Posted by: Tom Carter in SaaS on
Nov 26, 2008
While attending the excellent SIIA On Demand conference in San Jose, there was a lot of talk about surviving the economic downturn as a SaaS company. Many of the points in Part 1 of this blog were discussed (somewhat gratifying) but a more fundamental question was posed.
Are you selling oxygen?
Can companies breathe without your product? Is your SaaS product a true "need" for businesses to succeed or is it a "nice to have"? When companies look to trim costs, which column will your product fall into?
In stronger economic times, companies that sell "nice to have" products can grow and prosper. In down markets, purchasing companies will cut the nice to have products to preserve margins and cash, while keeping those mission critical solutions.
As SaaS companies looking for success in a down market, we need to ensure that we are selling products that are critical to our customer's business success. Here are several things to focus on:
1) Marketing must emphasise those elements of your products that keep companies running. Do not promote ‘cool' features; stress the core features that will help drive costs down or revenue up.
2) Product value must be quantified and provided to our product champions. Ensure that product champions within enterprises have the tools to defend it against the forces of rationalization. Often the decision to cut will have nothing to do with the department that uses and loves your product. The decision likely comes from the finance department but a strong dollar oriented argument can stay the execution.
3) Think sticky. Focus energy on integration and engagement with key clients such that the switching costs grow greater than the option to cut or downsize.
4) And ultimately, if your product is not oxygen to your customers, change it or find customers who breathe your particular type of air.
Posted by: Tom Carter in SaaS on
Oct 30, 2008
The SaaS industry has the potential to grow in an economic downturn.
Large capital projects are the first casualties in an enterprise trimming costs. SaaS offerings limit capital expenditure and IT infrastructure, offer fast implementation cycles, allow companies to limit and adjust licensing volumes. SaaS is exactly the type of solution that can pass internal executive reviews when money is tight. When SaaS companies compete against traditional software implementations, SaaS products should win these deals.
How should a SaaS company change its operations to reflect the new economic downturn?
There are many common operational changes that any company will need to make in an economic downturn; the points below are particularly key to a SaaS company:
1) Achieve cash positive business operations. Rationalizing spending and eliminate that cash burn until the capital markets improve. If VC funding is planned in the next 12 to 24 months, manage cash to do without it.
2) Utilize partners and channels to expand sales. The downturn will provide additional competitive advantage to SaaS companies over traditional on premise apps. However, the downturn and the need to preserve cash make it difficult to expand a sales and marketing team to take advantage of the opportunity. Partner and channel sales can provide increased reach with a success-based reward structure. Ensure robust systems in place to track the revenue splits and provide transparency to upstream and downstream partners.
3) Purchase SaaS products. Focus on core competencies and outsource or rent the rest. Do not become a billing and e-commerce expert or build out a major data center; find other SaaS companies to purchase these products and focus limited resources on the most value - the core product.
4) Capture all revenue possible per customer. Do not leave money on the table through inefficient or manually intensive billing and subscription management processes. Ensure customers can add and upgrade products online, simplify the contracting process and ensure to entice additional revenue from existing clients.