is.
Kim Talarczyk (08:07.557)
Mm-hmm. Right. It's like, if only we could just see X dollars a year come in through this easy to make product that people will pay monthly for.
Asia Orangio (08:20.118)
Yeah, yes. And there's always like a little bit of like delulu wishful thinking around this of like, I do remember, I remember like what it felt like we would always get so like glossy eyed when we would think about software of like, that would just be so much easier. But I think this is one of those cognitive distortions.
where it's like the less you understand something, the more that you think it's gonna be easy or simple or whatever it is. And then the more that you learn about it, the more that you realize like, my gosh, it's the Dunning-Kruger effect essentially. But I think it's also a little bit of like, just grass is greener on the other side. it's this, like you're so used to your business economics and your context, which in services and consulting is...
pretty like fixed, like it's adhered to how your team's actually structured and how efficient you can ultimately deliver services and the return of revenue of delivering a service. And I think like, you just get like that siren song of software just feels so attractive, even though it is quite possibly one of the hardest businesses to build, to master, grow.
But if you're only coming at it from a consulting and services perspective, then you're not gonna know how hard it is really until you actually do it. So I think that's how it all starts. And there are certainly other scenarios. I think we've actually seen very large organizations that aren't services-based think about software and still want to attempt to kind of build out something
Kim Talarczyk (09:45.788)
Right. Yeah.
Asia Orangio (10:06.222)
of their own, but it's a similar, I think, scenario. And I think it also builds over several years is what I find too. A lot of these companies have been around for 10 to 15 years and they're kind of looking for like the next revenue stream and the next business opportunity. And I think this is also what kind of gets people thinking about, oh, we should do tech or we should do software or we should do SaaS.
Kim Talarczyk (10:28.614)
Yeah, that makes a lot of sense. It's not necessarily just an impromptu thought a year into a business, which also maybe what makes it seem like, maybe this actually is a good idea. So let's talk more about why SAS is so hard then.
Asia Orangio (10:38.316)
Right.
Asia Orangio (10:42.126)
Yeah, why does this not pan out the way that people think it will? There are so many reasons and I, gosh, I feel like I do kind of wish I had been recording all of my calls over all these years because we could compile a master list, I'm sure, of what are all the ways that this totally falls apart. And...
Kim Talarczyk (10:47.72)
Right.
Asia Orangio (11:10.598)
I have had the honor of working on a few that were in this scenario. And this is also part of where I'm coming from as well. I'm not saying this as someone who hasn't worked in this exact scenario. I've lived it not only in my previous lifetime of working in-house as head of marketing for some of these technology consulting firms, but I've also worked with clients that are under certain constraints where they're hoping to spin off a SaaS company, but the parent company that they're in is
not a SaaS company and that actually makes it even more challenging in my opinion. It's already difficult and challenging to run a SaaS business as it is. Doing it within the context of a non SaaS company, I think actually makes it even harder because you're beholden to the context of that business. So if you are used to a services business and you're used to thinking about your business economics and your unit economics in terms of consulting,
then when you look at SaaS and how to build a SaaS or a software company, you are operating under completely different metrics. The way that you need to think about growth is also completely different. And also the expectations that you have for how quickly you'll be able to build and to sell and to invest are also very different. And I think what a lot of these organizations kind of forget about is
You are literally building an entirely different company. And I want you to imagine how, like, when you think about the first two to five years of your organization, what did those first two years look like? How messy was it? How unpredictable was it? And I think a lot of people forget that when you start a new business or a different brand, in some ways, I think if you have a really strong parent company, like a really strong parent brand,
then translating this into SaaS, like your mileage may vary on this, but what I find nine times out of 10 is when you're spinning off a new product, a new brand experience of some kind, and it's not just like your company, like your consulting firm, you are under the same challenges, pressures, context as any other SaaS business, and it's hard, and it takes forever. It takes way longer than what you think.
Asia Orangio (13:32.374)
it's gonna take to build, operationalize, grow. I do think, and obviously like your mileage may vary, like it depends on like how much are you charging for this product. But there are other things too that kind of go into play with go to market, but I'll pause here, go ahead Kim.
Kim Talarczyk (13:36.306)
Yeah.
Kim Talarczyk (13:45.961)
Yeah, well, I was going to say that's interesting insight, because what you're saying is you're starting from scratch in a lot of ways. But I think the misconception might be, well, we already are doing successful things in our business. We can build off of that, but not necessarily true just because the nature of SaaS is a completely different model. And so that's really interesting. And I think a good point for people to think about.
Asia Orangio (14:00.555)
Right.
Asia Orangio (14:12.525)
Yeah.
Asia Orangio (14:15.874)
The most successful, just to give context here, the most successful example that I have seen of this actually was a, it was like a dev consulting firm that they decided to build like dev tools. And of course, like they would sell it through like their consulting practice. But what made it successful was,
when they spun off these tools, they still kept it as part of the main brand. And they were in a very unique position because development tools and development services do like logically go hand in hand. Like you're already in the technology space and it's not a stretch for someone to expect you to build software and then sell it to them. Maybe in the same way that like if you were in commercial real estate or in construction or in manufacturing or in energy,
you're selling services to operationalize something for them or improve something for them, it might feel like more of a stretch for you to sell tech to them because it's not an expectation necessarily from that industry perspective. But this is, of course there are gonna be exceptions to the rule here, but this was actually the one example that I was like, this was actually successful, but I think it was successful because of the context, of the market context. This was already in technology and it was already
in like developer land, the development consulting firm spun off these tools and they made it clearly like a connection between those two brands. So it didn't feel like those tools were starting off from scratch in the same way that like, it's gonna feel like you're starting from scratch. Like if you are in construction and you're spinning off a technology company, that's all of the like,
brand equity that you've built on the top end isn't necessarily gonna translate immediately into that new SaaS that you're building, even though it seems like it will. And I think that there are some cases where, of course, there are exceptions to the rule. But I think a lot of overestimate how much of that brand equity will translate to this entirely new brand. And purely because, and this is my other point, going into go-to-market,
Asia Orangio (16:36.78)
The reason why a lot of like these internal SaaS products do get sold is because of the brand equity through the consulting context or the services context. You're already selling to these accounts, services, lumping in software is an easy sell because you've already got the brand equity and you've already built the rapport and you've already created confidence within that account.
But when you spin off a SaaS company and now you're trying to get net new customers, that brand equity doesn't translate the same way. Because if you're attracting people who wouldn't consider your consulting services anyway, which nine times out of 10, that's what they want to do. They want to attract people who aren't clients necessarily or consulting clients. They want to attract these net new in the market.
people who need to solve their problem with software. But the brand equity doesn't translate. And so you really are starting from scratch. And I think a lot of these like parent brands, they underestimate the impact of that and they overestimate their brand equity translating to that new product. And I think that is usually like a shock for them. then what I find nine times out of 10 happens, sometimes, like I said, your mileage may vary, you might get lucky. But what I end up finding happens instead is,
they're surprised that their SaaS is not flying off the shelf. And they're like, oh my gosh, this is hard. And it's like, yes, you are starting a whole new brand. You're starting a whole new business. And I think you have to weigh the trade-offs. I question, and I'm not saying that brands shouldn't, like if you're a parent brand and you're thinking about spitting off a SaaS, I'm not saying that you shouldn't do this. What I am saying is you got to think about the strategic trade-off here because in order to make that brand successful,
Kim Talarczyk (18:06.632)
you
Asia Orangio (18:30.72)
It means you're going to have to make investments that are going to be uncomfortable. They're not going to pay off probably for several years. And it's always more of an investment than what you think it will be because that brand equity doesn't just translate perfectly and amazingly and seamlessly. so you have to weigh the trade off of, it worth me building out this whole SaaS company, this whole own brand and product? Is that more worth it than just continuing to sell it internally through our consulting practice?
And I think that's the strategic question that I don't see enough of these companies asking themselves and then actually doing like the cost benefit analysis of. like, let's actually measure what's it going to cost us to invest to make this thing grow? Now, similarly, what's the return of that? And is that actually better than us continuing to use this software as a competitive differentiator in our consulting practice?
Like there are so many other ways to position that internal SaaS that doesn't require you to go to market to strangers essentially, who don't know you from Adam, under a completely different brand name, et cetera. So I think that's part of it, but there are other, there are certainly other ways that this totally falls apart, but I think those are the first two to three that come to mind.
Kim Talarczyk (19:37.798)
Hmm.
Kim Talarczyk (19:49.926)
Yeah, it makes a lot of sense. And so you talked about a success story partially with that dev tool. So people that actually want to now go into this say, let's explore what it looks like to kind of do a SaaS spinoff. How are they avoiding failure now?
Asia Orangio (20:10.572)
Yeah. So I think that there are a couple of ways. And I actually have a list here because I was like, okay, what are all of the pitfalls that I see and how do you overcome them? I think the first is you need a dedicated resource. And what I mean by that is this kind of goes back to one of the pitfalls. So the other reason why I see this fail very consistently in like parent brands we'll call them is because
They're hoping that they can outsource everything. And there is no real internal full-time owner, not even part-time, but full-time owner of this SaaS product. That person needs to be kind of like a president or a principal or like a GM, a general manager. Like this person kind of, it's like the internal CEO basically. And they need to really be the CEO of that SaaS product and they need to have a budget.
Kim Talarczyk (20:56.41)
Yep. Yep.
Asia Orangio (21:07.668)
and they need to ideally be full-time. Ideally, this is not someone who's part-time on it. I've seen teams trying to kind of cobble together almost like a committee, so to speak, but because no one's full-time, it means that no one really gives it their full focus, which also means it doesn't really go anywhere. The reason why bootstrapped companies and funded companies perform well is usually because there is a dedicated founder, even if they're not full-time on it, they're dedicated.
They're actively and they're kind of like everything. They're the developer, they're the business manager, they're literally everything. And in funded scenarios, usually the core founding team are full time on the product by that point. Not always, obviously, like there's certainly acceptance to the role. And there are certainly Bootstrap founders out there who are not full time on their own products, but who are able to make it grow because they're not under any type of like time pressure or anything to make it work. They're not forced to make it work. They're able to spend their time.
taking as long as I want and rightfully so. When you're bootstrapped, can literally do whatever you want, which is kind of the beauty of being bootstrapped. But when you're thinking about this as like its own separate business unit that needs to be profitable eventually, like it needs to produce some return otherwise it doesn't make sense necessarily do unless it's just part of like your mission or your vision. But it has to have a dedicated resource that it ultimately is like the GM or the principal, the president, et cetera.
And the reason why is because someone has to actually own the decision-making. Someone has to own the budgeting. Someone has to own and be responsible for basically being the founding member of this, of this new brand. It's kind of like, like I said, starting a whole new business. It's really tough to start a new business with like, you know, two to five part-time people.
And when I think about, like there are certainly scenarios where that exists, but when I think about those types of businesses, it takes them five years, two to two to like four to five years even, like to really be able to afford to bring everyone full time. Like I've seen this time and time again. And I'm not saying that's wrong, but I'm just saying that that's type of expectation setting that you have to be thinking about is if you can't afford to put full-time resources on this.
Asia Orangio (23:22.568)
you're playing a time game at that point. So it's about longevity now. It's about, you know, how long can you wait and then continue to invest before like, it doesn't make sense anymore. And that's why I say you either fully commit or you don't, but the trade off is obviously time. If it's a bunch of part-time resources on the product, it's going to take you longer. It just will. It just will. there's like, it's kind of the iron triangle, to speak, scope, time, and budget.
Kim Talarczyk (23:33.126)
Mm-hmm.
Asia Orangio (23:51.425)
if you don't have the budget or the score and like you're not clear on the scope, it probably will take you much longer. And that's not necessarily a bad thing. I think it's just, we just have to honor and acknowledge it. And I think that maybe that's what a lot of these brands don't understand at first, or maybe they're not thinking about it in that way. Because again, they get the siren song in their head a little bit of, it's software, so it'll be easier and faster. But actually,
Maybe that's true after you've reached certain economies of scale and you're profitable, but to get there is actually long and hard and expensive and especially if you're starting from scratch. And I think like that's what a lot of brands underestimate. There are a few others though, but that's the first one for sure.
Kim Talarczyk (24:34.054)
Yeah, so investing a little bit more upfront in that full-time GM probably makes sense. You're investing money anyways over the long term. So if you're going to give it a shot, it makes sense to bring that full-time resource. Now, does that GM person have to be technical?
Asia Orangio (24:58.136)
So this is where I don't think they do have to be technical, but I do think it depends on the other thing, which I was gonna mention is budget. How much is the brand willing to invest in this and for how long before they see a profitable business unit? On average, what we see is two to three years before it's profitable. There are some, but like I said, your mileage may vary. There are some products, like if you're charging, you know, 50K,
per license or installation or whatever. Like if your pricing is such that you're charging quite a, know, a pretty penny, like maybe you're selling to enterprise like right off the bat, then you'll probably see profitability very quickly in theory at least. When it comes to development costs, however, typically what I see is to, and obviously this depends on like,
Did the parent brand already have the product internally and now they're just kind of like sequestering it off into its own thing? Or are they like, we're starting from scratch, like quite literally, let's build something. You will invest anywhere from 200 to 800K just in development and product management costs. And that's assuming that you're starting from scratch. If you actually have already built the product internally, you've probably already spent that much and it's now a sunk cost.
But now there's a cost to provisioning it into its own product and that has its own and that's a variable. It could be, I guess I'd be shocked if it were more than 500K, but that could be anywhere from like 100 to 300, but it just depends. So that's like initial investment. And then with every product company, there is a head of product and then there is head of development or someone who's ultimately responsible for developing the product. A lot of brands will outsource this.
Kim Talarczyk (26:29.704)
Mm-hmm.
Asia Orangio (26:45.614)
And ideally, like whoever your GM is, is kind of like your head of product as well. They don't have to be technical, but they do need to understand how product works, what product management looks like. It is very different than delivery management and operations management. They're very different. Value is ultimately derived from the features that you build or develop or determine. value is experienced through product.
but with delivery, it's experienced through people and services. And you can coach and train people. You can create new processes. You can analyze data differently. Like there are so many different things that you can do to impact how you think about service and value delivery when it's through services. But when it's through product, it's a different head space. And you certainly can outsource this part of the job, but I will say, I do think it's something that a lot of parent brands
Also underestimate in the beginning of needing, because again, and this is contextual, if you're a parent brand spinning off a SaaS and you're hoping to sell it to strangers who aren't coming through, they're not getting exposure to your product through consulting anymore or services anymore, they're total strangers. You are going to need to contend with your product roadmap, how it actually services that part of the market, again, who don't know you from Adam and who aren't coming to you through your consulting practice.
and I think a lot of parent brands underestimate the need for that. And, they're kind of thinking like, well, we built it. Now let's just go sell it as is. But the reality is the market's going to have a lot of other expectations on behalf, like for your product that you might not have considered or thought about and, or, or want to build. And so now we're playing a number of different games. Again, how much do we want to invest in this? How seriously are we going to take it? And, for how long?
Are we going to invest in this before we see like any reasonable amount of return? Obviously this is dependent on who you're telling to, how much the product is worth or like how much you're charging for it, should say. but then the other part to this is again, like what's your budget? What are you planning on investing in? And I think product strategy and like thinking about product management is a skill that you will need to bring on deck in some kind of way. I don't think that that person needs to necessarily be like fully full stack developer technical.
Asia Orangio (29:11.384)
Do they need to understand it? Yes. Or at least be able to have a conversation with development and engineering? Absolutely. But do they need to be able to code? I don't think that that's necessarily the case always, at least. I think there's certainly scenarios where that would be ideal. But I do think that they need an engineering team. And your GM or president or whoever needs to be able to lead product.
Kim Talarczyk (29:27.132)
Yeah.
Asia Orangio (29:38.253)
in some kind of way, because that's gonna be a core, like a crucial part of the successful, or the success of this spin-off SaaS. If we don't have that, we're, again, we're not thinking about the business model of software. We're probably thinking about it more like a service. And I think that's kind of where like those two things conflict and it can get confusing.
Kim Talarczyk (29:59.817)
Yeah. yeah, keep going. What else?
Asia Orangio (30:03.022)
But there are others. can keep going. So that's, that's one or two, guess. We, so we talked about needing a dedicated resource, needing dedicated product strategy and also engineering. Then there's go to market. And when we think about go to market, so go to market ultimately is all of the pieces that need to be in place in order for you to successfully attract, acquire,
convert and retain these new customers that again are not coming to you through your consulting but through the product on its own. And when it comes to go to market, what I find is a lot of the parent brands will have go to market somewhat defined for the spinoff SaaS company. But again, they're not thinking about what will it take to sell this to someone who doesn't already know us through our existing
parent brand. And again, they're like, these are people who aren't coming to us through our consulting practice. They're coming to us on their own to the, to the software itself. And there, there are a number of things that I think can go wrong here, but can also go very right. And again, like I said, your mileage may vary. It really does depend on your, on your specific context, your industry, your market, what you've built, how much you're charging, all the things. but I do also think that there are just some best practices here. So
you need to determine what your go-to-market motion is going to be. What I mean by that is, and again, if you're not familiar with the SaaS world or the software world, you're need to know this terminology. Do you start out more sales-led, meaning people access the product through a demo, and in order for them to experience the value of the product, they either need to sign a contract or an agreement first. They gotta talk to a salesperson first. Are you gonna be product-led, meaning that they can sign up for the product on their own, they don't have to talk to a salesperson.
It's self-service or something to that effect. And they can actually become a customer without ever talking to a salesperson at all. Or do you do a combo? Do you do product led with sales assist? Meaning people can sign up, but maybe certain types of accounts do talk to a salesperson and maybe certain types of accounts don't. Do you do freemium? Do you do free trial? Now we're getting into monetization and like the model here, but those are all of the parts that you really need to understand. Similarly, you got to understand
Asia Orangio (32:28.76)
How do we actually acquire these new customers, again, that are not familiar with our brand through consulting, but through this new SaaS company? And that's where we get into buyer psychology. So how are your prospects currently solving the problem, even if it's not with other software, but just like, are they doing instead of using this software?
what do you need to message to them or say to them or how do you need to position in order for you to clearly communicate the value of what it is that you do? And then from there, what is now the conversion experience look like? Like how does someone who's interested in qualified become a customer? And those are all aspects that it's very tempting to skip. I mean, I've talked to brands that are like, they haven't thought about that at all because again, they're operating under the context of.
it hasn't dawned on them that they're speaking now to strangers. It's almost like because they're so used to selling the product through their consulting service, it's hard for them to imagine a world where they're not doing that, even though that's what they want to do. So it's almost like, like they don't think about that part. How do you determine the right messaging and how do you determine the positioning for this product to a stranger who doesn't know you from Adam, as we mentioned before? And also similarly, a bit of the reality check behind that. How well does your product stand on its own two feet?
Kim Talarczyk (33:30.46)
Mm-hmm.
Asia Orangio (33:49.039)
outside of your consulting or service that you're selling to people. And I think a lot of, again, brands overestimate how translatable that will be when you don't have the consulting or the service kind of wrapping around a product. So all of it to say, those are all things that you've got to validate. And there are a number of ways that we recommend that you do that. Everything from like go-to-market strategy to jobs to be done to audience research. There's a number of ways to really understand this, but...
It's easy to skip this if you don't understand it or if you don't know that that's what you need to do. What a lot of brands will do, parent brands specifically, the parent brand will often say, let's just hire an agency. And we've done an episode on agencies. So we've actually dug deep into that. And there's all kinds of scenarios where it makes sense to hire an agency early. And there are scenarios where it does not.
Kim Talarczyk (34:28.356)
haha
Asia Orangio (34:42.092)
I will say in this scenario, if you're a parent brand hoping to spin off a SaaS, I would not immediately hire an agency. I would start with really making sure that you understand your go-to-market strategy. Your GM should be spending almost all of their time here, like that, and obviously wrapping their arms around product and really understanding like what is it that you've actually built and what is it that you're actually selling. But that early go-to-market strategy needs to really be pretty solidly defined, even if you don't actually know how it will perform yet.
you still want to spend energy and time here because before you waste a bunch of money trying to figure out what channels will work, you need to figure out is this product actually a viable solution in the market today as it is on its own two feet without the wrapper of consulting or services. And that's the validation moment that not enough companies spend energy on. And what ends up happening is, you might want to re-vary again, there are certainly people who break the rules here or like,
There are certainly success stories here. But what I find happens more often is they get sticker shock because they discover, well, one, it's extremely expensive to try to hire an agency to help you figure this out by spending a lot of money on like channels and messaging and landing pages and content when you don't really understand actually like who is your buyer really outside of consulting and services in the wild, know.
your product has to stand on its own and you may have hypotheses around who you can sell to, but how does it actually perform even in that context and even in that scenario? They don't validate these assumptions at first or invalidate them. And it's so expensive to try to use an agency to help you with this because neither one of you actually knows. And so you're gonna have to spend money to figure out, but by doing it almost like with a blindfold on, but I think
and from my experience, I'd rather start more upfront being strategic at first and then determining, okay, based on a subset of hypotheses, here are now the channels and things that we're going to go and invest in test experience, rather than kind of doing spaghetti on the wall, let's try 50 segments and try 50 landing pages and a bunch of messaging and a bunch of colors and brand ideas and just see what happens. Very expensive.
Asia Orangio (37:05.118)
Mostly because it takes time even to optimize for like one segment, for one core message or value prop and for one channel. Like it takes like three to four months just to get that working well anyway. And you multiply that by a hundred and now you're spending, bukkus or dollars just to kind of figure out like very basic things that you can shortcut actually. And like there is a shortcut here and it's doing that go-to market work upfront. But I see,
A lot of parent brands, they again, cause they're not thinking about this with the context of software. So to them, it makes sense to just hire the agency and just to like go or maybe not hire the agency, but like build out the marketing team or scale out, you know, the sales team without really actually understanding this core part. But again, it's because they're not approaching it. Like this is a software business, but this is what worked for them in consulting and services.
Kim Talarczyk (37:59.785)
Mm.
Asia Orangio (38:01.888)
and but it's not always directly applicable. In fact, most times it's not. Sometimes it does work and you get lucky, but it's really luck. It really is that. if I were to apply this to the dozens of companies that I've talked to over the past eight years, it does not work this way. You don't always get lucky actually.
Kim Talarczyk (38:10.67)
Yeah.
Kim Talarczyk (38:19.208)
Yeah, and when you think about the sales process for a services company, it's just so different from the sales process for a SaaS business. So this is a really good, I like these reality checks because, yeah, I think it's easy to fall into that trap when you're in the business of, oh, we have these great customers, we're selling so well, but you're talking to customers in a totally different way.
Asia Orangio (38:29.42)
Right. Right.
Kim Talarczyk (38:46.952)
It's consultative, it's just different. And then when you think about a SaaS that's either PLG and you're not talking to them or it's sales led, you still need to get them to talk to you. And they're approaching you with a very different mindset than when they're thinking about hiring you for a service.
Asia Orangio (39:04.802)
Right, right. And it takes time to figure that part out. I think the other thing too, and this is what I would say for companies that want this to be successful is you are gonna have constraints that are different than like a typical bootstrap founder or VC funded company. And that constraint is, it's kind of like corporate venture capital in a way.
Kim Talarczyk (39:08.805)
Mm-hmm.
Asia Orangio (39:32.331)
not like pure venture capital, but like corporate venture capital where you are internally funding another company and chances are you're not going to do that on like, with debt. You might do that with profit actually. And I think that is a constraint because if your parent company is not as profitable one year, then you're not able to invest those profits into the SaaS business. and that could be fluctuating.
And then there are other things too, things like, you know, like, and I, I, again, I don't want to scare anyone off from doing this, but this just takes longer than what people budget for or expect. I think they think, you know, this will be profitable in like a year. There are certain cases where that happens. Like I said, if you're charging like 50 K for like a deal or what have you. Yeah, you'll probably, you know, with those types of ACVs, you'll certainly see profit like pretty fast, I think.
But if you're not like if you're not charging like enterprise rates or anything like that This is gonna be slower than what you think it'll be and and also it might not scale as quickly as you think it will We just had a call with someone where you know, they've got about seven or eight clients now customers on their SaaS product, but You know for next year the goal like they don't know what the goal is because in their minds they're like well
it could be 100 or it could be more. And I think realistically speaking, that has to be backed into, right? You have to determine what part of the market actually can buy this product. So there's total adjustable market, TAM, and most founders calculate that whenever they go out and they get funding from VCs. But then there's TAM, SAM, and SOM. So there's...
serviceable, adjustable market, and then serviceable, like operable market. Sam and SOM are a part of your TAM, and those are people who can actually use the product as it is right now, based on their context. And you'll find it's much smaller percentage. So realistically speaking, while there may be tons of opportunity, the reality is only about like five to 10 % of your market at any given time is actually gonna be looking for a solution. If you have a very large market, that's a very big number.
Asia Orangio (41:52.943)
but if your market is relatively defined, a smaller number. Okay, cool. It like slowed down for me. I don't know if it did for you, but I caught up, think. Cool, cool. But yeah, and like I said, there's so many more other directions I could go in, but those I think are some of the big reasons. And like I said, there are others. It takes longer than what you think. It's gonna require more budget than you think. I think a lot of companies under budget,
Kim Talarczyk (42:01.255)
Yeah, I did.
Asia Orangio (42:21.366)
whatever number you have, double it, quite literally. Like if you were like, it'll take about a million, budget for three or two. Like it's two to three times what you think it'll be. It just is. it's because unless you have a experienced leader and team here, you're gonna waste a lot of time and money and effort because you don't know what you don't know. You're operating, you're applying, you're consulting and service is brain.
to a SaaS and software product and I find that does not work the way that you think that it will. Especially if you're trying to do PLG, maybe if you're doing enterprise software, it certainly can apply. think there are definitely some really nice overlaps, I think, with like, you're used to running consulting and you're used to selling like high ticket consulting projects, selling a high ticket software to enterprise is gonna feel probably very similar actually. But if you're doing product led,
Kim Talarczyk (43:16.136)
Mm-hmm.
Asia Orangio (43:20.02)
growth, self-service, or even like product-led with sales assist, it's gonna feel like a different animal. If you're doing marketplaces, completely different beast, like just completely different. like, again, like I think if, unless you just have like a rock star experience team, you're gonna waste a lot of time, money and energy. And unless you have a trusted consulting partner, like demand, say like,
Kim Talarczyk (43:45.448)
You
Asia Orangio (43:48.463)
shameless plug here, but unless you have a advisor or partner here, it's just so easy to literally set money on fire in the front yard. It's just easy to burn cash and kind of create a self-fulfilling prophecy. I think unless you have really good executive internal support from the parent company, a lot of the times the conversation is usually like,
they're dipping their toe into this, they're not fully committed. They're not like, yep, we're committing three to five million for the next three to five years. It's usually not like that. It's usually more like, we're gonna give you like 200K and like see what you do with it. And you kind of create a self-fulfilling prophecy in that way, I think sometimes, because if you don't know what you don't know, then like that money is gonna go to waste so quickly. And now you have to go back to your leaders and be like, actually, like we need a little more, we need something different.
And you've only got so many times of doing that before the CEO is like, you're cut off. I'm sorry. I don't know what to tell you. I've seen that happen several times too. you know, like those are obviously scenarios that we try to help companies avoid. But it's, it's one those things where it's like, I'm, recording this because this is what I see so often in these specific contexts and scenarios that I would love for people to avoid these scenarios.
just from what I've learned, but yeah, like it's obviously it's easier said than done, but there are ways to avoid these pitfalls and a lot of it, you know, the big ones I feel like we've talked through, but, yeah, hopefully this is helpful to folks. But anyway, I've, I've babbled on, feel like you might've had follow up questions for me.
Kim Talarczyk (45:29.69)
Yeah.
I think the only thing I was thinking of after what you just said was when you said like, they give someone in the business like 200K, like parent company gets 200K to kind of go off the side and do it. Like in my head, it's like at that point you might as well be a technical founder that's starting their own thing, right? Like people that we've worked with that are.
Asia Orangio (45:59.053)
Right, right.
Kim Talarczyk (46:01.701)
If not, then it really needs to be a thought out investment that you're thinking about upfront, you're hiring a dedicated resource, you're doubling the budget in your mind because it's going to get bigger. It's its own venture.
Asia Orangio (46:18.7)
Right. I would argue that you really can't toe dip in this. you either, for lack of, this is such a crude saying, but you kind of need to like, shitter get off the pot, in my opinion. Like, you commit to this. Now, I will say, like, and I'm sure that there are probably folks that are out there listening who might be like, well, I've actually seen this be successful where maybe like a services or consulting firm or what have you, like they do spin off a SaaS.
and it is like an incremental investment. But what my assumption is there is I would actually argue that that still is a commitment. Like you are seeing positive signs of life, which means that you are now still going to be committed to it. They probably got lucky though, is my take. That might have been a luck scenario or someone maybe had that experience and they were able to translate it to SAS or what have you.
Kim Talarczyk (47:08.198)
Right. And it's still a cost for the resources that are also running the other business.
Asia Orangio (47:15.126)
Right, right. You know what's interesting? I just thought about, Moz is actually kind of like this. So Rand Fishkin ran a, am I correct? I'm pretty sure he ran an SEO agency first. And then he built Moz. But I would argue though that he committed to Moz. Like it wasn't a we're gonna dip our toe in and kind of see.
Kim Talarczyk (47:31.272)
Mm.
Kim Talarczyk (47:40.143)
Right and search pilot.
Asia Orangio (47:43.348)
The search pilot was like this too. Yeah, yeah.
Kim Talarczyk (47:44.518)
But same, right?
Asia Orangio (47:46.947)
But what made SearchPilot and also Moz successful was a dedicated leader. It's not just like, we're gonna see kind of what happens. Although I feel like Rand might actually argue that that did kind of happen. But I think in a way, it was the right time, it was the right market, and it was the right context. But eventually, they did commit fully to the software and
I'm actually, I'll have go back and double check if Rand actually let the services agency go or if like what happened there, but I'm almost positive it started that way. And yeah, distilled, spun off search pilot, another successful use case in my opinion. But Will Critchlow is a dedicated resource. Like he was the CEO, he's the GM essentially. Now more formally CEO. But search pilot was its own thing and...
It was a commitment and I think like if you're a large parent brand and you wanna like dip your toe into something, I don't think it always works that way. Now I will say, and this is actually another example, kind of going back to my development firm example. I don't think it was a stretch for SEO. Like imagine both of these actually were SEO agencies.
but it's not a stretch to me for an SEO agency to offer software in the same way that it's a stretch for me for a PR firm to offer software. Where in SEO technology certainly, at least back in the day, it was around tech in the way that it was around websites and Google in search performance. It's not a stretch to me to offer software in that context as it is.
Kim Talarczyk (49:16.082)
Mm-hmm.
Kim Talarczyk (49:20.978)
Mm-hmm.
Asia Orangio (49:40.195)
you you're in construction and now you're offering software. That to me does feel more of like a, not that it's a disconnect or even that it can't work or it doesn't work, but it does feel more like a, you're have to put in more energy and effort to make that work and it's gonna be less of a toe dipping in situation than it is gonna be like a you might have to commit. And if you commit, give it a big swing commit and not a small swing commit because.
It just requires so much more than what you think. But now, that is a really good point. Now I'm curious. I'm curious to go back into Rand's history in particular because I do feel like there was a moment where he was like, okay, we're not doing the SEO agency anymore, we're just focusing on Moz. And I think that that is a necessary commitment level that you do have to have if you're serious about making the SaaS part work. But if you're not, then you do, I think, create a self-fulfilling prophecy.
Kim Talarczyk (50:10.556)
Mm-hmm.
Asia Orangio (50:37.322)
It will fail because there is no one dedicated to it. But I almost, yeah, I'm so silly. I almost completely forgot about those as examples. And those are really good examples. cause like, search pilot and Moz to me are both very successful. Like they're, they're, they're successful examples. But yeah. Okay. What are, now I'm curious, like if there's anything we've left that we've left behind. Yeah.
Kim Talarczyk (50:40.069)
Right. Yeah.
Kim Talarczyk (51:03.398)
I know, people will have to tell us.
Asia Orangio (51:07.084)
Yeah, yeah, yeah. I will say, yeah, I do think part of the secret sauce is also hiring experienced contributors. I think for a Moz and for a SearchPilot, so SearchPilot obviously came much later, but I think for Moz, Moz was in the early days of SaaS and software. So I don't think we had the same, we didn't have the same playbooks for understanding of how SaaS and software worked back then, I think in the same way that we do now.
Now we have a much clearer understanding of what software and SaaS maturity looks like. So I do think that today, by today's standards, it does look different than maybe what it did 10 or 15 years ago. But yeah, I definitely think there has to be a certain level of commitment and true testing of investment. sorry, the last thing I will say.
Kim Talarczyk (51:43.048)
Mm-hmm.
Asia Orangio (51:58.991)
So on the topic of hiring experienced members or contributors, I actually, just had a conversation with a founder and this was not like in the context of like spinning out like a SaaS or anything. This was like an actual software founder. He had this hypothesis of like, yeah, you know, I'm kind of thinking I just hire someone like fresh out of college, like to run marketing. And I was like, don't do that. That is a, not a great idea.
sure you would save money, but would you? Like long term, long term, there is a trade off here and you will waste one to two years. And also like put that person under like unnecessary pressure to learn and figure out what even it is that they're doing. don't, I mean, it's been a minute since I've been in a marketing classroom, but.
Kim Talarczyk (52:32.136)
You
Asia Orangio (52:53.96)
My, from what I remember about marketing classes in college are that they are not teaching you practical applications of growing a business. It's far more fundamental, high, extremely high level. I think you learn like the four P's and I, I think I've heard about the four P's like once ever in my software career. Like nobody thinks about the four P's even though that is technically what we're doing, but no one's like thinking about like, like, I'm going to help.
you figure out your four P's, it's no, like, that's not how people are thinking about it. Right. And they're not teaching like practical marketing application in the way, in the same way that you would learn from like Pavilion or Reforge or Grow Class or like any of these like more niche educational, like they're actually focused on teaching you marketing for SaaS in a practical way.
Kim Talarczyk (53:23.526)
Right, or writing a business plan.
Asia Orangio (53:46.979)
And there are million classes and courses you can find about like how to do SEO or how to do ads or how to do whatever. but they're not, they're not teaching that shit in universities. like, don't, don't hire the fresh grad. No tea, no shade to the fresh grads out there. I'm sure y'all are awesome, but like, I promise you, you don't want that smoke because, because what's going to happen is you're going to hire that person and be like, you're a marketer. then, and then they're going to be like, okay, so you're to help us like triple our MRR. Right. And that marketer is not going to know.
like left or right, if that is even realistic. And that to me is the pitfall of hiring someone who does not have that experience. So whatever you do, don't do that. Or if you do do that, set clear expectations for what that is gonna be. Not only for that person, but for yourself. But don't hire the fresh grad expecting them to be your CMO. That's just not gonna happen.
I don't care what y'all say. Of course there are gonna be bright shining examples of people who break the rules, but that's not 99 % of what actually happens. don't do that. Hire more experienced contributors if that is what you need and care about and want and have the budget for. But anyway, I digress.
Cool. Anything else before we jump?
Kim Talarczyk (55:05.448)
All right, well, no. mean, I think if people want to do a spinoff or an internal SaaS, then book a call with Listen to This, but book a call with Asia and Demand Maven, because it's worth talking through with someone with experience and that has a SaaS mindset.
Asia Orangio (55:15.662)
Listen to this episode.
Asia Orangio (55:28.546)
I will say, like whether you hire a provider like us or not, like I'm an open book, like I will give it to you straight. And I think like, and I've heard feedback in the past that that is extremely valuable and I've saved a lot of people, a lot of heartache, I think. But yeah, like I'm more than happy to chat through your exact scenario and like your context and give you my thoughts. And also,
kind of paint the picture for what that might look like and how, like what your risks are here and how you can potentially avoid them entirely. Not everything is obviously gonna be avoidable, but I also hope that somehow that this reaches, you know, CEOs of these firms as well who are thinking about investing and doing in this and understanding that if you're actually gonna do this, like do it right if you can.
because I will say running a SaaS business is so fun and I obviously am super passionate about it and I love it, but it's really hard to do halfway. even if you were to do it halfway, it still requires a considerable amount of investment, probably way more than what you're anticipating and also much harder than what you might think. yeah, I wanna make, hopefully that is clear too for CEOs who are thinking about this.
and if you are thinking about this, hopefully this serves as a resource for how to avoid like what makes this fail because we've seen, I've seen that a million times. And, I would love to help businesses avoid that entirely if they can, and just build better businesses in general. anyway, thanks so much for listening everyone. And thank you, Kim, for talking me through that, asking me questions as per usual. yeah, I feel like hopefully this will be a good resource for folks.
Kim Talarczyk (57:16.018)
Yeah, thanks, Asia. This was fun.
Asia Orangio (57:19.768)
Awesome. All right, I'm gonna stop recording. Sorry, I was a little late at the end.
