The year 2020 has impacted businesses of all kinds in extraordinary ways, leading some to stunning windfall profits and others to utter ruin. This is especially true in the case of software-as-a-service (SaaS) companies. For instance, Covid-19 restrictions have kept workers and shoppers largely at home, which greatly benefits companies that provide software for teleconferencing, online commerce, and home delivery tracking. On the other hand, the pandemic has severely hurt SaaS companies that provide products related to point-of-sale transactions, restaurant management, and travel accommodations.
With continued uncertainty regarding pandemic restrictions, the political climate, and the financial future, the year 2021 seems poised to present challenges just as severe and unpredictable as those we have faced this year. If your SaaS business is to survive and thrive, you will need to be more conscientious than ever in your plans for the coming year. Here are four important concepts to consider as you prepare.
1. Ensure Hosting Capability and Reliability
In times of turbulence, the demand for your services can accelerate dramatically in a very short period. Unexpected developments can bring amazing opportunities if you are prepared to escalate.
Whether you provide your own hosting equipment or use a third-party hosting service, you need to be prepared to scale up very quickly. It is wise to keep your server capacity at a level that can handle at least double the average load and to have a plan to increase it further on very short notice (no more than two or three days). Plan for the necessary funds, equipment, service agreements, and trained personnel. Above all, make sure you are keeping on-site and off-site backups at least daily!
If you have a service-level agreement (SLA) with your customers, such as a 99% uptime guarantee, you need to make sure you have the hardware capacity and competent IT personnel available to meet that agreement when your business increases. Many businesses have sabotaged themselves by taking on numerous new customers, then trying to update their hardware capacity as an afterthought.
Security is also of great concern. The larger your business grows, the more attractive it becomes to hackers, spies, and ransomware thugs. You need to have an active security monitoring system and knowledgeable security staff. Make sure you are storing only the minimum required amount of personally-identifiable customer information, that all such information is encrypted, and that all systems are frequently checked for data leaks and vulnerabilities. You can outsource some of this work to a reputable firm, but do not neglect it. The financial and legal consequences of a serious data breach can completely devastate your business.
2. Be Open-Minded & Adaptable
If outside circumstances cause a sudden drop in your business, you have two choices: either scale back and keep doing what you are doing or embrace the change and scale up.
Consider the case of Zoom, the company that became an overnight success in the wake of the pandemic. This nine-year-old B2B company was an also-ran in video conferencing until it recognized the opportunity to transform itself into a B2C social media platform. When lockdowns began, companies found themselves in need of a better way to communicate with remote workers, and stuck-at-home individuals wanted a better way to stay in touch with their families and friends. Leveraging its ability to connect larger groups of people than its rivals, Zoom took a chance and re-introduced itself with an updated user interface and a tiered pricing plan that included a free version able to host up to 100 participants simultaneously. That bold move paid off handsomely and continues to do so.
Stay in touch with what is happening in the world around you. Get together frequently with trusted colleagues to brainstorm ways of adapting to change. Be willing and ready to take calculated risks. When you are prepared, you will be able to recognize the opportunities that others miss.
3. Practice Financial Prudence
When business revenue increases, company leaders get excited. SaaS and tech companies are particularly vulnerable to overspending as they compare themselves to large Silicon Valley businesses that provide extravagant employee perks. It can be tempting to expand office space and provide amenities such as catered meals, gym memberships, ping pong tables, and company cars. While there is nothing wrong with any of these things, it is important to remember that fixed costs burn cash. Do not upgrade your company lifestyle faster than you increase revenue. Unless there is an urgent need, most of these purchases can and should be made gradually and incrementally.
Always keep a pulse on your cash flow. Having proper forward-looking financial tools in place, such as a 5-year forecast, will allow company decision-makers to properly evaluate the results and impacts of purchases. Enjoying less financial pressure doesn’t mean it’s time to get lackadaisical about spending. This is especially true if you have recently made a major acquisition or plan to seek funding.
As StorageMart President Cris Burnam stated, “If you can’t immediately answer why your expansion plan makes sense for your particular product or service or, more importantly, how it will benefit customers, you likely don’t possess a clear sense of purpose.” (https://www.entrepreneur.com/article/270939)
4. Focus on Customer Service
When times get rough, customers become more choosy about their purchases. They not only become more price-conscious, but also more desirous of security and support. Too many companies fail to recognize the need for better customer service at such times. Some will even make the deadly mistake of cutting back or outsourcing their support staff. If you want to increase your business in a time like this, you need to ensure a great experience for your customers. Happy customers attract more happy customers. Happy customers also tend to be willing to pay more and stay longer than unhappy ones.
One of the best ways to keep customers happy is to listen to them. Actively solicit their feedback on your products, and make use of their best ideas. By this, I don’t mean that you should add every feature they suggest — that only leads to bloatware that makes your customers less happy. Rather, you should consider ideas that make the products easier to understand and less complicated to use. This not only improves your products, but it also reduces the number of support calls. Be sure to thank your customers for their input and recognize their contribution to your products.
It’s also important to note that happy customer service people make happy customers. Be sure your employees have the resources, the training, and the support they need to do a good job. Don’t overburden them with unreasonable time limits, call quotas or upsell requirements. Make sure they feel appreciated and respected for their successes.
5. Outpace Your Competition
Business blogger David Skok said, “Why is it so important to be that aggressive at this time? Basically, you need to grab as much market share as you possibly can before a competitor enters your space. There’s a clear tipping point when you’re suddenly recognized as the market leader. At that point, you can shut out your competition. In every tech market, the market leader enjoys an unfair advantage. The press, analysts, and blogosphere pay far more attention to the market leader, and the early and late majority customers prefer to buy from the market leader. It becomes a powerful, self-reinforcing phenomenon, and the faster you can get there, the better” (https://www.forentrepreneurs.com/saas-economics-2/).
To expand your business with the necessary speed, it is essential to have sufficient financial resources available. Having a great relationship with your bank is very important. Many small businesses learned this the hard way when the 2020 Paycheck Protection Program (PPP) loan program was initiated. Those who had developed positive ties with their banking institutions found it much easier to get quick approval for the loans than others.
One way to build cash is to accelerate payments from your customers. For example, you could incentivize them to pay annually rather than monthly for SaaS services. You could also upsell high-ticket product add-ons such as plugins or maintenance plans.
While it is important to thoroughly analyze opportunities before jumping into them, it’s equally important to do the analysis quickly and efficiently before the window of opportunity closes. Develop and continually refine a procedure for this purpose.
Like 2020, the year 2021 promises to be filled with surprises and uncertainty. If you are prepared financially, operationally, and organizationally, your business can not only weather the storm but come out better and more profitable than ever. A good financial consultant or outsourcing partner can be a huge help. Visit PreferredCFO.com today to learn more about expert services.
About the Author
Jerry Vance is the founder and managing partner of Preferred CFO. With over 16 years of experience providing CFO consulting services to over 300 organizations, and 30 years in the financial industry, Jerry is one of the most experienced outsourced CFOs in the United States.
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