A 2020 survey of SaaS company leaders reveals what impact the pandemic had on SaaS companies and how they have adapted to it. One of its main findings is that SaaS still offers good growth potential and that selling products for enterprise is a recession-proof strategy.
Recession-Proof Software Sales
Despite many major economies being plunged into recession as a result of the coronavirus pandemic, enterprise SaaS is still buoyant. Since a low in mid-March 2020, SaaS index figures have grown – to a level higher than before the pandemic hit. And at a rate far greater than NASDAQ or the S&P 500.
In the main, the businesses that have gone public in 2020 are growing rapidly and efficiently and B2B markets are better understood these days. There has been clearer definition of unit economics (lifetime value divided by customer acquisition costs) as well as the time it takes to achieve break-even points. This together has all brought growth to the market.
The pandemic caused office-based employees to relocate en masse to their homes, and digital transformation programmes were suddenly accelerated. Access to technology for this outspread workforce, along with a massive surge in ecommerce gave added drive to this market exuberance.
SaaS IPO figures show that customer acquisition payback period reduced from 30 months in 2018, to just 18.5 months in 2020. And growth increased from 39% to 51%, with corresponding increases in gross margin and ‘net dollar retention’.
The Impact of COVID-19
SaaS company leaders expressed that their businesses had not been as impacted by the pandemic as many might have feared. Of the respondents, 21% said that it had seen no impact or indeed a positive impact. And more than half (52%) saw a small negative impact of 24% or less against their original budget.
To achieve this, companies have employed a number of defensive tactics, including cutting spending, relaxing payment terms or renegotiating supplier contracts. They also went on the offensive too, by adapting marketing strategies and product roadmaps towards targeting new uses cases and by adopting greater flexibility with customer contract terms.
While growth decelerated across the board, the median business noted year on year growth of 42.5% as at June this year.
The report concludes that it’s time for companies to work at increasing their go to market investment. While they may be acquiring and retaining customers efficiently, additional acquisition investment is required to ensure that they reach more of the customers that are ready for digital transformation. This, Openview claims, is not least because, “Once customers reach their ‘aha’ moment with software, products become mission critical and it’s nearly impossible to go back to the old way of doing things”, making retention easy to attain.
The 2019 version of this study noted that software companies employing a product-led growth strategy were growing more quickly than others. This year’s survey claims that product-led growth can be a real differentiator.
Rather than using expensive sales and marketing campaigns, a product-led growth strategy employs methods that reduce costs. The approach typically rests on adoption by users from the ‘bottom up’ and is driven by users having an excellent experience of the product. Once they use it, they like it and want to continue to use it. By offering a free or low-cost solution that meets a definite need, or lessens a pain point, SaaS companies that employ product-led growth models generate loyal customers. It’s a user-centric approach where the offering is given as a free trial, or on a freemium charging basis – certainly without any commitment. This hooks users with a great product that solves their pain points and the product becomes one that don’t want to live without. This can lead to growth through recommendation. The product itself is the driver of new customer acquisition.
Leveraging product-led growth tactics relies on four steps:
- Beginning with the needs and pain points of the user. When these are solved, users are keen to share this with others – who then want the same solutions.
- Reduce barriers to entry. Make it easy to sign up, at no initial cost, with free trials, freemium products – to reduce the friction of signing up.
- Deliver great value before you seek payment. Users come in at a basic level and become devoted over time to your software. They may go on to increase how much they use it, requiring an upgrade or a subscription to a higher pricing tier.
- Put customer success before sales. Self-service and inbound sales can be achieved using this approach – without the need for a sales force or significant outbound selling tactics.
The report concluded that digital transformation is accelerating and, since it boosts SaaS sales, software companies should get on board before they end up losing out. With low mortgage rates, cheap finance and a seemingly abundant supply of venture capital for the SaaS market, now is the best time for founders to invest in their businesses, especially by concentrating on financing product-led growth strategies. Those that forge ahead will reap the benefits.
NoBlue has experience of helping SaaS companies. NetSuite brings increased visibility and efficiency and can scale with you as you grow, taking companies from start-up through to IPO. If you would like us to give you a hand with a free business consultation or a quote tailored to your company, book an appointment now or contact us. You will be in the company of SaaS businesses like DocuSign, duolingo, and Zendesk – all of which use NetSuite to power their companies.