Surviving COVID-19 as an Enterprise SaaS Startup
By: Nicky Kamra
Tags: Covid 19, Venture Capital, SaaS, Startup, Entrepreneurship

Adjusting Your Strategy for COVID-19 and Beyond

Cash Comes First:

I won’t dwell on this as most founders by now have already adjusted financial plans, but it’s worth reiterating that nothing you do below matters if you run out of cash.

At Streamlined, we’re advising our companies to have at least 12+ months gross runway (ie: your cash burn if you had $0 new revenue). If you need help getting there, Pear VC put out a helpful Founders Survival Guide a few weeks ago.

As you adjust financial plans, keep a closer eye than usual on leading metrics for bookings and cash collections, most notably length of sales cycle and sales efficiency. Since revenue is always a lagging indicator, these should be a closer indicator of what growth to be expecting down the line.

Make Your Value Proposition a “Need To Have”:

The primary lens we’ve been evaluating all companies through since COVID-19 has been: are you a nice to have or need to have?

During recessions, companies are likely to put the breaks on new, heavy capital expenditure projects like new “rip and replace” infrastructure or anything with high implementation costs. Software for functional areas tied to growth and revenue like marketing, sales, and HR will be first to go. Ultimately, unless your tools are mission critical and have high usage, they are likely at risk.

So what is “need to have” in a recession?

Existing infrastructure is generally pretty safe, as well as tools that have built stickiness through a large repository of historical company data.

is generally pretty safe, as well as tools that have built stickiness through a large repository of historical company data. Cost cutting becomes top of mind, so tools that promise automation and operational efficiency can be quite resilient even when budgets are tight.

can be quite resilient even when budgets are tight. Digital transformation, an area that has seen incredible growth over the past couple of years, has taken on even more importance with COVID-19 as our entire work and lives have moved online. A digital strategy has now become unequivocally necessary for every business.

As you continue to sell through COVID-19, think about how you can double down on the aspects of your software that makes it need to have. Maybe you enable a trend that has seen tailwinds from the crisis, like e-commerce or remote work, or are simply a cheaper alternative to your competitors. Creating a narrative of how companies need to have you is imperative to continuing to grow your customer base throughout this recession.

Shift Your Target Market:

Changes in spending from 2019 for the week ending April 1, https://www.nytimes.com/interactive/2020/04/11/business/economy/coronavirus-us-economy-spending.html

The COVID-19 crisis is different from previous recessions in that it has both rapidly decimated certain sectors while simultaneously accelerating others. While this might be tough if you are a fully vertical software provider for the travel or restaurant industry, consider some of the following ways you can shift more of your resources toward the pieces of the economy that are seeing tailwinds:

Sector Focus: In our portfolio, we’ve seen COVID-19 drive acceleration in healthcare, digital content, e-commerce, gaming, CPG, grocery, on-demand delivery and education technology. Are there ways to pivot your messaging, features and sales processes towards these verticals? In downturns, selling to the government can also become a good option, as budget fluctuations are much lower than in the private sector.

In our portfolio, we’ve seen COVID-19 drive acceleration in healthcare, digital content, e-commerce, gaming, CPG, grocery, on-demand delivery and education technology. Are there ways to pivot your messaging, features and sales processes towards these verticals? In downturns, selling to the government can also become a good option, as budget fluctuations are much lower than in the private sector. Customer Resilience: Within any sector, you should also consider how well capitalized and stable your target customers are and spend more time with those, as they are more likely to have budget for your tools and are less likely to go out of business and churn. If you’ve been focused mostly on startups or SMBs, some of the least well capitalized market segments, can you shift upmarket at all?

Within any sector, you should also consider how well capitalized and stable your target customers are and spend more time with those, as they are more likely to have budget for your tools and are less likely to go out of business and churn. If you’ve been focused mostly on startups or SMBs, some of the least well capitalized market segments, can you shift upmarket at all? Target Buyer: Finally, you should also consider whether specific decision makers have more or less influence given budget cuts, and potentially adjust your sales motion and focus accordingly. For example, if you are building a new tool for sales reps, getting buy in from healthcare reps within a target customer will probably give you more leverage than reps selling into hospitality.

Explore Business Model Alternatives:

There are potentially some business models changes that might make your SaaS company more resilient right now:

Bottoms Up: Allowing customers to purchase your software directly online from their laptops at home without meeting or talking to a salesperson has its obvious advantages during COVID. Additionally, bottoms up businesses often have greater sales efficiency and higher margins than traditional top down motions. Because they are adopted by individuals, bottoms up tools that have strong individual advocates, especially when there are advocates across different teams, are harder to get rid of when slashing budgets. If you are interested in exploring more of a self-service model, I’ve written more about it here.

Allowing customers to purchase your software directly online from their laptops at home without meeting or talking to a salesperson has its obvious advantages during COVID. Additionally, bottoms up businesses often have greater sales efficiency and higher margins than traditional top down motions. Because they are adopted by individuals, bottoms up tools that have strong individual advocates, especially when there are advocates across different teams, are harder to get rid of when slashing budgets. If you are interested in exploring more of a self-service model, I’ve written more about it here. Free(mium): I’ve had a few founders ask me what they think about offering their product for free or raising the threshold on their freemium offering. Zoom has led the charge here, scaling from 10M to 200M DAUs QoQ and in turn, becoming a household name. While most of this is free usage today, they are cementing themselves as the market leader in a future much more dependent on working from home. On the one hand, you can’t keep a user you never had, and being free dramatically reduces the friction to trying your product. On the other, it still costs you money to offer your product for free, and reducing your runway during the current fundraising environment poses risk. Being free still isn’t enough to keep people using a product they don’t like, so it’s important to have a lot of confidence in your user experience and stickiness before opening the floodgates.

Ultimately, if people (even developers!) don’t need or like your product, how much they pay or how easy it is to purchase it won’t keep your company in business. But for some products, these options might be new growth avenues worth exploring.

Get Creative With New Channels:

I mentioned earlier that the move from in-person to remote work means many sales reps have lost the way they normally closed new business. As you start to double down on your only remaining option — digital channels — here are just a few helpful resources to cut through the noise and keep your CACs under control:

We’ve seen lots of our founders getting creative with new ways of engaging customers in a virtual world — if you have other ideas and resources would love to hear what’s been working for you.