Analysts, investors, and observers have been weighing in on how SMB SaaS startups should adapt to the Covid-19 crisis. Change can happen fast. Just yesterday that SMB SaaS companies were awash in VC money and eyeing lucrative exits.
Today, companies targeting SMBs are feeling vulnerable. Bars and restaurants have shut down or are relying on a trickle of takeout business. Retail stores have shuttered. Social distancing makes it challenging for tradespeople to provide home-based services.
In this environment, we wanted to see what advice the SaaS experts are doling out to the industry.
Localogy senior analyst, Neal Polachek believes startups should make the inevitable, painful decisions quickly. Neal offered a blunt assessment of what SaaS leaders need to do on a Zoom roundtable last week with the Localogy analyst team.
“The scary part is, I bet at least 50% of the headcount is in sales at these SMB SaaS companies,” Neal said. “What the leaders at these [SaaS] companies need to do is figure out, quickly, is what kinds of sales staff they can afford over the next three months.”
Neal also argues that this environment presents SaaS companies an opportunity to sell their products on the efficiencies they offer small businesses. After all, many SMBs will find themselves needing to do more with fewer people as they try to ride out this storm.
And finally, Neal believes the current environment will create an opportunity for consolidation. Any players with dry powder should consider taking advantage.
“There will be a buying opportunity for those with access to capital and the ability to weather this out,” Neal said.
The Music is Going to Stop (Roundtable Audio Excerpt)
Here is a list of actions Neal recommends small business SaaS companies take to improve their odds of making it through this crisis.
- Assume that new sales will go to nearly zero for the next 45 days and reduce headcount by culling those who are underperforming in sales.
- Put as many resources as possible against customer success in order to boost retention.
- Create programs to help existing customers. For example, offer anyone on an annual contract an automatic two-month extension of their subscription.
- Share as many resources as possible to help SMBs find government aid.
- Provide information about how SMBs can leverage technology to improve the business during this quiet period.
- Consider offering a “lite” version of your software that prospects can use for 30-45 days with no obligation.
- Be sure that any programs you create to help SMBs navigate this crisis are easy to use. This is no time to ask your customers to jump through hoops. Yelp’s program offering relief to restaurants and nightlife businesses is a good example of this.
Prepare for the Worst, Hope for the Best
If there is any cause for hope in the current environment it is that the downturn is not the result of any underlying weakness in the economy. It is that the economy, or most of it, has been deliberately shut down in order to halt the spread of the virus. This suggests a recovery, post-shutdown, could be swift. However, the longer this goes on, the more damage is done. And the more the damage, the harder the recovery.
“The big unknown here is the duration and severity of the forced shut down of the economy. Our clients serve SMB customers. The longer those SMBs are essentially closed for business, the more we will see outright business failures. This is a big potential risk for all our clients. The people losing work at the moment are customers of these small businesses. The economic impact of this could last for some time,” Mark wrote.
Mark offered his own suggestions for riding out the storm.
Build in daily early warning indicators for revenue acquisition and retention. Create a war room task force to focus on these measures
Ruthlessly review spend, trimming anything that is not clearly adding value
If you are pursuing a venture-backed, “burn your way to greatness” momentum play, consider whether you can dial back top line growth, lower burn and extend runway
If you are bootstrapped or PE-backed, focus on maximizing EBITDA
Draw down available credit lines to bolster cash reserves
Preparing for a New Normal
What is your checklist for SaaS companies to follow to survive or even thrive in the current environment? We’d love to see and share your comments.
You can check out last week’s full analyst roundtable here. This video also includes a discussion of how the current crisis might create a “new normal” moving forward.