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This Houston venture capital leader is looking at how 2020 — for all its disappointments — might be a great year for B2B software-as-a-service companies. Getty Images

B2B software as a service, or SaaS, founders entered 2020 riding a wave of the longest economic expansion in United States history. Valuations increased to new highs, funding rounds continued getting larger at each stage, and forecasts went up and to the right fast. But then, March hit.

Quickly and seemingly out of nowhere, headlines became dominated by apocalyptic predictions of death, record levels of unemployment, shocking economic forecasts of GDP contraction, historic mass layoffs and furloughs, and unprecedented multi-trillion dollar economic stimulus packages. For founders every instinct began screaming to cut costs and hunker down.

But should B2B SaaS founders cut their organizations right now? Through analyzing a few key events and looking to the evidence in the market today, founders can develop a strategy for growing during this crisis. Not only is growth cheaper for most B2B SaaS against the backdrop of economic meltdown, but with the majority following a hunker-down instinct, a growing B2B SaaS firm will compare very favorably against a landscape of stale and stagnant competitors.

Reviewing the 1918 Spanish Flu Pandemic and the 2008 downturn

While the health implications vary widely between the current pandemic and the 1918 flu epidemic, the economic reactions share many similarities. The US response to 1918 was just as fractured as the states' reactions to COVID have been this year. As cities and states in 1918 shut down commerce to stem the spread of the flu, economic contraction quickly gave way to rebound, the so called "V-shaped recovery," despite the Spanish Flu having much higher death rates among working individuals than COVID-19.

There are major differences between 1918 and 2020, however. First, there is untapped potential in technology to replace workers. As businesses look for ways to cut costs, expect them to aggressively turn to automation, ultimately depressing real wages. Second, the 1918 response did not include shutdown measures as draconian as those we are experiencing in 2020. This could lead to permanent output loss across a wide range of industries, increasing real prices just as real wages decline. And third, the trillions of dollars in federal economic relief are unlike anything attempted in 1918.

The 2008 downturn that nearly brought the financial sector to a halt rippled through the economy as businesses in a wide range of industries made steep cuts to operations and capital expenditures. Despite this dangerous environment, SaaS firms increased profitability and continued to grow revenues each quarter. Growth slowed but remained positive while most other companies experienced absolute declines in revenue.

Customer acquisition for SaaS businesses usually gets more efficient during downturns, driving the potential for faster growth. The performance of all publicly traded B2B SaaS firms during 2008 illustrated in Figure 1 above proves the resilience of this category during a recession. While revenue continued to grow, profitability rose from a 10 percent loss on average to a 5 percent gain on average by 2010. This is likely due to firms freezing salaries and hiring and perhaps cutting down the sales and marketing budgets.

Downturn case study: Salesforce

Salesforce entered the downturn as a category leader in B2B SaaS with nearly $500M in revenue in 2007 and $3.5 million in operating losses. Throughout 2008, the company grew revenues by 51 percent to $748 million and operating profit surged to $20.3 million. And in 2009, the company repeated this stellar performance by growing revenues 44 percent to $1,077M and operating profit to $63 million. These results occurred against the backdrop of a global financial downturn and with a product focused on helping people sell more effectively (not something one would expect would sell well during a free-fall recession).

The revenue growth throughout those years followed the growth in sales and marketing spend. In 2008, the company grew sales and marketing by 49 percent, driving 51 percent revenue growth at about $1.50 of sales expense per $1 of recognized revenue added. In 2009, the company grew sales and marketing 42 percent resulting in 44 percent revenue growth at $1.63 of sales expense per $1 of recognized revenue. By 2010, the sales growth advantage was gone and Salesforce not only dropped its expense growth rate but also reverted to spending $2.64 per $1 of new revenue added.


Looking at these results Salesforce executed on the growth opportunities in 2008 and 2009 by ramping up sales expenses. The relative cost to acquire customers in 2008 and 2009 compared to 2010 proved significantly cheaper (approximately 40 percent less expensive). When faced with an advantage like that, every founder should charge ahead.

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

Brittany Barreto wants to expand her DNA dating technology to a B-to-B model and compatibility test — all under a new company called X&Y Technologies. Karla Martin/Pheramor

Houston DNA-based dating app expands brand and plans new ways to use its technology

Love as a science

For over two years, Brittany Barreto has been playing matchmaker with her DNA-based dating app, Pheramor, but now she's ready to take it to the next level.

Pheramor, which sequences users' DNA and datamines their social media activity to determine compatibility, is transforming into becoming a product of a newly formed company called X&Y Technologies. The company, Barreto says, will have multiple products, all relating to using that same DNA technology Pheramor has perfected.

Among the first three products X&Y is working to create is a B-to-B software-as-a-service company, where established dating companies can employ Pheramor's technology for its existing app and customers. Barreto says she has two letters of intent for the B-to-B model, one of which is a dating app with 160,000 users.

Barreto unveiled the new company at The Cannon's female entrepreneur pitch night on January 24, but expanding her technology's reach has been on her mind for a while. She cited major dating companies that have their eyes on DNA dating, but haven't yet figured out the infrastructure. That, she says, is where X&Y's SaaS model comes in.

"Our traction with the dating app was a fantastic way to prove that we are the thought leaders, we have the infrastructure, and we have the algorithm and we've proven that the market is ready to buy a DNA kit to find love," she says in her pitch.

In addition, X&Y will have a compatibility test for couples wishing to learn of their own DNA-based compatibility. The tool, called We Have Chemistry, is getting ready to launch and already has preorders coming in.

"Pheramor's test is really the gold standard and industry leader in this test," she says, explaining how Pheramor's technology can be used by these existing dating apps.

She talked about how this is the time for DNA tests — from 23andme to Pheramor — and how it's not weird to send your spit in the mail. As Barreto says in her pitch, there's so much more potential for uses of the technology in what's called contextualized genetics.

"I know that my technology is way bigger than just this one market," Barreto says. "I believe the future of product is about combining the big data of genomics and DNA with the big data of your digital footprint. Nobody has ever combined your Facebook data with your DNA to figure out what's the best diet, exercise or work environment for you."

B2B travel company grows its Houston presence

travel tech

Real-time inventory software enables travelers to book a last minute flight and have their boarding passes in hand at security a few minutes later. But that technology isn't utilized in other aspects of a vacation — tour companies, for example. That's where San Francisco-based Xola comes in.

Scott Zimmerman and his co-founder Anush Ramani realized real-time technology was a glaring hole in a multi-billion-dollar business. It's why they founded Xola, a booking and marketing software system designed for tour and activity companies.

"So many smaller tour companies operate with pen and paper," Zimmerman explained. "And for many cities and countries, tourism is the number-two or number-three industry — it's a huge driver of economic growth. It's a $120 billion global market."

They created Xola as a B2B solution that created a platform for operators to promote their offerings, and allow customers to purchase tours and activities. Meanwhile, Xola's custom-design software platform managed the tour inventory and payments, providing real-time inventory management.

Since its inception in 2011, Xola has emerged as a leading B2B solution for travel industry operators. The company started in San Francisco, but opened an office in Houston in 2016 in the Heights Clock Tower. Xola's Houston operation began with six people; today, it employs 17. Zimmerman says he sees potential to grow the team with additional marketing, sales, and support staff.

"We serve customers around the world, and Houston has everything we need to continue our growth."

Zimmerman acknowledged the cost of doing business in the Bay Area is expensive, but when he went looking for cities in which to expand, price wasn't his only concern.

"We wanted a large metropolitan area, with a diverse ecosystem, good universities, a great talent pool, a high quality of life and an affordable cost of living. Houston has all these things. And the more I get to know the city, I realize just how much it has going on."

Zimmerman said that the city has "totally exceeded" his expectations in terms of Xola's growth. He said every one of the Houston employees is wonderful to work with, and loves that they come from diverse cultural and educational backgrounds.

"I can't quite describe what the office is like, but there's a great energy and enthusiasm. [The team] easy to work with. It's been fun in that regard."

Zimmerman said that Houston's talent pool is so extensive, he can't imagine "ever exhausting" the city's resources. He also sees Houston as an asset for Xola's continued growth. The company currently has offices in San Francisco, Houston, Bangalore, and Belgrade and anticipates more expansion in the coming years. Xola's ticketing and software system has received multiple five-star reviews from its customers, who praise not only its ease of operation, but also the company's stellar customer service. In fact, Xola just won a 2018 Ease of Use Award from Capterra.

"In addition to Xola's core booking system, we're building next-generation automated marketing features that help our customers maintain a competitive edge. And our Houston team will continue to grow as we do, so we can continue to serve markets around the world."

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Houston coffee startup pivots to hand sanitizing product amid pandemic

Houstonians' workday routines look much different today than they did seven months ago. With a large percentage of people working from home, office rituals have come to a halt and few habits have been immune to change — including our coffee consumption.

In early March, Constantine Zotos and Mitchell Webber already knew this didn't mean good things for their local nitro coffee company, Recharge Brewing Co. Though the brand had grown steadily over the better course of two years, the duo had focused their business on installing and supplying their nitro coffee taps to two of the most taboo markets at the time: office spaces and restaurants.The duo aptly predicted that the demand for their product would soon dry up and quickly shifted their operations to focus on a product that was considered a necessity: hand sanitizer.

To get started, the young entrepreneurs and their small team of six began cold calling down a list of Purell distributors they found online. They soon found that many businesses could hardly keep the product in stock.

"They asked us if they could fly a jet down to pick up the hand sanitizer themselves," Zottos says of one distributor. "I told them not to get ahead of themselves, but it just speaks to the sense of urgency everyone had."

The team studied up on the basic ingredients of hand sanitizer to make the liquid, alcohol-based form that infiltrated the market in the first few weeks of the pandemic. At the time there was such a rush for the product, and such a low supply of the material needed to make it, that the team resorted to selling the product without traditional pump tops or plastic caps. Instead they used the slow release plastic pourers that are often used on liquor bottles.

Still, they were focused on doing it right. In addition to the long hours spend to get the product out the door, Zotos and Webber took special care to ensure that their sanitizer met all FDA and EPA requirements by working with consultants and lawyers, as well as reading up on all the pertinent documents and literature between sleeping shifts and time on the shop floor.

"We took the stance that we would rather rush toward compliance rather than run from it," Zotos says.

It didn't seem to slow down the demand. One week in they formed Modern Chemical, and by the middle of the month the company was fulfilling substantial orders with a team of 40 employees. By the summer, Modern Chemical released a gel-based, FDA-registered sanitizer that got them in with giant B2B clients, such as the Massachusetts Bay Transit Authority, Jefferson Parish School District, and recently the City of Austin.

The pair agrees that their background with Recharge gave them a leg up in the beginning.

"Knowing the pumps and hoses and all the stuff you really need to run a bottle facility and a hand sanitizer facility, we already had," Webber says. "On top of that when all this started, there were some long days and long nights, but being in the nitro coffee business, we were used to long hours. It prepared us for this huge push for the drastic demand that needed to be filled."

Location and timing also played a huge role in their success, Zotos adds. "When the pandemic struck we were able to bring on a lot of people who are extraordinarily talented throughout the company. If we weren't hiring in the pandemic environment like this I think we would be hard pressed to find people as talented as we did as quickly as we did," he says. "And Houston really played a big part in that."

Today, the company of about 60 employees is producing about 15,000 gallons of hand sanitizer per day and is in the process of launching disinfectant wipes and spray. They recently moved all of the Modern Chemical operations into a new and improved facility off Air Tec and Interstate 45 that will allow for more efficient packaging and loading of products and — in another pivot — are even offering custom labeling, scenting and color dyes, plus specialty dispensing stands for their product.

"Neither of us have a chemical background and we are not ignorant to that. But we know how the equipment works from an operational side of things and if we can make the packaging look the best. If we can package the most for the best price then people are going to want to buy it," Zotos says. "Instead of taking the let's do everything route, we found our niche in the chemical supply chain, which is packaging."

And as Modern Chemical continues to settle into its new space and eventually a post-pandemic market, Zotos and Webber plan to revisit and revamp Recharge Brewing with the lessons they've learned. The duo plans to use their original facilities to help other small business owners launch and produce beverage brands of their own by early 2021.

UT system funds Houston researchers in new collaboration to cure cancer

collaborate for a cure

In a renewed effort to move the needle on finding a cure for cancer, the University of Texas system has launched a new collaboration in oncological data and computational science across three programs.

Houston-based University of Texas MD Anderson Cancer Center has teamed up with two UT Austin schools — the Oden Institute for Computational Engineering and Sciences and the Texas Advanced Computing Center. The collaboration was announced this summer to tap into mathematical modeling and advanced computing along with oncology expertise to inspire new methods of cancer treatment.

"Integrating and learning from the massive amount of largely unstructured data in cancer care and research is a formidable challenge," says David Jaffray, Ph.D., chief technology and digital officer at MD Anderson, in a news release. "We need to bring together teams that can place quantitative data in context and inform state-of-the-art computational models of the disease and accelerate progress in our mission to end cancer."

Now, the first five projects to be funded under this new initiative have been announced.

  • Angela Jarrett of the Oden Institute and Maia Rauch of MD Anderson will develop a patient-specific mathematical model for forecasting treatment response and designing optimal therapy strategies for patients with triple-negative breast cancer.
  • Caroline Chung of MD Anderson and David Hormuth of the Oden Institute are using computational models of the underlying biology to fundamentally change how radiotherapy and chemotherapy are personalized to improve survival rates for brain cancer patients.
  • Ken-Pin Hwang of MD Anderson and Jon Tamir of UT Austin's Department of Electrical and Computer Engineering and the Oden Institute will use mathematical modeling and massively parallel distributed computing to make prostate MR imaging faster and more accurate to reduce the incidence of unnecessary or inaccurate biopsies.
  • Xiaodong Zhang of MD Anderson and Hang Liu of TACC will advance both the planning and delivery of proton therapy via a platform that combines mathematical algorithms and high-performance computing to further personalize these already highly tailored treatments.
  • Tinsley Oden and Prashant Jha of the Oden Institute and David Fuentes of MD Anderson will integrate a new mechanistic model of tumor growth with an advanced form of MRI to reveal underlying metabolic alterations in tumors and lead to new treatments for patients.

"These five research teams, made up of a cross section of expertise from all three stakeholders, represent the beginning of something truly special," says Jaffray in a release. "Our experts are advancing cancer research and care, and we are committed to working with our colleagues at the Oden Institute and TACC to bring together their computational expertise with our data and insights."

Later this month, the five teams will log on to a virtual retreat along with academic and government thought leaders to further collaborate and intertwine their research and expertise.

"Texas is globally recognized for its excellence in computing and in cancer research. This collaboration forges a new path to international leadership through the combination of its strengths in both," says Karen Willcox, director of the Oden Institute. "We are thrilled that leaders in government, industry and academia see the potential of this unique Texan partnership. We're looking forward to a virtual retreat on October 29 to continue to build upon this realization."

To office or not to office? Heading toward post-pandemic, that is the question for Houston workplace strategy

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Since the advent of the modern office over a century ago, its design has continually evolved, adapting to new needs driven by changes in the ways people work.

COVID-19 introduced massive disruption to this steady evolution, displacing millions of office workers to fulfill their job roles from their homes. The question everyone is asking now is what happens after the pandemic — if we can all work from home, is the office irrelevant?

A mass remote work experiment

While many companies had tried some degree of remote work before the pandemic, the mass relocation to home during COVID was new territory for most. And the experiment has offered up something of an epiphany: work-from-home worked. People were able to carry out their job responsibilities, saving thousands of companies from having to shut down and sparing millions of people from job loss.

Now, based on the perceived success of WFH, many organizations are planning to greatly expand remote work, even after the pandemic has passed. Twitter was at the front of the pack in announcing they would allow some employees to work from home forever, and the list has continued to grow well beyond the tech sector.

Success depends on criteria

The lens through which we view this work-from-home period is important. Looked at as an emergency response, WFH can be deemed successful: it helped to flatten the transmission curve of the virus and protected employee lives.

But as we enter one of the most complex and challenging business climates in a century, survival will be about being competitive. And that fundamentally changes the criteria to judge working from home during COVID-19 and whether it should be expanded as a post-pandemic strategy. It raises the bar from "did work-from-home work?" to "did it work better?"; will increasing remote work help to deliver competitive advantage better than having people together in the workplace? That requires a deeper exploration.

Digital breadcrumbs

Work-from-home during COVID is, at heart, a technology story — from the platforms that virtually connected employees to networks and each other, to the embrace of video conferencing and the overnight ubiquity of the Zoom call. While they all existed before COVID, the pandemic acted as a catalyst for their widespread adoption.

Technology use leaves trails of data, like digital breadcrumbs, and many of the collaborative platforms and software providers are generously sharing their data comparing use patterns before and during COVID. So while not too long ago our evaluative methods for this unprecedented period of remote work would have relied largely on subjective or anecdotal measures, today we're able to follow the breadcrumbs and arrive at a more objective understanding of how work changed in this shift from office to home.

What becomes abundantly clear is that it wasn't simply a location swap; we didn't just go about our jobs in the same way at home as we did in the office. There were fundamental and very impactful shifts in the way we worked, with significant implications for business performance.

For instance:

The number of meetings increased. While there is a wide range of percentage increases being reported, even just taking a more conservative estimate, from the National Bureau of Economic Research, the number of meetings went up by 13 percent as compared to pre-COVID patterns.

Meetings turned inward. Since people weren't together physically, they needed to check-in a lot more often. Internal meetings—those with people within the same company — increased to over 60 percent of overall weekly meetings during work-from-home, while meetings with people external to the organization decreased to just below 40 percent, according to analysis by a leading meeting software platform.

Meeting purpose changed. Meetings can largely be grouped into three categories: evaluative — considering options, making decisions; generative — brainstorming, creating new ideas; or organizational — coordinating tasks, reporting. Organizational meetings increased by nearly a third during the peak COVID lockdown.Put another way, during WFH, people had more meetings to talk about doing work and fewer meetings to actually do work.

Meetings got larger. The number of meeting attendees during WFH increased by 14 percent. When people are physically together in the office, more meetings are impromptu, typically involving two to four people. But when you plan meetings in advance, which people have to do when remote, there's a tendency to invite more people. Increasing participants changes meeting dynamics — the more people, the more formal, the more likely it's one-way communication.

Emails to coworkers increased. With the loss of a centralized office and face-to-face interactions, people increased both the number of internal emails they sent by 5.2 percent, as well as the number of people they included in emails by 2.9 percent.

Employees felt less informed. A smartsheet survey showed that despite the increase in virtual meetings and email communication, 60 percent of the workforce reported having a decreased sense of what's going on within their companies, revealing the isolating effect of remote work.

Productive time decreased. With the increase in number of meetings, large swaths of productive time were harder to come by. Calendar analysis revealed that fragmented time—short periods of unscheduled time between meetings—increased by 11 percent during COVID-19.While not ideal for anyone, fragmented time is especially problematic for non-managerial staff, whose job roles tend to entail more individual focus work; it only takes a few poorly spread out meetings to render a day largely unproductive. The result? The work day increased by as much as 3 hours at the height of WFH per Bloomberg report.

Video was a boon…and then quickly a bane. Video conference platforms saw exponential increase in use during COVID, and seemed at first to offer a close substitute for face-to-face meetings. But the way video is synthesized introduces distortions and lags, and even an undetectable misalignment of video and audio confuses the brain, making it work harder, as outlined in the New York Times.People found themselves exhausted after a day of video calls and the scientifically-verified phenomenon "Zoom Fatigue" was born.

Social capital decreased. Socializing has never been something people regularly schedule into their workday; it's very much an ad hoc work mode: a conversation on the elevator or chatting before and after meetings. Those types of unplanned interactions weren't possible working-from-home, and despite admirable attempts to interact virtually, 63 percent of workers reported spending less time socializing with colleagues, and already by April, 75 percent of people reported feeling less connected to coworkers.

Companies became more siloed. According to research by Ben Waber at Humanyze, during WFH we increased communication with our closest work colleagues — team members or close friends at work — by 33 percent. Communication with coworkers outside our inner circle, so-called "weak ties", dropped by nearly the same amount. The problem with that is interactions with weak ties are one of the most effective ways new ideas spread through an organization. When we talk to people we have don't know well or don't see often, it's just much more likely something new is shared.

Innovation is at risk

Taken individually, the changes to work patterns that occurred with WFH might not seem dire — work got done, if not ideally so. But layered on top of each other, the picture is more grim; we had more meetings and our days got more fragmented; we met less with people outside our company; internally, we met less to generate new ideas and more to just coordinate and organize tasks; we became more siloed, we socialized less and felt less connected to each other, and less aware of what was happening within our companies.

What that combination puts most at risk is innovation, arguably the thing companies are going to need most to face the challenges ahead. Nicholas Bloom, a professor of economics at Stanford and internationally recognized scholar on innovation, posits that while we were able to remain productive working-from-home, there may be a steep opportunity cost paid down the line: "I fear this collapse in office face time will lead to a slump in innovation. The new ideas we are losing today could show up as fewer new products in 2021 and beyond, lowering long-run growth."

The workplace advantage

The ways work changed when we tried to do it from home reaffirms why the workplace is even more relevant now, at a time when organizations are going to need to be firing on all cylinders. And it shows that we haven't just been working at the office to bide our time until technology allowed us to ditch it and work from home; we work at the office because doing so delivers higher performance.

Far from irrelevant, today's workplace has evolved to support and foster precisely the behaviors and interactions that are missing in remote work: bringing people together to work side-by-side, to be immersed in the culture of the organization, to socialize, to build trust, and to learn from each other.

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Erik Lucken is strategy director at San Francisco-based IA Interior Architects, which has projects and clients based in Houston.