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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

 
 

The latest cohort from gBETA Houston has been announced and is currently underway at the Downtown Launchpad. Photo courtesy

A national startup accelerator has announced its fifth local cohort, which includes five Houston companies participating in the spring 2022 class.

Madison, Wisconsin-based gener8tor has announced today the five participating startups in gBETA Houston. The program will be led by Muriel Foster, the newly named director of gBETA Houston, which originally launched in Houston in 2020 thanks to a grant from from the Downtown Redevelopment Authority.

The program, which is designed to help guide early-stage startups find early customer traction, connect with mentors, and more, is based in the Downtown Launchpad, and is free and does not take equity in the participating companies. The cohort kicked off on April 21 and concludes on June 10.

The new cohort includes:

  • Founded by CEO Steffie Thomson a year ago, Getaway Sticks has designed a shoe that gives women the painless support they need using athletic foam to create a shoe that gives women the painless support they need. Getaway Sticks provides the solutions to women’s #1 wardrobe complaint of high heel pain. Since launch, the company has earned over $35,000 in revenue from over 150 customers.
  • Through a combination of software and hardware technology, LocBox is rethinking the shopping experience for online and local purchases. If you shop, ship, or have food delivered to your house, LocBox will make your life easier. Led by CEO Sterling Sansing, LocBox has previously participated in the Texas A&M MBA Venture Challenge.
  • SpeakHaus is focused on equipping young professionals and entrepreneurs with public speaking skills through its on-demand training platform and group coaching program. Since launching in October 2021, SpeakHaus has facilitated 6 corporate trainings and coached 61 business leaders generating over $49,000 in revenue. The company is led by CEO Christa Clarke.
  • Led by CEO LaGina Harris, The Us Space is creating spaces intentionally for women of color, women-led businesses, and women-centric organizations. Since launching in June 2021, The Us Space has created partnerships with more than a dozen community organizations, sustainable businesses, and organizations creating positive economic impact in the City of Houston.
  • Founded in August 2021, Urban Eatz Delivery is a food delivery service app that caters to the overlooked and underrepresented restaurants, food trucks, and home-based food vendors. Urban Eatz Delivery has earned over $88,000 in revenue, delivered to over 2,000 users, and worked with 36 restaurant and food vendors on the app. The company is led by CEO D’Andre Good.

“The five companies selected for the Spring 2022 cohort tackle unique problems that have propelled them to create a business that solves the issues they once faced," Foster says in a news release. "From public speaking, apparel comfort, and food delivery from underrepresented restaurant owners, these founders have found their niche and are ready to continue to make an enormous impact on the Houston ecosystem."

it's Foster's first cohort at the helm of the program. A Houston native, she has her master’s in public administration from Texas Southern University and a bachelor’s in marketing from Oklahoma State University. Her background includes work in the nonprofit sector and international business consulting in Cape Town, South Africa, and she's worked within programming at organizations such as MassChallenge, BLCK VC, and now gener8tor.

The program is housed at the Downtown Launchpad. The five startups will have access to the space to meet with mentors, attend events, and run their companies.

"Creating (the hub) was a little like a moonshot, but it’s paying off and contributing enormous impact to the city’s economy. The five startups selected for the gBETA Houston Spring cohort will continue that legacy,” says Robert Pieroni, director of economic development at Central Houston Inc., in the release. “As these entrepreneurs chase their dreams and create something epic, they will know Downtown Houston is standing behind them. I am so proud of what Downtown Launchpad is already, and what it will become.”

Muriel Foster, a native Houstonian, is the new director of gBETA Houston. Image via LinkedIn

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