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With the world entering its second year of what promises to be a long recession, many ask what this means for Software as a Service (SaaS) companies. Much has been made of how the SaaS marketplace will benefit from a recession. SalesForce.com is actually bragging of hiring hundreds of people this quarter.



Yet, when I talk to most SaaS CEOs privately, I hear stories of delayed bookings and increased churn. It's not that the pipelines are shrinking; it's that people aren't making decisions. And while they aren't dropping their SaaS applications, they are cutting back. Who needs as many seats when you have laid off 20 percent of your staff?

Probably the easiest way to think about the SaaS marketplace is that even Toyota is selling fewer cars. They are doing better than the dinosaurs -- but when it's bad, it's bad for everyone.

So how do you not only survive but thrive in such a broad-reaching downturn? Look to the lessons of the past downturn, and you'll find something consistent about the companies that came through strongly. Companies that did well in the early 2000s, such as SalesForce and Equinix, remembered three things:

  • Stick to your knitting
  • Find new markets
  • Make it easy

Of all the things to remember about the downturn, the first is to "stick to your knitting". It's so easy to forget we are building companies for the next 20 years, not for the next two quarters. As we enter another year with dire forecasts ahead, it's easy to run after any source of revenue that's available. In the last downturn, that meant giving up the SaaS mantra and adopting a hybrid model that said, "We'll sell to any customer any way they want it."

How many companies succeeded doing that? Instead of dramatically increasing market share, all such diversification did was incur the cost of running two separate businesses under one roof. How many of the companies that went to the hybrid model are still selling? Meanwhile, those companies that stayed pure to the SaaS model, such as SalesForce.com and WebEx, lead their categories today.

While it may now seem obvious that the hybrid model won't work, there will still be pressure on SaaS companies to switch up their underlying business to improve bookings. Regardless of how it's done, switching your model will simply not help you build a sustainable business.

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