SaaS: Staying Afloat During External Economic Pressures
The global SaaS market is looking stronger than ever, with ample opportunities to innovate. In this article, CEO of R2 Docuo, Jorge Ramirez, shares three tips to remain on top in the SaaS market.
Software as-a-Service (SaaS) is a strong field. SaaS spending hit $100 billion USD in 2019 and that the market will continue to grow 30% year-on-year, it’s not surprising that entrepreneurs and opportunists are paying attention to the sector with the hope of achieving success.
But like many other industries, the SaaS market is vulnerable to outside influence. The 2008 economic crisis has previously threatened to upheave the industry, with only the most adaptive thinkers weathering the storm.
Software solutions created during the 90s have seen the evolution of distribution applications from the Application Service Provider (ASP) business model to the now-ubiquitous Software-as-a-Service (SaaS). They have seen the industry at its best and its worst.
This article will draw on some personal experiences of the upheaval during this time, sharing advice and providing three actionable tips on creating a SaaS company that will thrive. With businesses of all kinds automating their internal processes, it’s an exciting time to be involved in SaaS, but there are things to bear in mind if you want to remain successful.
Meeting demand: Realising customer requirements
The hardest question to ask yourself is often: do people really need my product? If not, another better solution will present itself to potential customers, and you will end up being left behind. Positioning yourself as the solution is the key to longevity.
There are lots of companies who have built business applications where there was no off-the-shelf software available. There were also clients who didn’t want their processes shaped by off-the-shelf applications. They wanted custom solutions that fitted their workflows.
We ended up modelling custom workflows using theory and techniques taught to us at university by the academic Manuel Abellanas, whose work in mathematics and computer science gave us unique insight into how to manage and adapt complex systems. The things you can learn from professional academics are often transformative in the world of business.
Awareness of customer needs and ability to meet them in a way that accounted for all of their complexities allowed us to fill a gap in the market and fix pain points for which solutions had not previously been devised. This meant, of course, that there turned out to be a powerful demand for what we had created.
Turning crisis on its head
While forecasting is important, there are outside influences that affect not only your ability to survive, but your clients’ as well. Speaking from experience, we can say that your ability to navigate uncertainty can make or break your long-term future.
Over the years, we have worked successfully with multinational clients. But in 2008, the global economic crisis caused our largest customer to terminate its contract with us. Over six months, revenue fell 60%. With banks failing and markets petrified, uncertainty caused everyone to defer major business decisions, making it very difficult to win new clients and rebuild our income.
If we wanted the company to survive, we had to make a major call.
We decided to turn our company into a productised software business, and for the next two years, the team put body and soul into turning a service into a product.
Luckily, the risk paid off and we rebuilt our client base. The story here is that crisis, however destructive, can and should be turned on its head. Every period of uncertainty provides an opportunity. For your business to prevail, you need to think laterally as well as logically and perceive crises in terms of when and not if they are going to happen. And when they happen, you should have some idea of how you’re going to respond.
Planning for the worst: Diversifying your client base
As mentioned, in an economic crisis the company took a hit. It was a turbulent time for businesses in every sector, with clients reluctant to create further outlays. But there are ways to mitigate this kind of damage to your business.
At one time, 60% of our company’s revenue relied solely on one financial services company. While large clients are extremely valuable, this level of dependency is risky.
What if the client can no longer afford your subscription? What if a competitor offers an alternative deal and you lose a customer, simply due to relative cost?
Our experience has taught us the importance of diversifying your client base and nourishing it as much as possible. This is a vital step for any business that wants to achieve longevity in the SaaS industry.
You should take the worst possible scenario into account when thinking about the financial structure of your business. Taking an objective view of your revenue sources and thinking ‘could we stay afloat if this client contract ceased?’ will allow you to build a more stable future.
The things SaaS entrepreneurs can take away from this article might seem familiar, but this simply underlines their importance. You have to believe in yourself and what your product can do for the businesses you serve, and think strategically before you make big decisions.
We certainly learned from our mistake of letting the business become too exposed to one large client. At the crux of it all, though, my advice to every SaaS business is not to go and make the same old mistakes twice. Instead, make brand new ones and learn from those too!
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