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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

 
 

SXSW announced its 2023 featured sessions, including keynote from Patagonia CEO Ryan Gellert. Photo by Daniel Cavazos

For Texans — especially Austinites — if there's one major milestone that truly puts the pandemic behind us, it's the in-person return of SXSW. We got a taste of it this year with the hybrid online/in-person format, but 2023 will likely be the first festival that truly feels like a "return to normal." And the newly released lineup is definitely something to look forward to.

On Tuesday, November 15, SXSW announced the first keynote for the 37th festival, taking place March 10-19, 2023. The 2023 conference will include a keynote address from Patagonia CEO Ryan Gellert.

Also announced were featured speakers, including New York Times bestselling author David Chang; New York Magazine editor-at-large and podcast host Kara Swisher; and Grammy Award-nominated singer, songwriter, and multi-instrumentalistValerie June.

“At SXSW, we thrive on creative ideas that lead to bold action when it comes to addressing society’s biggest challenges,” said SXSW's chief programming officer, Hugh Forrest. “Our first announced keynote speaker, Patagonia CEO Ryan Gellert, is a true leader in the world of business who is unafraid of pursuing the systemic reform needed to protect our planet in the face of climate change.”

Organized into 25 programming tracks presented in a variety of session formats, SXSW celebrates the convergence of technology, film, television, and music. Tracks include civic engagement, climate change, design, film and TV, psychedelics, sports, travel, and more.

Other newly announced speakers joining the 2023 lineup are:

  • Chemistry professor at the University of Texas at Austin, Dr. Kate Biberdorf
  • Founder of Royal and DJ, Justin Blau, aka 3LAU
  • Gonzo journalist and creator of Channel 5, Andrew Callaghan
  • Professor at New York University’s Stern School of Business and author, Dolly Chugh
  • Director and screenwriter, Julia Ducournau
  • Emmy and Tony Award-winning producer, co-founder and managing partner of Get Lifted Film Co., and fellow and professional-in-residence at the University of Texas’ Moody College of Communication, Mike Jackson
  • CEO of Luminate, Rob Jonas
  • Founder and CEO of KORA Organics, entrepreneur, and supermodel, Miranda Kerr
  • Actor, director, writer, comedian, and musician, Cheech Marin
  • New York Times bestselling author, Heather McGhee
  • Psychotherapist, New York Times bestselling author, and podcast host, Esther Perel
  • Author and former chairman, president, and CEO of IBM, Ginni Rometty
  • Founder and CEO of The Ocean Cleanup, Boyan Slat
  • Mycologist, entrepreneur, author, and inventor, Paul Stamets
  • Associate professor of environmental politics at the University of California, Santa Barbara, Leah Stokes
  • Founder and CEO of Strangeworks, whurley
  • Co-founder and CEO of 23andMe, Anne Wojcicki

This announcement comes on the heels of SXSW and Rolling Stone magazine announcing an inaugural emerging artists showcase taking place during the music portion of the festival in March 2023. For a full lineup and more information on featured sessions, visit SXSW.com.

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This article originally ran on CultureMap.

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