No doubt times are tough for all software firms but if you are a Software as a Service firm here are some simple ideas that might help you weather this economic downturn:
1. Customers Always Come First.
Now would be a great time to reach out to your customers and assure them that your firm is prepared for the downturn and you are taking steps to ‘batten down the hatches’ for the long term if necessary. While you are reassuring them, it would also be smart to be proactive about renewing any large upcoming contracts or extending contracts that might be less than 18 months from expiring. Providing some customer incentives for a longer term commitment should give your firm more predictability in its cash flows and for smaller firms, and runway.
2. Keep Key Employees Close.
These types of economic roller coasters can really upset your employees. Everyone is looking at the stock market, industry layoffs and sales pipelines getting smaller, it really can be concerning for them.
The last thing you need at this point is to have key employees abandon ship or become disengaged. Over communicating with employees is crucial, especially if you have to do layoffs. If you can afford it, for some key employees you should consider putting them on an employment contract with some creative cash or non-cash incentives. This can lessen their concerns around job security and give you more piece of mind when planning for your company’s future.
3. Everyone Sells.
If your firm really has a sales-oriented culture, then keep up the good work! But if you are not sure that everyone understands that sales is job #1, then you need to make that clear. This is especially important for employees who touch your customers every day. In this type of economy, it is more likely you will get your next deals from your existing customers than from the companies that you have no relationship with.
Encourage and develop incentives for your professional services and account management teams to keep their ears and eyes open for incremental sales that your company might be able to make over the next couple of quarters. Whether it is adding new users, incremental services projects, training, possible up-sell opportunities or even locking in renewals, every little bit helps.
4. Your Investors Are Nervous.
Whether you are a publicly traded firm or a venture-backed start up, investors today are really freaked out. They may not tell you that, but they are. So just like your employees and customers, now is the time to talk with your investors and shareholders.
Clearly the rules of the road for publicly traded firms is different than if you are private company but identifying a few key metrics that your business will be focusing on during the downturn and executing against those metrics is really helpful. Communicating a clear plan, including a comprehensive cost containment strategy is important. But equally important is re-setting your 24 month objectives that acknowledge the current challenges in the overall business environment. For an investor, if your company is a survivor this is great news. Because this means less competition in future for your company and a better shot at nice return for your investors in the future.
5. Tough Love for Your Sales Team.
Now is the time to do a very through pipeline review with not only every sales rep, sales manager and sales executive but also include the entire management team. Having reps that sandbag, forecasts that are optimistic and processes that are not sharp, will kill your company.
Identify all the reps who have been consistently hitting their numbers over the past 4-6 quarters, and make sure you have enough pipeline to keep them engaged, productive and making money. Then take your new reps, those with less than 6 months of tenure and those who have been at the bottom of the quota list and terminate them. Based on how much pipeline you have now, as a result of your pipeline review exercise, apply your keeper reps against these deals, if you need additional capacity, then you should reach into the pool of reps who fall between the two groups. Keeping a bloated salesforce will quickly burn through your precious cash.
6. Understand Your Cash Flow.
You should be doing a detailed cash flow analysis, start with your CMRR (Contracted Monthly Recurring Revenue) and your monthly expenses over the next 12 months. When looking at your CMRR make sure you are taking into account any customer attrition or customer acquisitions. You should omit any one time revenues for now because it is important to understand your worst case scenario. This is part of the reason behind extending and locking in customer contracts.
This process should yield some very interesting results including ideas around cash collections, highlight important client contracts, renegotiating or rationalizing expenses, as well as the need to secure necessary additional funding. This should provide a clear view on what is needed to reach cash flow break even and ultimately profitability.
7. Don’t Turn Off Your Marketing Machine.
This is a common mistake that companies make in a downturn. You should defer all non-essential programs but don’t think because marketing doesn’t generate revenue it is right to turn it off. But doing this blindly can have very dire downstream affects on your future revenue. Things to consider, you will need smart lead generation to feed your sales team, even if it is scaled back. The best lead generation approach is to do what is called ‘lead nurturing’ that takes the leads you generate and continue to work them. This is less expense than generating lots of new raw leads and ultimately will yield better results.
Get creative about how you use new social networking sites to continue to build your brand and make your corporate website work for you. Set up a corporate presence at LinkedIn, Facebook, Twitter and other sites that can build your pipeline but also generate important market advocates, and this can be done for a fraction of the price of doing a big expensive tradeshow.
8. Automate Don’t Offshore.
Rethink your product roadmap to build in more automation into your product or service. Ideas to consider would be to create product wizards, self service installation, just in time delivery of content or help, build up a library of re-usable product templates, and any other way to remove human intervention for your product or service. Your customers will like this and it will definitely improve your margins.
For example if it takes 3 months to set up your product, challenge your team to come up with an approach that can set up the product in 1 month, then 2 weeks, then 2 days and then 2 minutes. The closer you can get to an instantaneous set up of a product, your firm will be in a more competitive position and it can save you a lot more than outsourcing your development team.
9. Think About Free.
Your Customer Acquisition Costs (CAC) in this environment will increase because of the reluctance of buyers to sign up for new products, but if it is free, they might want to try it. There are new SaaS providers who are now using this type of Freemium approach as a way to generate leads, build awareness and to grab marketshare that they will monetize later. Think Google or Yahoo Mail.
Ideas might be to offer a piece of your product portfolio as a loss leader and build in an up-sell component, generate revenues from complementary services, or possibly even sell advertising. Now is a good time to experiment.
10. Make Some New Friends.
If your company is doing fine, then you are probably in a great position to acquire some additional capabilities or market share by purchasing a smaller firm which might not be doing very well. This process will not happen overnight, so now is a good time to begin your market scanning process.
On the other hand if your company is not doing well and you might feel that you may not make it through the current economic storm, then you better start looking for a safe place to land. Again, this process is going to take some time, so you should begin looking at your options. Even if you are not looking for a strategic partner, you might be surprised you might find a partner who wants to invest or even resell your offerings. You can never have enough friends.
Remember that some of the best software companies including Google, were created during downturns, so be a smart SaaS company and stay focused.