Most of us will be very relieved to see the year 2020 come to a close. It was a year that demanded each of us exercise our patience, collaboration, and communication muscles – almost to the breaking point. If I had to describe 2020 in a single word, it would be “uncertainty.” It was the kind of uncertainty that engulfed our professional and personal lives. Things we took for granted, such as children going back to school in the fall or being able to get your teeth cleaned or NOT sharing your office with your spouse and kids were no longer the reality. Seemingly overnight, the rules of the game changed. Any assumption about normal operating procedures no longer applies. We kept hearing the term “new normal” at every turn, which seems like an oxymoron because nothing about anything is normal.
From a business perspective, the COVID-19 pandemic has touched every industry and line of business, with the implications continuing to evolve many months into the crisis. Prior to COVID-19, business agility was viewed by many as a response to new competitors in your market, or perhaps an isolated incident, like a severe weather event in a region impacting production capabilities. The past year has redefined what it means to be agile.
SaaS Overcomes Uncertainty with Flexibility
With agility at the forefront, 2020 stands to be a great year for most SaaS companies. Software as a Service is designed to offer customers one of the best tools to battle against uncertainty: flexibility. This includes deploying software from anywhere, scale up or down based on need, and getting almost immediate business value after turning it on or adding new features. This flexibility gives companies an enormous edge as they seek to rapidly meet new customer demands, adjust employee work patterns, create analytics that drive business insight, and rapidly evolve B2B relationships.
The pandemic brought to light the critical importance of diversification. Booming industries suddenly disappeared, certain products were no longer in demand, and no geographical location was “safe.” SaaS companies with software dedicated to niche solutions for industries like travel and hospitality saw their business dry-up.
But, as with any crisis, there is always opportunity. Teleconferencing companies faced a level of demand that had never been seen before and retail brand’s e-commerce solutions skyrocketed to keep pace with the housebound hordes of online shoppers. Exercise equipment manufacturers couldn’t keep up with the demand for their products. Consumer demand changed in an instant.
To take advantage of the opportunity created by crisis, the SaaS players with innovative leadership, a stable revenue base, industry and product diversification, as well as the technical foundation to scale, were best able to weather the storm and reap the benefits of newly created spaces in which to expand. However, many less experienced companies also learned the difficult lessons associated with rapidly scaling their solutions in a secure and easily adaptable way to support the drastic increase in demand. Failure to do so created brand risk to those SaaS companies that couldn’t quickly create a secure cloud environment and protect against “bad actors.”
Just as consumers are closely inspecting their finances and deciding whether they truly need five different subscription streaming services, CFOs and CEOs have spreadsheets open and are analyzing their software spend. Vendors with low adoption, little perceived value, or poor customer experience are on the chopping block. The same commercial flexibility that makes SaaS so appealing in 2020 also makes it an investment that’s easier to walk away from – and customers are voting with their wallets.
This is where the last “S” in SaaS becomes critical. The service aspect is the most significant component of software as a service. It’s what can take a line item on the balance sheet and turn it into a true competitive differentiator and create that “stickiness” all vendors dream of. Being responsive to customer demands and quickly introducing new functionality to meet evolving needs can set apart a SaaS company. Additionally, many software companies “leaned in” and offered some of their software services for free in response to the crisis. This solved real problems for customers, created brand goodwill, and gave prospective users an incentive to try out new capabilities and solutions, which ultimately should benefit SaaS revenues.
The year to come will continue to be a significant test for SaaS companies, many of which grew up after the 2008 financial crisis, so they had not previously needed to consider concepts like customer concessions, slowing demand, and a workforce managing through crisis. This was and continues to be the first true storm they will have to weather. The decisions they make now may define them for years to come.
For those SaaS companies that were agile, put their customers in the center of their decision making, and took care of their workforce, the annuity revenue stream created in 2020 likely leaves them well-positioned for growth in 2021… even with the uncertainty of working virtually in our fanciest pajamas.