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Recessions are Great for SaaS Solutions

By February 1, 2012Article

Can your business grow in a down economy? Any business that helps customers do more with less should do very well – something to which the booming SaaS / on-demand software market can attest. But, unless you are in a hot growth market, the same-old, same-old will not produce results. But if you are in a hot-growth market like enterprise SaaS or on-demand solutions, doing the right things during a down market will act like a competitive force multiplier.
Here’s my take on what executives should focus on.
1. Chop and invest to focus your business
This includes both pruning non-core aspects of your business as well as redoubling efforts to gain new customers in your core markets. These really go hand-in-hand. You want to broaden your business to lessen the shock from any single adverse event (e.g., loss of a major customer) but, at the same time, you want to build the strongest and most defensible core business possible. Everything else on this list is really a sub-set of focus your business.
One of the hardest things for a business to do – especially in tough economic times – is to lop off revenue-producing parts of the business. Moreover, valuations are down, so selling may not appear that attractive. However, executives and their Boards need to take a holistic view of company assets and capabilities with a view to the long term. The economy will eventually recover; and when it does, you want to be in the strongest possible position. To do this, you have little choice but to invest today. And if capital markets aren’t throwing money at you, you are going to be forced to make some tough choices in order to finance your investment for the future.
Savvy leaders understand that a bird in hand is not always better than two in the bush. If you are able to make strategic investments when your competitors cannot, there is wisdom in robbing non-strategic Peter to pay highly-strategic Paul. The trick is not simply to chop. Success comes from cutting the right parts and using the newly freed-up resources to invest strategically for long-term growth and market position in ways that strengthen the company in the long term.
2. Amateurs worry about tactics; professionals worry about logistics
Focus on execution. You get paid for creating value around the products and services you deliver. Do this really, really well. If customers value something, go the extra mile to deliver the value without nickel-and-diming them. If customers don’t value something (but you think they should), stop doing it because you are not creating long-term value. If you are not sure, find out.
Having the right big-picture strategy is the table stakes for success. In order to win, you also have to do the little stuff really well. Strategy and tactics, however, need to be tightly aligned so that every “little thing” a company does ties back to the organization’s overall approach to winning. This means using the right metrics and focusing on what matters.
The fact is, the business model for on-demand software applications is quite different from that for traditional software applications, so the logistics is quite different as well. If you can’t deliver a reliable experience, features and programs and everything else won’t matter much.
3. Keep a tight grip on the purse-strings
Managing your finances is critical. Well, duh. Credit should be a tool, not a crutch, and easy credit is the handmaiden of a lot of sloppy business practices. When credit is tight, cash is king. If you work hard to earn a dollar, make sure you collect it. For every business that figures out how to manage its finances to survive tough times, there are several that won’t.
This can be a major opportunity because, for every asset sold at fire sale prices, there is a buyer getting a great deal. Poorly managed finances can also make key talent available. If you can do it responsibly, use such opportunities to recruit your competitor’s best talent. McDonald’s founder Ray Kroc once said, “When your competitor is drowning, stick a fire hose in his mouth.”
Although starting a software company is even less capital intensive than it used to be, becoming successful, building a brand, and growing still is expensive. Sales, marketing, and servers all cost money. So having free cash on hand during a recession is a powerful tool. It gives you freedom to maneuver. Many bargain opportunities appear because the market for buyers is thin. If you are good at holding the purse strings tight during good times, chances are you are better able than most to spot the true bargains and act opportunistically to build your strength and capabilities while others are focused on survival.
4. If you’re not delivering great customer service already, it’s too late to start now
Everyone offering advice for tough times includes “improve customer service” somewhere on their list. It’s good advice; but if the market falls off a cliff, it may be too late, as this is really about loyalty. Use good times to build great customer service so when the bad times come, you have a hard-to-match competitive advantage. It is easy to match price; it is very hard to suddenly improve customer service, and loyalty builds slowly over time.
Real customer loyalty is not the kind of phony loyalty built with most “loyalty” programs. Those are little more than bribes to keep a customer’s attention. As soon as you cut back, they will take it as a sign they should start shopping around. It’s either this, or they get angry. Neither outcome is good for your business, especially if you are in an annuity business like many services or on-demand software.
Working closely with your customers over time, however, can build a deep bond. These customers aren’t “bought off” by a loyalty program but, rather, actually feel that you are so aligned with their business that they have a stake in your company. Because they feel they have a stake in your company, your continued success is important to them. Taking advantage of them will break the bond of trust. But if your requests or needs are properly positioned and explained, these customers will go more than the extra mile for you. It’s not a one-way street, however. These customers will help you build better products, improve your processes and find new customers. Rome wasn’t built in a day, and neither are great customer relationships.
My list stops here. I have nothing against new technology, investing in training or managing your vendors. But, for the most part, each of these – to the extent it is valuable to a given business – is included in the four points above. For example, if you are focusing on execution, managing your finances, and delivering great customer service, you already have the motivation and insights needed to manage your vendors. Ditto for new technology and training.
In every recession, there are some companies that thrive – growing in both market share and absolute terms. If you want to be one of these real winners, you need to go in strong and be able to seize the unique opportunities that tough times bring. If you find yourself in an earthquake – or a recession – there definitely are some things you can do to improve your chances of survival. However, the most important preparations need to be in place long before the earth starts shaking.
Bruce La Fetra develops strategic marketing plans for software, technology and services clients. After more than 20 years as a consultant and practitioner, he launched La Fetra Consulting to elevate marketing into a strategic role by encouraging a service-oriented approach and building stronger ties between companies, customers and partners. He previously served as Business Strategist with Rubicon Consulting, Director of Industry Marketing for Docent (now SumTotal) and Director of Strategic Marketing & Business Development for Internet Commerce at First Data. Contact him at

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