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Local investor shares how Houston SaaS companies can stay afloat amid the pandemic

In the golden age of software companies, here's what SaaS entrepreneurs need to focus on to thrive. Getty Images

The COVID pandemic has created a macro environment that is similar to that of the 1918 Spanish Flu and the 2008 downturn and B2B software-as-a-service companies, like Salesforce, found the 2008 downturn an advantageous environment for cheap revenue growth — I've discussed this in a previous column. Now, I'd like to explore how B2B SaaS founders can position their businesses to capture this opportunity and better prepare themselves for the $400 billion of private equity looking for IT investments.

A prolonged recession due to the global response to COVID-19 provides opportunities for smart founders. Talent and partnerships from non-tech industries are likely to be much easier to access in a recessionary environment. Widespread adoption of technology is likely to result in a much more open and fruitful sales environment. And robust exit opportunities mean that this over performance will be rewarded.

So, how should smart founders operate given this opportunity? Here are a few implications that are congruent with our research.

Know your sales performance data

Many companies forsook effective KPI management while growing. Now is the time to home in on metrics so that you can discern the payoff of different tactics. Knowing sales performance metrics will help founders deploy capital wisely. Good quality and frequent data will also help you assess whether this thesis is working out for your firm.

Get whatever funding you can — and fast

In 2008, funding dropped by 20 percent, valuations by 20 to 25 percent and check sizes by 35 percent, and the current environment could be more drastic. This is paradoxical given the incredible opportunity for B2B SaaS right now, but it is in line with the human urge to run from risk. Despite claiming to be risk-seeking and long-term focused, most venture firms will pull back in this environment. Get what you can and be flexible on valuation. A smart founder who sees the opportunity can overcome additional dilution now.

Hire expert sales talent

The urge to cut back on salaries and freeze pay is high right now. Don't make that mistake, especially not in sales. There will be many firms that make this mistake, giving you the opportunity to hire expert sales talent. Pay them at the top of market, give them uncapped commission plans, and capture the growth opportunity.

Create a survival plan and set limits

This growth opportunity might not materialize. Fortunately for most B2B SaaS, there is operational flexibility built into the cost model. You can cut back on aggressive sales growth and pull expenses within your recurring revenue. Once you have a cash floor in mind and a downside plan of what you will do if either 1) you get to your cash floor or 2) the sales metrics are not proving attractive, you are safe to charge ahead. Armed with compelling acquisition data and a stable customer base, it would be easy to find additional capital.

Prepare for inflation in you customer contracts

While most B2B SaaS investors love long term contracts, the unprecedented level of fiscal and monetary support in the wake of a global shutdown will likely lead to above average levels of inflation. Current inflation expectations are muted (measured by the spread on the 10 year TIPS and the 10 year treasury). Inflation may not take off, but it is wise to prepare for it and include annual increases on multiyear contracts or a CPI price adjustment each year.

Be nice

Most companies are beating up on their vendors right now, if for no reason other than this is 'what you do during a downturn.' It is worth exploring what your vendors can do for you, but this should be a partnership driven discussion. Invite your vendor in and explore how to reach a win-win during this time. Communicate often and clearly and try to their point of view. Larger companies have programs in place to help where smaller ones might not have as much flexibility. This downturn will pass, but how you treat people will have consequences.

Build flexibility into your growth plan

This environment is a great opportunity to add flexibility and optionality into your cost profile. Leveraging flexible development resources from a firm like Golden Section Technology can get you expert talent and execution with month-to-month flexibility. This will help you scale down if your survival plan kicks in, but it will also help you ensure the product keeps up with a successful sales push.

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Dougal Cameron is director of Houston-based Golden Section Venture Capital.

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Building Houston

 
 

Here's your one-stop shop for innovation events in Houston for December. Photo via Getty Images

Houstonians have yet another good batch of in-person and online innovation events, and you and your tech network need to know about them.

Here's a roundup of virtual events not to miss this December — like pitch nights, workshops, conventions, and more.

Note: This post might be updated to add more events.


December 1 — 2022-2023 UH Energy Symposium Series

The Division of Energy and Innovation, along with the UH Center for Carbon Management in Energy, are hosting a day-long symposium to discuss pathways and solutions to make Texas carbon neutral by 2050. UH experts and energy industry partners will serve as panelists to discuss the drivers, opportunities, and challenges for change, and more.

The event is on Thursday, December 1, from 9 am to 7 pm, at University of Houston (Houston Room - University of Houston Student Center South). Click here to register.

December 5 — Pumps & Pipes: Ion to Infinity

Highlighting innovations in Web3, Artificial Intelligence, Extended Reality, and Robotics, attendees will hear from visionaries across medicine, energy, and aerospace who are developing and launching technologies in these fields.

The event is on Monday, December 5, from 8 am to 3 pm at The Ion. Click here to register.

December 6 — Softeq Venture Studio Demo Day

The Softeq Venture Studio's 2H 2022 cohort is the largest yet with 22 member companies, which brings the total portfolio to 49 companies. This cohort includes entrepreneurs from several global locations as diverse as the United Kingdom, Iceland, Mexico, and Peru. In this capstone event, founders have three minutes each to present their pitch deck, demo their product, outline their ask, and answer questions.

The event is on Tuesday, December 6, from 8 am to 3 pm at The Ion. Click here to register.

December 7 — Houston Veterans In Residence Showcase

Bunker Labs’ Veterans in Residence Showcase is a nationwide event, celebrating over 500 veteran and military spouse entrepreneurs launching their startups and businesses.

The event is on Wednesday, December 7, from 6 to 8 pm at Sesh Coworking. Click here to register.

December 8 — 8th Annual SWPDC Symposium on Pediatric Device Innovation and Business Meeting:

The 8th Annual SWPDC Symposium on Pediatric Device Innovation and Business Meeting will feature the keynote presentation "Non-Dilutive Federal Funding for Pediatric Device Startups" by Michael Heffernan, Director of Research & Technology at Fannin Innovation Studio.

The event is on Thursday, December 8, from 4 to 7 pm, at the Queensbury Theatre. Click here to register.

December 8 — HAN Holiday Party

Join the Houston Angel Network for their annual party.

The event is on Thursday, December 8, from 6 to 8 pm, at Postino City Centre. Click here to register.

December 10 — TXRX Holiday Make-a-thon

Get your festive fun on by participating in one of our hands-on workshops. Learn more about how we make through our live demos.

The event is on Saturday, December 10, from 3 to 6 pm, at TXRX. Click here to register.

December 13 — Future of the Houston Region

The reimagined Future of the Houston Region event features one of the fastest-growing areas in the Houston region - Montgomery County. Conversations will be focused on the county’s rapid growth, business developments within the area, future plans of expansion and its overall importance to the region.

The event is on Tuesday, December 13, from 10:30 am to 1:30 pm at The Woodlands Waterway Marriott. Click here to register.

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