How SaaS Companies Can Survive the Downturn

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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.

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 you can.

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.

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