It’s easy to get caught up in gloom and doom these days. We all see the headlines.
Business SaaS founders are especially susceptible to economic negativity. That’s no surprise. Their job is a lot easier when their customers have money to spend.
Seasoned SaaS leaders and investors aren’t immune, but they’ve seen enough to know that perspective is more powerful than panic.
“No one likes economic uncertainty, but early-stage enterprises that successfully navigate it are likely to emerge stronger on the other side,” says SaaS investor and founder Steve Streit.
Streit encourages business software startups to do these five things to protect themselves, their products and their teams now.
1. Calculate Your “Burn Multiple”
Cash flow is never not a critical metric for money-losing startups. However, during recessions and periods of deep economic uncertainty, it’s even more important to track your your company’s “burn multiple,” says Alex Zekoff of TechCrunch.
“The gold standard is a burn multiple of one — for every dollar you burn, you add a net new dollar in subscription revenue,” Zekoff says. You can aim even higher (or lower) for a burn multiple of less than one, which means you’re cash-flow positive, but that’s hard for most startups to achieve, he adds.
Most of the “lean times” strategies found here and elsewhere aim to reduce this all-important metric. After all, the lower your burn multiple, the more likely your startup is to survive until times are good again.
2. Focus on Your Highest-Value Employees
For software startups, these tend to be your engineers and core “product” people. It’s not that no one else matters, just that these are the people you absolutely have to retain. They are enablers and force multipliers who produce rather than “take.”
They are also expensive, with the typical not-senior product engineer commanding a salary of nearly $130,000 in the United States, according to Glassdoor. That’s why you can’t stop here; you’ll need to find fat to trim elsewhere.
3. Leverage Lower-Cost Sales Channels
Engineers and other core employees are “expensive expenses” of the non-negotiable variety. Other “expensive expenses” aren’t so lucky.
Take sales costs. Few startup experts — certainly not seasoned veterans like Streit — would advise you to cut your entire sales team loose during a downturn.
That said, there are smart and not-so-smart ways to leverage that team. For example, emphasizing network-based sales channels, such as referrals, can significantly reduce your cost per sale while expanding your prospect pipeline. And if all goes well, you might find you don’t need so many salespeople on staff.
4. Outsource Tasks That Others Can Do Better
Investors like Streit advise startup founders to focus their teams on “core” functions, basically building and scaling product and delivery.
Unfortunately, many founders don’t listen. They chase shiny objects, like seemingly profitable but hyper-competitive business lines, or create internal HR, finance and marketing bureaucracies too early.
Don’t be like them. Or, if it’s too late for that, do your best to outsource those non-core tasks now. As a business SaaS leader, you know you have lots of third-party choices.
5. Keep Hiring
No matter how grim things get, never stop hiring. Not even as you’re letting non-core people go.
After all, says productivity expert Lee Rosen, you never know where you’ll find your next rockstar employee. And that matters because high-performing employees aren’t just better than average — they make those around them, and by extension the entire organization, better too.
Rockstar employees “are motivated, energized, and focused. They get things done. They’re willing to make decisions, learn new things, and take calculated risks,” Rosen says.
In short, they’re just what you need to make it through lean times.
Final Thoughts: Never Stop Building
About half of all startups fail within five years, experts say. The failure rate increases during economic downturns and falls during good times.
Of course, neither condition is a permanent one. When times are good, it makes sense to prepare for stormy days ahead. Likewise, when the situation seems to be at its darkest, it pays to see the light at the end of the tunnel. Plan accordingly, and don’t stop building.
