How much does it cost to set up an ASP/SaaS business?

Scott Francis
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Coghead just closed its doors a couple days ago.  I first saw the news on techcrunch in this post:  Coghead Grinds To A Halt, Heads To The Deadpool.  And then the following day the news that SAP acquired Coghead’s IP and hired on some of their staff:  SAP Acquires Coghead’s Technology As It Looks Towards The Cloud (hopefully this means SAP will actually incorporate some of these ideas into its products). Coghead may or may not be an example of a SaaS BPM tool.  It has typically been described as “a web-based enterprise software editor that featured an unusually intuitive interface”, and typical competitors were seen to be tools like Intuit’s Quickbase, though I imagine some others might consider Coghead a competitor.  I believe Intalio’s BPEL engine was used under the hood at Coghead. Part of what got my attention on this matter though, was TechCrunch reporting that Coghead received $11M in funding.  It reminded me of a previous discussion on Sandy’s Column2 blog regarding Appian’s funding round of $10M to fund the SaaS model Appian is increasingly moving to.  At the time, I felt that $10M might not be enough for a company to develop a successful SaaS solution.  Although SaaS seems like a low-cost way to get a business started, and it *is* in many respects, customers also don’t sign big up-front checks in most cases- a few of which can solve lots of funding problems: specifically cashflow problems.  Spreading that cashflow over 3 years, for example, may be sensible, but it is really a transfer of risk from customer to vendor (the increased risks: customer can cancel before paying the full amount, customer may be purchased/merged/forced into a failure to complete the transactions, vendor has to provision all equipment, vendor has to maintain a happy customer for 3 years to continue to collect the money).  On the other hand, once this model gets going, it can be very successful and sticky (see: Salesforce). Regardless, Coghead shows that $10M may not be enough.  I think there are people in the business who could make that work, but if you are figuring SaaS out as you go, $10M can disappear all too quickly. (PS-  I love the crunchbase widgets.  now all I need to do is find a wordpress widget/plugin that will add them auto-magically for me!)

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