SaaS Reckoning: The Inevitable AI-Driven Product Operations Transformation in Enterprises
How To Navigate Transformation As A Leader When Markets Shift Dramatically
What SaaS Purchasers Are Really Buying
As Elizabeth Gilbert says, “I’ve never seen any life transformation that didn’t begin with the person in question finally getting tired of their own bullshit.” I’d love to believe this applies to businesses too, but sadly I’ve not seen too many cases where corporate culpability preceded change. In spite of what management books will tell you, leaders don’t change businesses, what does drive change in enterprises is environmental pressure.
When the market changes, businesses change.
Right now, change is happening really fast. AI is much bigger than many of us imagined. It comes up in all the conversations I have with EDP leaders. The numbers are staggering. Enterprises worldwide have spent $154B on AI solutions in the first half of 2024. To put that in perspective, that’s almost 20% of the total SaaS spending for 2023. And it’s not slowing down. According to a recent IDC forecast, GenAI spending will continue to enjoy over 70% CAGR between 2024–2027.
Micah Rosenbloom, a Managing Partner at Founder Collective believes that software companies are trying to copy the old SaaS playbook in the AI era. Moving from tools to solutions is the way forward. “They should consider reframing their thinking around full-stack businesses or a new generation of tech-enabled services.” I think the last part of that sentence is the most important — tech-enabled services.
My conversations with enterprise SaaS buyers and users is pointing to the dirty little secret that services are what drives large-scale software and platform sales. As much as the leaders and investors of these ARR obsessed companies would like you to believe that it’s all PLG and recurring software sales, the primary reason why big enterprises buys software is the services that onboard and support those SaaS products.
SaaS need to understand that the most attractive thing they sell is the hand-holding that comes with the product, commonly called Customer Success. As the now defunct InVision discovered too late, their customer success, support teams and thought leadership content were the product. The unfortunate thing is that a lot of SaaS companies are cutting CS and tech support roles in anticipation of AI solutions. I believe this cutting is a mistake but the promise of short-term margins from lower personnel costs will be too attractive for leaders for them to ignore. If you are buying or renewing software, be on the lookout for companies that have robust CS teams. They will be the survivors.
Why are services so important to large-scale software sales? It’s worth remembering that enterprises don’t buy software, rather they are buying a solution to their problem (or the promise of that solution). As John Cutler says, that goes without saying, but what is worth pointing out is what the customer wants to accomplish with the product. Whatever they are buying is helping them to make decisions so they can make more profits.
Regardless of trends, software buyers will always tell you they are purchasing a solution to their problem, not the product itself. When they buy a design system, what they are really buying is the knowledge to reduce waste and ship product faster — and that’s where consultative services like onboarding and CS become critical.
Better Days Ahead, But Not Without A Price
Retention.com COO, Santosh Sharan points out that over the coming year or two, there will be challenges for SaaS companies that fail to respond to these market changes. Some will go out of business but in the long run (beyond 2025), SaaS companies will thrive with increased operational efficiencies and enhanced user experiences through AI. Just like Sharan, I believe we will begin a decade of digital transformation opportunities. Software buyers, and specifically large enterprises, will be switching to AI centric platforms and workflows. This switch will cause a significant boom in software sales and usage. But this growth won’t happen without a stiff kick in the pants.
Because of all the AI spending, there’s a price to pay. That price is the impact on non-AI spending. Budgets are being reassigned while high interest rates have slowed revenue growth for traditional SaaS product buyers, which means less cash flow for traditional software spending. CTO’s and CFO’s are asking “how will we pay for the current software licenses when we need to invest in AI?”
During this next year or so we’re going to see two areas that will influence the market:
- Increase in AI spending which will result in a decrease in overall spending on traditional SaaS and non-AI purchases.
- Decrease in overall hiring and potential layoffs while expecting increased employee productivity from AI.
You might not like these trends but the bottom line is that leaders will be required to do more with less and be creative about how they manage software budgets. This matters to the down steam workflow because how we budget for software and make funds available to hire humans to use that software directly affects how we work.
Strategies and Tactics For Navigating Transformations
There’s no getting around the fact that transformation work is difficult. Naturally, the bigger the organization, the bigger the challenge. For digital transformation to occur, these challenges are never just about only making technical changes. For many it’s the difficulty of learning new practices, changing existing behaviors, learning tooling and investing in new cross-functional relationships. For these reasons, change management rarely happens.
How many tech leaders does it take to change a light bulb? They don’t… they create a committee to analyze the problem and then talk about how the market doesn’t understand the light bulb’s value. As I suggested at the start of this article, leaders don’t drive change, markets drive change. What leaders can do is respond to change and, better yet, be prepared for change. The ultimate antifragile strategy is to be prepared for the inevitable change that will come.
Even though human brains are uniquely wired for social interaction, it comes at a cognitive cost. A cost some aren’t willing to invest in when they are already overwhelmed. For many of us, it’s exhausting to be constantly creating new working relationships on top of the work we do each day. If we’re going to embrace the opportunities provided by product operations or organizational transformation we also have to address our mindset and approach to these changes.
“Transformational work is cultural work.” — Greg Petroff, previously CDO at Cisco
An “adaptive mindset is the most important asset a leader can embody”, says Michael Remyn. Remyn, who currently holds the position of VP, UX Design & Research at American Express, has seen a significant amount of transformation during his almost 20 years in AMEX’s diverse organization. Having held leadership positions through the rise of digital, the financial crisis, COVID and the more recent macro economic disruptions, Remyn has seen a significant amount of transformation.
To adapt to these changes, he emphasizes the importance of adopting a learning mindset to foster innovation and make space for personal growth. One way Remyn does this is to project himself into the future. “Considering the roles you’ll grow into is a part of a healthy leadership attitude,” says Remyn, “I ask myself all the time what I will do next and how I can prepare for the inevitable changes.”
This attitude isn’t just for leaders, it’s also for the people they lead and nurture. Remyn believes that effective managers should encourage their team members to learn and grow, even if it means they will eventually leave his team for bigger opportunities elsewhere. Greg Petroff, previously Chief Design Officer at Cisco, agrees, “A growth mindset prevents you from slipping into old habits, just because thise habits are easier.” Petroff suggests that leaders often manage change “in-artfully,” which manifests as unhelpful politics. Saying you want change but not giving yourself or your teams a chance to participate in that change is unnatural. “Change and evolution is natural and inevitable,” observes Petroff. Leaning into that change is the mindset that leaders need to adopt and foster in their teams.
Building The Unbroken Chain of Alignment Between Business and Product
Andrew La Monica, long time friend and distinguished product leader who has held positions at GE, the Olympics and Northwestern Mutual reminds us that a trap door for transformation leaders is thinking that their particular department or group holds some special place in the overall transformation process. While it’s tempting to think that your team will need a seat at the table, this can only be achieved if your objectives and behavior are aligned with the business goals. This trap or bias stems from the fact that we all want to believe what we do matters. While that might be the case, the reality is an enterprise has a lot of moving parts so focusing on one team can blind you to the bigger picture.
Let’s take the example of a design system. While the name might suggest this is a system for designers, it’s equally valuable to engineers, developers and product managers. Verizon’s Andrew Pendleton believes in strategically positioning and framing the design system as a company level initiative to improve its adoption and utility. Pendleton, a developer by craft, was initially skeptical of design systems. Once he opened his mind to the bigger opportunity he was a convert. Leveraging his own experience as an opponent of design systems, Pendleton chose to invest time in creating understanding.
By addressing the challenges and needs of potential adopters up and down the organization he reduced the friction of the transformation. Pendleton notes, “It’s easy to think of design systems as a design solution, but in fact they are systems for efficiency, cost-saving and cross-functional alignment. These are not product design specific objectives. They matter to the entire organization.” A key ingredient to change management is for leaders to link platforms and software investments to the market changes and to bigger company goals.
The Questions At The Core of Product Org Transformation
What’s more important in transformation, relationships or tech?
Relationships are always at the core of every transformation. While seemingly obvious, it can be easy to get distracted by the significance of the tech platform, financial, logistical and process changes that accompany a big change. “American Express is undergoing a significant transformation focusing on a people-first approach,” says Remyn. His team develops digital experiences for the middle-to-large market commercial segment so at the core of AmEx’s transformation is building stakeholder relationships. For these relationships to be meaningful it is necessary to solve the right problems. The only way to solve the right problems is to ask the right questions and avoid assumptions. “Building strong relationships with stakeholders changes the way our cross-functional peers see us,” says Remyn, “Now we’re seen as partners and not just internal vendors.”
Is it better to be clever or clear?
Part of building meaningful and productive relationships is through creating clarity. A messy message won’t land regardless of the quality of the relationship. Every arrow needs a sharp point. Remyn finds it crucial to create clarity around what user experience entails and the importance of consistently communicating this to partners within the organization. “Assume nobody understands what you do day-to-day and use every opportunity to remind them what your work is focused on.” But if clarity is arrow head, then repetition is the wood behind the arrow that keeps it on track and flying straight.
Several years ago I was interviewing David Cancel, co-founder of Drift, on the art of running a product business. I asked him how his role was changing as the company evolved from being a small startup to having hundreds of employees. His answer really made an impression on me. “I think my role has been and will continue to be Chief Explainer Officer or Chief Repeater Officer. I would just have to keep repeating the vision or mission. ‘Why are we here? What are we doing?’” You might infer that because he’s repeating the same thing over and over again he’s treating employees like recalcitrant children. The opposite is true. To be a good leader you need to respect that everyone is at a different place in their understanding. Dave’s empathy demands that he meet employees where they are.
As Cancel says, “It takes us all many reps before we’re ready to hear something. A lot of it has to do with the context we’re in. We have to be in the right context or the right frame of mind to actually catch onto something.”
How do we remain consistent during a long transformation?
“The more effective preventative measures are, the more people will believe they were unnecessary.” John D. Cook wrote this on Mar 10, 2020, just before COVID stopped the world in its tracks. Whenever we think of making plans or attempting to predict the future, it’s equally important to remember that predictions are more frequently wrong than right. Whether you’re selecting a design system platform, building a transformation roadmap or prioritizing your backlog, keep in mind that preparation (not prediction) is more important than triage, but it will most likely be harder to get support for preventive measures.
Everyone wants the cure but not everyone wants the vaccine. Your boss will happily pay for a prioritization workshop when things get messy but will ignore your requests to create methods to prevent new items from being added to the backlog. Keep trying anyway. Keep up the good fight of preparation and prevention.
Being prepared, and staying curious are the two proven ways that leaders and teams can simultaneously build meaningful relationships and establish clarity. The squeeze is on teams to make these connections and find alignment. Remote work, distributed teams, and the threat of AI means we’re all being challenged to have better communication with each other. Conversations and meetings might end up being the last place to be human at work.
What are the best ways to prepare for a product transformation?
Start conversations by understanding who you are working with. Know as much as you can about the person you’re talking to. “Research your cross-functional peers as if they were the opposition in an election,” suggests Verizon’s Andrew Pendleton. Admitting that he learned this lesson from reading about how lobbyists work, Pendleton recommends doing deep research on every member of the cross-functional teams. Understanding what problems they are trying to solve and how they want to achieve them goes a very long way to finding alignment. I personally use Crystal’s Pre-Meeting Intelligence to research all my peers and transformation partners.
Using design research principles, creating a dossier on your peers and cross-functional partners is very similar to doing persona or customer research. A pre-meeting profile of your peers that includes personality insights, quotes, links to articles, and details of their communication style will be super helpful. When your peers and partners realize you’ve taken the time to truly understand them they will be motivated to find alignment with your transformation goals.
Doing the pre-work will set the foundation for the one-on-one and small group meetings that anchor the transformation work. The quality of your questions and understanding is a strong indicator of the quality of the conversation. Instead of just presenting hard data and facts, provide a little background to the conversation and then dive deeper into how the other person feels. The goal here is to understand the context and motivations for their perspective.
What are the questions that create open and honest conversation?
Discussing a big restructuring or platform update initiative at work is very likely to cause concern and anxiety. Transformation projects require that teams be shuffled around, processes updated and lines of communication redrawn. Most people won’t immediately come out and express their worst fears. You have to ask specific questions that help you understand the emotions that will drive behavior.
“What does this change mean for you personally?”
“How will this decision impact you?”
“What is this going to mean for the other people in your life?”
“How will these changes fit into your current situation?”
“How do you think others will feel about these changes?”
Notice how you’re asking a similar question but in different ways. The goal is to go below the surface concerns to what really matters. “Everyone will be at a different level of maturity and understanding,” says Pendleton. “Figuring out how to serve them and meet them where they are is half the battle.” Try to remain curious throughout the conversation. Instead of just bouncing from one question to another, dig deeper.
On a recent discovery call I was listening to an EDP leader talk about how a big initiative was causing friction between functional groups. Instead of trying to solve the problem, I just kept asking more questions.
“Okay, tell me more about that?”
“How come?” (I prefer this to ‘why’)
“That’s interesting. What else did you discover?”
This follow-on questioning led the leader answering several of their own questions and surfacing their own blockers. Most of us already have some idea of what to do, but we need a sounding board to speak those ideas out loud. We could all benefit from a little talk therapy ;-)
Surveys and interviews can be too predictive, and bias the conversation towards a predetermined outcome. Predicting the outcome of a conversation is dangerous and can feel like manipulation. Replace prediction with preparation. Replace answers with questions. Questions that are too specific assume the path of the conversation.
Conclusion
For the majority of leaders, the current AI-driven revolution presents both a challenge and an opportunity. By the end of this cycle, there will be a lot of broken companies littering the way. The unprecedented investment in AI technologies indicates a clear direction for the future, but it also demands that we figure out what our customers are really buying if we’re to stay competitive and relevant. Saas buyers still want solutions, not just software. SaaS users want something that makes it easier to make better decisions, not just software.
For leaders, navigating transformation in a rapidly shifting market requires wearing a lot of hats. Leaders need a healthy amount of strategic foresight (let’s just call this preparation), a lot of adaptability, and a commitment to cultural change. If it sounds like I’m being reductive, trust your instinct. Change is never as easy as a few bullet points.
The next 18 months will test our resilience and creativity. SaaS companies must pivot from traditional growth models to focus on competitive displacements, integrating AI capabilities, and ensuring we still have the services and support to deliver on these promises. Developing robust partnerships with enabelers, nurturing ecosystems, and building a strong community presence will be essential for long-term success. A lot of that is just good ol’ fashioned thought leadership, which as the term implies, must come from the leaders of the organizations. The role of customer success, support and thoughtful content cannot be underestimated; these human elements are crucial for sustaining growth and maintaining customer loyalty.
As Petroff and other senior leaders suggest, leaders must embrace an adaptive mindset. Encouraging clarity over cleverness within their teams and to cross-functional partners. To guide teams, leaders need to tell a better story, not just puke out roadmaps. Roadmaps and OKRs are not sufficient. Leaders need to craft a written narrative that tells teams the most important problems to solve and explains why that is the case. Leaders need to gives teams the strategic context needed to execute. The cultural aspect of transformation is just as important as the technical one, if not more so.
To state the obvious, the SaaS landscape is on the brink of a significant evolution. By preparing now using antifragile frameworks we can not only weather the immediate challenges but also position ourselves to thrive in the coming decade of digital transformation. The future is promising, and with the right approach, we can turn these transformative times into unprecedented opportunities for growth and success.
