Is in-house development dead? At what cost?

An interview with Matt Bird, chief executive officer and co-founder of Lemon

Fewer companies are developing software solutions in-house, choosing to use SaaS providers. Doing so can save time, but the costs can soon mount. Lemon have developed a platform allowing businesses to monitor their subscriptions, allowing them to see wastage and save money. They also offer SaaS financing, allowing customers to use software products without paying annual sums up front. 

Our reporter Robert Welbourn spoke to Matt Bird, chief executive officer and co-founder, to discuss the rise of SaaS providers, the value they provide to startups, and the future of software. 

Tell us a bit about yourself please. 

I’ve been working on Lemon since April 2023. With SaaS, you typically have software providers that want to get paid up front, hence why they offer a 20% to 40% discount, but their buyers will want to pay monthly to preserve their cash flow. Lemon essentially sits in the middle; we enable the customer to commit to the discounted annual plan but pay for it on a monthly basis. 

We’ve also got a subscription management product that allows companies to bring all their subscriptions and SaaS expenses into one place, giving them more clarity and visibility on what they’re spending. 

The mission is to help companies save money on the software that they’re using in their day-to-day business. My previous startup was a SaaS subscription company; we faced the dilemma that we needed customers to pay up front. They didn’t want to pay up front, but they still wanted the discount. We thought it was time to do something about it. 

SaaS has been around for a long time but it’s very much on the rise with fewer companies developing in-house. Are you finding that the market is much more saturated than it has been previously? 

It’s really interesting because there’s a lot more quality now as well. Companies are opting to partner with SaaS providers rather than build software themselves because they want to focus on their own product; they would rather partner with a SaaS provider for scalability and cost efficiency. 

The market is getting saturated and more and more companies are starting, but a rising tide lifts all boats I don’t think SaaS will ever go anywhere, it’s a much more scalable solution for a lot of businesses. It means you can keep your headcount lean and keep your overheads low while building a really good business. Historically, if you’re building a full suite of technology in house, you have to hire a lot of developers, which then comes with a lot of cost. 

Businesses strive for profitability and cash efficiency, and the only way to do that is to partner with SaaS solutions providers that suit their companies. It’s an interesting time for SaaS and I don’t think it’s going away anytime soon. I think, if anything, we’re going to become more reliant on it than we have ever been. 

Startups that are just one, two, three people don’t have the time or the expertise to develop every aspect of a business. SaaS is a lifesaver for small companies. 

The cost of a lot of SaaS products is quite low and it’s quite affordable. Historically, the speed at which a company could integrate a SaaS product was quite slow. You’d need to speak to sales people, get a set of CD-ROMs that you put into your computer and then start the downloader. 

Now you go onto a website, click a button and you can start using it. It’s that easy. Software’s become way more affordable for the earliest stage and startup companies now, so it does become a fundamental part of starting a business. It’s about finding the products to get the company off the ground rather than the people. 

Are you seeing mostly startups coming to you for your services, or older, more established companies, or is it a mix? 

I do think it’s a real mix. You’ve got some IP-rich companies that want to keep building in-house and feel like the benefit outweighs the cost. What fintechs have that these large incumbents don’t is more of a finger on the pulse of what customers actually want. So what banks are doing now is partnering with fintechs rather than building things themselves. Technically, they have the resources to build it, but they know they don’t have the skillset within the business. 

We speak to banks daily and at least once a day they tell me they love what we’re doing because there’s no way they can build our product themselves. Technology is not their core product; they’re focused on being a bank and not a technology company. 

I know of a couple of banks that, on the one side build their own software in-house, and on the flip side, they operate as a SaaS company as well, where they then market that to their competitors. I find that really interesting because it speaks to what you touched on about banks partnering with fintechs. 

Banking is a very cutthroat industry, it’s very competitive. But just look at what it does to the economy when everyone goes to war with each other. There’s never going to be one bank that beats everybody. Indeed the banking industry grows with the quality of other banks’ performance as well. They’ve obviously come to realise that actually some level of collaboration is the only way to grow the industry. 

You can definitely feel a shift; some of the people we speak to, who aren’t looking for our services, are happy to point us to their competitors who may be. You would never get that five years ago; I think banks are aware of their responsibility to do the right thing by businesses, by consumers, and by individuals, so they’re taking a bit more of a worldly approach. Obviously, there’s still competition when it comes to rates and transactions and customers, but when it comes to infrastructure and technology they’re open to sharing it a little bit more. 

Do you think the older traditional banks can no longer trade solely on their reputations? 

100%. It’s that whole analogy that HSBC, to name a bank at random, is like a cruise liner: it commands the ocean, but it takes ages for it to turn around and do something new. Whereas a neo bank comes in and can do the same amount of work in 12 months. HSBC and the other banks are realising that now. 

I also think the priorities of consumers and businesses have shifted. There’s more focus on UX, on customer services, on mobile applications. Bigger banks are realising they need to shift and partner with these newer upstarts just to be able to acquire new customers and keep the ones whose needs have changed. I think they’re in the era of trying to adapt because they can feel the smaller guys nipping at their heels. 

The Buy Now, Pay Later (BNPL) aspect of what you do at Lemon must be invaluable for startups who need this tech but don’t have the cash to pay a lump sum upfront. 

They do. The caveat is, however, that they have to commit to 12 months. One of the beauties of having monthly payments is you can cancel at any time. But if you’ve got a CRM system that is fundamental to your company, you’re not just going to turn that off. You know you’re going to stick with it, but you don’t want to be paying a premium. 

The model is really invaluable because it reduces the cost, but it allows them to commit to the best service they’re going to get from this provider as well. When you pay annually there might be some more benefits such as more support. So actually, we’re giving them the best of both worlds by reducing their costs and giving them access to the best tier applicable. 

From the software provider point of view, they want upfront payment for their cash flow, they much prefer a customer to pay up front than pay in 12 monthly instalments. They don’t want the churn risk, they don’t want the headache of chasing late payments, they would rather get paid up front with the annual plan and be done with it. 

By adopting the BNPL model you’re accepting almost all the risk. 

By partnering with banks to do this, rather than doing our own funding ourselves, we’re able to offer a much better cost of capital, a much better rate than our competitors. We take on the risk, but we also pass on the cheapest rates possible. 

Lemon offering this service means that more startups can flourish, which gives consumers more options as well. 

100%! That’s the longer play; the more you can help a business with money, the longer they can stay in business. The longer they can stay in business, the more they can invest in their customers, their team, their services and products at an organic level. They’re not relying on outside capital to fund their business; they become financially healthier businesses. 

The benefits are passed onto everybody that touches that business in its lifetime. I think there is a greater good that we can achieve with a product like this, rather than just via a cash element. It helps businesses stay in business for longer and invest more in the things that actually matter. 

Thinking about the subscription side of it, again, that must be invaluable to businesses because we all end up with subscriptions that you forget about until they come out of your bank account – that must be true hundredfold for businesses. 

So that product actually started life as a consumer subscription management idea. It was for consumers like us because I have exactly the same issue where I forget I had a subscription until the money comes out of my bank account, and then I still forget to cancel it. 

When we speak to businesses, nine times out of ten they have no idea how much they’re spending on subscriptions. Especially small scaling businesses, they can rack up a lot of subscription costs very quickly. As you add more people to your team you end up with duplicate licenses, you might be paying for seats that you don’t need. We worked with a company that had four of the same subscription, but because they had so many different departments, they weren’t talking to each other. 

Just putting everything in a single place and giving a new layer of clarity and visibility automatically helps the company save money. SaaS is still the third largest business expense after people and rent, but companies are still wasting a lot of money due to inefficient management and inefficient payments. 

What does the future look like for Lemon? 

It’s really exciting. The idea is to become the central place where SaaS companies can seamlessly offer finance to the customers and their customers could then save money, manage their subscriptions and their SaaS all in one place. I think that doing those two things together makes the SaaS industry a lot healthier and makes businesses a lot healthier.

Image: Lemon