The article below is taken from SaaS Mag Issue 4. To order your free copy, click here.
FastSpring, a full-service e-commerce platform founded in 2005, helps thousands of software companies around the world sell their solutions by integrating global online payments, subscription management and billing, branded checkout, global taxes and financial services, risk management and compliance. More than 7 million global transactions are powered by FastSpring each year, and the platform supports more than 20 currencies and 15 languages.
Just like many of the software companies it works with, FastSpring is changing rapidly and adapting to the global marketplace. In February 2018, the company announced an equity investment from the private equity firm Accel-KKR, which now owns the majority of the company. In March 2019, the Santa Barbara-based company, which numbers more than 100 employees globally, brought in David Nachman, a two-decade SaaS industry veteran, as its CEO. SaaS Mag spoke to Nachman about FastSpring’s evolution and his thoughts on SaaS trends on the horizon.
FastSpring talks about its core business intention being to help software companies be exceptional. What does that mean, exactly?
There’s a tremendous amount of innovation going on in software, and our focus as a company is helping our custom software developers do what they do best, which is to build great software. When we say help them be exceptional, that’s what we really mean. Over the last 10 to 15 years, software development has changed pretty dramatically. If you look at languages like Python or Ruby, they have evolved to where they’ve gotten much more efficient. The amount of code that you need to develop software has gone down dramatically. You’ve got vast libraries of open-source code. Cloud hosting has become ubiquitous, whereas in the past it took a lot of investment and real scale to be good at creating software. Those barriers have gone away entirely, so you’ve got people all around the world building great software. But what’s lagged relative to the changes in software development is the e-commerce side of the equation. So that’s where we come in—you can build great software at any scale. You can be a group of four or five people anywhere in the world. You can build software now that’ll compete with industry giants and compete favorably. But historically, it hasn’t been that easy to bring that to market on a global scale. That’s what we do. If you were to use a solution like ours, it’s an all-in-one e-commerce solution. In a small company, you’re toppling together a lot of different solutions. You’re probably not getting nearly the level of effectiveness in terms of conversion optimization. And you’re probably introducing a lot of risk into the equation because you’re not necessarily going to be compliant with regulation or tax requirements around the world. The biggest issue of all is it’s going to take a tremendous amount of your resources away from what it is you’re really focused on doing, which is building great products. At the end of the day, that’s what we’re all about: taking all the headaches away from the e-commerce side of the equation and allowing people to build great software.
If you went back a few years, the vast majority of our customers were selling software as one-time downloads. It was not a returning revenue model. That is changing really rapidly. We’ve seen that 2019 was the tipping point where recurring transactions outpaced one-time transactions.
You have a 20-year history of working in the SaaS space. From your perspective, what’s special about SaaS? What made you want to jump into the SaaS space?
SaaS is a great model from multiple perspectives. From the company’s side, it offers predictability, rapid development, feedback cycles, and reduced friction. What revenue predictability allows for is reinvestment in the business and the product. Rapid development and feedback cycles lower the risk of product development pretty dramatically. It allows for a lot more experimentation. When I talk about reduced friction, what I’m really talking about there is customer acquisition cost. By lowering the upfront cost in the investment of resources required by a customer, purchasing decisions are significantly simplified. There are a lot of great benefits from the company’s perspective. But I think the other great thing about SaaS is that there’s a tremendous benefit on the other side of the equation from the customer perspective. I mean, it significantly reduces risk and simplifies life considerably.
SaaS has been one of the greatest developments, certainly in my business career. What drew me to SaaS, in addition to the inherent characteristics of the model, is that I’ve got a deep passion for solving problems. Because of all these factors, there is no better place than the SaaS industry to rapidly build and scale companies that truly impact people’s lives by addressing previously unaddressed needs. So personally, that’s a lot of fun for me. I have a lot of passion for doing that.
To your point about reinvestment: Why do you think it’s easier for SaaS companies to have funds to reinvest as opposed to other kinds of companies?
Part of it is simply the risk equation. With predictability, you know what you’re going to bring in the door in the next quarter and the next year. In the old world of packaged software where you’re reselling every customer every year, you didn’t really know what your revenue was going to be in a given year. Making investment plans in that type of environment is much, much tougher and you just naturally need to take a much more conservative approach to it.
FastSpring has changed quite a bit since it was founded in 2005. Can you talk about the company’s growth and evolution?
For many years, FastSpring was a pretty small company. It’s really been in the last five or so years that the growth has accelerated pretty meaningfully. During that time period, we’ve been growing about 25% a year. Like every company that goes through growth, there have been some growing pains but ours have been pretty limited. We’ve been quite successful in managing the growth.
There are two things in particular that I would highlight that I think are not unique to us, but that we’ve had to work through. One is the transition from utility players to specialists. Early on in a company’s lifecycle, everybody needs to be able to wear four or five different hats to be a valuable contributor to the company. As the business scales, you get to a point where general skill sets are still important, but you need to augment them pretty significantly with people who have a real depth of knowledge and experience in particular areas. The challenge in that from a growth perspective is keeping the people that got you here highly engaged and passionate and really focused on the success of the company. In many cases, their role may need to narrow because it doesn’t make sense to have one person juggling five things anymore. You need someone to really specialize and get really good at a couple of things. That’s one area where I think we’ve been pretty successful.
The second is having to learn how to communicate and collaborate across a larger organization, and in our case, a global geographic footprint. For many years, the vast majority of the companies were in one location in Santa Barbara, California, and we were pretty small and we could communicate very informally. We didn’t have to be particularly thoughtful about how we established a vision and disseminated it to people. It just happened naturally in the hallways because the company was pretty small. As we’ve grown, we’re much more dispersed. We’ve got a team in Santa Barbara, and then we’ve got roughly 20% of the employees working remotely around the country. We’ve had to change the way we interact and communicate with people and we’ve had to become much more thoughtful about how we bring everybody together and bring them along. For example, one of the things we did recently was we brought everybody to Santa Barbara from around the world for FastSpring Summit, a two-day event where we rolled out all of our plans for 2020. We did a lot of team-building. We did a lot of fun things. And it was great. It got people very fired up. But those types of things wouldn’t have been necessary three or four years ago.
You’ve talked about fostering a company’s culture as it scales. Do you have specific advice on this?
I believe that most people stay engaged and are passionate about a company because they feel like they’re having an impact and like they’re getting something in return, in terms of real growth and development. I think it’s critical to keep that in mind at all times: what’s in it for them, in addition to what’s in it for the company.
What’s exciting about where we are now is that there’s just a tremendous amount of growth and a tremendous amount of change and a tremendous amount of leadership opportunity for anyone who has the initiative and desire to take on leadership roles. Part of it is, we’ve got to think about the initiatives that are going to move the business forward. And then, how do we translate that into opportunities for people at all levels throughout the company? Communication becomes much more important.
An example of some of the things we do is that I do a monthly, all-hands meeting with the entire company. I solicit questions from the audience, and we answer all of those. We’ve also spent a lot of time thinking about core values and really documenting those and disseminating them and making sure that we’re doing the things that we need to do to live up to those. We’re very focused on understanding employee sentiment and really addressing it pragmatically. We do an employee engagement survey, and we’ve got a cultural committee and are very active in looking at those results and figuring out where can we improve and what the things are that we need to do.
But at the end of the day, it comes down to getting people at all levels involved in real work that’s having a real impact. An awful lot of the work we do here is cross-functional in nature. So even though we’re, like any other company, organized along functional boundaries, we have five major strategic initiatives this year, and all of those are highly cross-functional in nature. People at all levels have the opportunity to get involved in that, and I think that’s what keeps people passionate.
What developments have you witnessed since you came on board at FastSpring in 2019? What were some of your priorities for your first year?
Things are changing really rapidly in our market, as you can imagine, but also in the company. Our customer base is all companies that sell digital goods. It’s almost entirely software. If you went back a few years, the vast majority of our customers were selling software as one-time downloads. It was not a returning revenue model. That is changing really rapidly. We’ve seen that 2019 was the tipping point where recurring transactions outpaced one-time transactions, and that’s continuing to grow. I think by 2021 or 2022 there are going to be very few customers in our customer base that aren’t on some sort of recurring revenue model. Certainly now, those that aren’t are talking about it, and they’re working with us to help them get there because that is a big shift. It can be very daunting for a small software company to move from a one-time purchase model into a subscription model. They don’t always know how to do that effectively, and in the near term it could actually be a bit of a revenue hit to transition to a model that will probably fuel more growth and certainly much higher predictability.
Second, there’s a very big trend towards continued internationalization in our customer base. If you look at our customer base as a whole going into 2019, two-thirds of our customers were international. If you look at the new accounts we added in 2019, nearly 80% of those came from outside the U.S. The internationalization of the software development community is growing really rapidly.
To give you an example of what’s going on: Eastern Europe is a very good market. Companies in the U.S. and Western Europe have been using Eastern European software development for a long time. What you’ve seen in the last 10 years, and probably even more in the last five years, is that Eastern European companies are really coming into their own right now in terms of developing proprietary software. Historically, they had all the development capability, but they were always doing it on behalf of somebody else. Now they’re building their own products, and they’re building really great products. The barrier historically has been bringing them to market, but as e-commerce has flourished, they’re finding they can now do that very effectively.
My first priority was establishing that vision of putting a stake in the ground to say this is where we’re going to go and this is why, and this is what it means for everybody in the company. For us, we’re not going to abandon e-commerce to digital goods, but we’re going to broaden, increasingly moving more in the direction of serving B2B customers and doing it in ways that I don’t think the market is doing at all today.
These companies outside the U.S. are focused on B2C applications in large part because they don’t have a tremendous amount of B2B go-to-market prowess. But I think that’s a matter of time, I think they’re going to get there very quickly. What you see happening today in Eastern Europe, you’re going to see happening everywhere in the world in the next five years, I think. Areas that have been offshore development hubs are going to transition to proprietary software development where they’re building their own products. There’s a lot of entrepreneurialism out there. There’s a lot of great ideas. We’re absolutely seeing that in our customer base, and I think that’s going to continue to accelerate.
The market trend in the last year is that the software industry continues to grow very rapidly. If you look at the growth, not in the new customers we’ve added, but in the revenue growth of our existing customer base, it is growing on average well into the double digits.
On our side, there are three things that I’ll touch on very briefly. One is just scaling our international presence to match the market demand. Secondly, we’ve been very heads-down in terms of evolving our product to better support the needs of our recurring revenue clients and in moving from one-time purchase to an ongoing subscription model.
The other really pleasant surprise I’ve seen in the last year is that our revenue growth rate is accelerating even as we get larger, which is not an easy thing to do. I think that will continue to occur over the next few years. There’s just so much go-to-market opportunity out there. I came in at a great time, and the business was fundamentally operating very effectively— it was growing and was profitable. The thing that I think was missing when I came in is really understanding where we’re going to take it over the next three to five years. My first priority was establishing that vision of putting a stake in the ground to say this is where we’re going to go and this is why, and this is what it means for everybody in the company. For us, we’re not going to abandon e-commerce to digital goods, but we’re going to broaden, increasingly moving more in the direction of serving B2B customers and doing it in ways that I don’t think the market is doing at all today. That was the first priority.
The second big priority was ensuring that we had the right talent in all the right places. We had a great team when I got here, but we’re growing at a rapid rate and we’re doing a lot of new things. We’re continuing to recruit a lot of talent, so it’s important to really define that talent blueprint, who you want to bring in, and going after and attracting those people.
Can you discuss FastSpring’s customer base and your sales strategy?
Yeah, absolutely. Our customer base is entirely SMBs selling digital goods, predominantly software, to a worldwide customer base via an e-commerce model. That defines who we go after. A very high percentage of these companies are relatively new businesses that are growing at a very rapid rate. The vast majority have total revenue under $1 million. We are very often finding a business when they’re really going through that inflection point of just being a product development company to where now they’ve developed a great product. In terms of our sales strategy, in some ways, it’s challenging because, as you can imagine, this profile is really small companies located around the world. That doesn’t lend itself to a traditional field-based sales model.
We’ve had to get very creative. We’ve had to use a lot of experimentation to develop a cost-effective sales and marketing model. We rely 100% on an inside sales model. We never go on-site regardless of where these customers are in the world, regardless of what size they are. In some cases, we’re selling businesses that are doing over $1 million of recurring revenue. We’re doing that through an inside sales model because our target buyer is a developer. We’ve created a very experiential sales process.
Developers don’t like to be sold to. Instead, they prefer to experience the product themselves. To effectively sell to a developer, we’ve done a few things. One, we’ve made it really easy for prospects to set up their own account on our platform and start experiencing in a completely self-serve manner. And then, based on how they’re interacting with it, we’ll reach out to them and start to engage them in a live conversation. The other thing we’ve relied on really heavily is customized videos. We tailor these to each prospect and we demonstrate how our platform could change their e-commerce experience. It’s really showing them, as opposed to telling them or actually letting them experience it for themselves. That’s generally the model.
In terms of lead generation, we feed our inside sales team with both an outbound prospecting engine as well as inbound lead generation. We’ve gotten quite sophisticated in terms of building a database and enriching that data. As you can imagine, there’s a fair amount of complexity when you’re trying to find really tiny companies that can be anywhere in the world. These are developers who by nature aren’t super communicative, so we’ve gotten very good at the data side of it. But again, a lot of it is experimentation.
What’s really nice about this business is there’s virtually never a tradeoff where what’s good for us is bad for our client or vice versa. If we do the right thing for our client, it’s always going to be the right thing for us.
Do you need to be more mindful of the customer experience?
This is very critical and top of mind to us, given our model. First of all, we’re in a competitive market. There’s no question that our customers have choice. But I think what’s more special about our model than its competitive nature is that we have annual contracts. There’s no commitment in those contracts from the customer’s perspective, so they’re not obligated to drive any volume to us. There are no minimum fees, so they can drive volume onto our platform and they can switch it off at any time. Therefore, they’re only going to do it if our platform is delivering value and it’s working the way that they intended to and working better than the other platforms that they are on. We truly do have to earn our customers’ business every day. It’s a cliché, but it really is true in this market because there’s nothing that’s actually keeping them here. It’s very much a part of our DNA to think of our customers’ businesses as an extension of our own.
Can you elaborate on this idea of thinking of the customer’s business as an extension of your own?
We’ve got a bit of a unique model. Our billing model is not a SaaS model, it’s a transactional model. We take a percentage of the revenue or the sale for every transaction on behalf of our client that flows through our platform. What that means is our core value of “We succeed when our customers succeed,” is pretty literal. If their revenue goes up, our revenue is going to go up. If their revenue goes down, our revenue is going to go down. What’s really nice about this business is there’s virtually never a tradeoff where what’s good for us is bad for our client or vice versa. If we do the right thing for our client, it’s always going to be the right thing for us.
We’re always evolving our platform and adding different features and functionality that ultimately drive towards improving clients’ e-commerce conversion. That’s how we grow their revenue, primarily. If it were a traditional SaaS business, for us to monetize that and get value, we would likely have to package that as a higher addition, a different module, and sell that separately. In our model, if it works, it’s going to drive more revenue on their part and we’re going to make more money as a result of it. Our pricing model is quite straightforward, and we’ve got every incentive to continue to evolve our business in ways that make our customers more successful because we’re going to monetize that directly. That’s one of the things I truly love about the model. It is so aligned between what’s good for us and what’s good for our customers.
How have you seen e-commerce changing?
What you’re seeing is most markets are becoming increasingly global, and buyers aren’t settling for non-localized experiences. About two-thirds of our customer base is international, and about 45% of our purchases come from outside of the U.S. And that number is growing rapidly. I expect in 2020 that will probably cross over to where more of the purchases are outside of the U.S. than they are inside of the U.S.
The buying experience is going to be localized in terms of language, and they can buy in the currency that they’re familiar with. All of those things are changing pretty rapidly. Also, what you’re seeing is that payment methods are definitely proliferating: Digital wallets, Apple Pay, Amazon Pay, and Google Pay are gaining momentum. What’s interesting is, the adoption of those by vendors is gaining a lot of momentum, whereas the consumer adoption is actually slower. We support a broad number of alternative payment methods.
The next trend that’s very much gaining steam is that purchase experiences are becoming more streamlined and contextual. Sellers are much more focused on the user experience than they were in the past. Even on the B2B side, you’re hearing about this through software. People are getting really focused and better at making commerce experiences just drop-dead simple. It makes a difference. The simpler you can make it, the fewer steps in the process, the higher your conversion will be.
One of the big changes that we’ve been at the forefront of in our industry is what people are referring to as headless commerce. What that means is integrating the commerce experience into our customers’ web presence in a very seamless fashion via application programming interface, rather than having the product catalog at their side. When you go into the shopping cart experience on a different platform, it’s all completely seamless. The branding looks very consistent throughout. It doesn’t feel like you’re going from one experience to another. The ultimate benefit to consumers is just very streamlined and intuitive.
Another trend is that mobile shopping and mobile payments continue to increase rapidly. What’s interesting in terms of our customer base is that our customers sell almost exclusively software that’s intended for desktop use. But in spite of the fact that people are buying desktop software, they’re increasingly buying it on a mobile device. The numbers are still low, but the growth rate is extraordinarily high.
Just in the first couple of months of 2020, 12% of our purchases have been on mobile. If you look at 2019, that number was just under 10%. If you look at 2018, that number was under 5%. If you look at e-commerce in general, no question, mobile is moving at a very rapid pace. A lot of markets are seeing well over 50%.
The last trend we’re seeing is the average order value is increasing. What I think is going on there is purchases that previously would have only been done via an interaction with a sales rep, now people are getting more and more comfortable buying in a purely e-commerce fashion. If you look at the average order value increase over the last three years, it’s gone up on average 25%. You really are seeing a change in the level of comfort with e-commerce transactions.
Developers don’t like to be sold to. They prefer to experience the product themselves. To effectively sell to a developer, we’ve done a few things.We’ve made it really easy for prospects to set up their own account on our platform and start experiencing in a completely self-serve manner. And then, based on how they’re interacting with it, we’ll reach out to them and start to engage them in a live conversation.
In February 2018, FastSpring announced an equity investment from the private equity firm Accel-KKR. Tell us about that relationship.
Investment by Accel-KKR was really the result of a very long courtship, which is quite common for their involvement in companies. They got to know the company six years before they invested and they followed the company’s growth over that period. In addition, they have considerable experience in the market, so they’re very familiar with our business model and the market. They got to know the company really well before they ultimately made the investment. But they’ve now been in for two years, and they’ve been very influential in our overall growth and success. All they do is software investing— they’ve got over 30 companies in their portfolio. They do a really good job with encouraging and promoting best-practice sharing among their portfolio companies. They’ve got some events where they bring the functional leaders in product development together from all of their portfolio companies every year. Same thing in sales, in marketing. Same thing with their CEOs. They do that across all the functional heads.
They were particularly helpful in collaborating with us to refine our go-to-market approach. They’re very data-driven, and one of the things they did prior to my time here is they dug into a lot of our prospecting and win-loss data. As a result, we really did reorient a lot of our go-to-market approach, and it’s been highly successful. They are very much a growth-oriented investor—they’ve been very supportive in increasing our investment in sales and marketing, as well as product development.
Subscription has grown dramatically as part of the revenue stream. Why is that important to your business model?
I think the growth we’ve seen in subscriptions in our customer base is real-world validation of all the benefits of SaaS. There are not only tremendous benefits from the perspective of the companies that are our customers, but there are real benefits to their customers. Software developers benefit tremendously from making the transition, largely from the perspective of predictability and the ability to continue to invest in their market. How it benefits our business model is quite similar to how it benefits our customer’s business model. Even though we’re a transactional model, as our customers move more and more in the direction of subscription, we start to look like a subscription business ourselves because they’ve got an extremely predictable revenue stream that we’re receiving a share of. For us, it gives the same benefits, which is that it’s easy for us to reinvest in the business when we know that we’ve got a certain amount of revenue pretty much locked in for the next year. That, in turn, allows us to improve our product and hopefully attract more customers and attract growth. It becomes a very virtuous cycle.
In closing, could you tell us about your chief concerns—cybersecurity, human resources? What is it that keeps you up at night?
Fortunately, I sleep pretty well! But I do spend a lot of time thinking about cybersecurity and fraud more broadly. As with any fintech company, fraud is always top of mind, given what we do and the volume of transactions that we process in a given year. In 2019, we processed over half a billion dollars worth of transactions to our platforms. That’s a very big number, and obviously, there could conceivably be susceptibility to fraud. Fortunately, the world of fraud detection is evolving rapidly and we use some very good tools, so we haven’t had any issues there.
What I would actually say is the biggest thing that I spend my time thinking about and questioning is whether we’re evolving and innovating fast enough. SaaS is an absolutely great market to be in. The barriers to innovation are very low and you can move very quickly. But what that means is our competitors can do so as well—we really are in a never-ending race. I think about that a lot, but I wouldn’t bet against us in that race.
Elana Lyn Gross is a Forbes senior contributor, and her book, What Next?: Your Five-Year Plan for Life after College (published by the Simon & Schuster imprint Adams Media) was published in April 2020.