Operator Insights: Dealing with Declining Tech Markets - How To Avoid a ‘SaaSacre’ While Helping Your Customers Optimize Costs and Processes

We are lucky to meet and chat with accomplished individuals who have been there, done that, and lived to tell the tale. In this series we bring you the direct voices of operators in the trenches, allowing you to gain insights straight from the source. Whether you are looking for a boost to your Sales & Marketing, Finance, Operations & People, or a combination of all three, then read on and remember to subscribe to our newsletter so that you don’t miss out on future nuggets of wisdom!

Let’s dive in…

Say hello to Thomas Kim.

Thomas is the CEO at Zone & Co — a company dedicated to liberating finance teams from clunky technology and manual processes through their cloud-native range of ‘Zone Apps’ designed to simplify financial and HR workflows for users of the Oracle NetSuite platform. With a mission to simplify operations, Zone & Co currently serves over 4,000 customers worldwide helping them work smarter and maximize platform value.

We sat down with Thomas to learn more about the drivers behind the phenomenal growth of software-as-a-service (SaaS), potential threats stemming from the slowdown in the tech world, and strategies to help ensure future success so you and your customers don’t become victims of the 2022 ‘SaaSacre’.

Since the late 1990s SaaS has experienced year-on-year growth driven by factors such as customers wanting (and needing) their businesses to scale rapidly, expand globally, meet increasing regulatory and compliance demands, diversify, and manage growing workforces, sales and the associated volumes of admin that accompanies any growth. This surge in demand, combined with increased funding for SaaS startups and advancements in technology such as the modernization of cloud infrastructure services, ‘Big Data’, and data warehousing — led to a proliferation of SaaS companies and soaring valuations. However, the landscape shifted dramatically with the SaaSacre of 2022 as public SaaS companies experienced a 50% decline, valuations plummeted, funding slowed, and spending came to a halt.

Summary

• While demand for SaaS remains high, being agile and able to adapt to your customer needs is essential.
• Many companies have been left with ‘SaaS Sprawl’ — in essence, an investment in too many disparate applications that result in bad data, a waste of money, and in the end poor decision-making. These companies will inevitably need to consolidate their apps, particularly if they are experiencing increasing financial pressure.
• Market consolidation will favor the most valuable, and effective SaaS companies that will continue to flourish.
• Be vigilant about controlling costs at every stage of your business — and be sure that your SaaS is truly a cost-saving solution for your customers.
• All companies should review their goals and strategies and ensure appropriate KPIs align with these.
• Now is the time to focus on sustainable growth. Achieving high levels of customer retention will be key for SaaS companies and their customers’ businesses.

Partech asks and Thomas answers:

With the noticeable slowdown in the tech world, how have the companies you're working with adjusted their growth plans?

Companies are reinforcing business models, adding durability to strategies, and developing a portfolio of revenue streams.

• Many of our customers are exploring new ways to increase revenue and cash flow by expanding into new markets, offering additional products or services, and targeting different customer segments. This often necessitates the need to adjust or explore new contract types/billing models. This shift prompts the need to deeply analyze the company’s current quote-to-cash process, as successful execution can be overly complex or nearly impossible without access to the right tools.

In addition, there is the need to balance emphasis on efficiency, optimization, and cost control — doing more with less — that drives smart profitability.

• Like many of our customers, we at Zone are also hyper-focused on controlling costs, and in particular, CAC (customer acquisition costs). Reducing CAC is crucial for maintaining profitability while growing ARR. We, and our customers, are consistently looking for ways to reduce unnecessary expenses, streamline operations, and optimize current processes.

KPIs — they're like the heartbeat of strategy. How have they changed for you and across your portfolio? Are any shiny new ones in the spotlight?

Within business cycles of change and transformation, it's about the ability to credibly answer the question: “How do you know XYZ?”. When used correctly, KPIs are the data-driven instrumentation or evidence behind answering this question.

For us, it's about connecting our vision to our multi-year goals and strategies, plus aligning KPIs to questions we need to be answered over time, to support whether or not we are moving towards achieving our goals relative to the strategies we have set in motion. In this way, we use KPIs to inform and fail fast if necessary so that we might pivot in good time to correct our course to achieve our goals.

Concerning the comments made above, there is a strong shift in the market, particularly in the SaaS industry towards profitability. One to two years ago, it was all about top-line ARR, and companies almost couldn’t scale fast enough i.e. it was a ‘growth at all costs’ mentality. Today’s KPIs are all about profit and expense management — squeezing value from fewer resources while still maximizing ARR.

What key actions have you seen put in place to counteract this slowdown?

Hmmm…to be honest, there is one key action you should consider taking — Cash Flow Management.

This is the number one action we have observed being taken in the marketplace. It is essential to manage cash flow effectively to ensure that the company can continue operating — especially when pursuing rapid ARR growth. However, profitability may not always translate into strong cash flow, which can be a challenge.

What’s the approach to sustainable growth now?

We see that sustainable growth can be achieved through directly correlating durable business models with outsized customer impact.
During a slowdown, acquiring new customers can be expensive and challenging. Therefore, prioritizing customer satisfaction to build long-lasting relationships that contribute to sustained growth is key. Customer-centric companies are also more adaptable to market conditions – by staying closely connected to customers companies can identify shifts in demand and emerging opportunities.

Main takeaway

The SaaS market will continue to thrive, especially for those SaaS companies that are truly customer-centric and have effective cash flow management. Even during a slowdown in the tech world, SaaS solutions will remain in demand as they enable cost and process optimization, something every company strives for and will need to weather any challenging times.

A bit about Partech

Over 40 years, Partech has built a team of independent thinkers to drive forward the technology landscape. Today, the firm looks as unique as its approach, with a range of funds and a portfolio of 220 diverse businesses across sectors in 40 countries across four continents. The Partech team looks to challenge founders, working with them side-by-side to drive digital transformation forward.