When people mention the phrase “SaaS winter,” they’re talking about an economic downturn that affects SaaS companies. This period includes slowing growth, reduced opportunities for funding, and increased competition for SaaS companies. The term “winter” is probably appropriate for this phase because economic activity is cooling down, and such a slowdown is cyclical. However, the cycles are longer than a year and as unpredictable as those in Westeros.
This SaaS Winter has the potential to heavily affect many SaaS companies because they’re coming off a period where they chased growth without regard to what it cost. Venture capital was plentiful, and borrowing was cheap, so if you needed more money to continue your growth you could easily go get it. Organizations usually spend that money on staffing up. Now that borrowing money is more expensive, venture capital is drying up, and customers aren’t buying as much.
Four ways product teams can survive SaaS Winter
Just like you can throw on a coat, hat, and gloves to enjoy a sleigh ride in a wintery wonderland, there are things you can do as a product leader to make the most of a SaaS Winter.
Here are four lessons learned from past recessions that show how product teams can survive and thrive in the latest economic cold spell.
1. Focus on customer value
One thing you should do, regardless of what economic season you’re in, is to focus on customer value.
In practical terms, your product provides meaningful solutions to your customers’ most pressing problems.
To provide that sort of customer value, you need to understand your customers’ needs and pain points sufficiently to change your product to address these issues. You can’t merely ask your customers what they want; rather, you need to understand how your customers have acted in specific situations and identify what jobs they are trying to get done.
When you can build this kind of deep understanding of your customers, you build strong, long-term relationships with your customers, which can be key to keeping them during a downturn.
Your product teams can strengthen those relationships by regularly communicating with customers, addressing their needs and concerns, and seeking ways that your product can add even more value.
These strong relationships help you keep existing customers, which can help your product team withstand a SaaS winter storm.
2. Ensure alignment
Clayton Christensen used to say that in the early days of a company, you should be hungry for profit, and in the late stages, you should be hungry for growth. As we implied above, in the last few years, most tech companies acted the opposite way.
If your organization is like one of those tech companies, introduce the GEM Model.
The idea behind the GEM model, as described by Gib Biddle, is that product teams – cross-functional teams including product, sales, marketing, and finance – have to agree to a forced ranking of three focus areas so that everyone operates toward the same thing.
- Growth – Example measurement: year-over-year membership growth rate
- Engagement – Example measurement: monthly retention. You can view this as a proxy for product quality
- Monetization – Example measurement(s): Lifetime value or gross margin
Now that winter is coming, your organization needs to prioritize monetization to strengthen your cash flow and ensure that you have sufficient funds to make it through until economic conditions improve.
3. Explore additional revenue streams
When you align on monetization, you have two levers you can pull to influence the amount of money you add to cash flow.
One lever is increasing revenue. You want to increase revenue without corresponding increases in the cost to generate that revenue. Since you’re already focusing on customer value, one ideal place to look is at your existing customers.
There are a few ways you can generate new revenue from your existing customers. Some of those approaches include:
- Exploring new pricing models
- Offering additional services or products
- Looking for partnerships that can help drive revenue.
The key with any of these approaches is to balance generating additional revenue while providing enough value to your customers that they see you as an essential product in their tech stack.
4. Control Costs
The other monetization level you can control is controlling costs. The most straightforward way to control costs is to identify saving opportunities that don’t require you to sacrifice the quality or functionality of the product.
Some effective options to cut costs without endangering the value you provide to customers include:
- Simplify processes to save on labor costs and drive efficiencies
- Consider contract and part-time staff for specific short-term efforts
- Increase your use of product-led approaches to simplify the sales process to reduce costs and reduce friction for the customer in their interaction with your company.
You can also take advantage of some conditions that introduced the SaaS Winter. After all, your customers aren’t the only ones who can examine their tech stack to identify tools that may not be necessary.
As you examine your tech stack, use these rules of thumb:
- Do you have tools you’re not using? Drop them.
- Do you have tools you’re not using to their full potential? Evaluate if you need them.
- Do you have tools essential to your processes? Keep them.
- Do you have tools that positively affect your effectiveness and efficiency? Use them more.
As you do that exercise, remember that your customers are probably using the same rules of thumb so consider how you can put your tool squarely in the “keep them” or “use them more” categories.
A SaaS Winter doesn’t have to leave you out in the cold
A cooling economy can have a negative impact on your product team and organization. Still, it’s possible to mitigate the worst effects as long as you remember some core product management fundamentals.
Always consider customer value when you make product decisions, and when times get tough, you can never go wrong by aligning on increasing revenue and decreasing costs.
If you keep these fundamentals in mind, your product team’s SaaS Winter may become a winter wonderland that puts you in a position to take advantage of the inevitable spring thaw.