For BlackLine, SaaS Ambitions Became Precursor to Middle-Market Growth

It was the kind of strategy decision that can throw even the most well-managed middle-market businesses into complete chaos. After years of developing, incenting, and motivating its world-class sales team to enlighten customers to the virtues of owning its financial close software, BlackLine Systems of Los Angeles scrapped its enterprise licensing model for one that would permit customers to procure its software as a service (SaaS).

Therese Tucker, BlackLine’s CEO and founder, says that the change was perfectly timed — a notion that may seem hard to swallow when you consider that the year was 2008 and the repercussions of the banking sector’s collapse were beginning to be felt far and wide.

However, it was just this sort of turmoil that welcomes change, according to Tucker.

“When the downturn hit, everyone’s capital expenditure budgets went away, and suddenly SaaS became a much more appealing option among our prospects,” explains Tucker, who says that while the firm had been offering hosted SaaS solutions as far back as 2005, the downturn’s impact quickly elevated cost awareness among its customers, creating a unique window of opportunity.

“We had been offering our customers both hosted and in-house solutions, but what we realized was that many in-house IT departments are not very efficient and can be costly,” continues Tucker, who says that the remaining number of Blackline clients using an enterprise on-premises solution has dwindled to 30, while the firm’s SaaS clients number nearly 600.

According to Tucker, this switch took time and effort on the part of the company’s management team, who became tasked with altering the mind-set of BlackLine’s sales organization.

Says Tucker: “We had to wean ourselves away from big cash chunks, because if a company buys an enterprise license, they typically lay out a sizable sum up front.”

Asked how the sales team coped with the change, Tucker says, “It was hard for certain people. I think that we still have a few salespeople who are not completely comfortable, because in our early days we went after enterprise salespeople — and to tell that person that they should not be going after a half-a-million deal, but one that might involve 50 users, is never easy. ”

To date, it would appear that BlackLine’s move to focus on SaaS has paid off big-time. The firm’s revenues grew by more than 50 percent in both 2010 and 2011, and in 2012, revenue is expected to be up by nearly 60 percent — a leap of growth that should safely move the firm across the $25 million threshold.

Along the way, BlackLine’s workforce has also quickly expanded.

“More than half of our employees have been here less than a year,” says Tucker, whose firm’s workforce numbers just over 140 employees.

Meanwhile, the move to become a SaaS solution provider has also allowed BlackLine to complement its traditional Fortune 1000 client portfolio with a growing roster of middle-market accounts. In the past, a move to service smaller accounts would have been unthinkable in light of the economics behind BlackLine’s licensing deals and the relative cost associated with servicing individual customers.

According to Tucker, part of what makes middle-market customers attractive is the fact that they make decisions quickly, shortening the sales cycle: “It’s just amazing sometimes how long it takes for a really large company to make a move. To get a deal done, it may take a year or two, whereas we’ve seen it take only days inside certain middle-market firms.”

Tucker says that middle market companies are far more time-sensitive and prefer to steer clear of lengthy implementations.

“They want to see things work immediately, and they want to see everything when it’s still fresh in their minds from what the salesperson told them,” explains Tucker, who says that the company has recently formed an inside sales force dedicated to middle-market companies.

Still, not having to hand over “big chunks” of cash upfront may be what middle-market customers like best about SaaS offerings. Tucker says, overtime almost all of BlackLine’s SaaS customers end up expanding their number of licenses.

It’s a dynamic one might describe as recurring growth.