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.
While you don't want to change your vision and model for every customer, you
do want to look in new and different places for people who will buy what you
offer. In the last downturn, colocation company Equinix went from selling to
telecoms and Internet companies to enterprises. They didn't change their product,
but they found it could be used as a replacement for corporate data centers
as well as a center for massive Internet companies. When the market returned,
they had two sets of customers.
This time, we're looking at a much broader downturn. Still, there are sectors
that will remain relatively healthy. I've seen people selling to healthcare
companies they never imagined would be buyers. The federal government is also
a big spender in recessions, so look at getting on the General Services Administration
(GSA) schedule. And if those two don't work, maybe you can figure out how bankruptcy
attorneys can use your application! Just "find new markets" wherever
Finally, remember that the market will return. The drive for new technology
and a better way to do things is a constant in our society. But be prepared:
the initial buyers won't be big IT departments with $10 million checks. They
will be departmental and functional buyers looking for an easy way to get their
technology under the radar of the budget-minded finance and IT organizations.
These first returning buyers will be more likely to put down a credit card and
buy five users than they will be to sign a three-year contract.
This is where SaaS should really shine, but only for vendors that are ready
to reach out to these buyers. Even in tough times, too many SaaS companies make
it too hard to buy their products. They still force customers into the long
sales cycles and big decisions of traditional enterprise software. One of the
biggest selling points of SaaS is that it is so flexible. Vendors should remember
that, and "make it easy" for their customers, both new and old.
And, by the way, any SaaS company that hasn't been selling online yet should
start now. Online sales don't have a big base like account reps do.
Of course, "stick to your knitting", "find new markets",
and "make it easy" are good mantras in any industry. In the SaaS space,
making them a priority may be the difference between dying, surviving, and thriving.
Let's make SaaS the poster child for success as we all strive to thrive over
the next few years.
About the Author
Treb Ryan is CEO of OpSource (www.opsource.net), a leading SaaS company. Since 1996, Ryan has been instrumental in defining and creating services organizations that improve the quality and reliability of the technology infrastructures businesses depend on for communications and commerce. He is currently considered one of the leading thinkers in SaaS and sits on the Software Executive Board at the SIIA.