In the world of small business and SaaS, we see five clear phases of local and small business adoption and use of SaaS technology. In the table below we outline the phases and provide some context of what was happening and why.
For the better part of phases 1 and 2, most small businesses were happy to rely on traditional business systems and practices. If they did begin to dabble with using cloud or SaaS solutions, it would probably have been for accounting. For example, using Quickbooks online. That was probably sufficient for the majority of small and local businesses for a number of years.
Phase III: The Shift to the Cloud
In phase three, we saw larger numbers of local and small businesses begin to shift more and more business practices to the cloud and SaaS tools. Whether it was for additional financial solutions or, heaven forbid, customer information or CRM. Even martech solutions began to demonstrate adoption with reputation and engagement software gaining ground. DemandForce sat at the top of the heap having launched in 2003 and then being bought by Intuit in 2014 for almost half a billion dollars.
And during the later periods of phase three, numerous SaaS companies were funded to bring the “cloud” to the small and local business world. Companies that had been launched in phase 1 – think Shopify – also began gaining traction in phase 3. Our friends at the now-shuttered SurePath Capital spent years tracking the performance of SaaS companies that were focused on small businesses.
Phase IV: Pandemic Accelerates Adoption
We are now in phase 4 – the COVID – 19 era. We’re seeing an almost hockey stick curve of SaaS adoption, up and to the right. Just look at the quarterly results from DocuSign, Shopify, the payment platforms (too many to name). It’s clear that the pandemic has accelerated the adoption of SaaS solutions by small and local businesses.
More broadly, a glance at a 90-day rise in the tech-rich NASDAQ further illustrates investors’ expectations of additional digital transformation. Contactless payments, more and more app functionality, more digital payments, telehealth, and on and on and on.
Phase V: Settling into a New Normal
But what about phase 5, the post-pandemic phase? What kind of results will SaaS companies post in say Q4 2021 or Q1 2022?
Let’s be optimistic and say that by the middle of next year there’s a reliable, widely available vaccine for COVID-19. If we go back to the DocuSign webinar and listen carefully to Carl Nassar, the president of Heart-Centered mental health. He indicated that while telehealth today represents some 80% of patient visits, he expects that to fall back to a steady-state of 30%. Who’s to say he’s right or wrong – certainly not us. But I would guess he’s directionally correct.
And that’s what’s telling. Phase 4 has seen a rapid, perhaps prolific adoption of SaaS solutions. In phase 5, we must anticipate some backsliding to earlier practices. Volumes will decline. New patients to Nassar’s Heart-Centered won’t necessarily have to sign HIPPA waivers electronically, for example. Retailers might well take cash again. The roofer might prefer a paper check again instead of sharing a small slice of revenue with the credit card company.
I think you see where I am going. The juxtaposition of the pandemic and the acceleration of SaaS adoption is remarkable. So many businesses were content to march along using outdated software and antiquated processes pre-pandemic. Now they’ve been forced to adopt SaaS in order to survive driving a dramatic run-up in SaaS customer acquisition and use. The phrase, “what goes up must come down” looms over the industry. It is just too early to predict when the down will happen and just how far down it will go. Stay tuned.