Investor Deck is a six-article series presented by Sage, offering tips for SaaS startups from Canadian VCs.
For Matt Roberts, the days of encouraging explosive growth have given way to urgent directions to stave off death.
As the co-founder and general partner at CMD Capital bluntly put it: “Cash today is hard to find, and so expensive to get.”
SaaS businesses tend to fare much better in down markets, said Roberts, thanks in part to the predictability of recurring revenue. But they are now increasingly at risk, as enterprise customers cut costs and streamline existing contracts.
“There’s a lot more churn out there as other businesses are rationalizing their spends.”
Roberts believes startups should respond to this new reality by pivoting to customer retention.
“Part of the problem we see in the market today, which was not the case maybe five years ago, is there’s a lot more churn out there as other businesses are rationalizing their spends,” Roberts said.
When top-line growth becomes more difficult to accomplish, it’s about holding on to customers, Roberts said. Ignoring churn can lead to higher customer acquisition costs later on.
“The most expensive part of the business really is getting the customer,” he said. “After that, you should be focused on making sure you keep them.”
Eric Sleeth, Senior Product Marketing Manager at Sage, agrees that customer and revenue retention is critical for scaling SaaS companies.
“If a business isn’t working to increase usage and find value-add upsell opportunities, every passing day is increasing the likelihood of churn as they will lose stickiness to other solutions and competitors,” he said.
For his part, Roberts advises startups to look closely at their customers. If some are willing to pay more for certain features, SaaS companies should segment their customer base and optimize those features for the willing segment, rather than expand with potentially unprofitable customers.
“If you release a product and 50 percent of your customer base want to use it, but 35 percent derive material gains from it, it’s better just to charge that 35 percent for the value that accrued, and ignore everybody else,” he added.
The key ingredient to deriving that value, Roberts said, is to stop sleeping on customer success.
“Being able to understand your business’ financial position and liquidity is the only way to make smart business decisions and reach your goals for growth.”
Eric Sleeth, Sage
Customer success focuses on minimizing churn, boosting renewals, and maintaining a dependable dashboard for each customer. According to Roberts, the importance of a customer success manager cannot be overstated for a SaaS business dealing with a downturn.
“They’re essentially the frontline of retention for your customer, but they’re also the first people that tell you what customers need from the product that they’re not already getting, or what the product is not doing for them today that they thought it would do,” he said.
Customer success teams should be seen as a key resource for product developers and managers and provide feedback loops from their customer base.
“You don’t want your developer, unsolicited, sitting down on a call with your customer,” Roberts said. “But you do want somebody to distill the learnings from the interactions that they’re having, so it can be prioritized in the development schedule.”
Consistent revenue during a market downturn provides a financial buffer against recession impacts while also fostering customer loyalty, he said, which can lead to positive word of mouth and potential new revenue streams in the future.
According to LinkedIn, revenue operations leaders were the most in-demand positions in the United States in 2023. This isn’t a surprise to Sleeth.
Companies that rely on Sage’s integrated accounting, payroll, and payment systems have increasingly been looking for new ways to understand and optimize their own cash flow.
“We’ve seen major shake ups put the long-term health of a business at risk,” said Sleeth. “Being able to understand your business’ financial position and liquidity is the only way to make smart business decisions and reach your goals for growth.”
Sage’s product development has focused on addressing manual processes that often bog down finance and customer success teams.
Sage Intacct products automate financial processes from subscription billing to multi-entity consolidations, freeing up time for value-added activities through comprehensive financial dashboards and reporting tools.
This enables SaaS companies to make informed decisions around pricing models, upsell opportunities, and driving business growth, in line with Roberts’ advice.
“It’s much harder for companies to navigate shifts in the market if they are always reactive,” said Sleeth. “Simply put: If you can’t measure it, you can’t improve it.”
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