This article was originally published on Arianna Huffington’s ThriveGlobal Blog in the business section. Click here to view the original article.
Even though the SaaS business model truly has benefits when it comes to overhead and distribution, we have to realize that we are not immune to the Covid19 pandemic, both literally and economically.
Many businesses will likely be wiped out after this crisis is all said and done, and there are many who have already closed their doors permanently or are very close to doing so.
It may seem easy to feel discouraged, and to develop an end of the world mentality, but this will only hurt your chances of maintaining your business through this unprecedented time. A grim outlook is not what we need right now, but what we do need, is a survival plan.
Specifically, a SaaS survival plan that lays out key factors to adjust your business strategy, and come out on the other end.
This article will go over the 3 key components that you should consider during this economic down-turn, and will serve as a starting point on your survival strategy.
Let’s get into it…
1.Assess who is at risk of not paying within your existing subscribers.
This is crucial. Considering that there is an economic downturn that may likely get worse, you need to start taking stock of problematic customers within your subscriber base.
In order to implement this strategy efficiently, start by asking yourself, ‘’Who within the next 3-6 months is at risk of not paying?’’. Do you have yearly subscriptions that have indicated that they may not follow through on the next yearly payment?
Obviously in this case, analytics and customer feedback are important because they will indicate what your subscriber is thinking, and how they are interacting with your software.
Did they start using your software less? Did they stop using it all together? Are they making complaints? Are they late on their payments? If so, these could be signs of potential churn ahead.
So how do we mitigate these potential problems?
Here are some things to consider:
- When acquiring new customers, emphasize on selling a yearly discounted payment to avoid monthly churn.
- Make sure you have a collections team, and that they have multiple strategies to collect payments (Sending polite reminders, contacting credit card companies, hiring a collection agency, only taking credit card payments, phone calls etc…)
- Address any customer who seems at risk of cancelling, and offer a smaller payment plan or an option to downgrade.
- Remind your customers of an up and coming payment, to remind them and avoid a disgruntled experience.
- In the US, you can use the ACH system in order to receive payments faster, especially if they are smaller amounts; other countries may have an equivalent option.
2.Manage expenses, your potential losses, and act accordingly.
A second component that is crucial to consider are your expenses and potential losses.
If you aren’t a start-up, but rather a SMB, you may have a work space that you pay rent for. This an important cost that you need to address ahead of time with your landlord.
If you foresee that you will not be able to make your monthly rent payment, you need to start negotiating a rent reduction, or some other form of payment plan that would be better suited for your situation, and for you to stay as a tenant.
Don’t be afraid to do this, because not only do you need to protect your business, but they want to keep you as a customer as well.
This same principle also applies to any services you use.
You have your CRM, project planning and analytics softwares, and they are crucial to your business success. However, you may need to again negotiate a deal that will ensure that your money is in check and that you stay as a customer.
Try to negotiate a plan where you pay after every 30, 60 or 90 days after a bill has been given. The FreshBooks article entitled: What You Need to Know About Net Terms, explains this with the terms net-30, net-60 or net-90 payments.
The whole purpose of taking these actions is to ensure that you have breathing room when it comes to your cash reserves. Having a reserve will be a crucial differentiator between businesses who can expand during an economic contraction, or go bankrupt because of a lack of planning.
3.Develop a worst case scenario plan
I know what you’re probably thinking, this should be filed in the ‘’DUH’’ category, but how many businesses do you think actually make a concrete plan?
Considering that many businesses, especially B2C retail, are struggling, i’m going to take a guess that they did not save enough cash in anticipation of a pandemic or some other crisis.
Many business owners likely have good intentions, such as building a profitable business, helping their customers with good products and services, creating jobs etc… But unfortunately, adversity doesn’t discriminate based on how good a person is.
There also needs to be another distinction made as I explain this: You need a contingency plan, not just a plan.
According to the Webster dictionary, ‘’A contingency plan is a plan devised for an outcome other than in the usual (expected) plan.’’ If we dive deeper into this idea and observe how governments use contingency plans, they may prepare for a worst case scenario that though unlikely, could have a catastrophic effect (Storms, civil unrest, pandemics and wars).
This pandemic is a perfect example of this. Scientists, researchers and epidemiologists knew about the possibility of a widespread pandemic in a similar vein of the 1918 Spanish Flu pandemic for years.
And in reality some were sounding the alarm, like CIDRAP epidemiologist Michael Osterholm (he has a great youtube podcast called The Osterholm update, which you should definitely watch for reliable information), but again, considering that the risks seemed low, law makers and governments didn’t heed the warning seriously enough.
And then what happened? I think you know the rest of the story… so far.
Shortages of personal protective equipment, shortages of other medical equipment, a lack of preparing for an economic downturn, and initially poor public education on the virus, and viral outbreaks..
So with the ranting aside, how can you adapt this concept to your SaaS business?
1.Make a list of worst case scenarios.
Examples of scenarios could include:
- You and your team members contracting the virus.
- A massive increase in churn rate.
- Losing profitability/Going in the red.
- Government regulations that could derail your current business model.
- Customers delaying payments or not paying at all.
- Vendors going under, or potential disputes that may arise over business activities.
- Loss of interest in your product during a public health, and economic crisis.
- A stock market crash (the US 1929 crash could be used as a model).
- Destruction, or damaging of your company’s physical, digital and intellectual property.
2.Make a detailed plan for each potential risk.
Go into detail about what can happen, and what actions you and your team will do to mitigate the situation. Make the plans detailed, but as simple to follow and understand as possible.
3.Have open communication with your team, and make sure that they know about your plans and are updated accordingly.
Open communication means, being transparent enough to facilitate the mitigation of risk for the health of your team, and the sustainability of your business.
So as I mentioned at the beginning of this article, we are not immune to the Covid19 pandemic, both literally and economically. We have to be prepared, and prepare our SaaS company for the worst, and hope for the best.
- Assess who is at risk of not paying within your existing subscribers.
- Manage expenses, your potential losses, and act accordingly.
- Develop a worst case scenario plan, otherwise known as a Contingency plan.
We will get through this, and in the developed world, much of our survival will come down to preparing, creating and implementing a strategy ahead of time to ensure the highest chance of surviving, and eventually thriving.
It’s going to be ok! Stay safe out there.