SaaS community rallies to ride out covid-19 storm
5 min read 03 May 2020, 07:23 PM ISTPay-it-forward culture comes as lifeline to smaller software-as-a-service startups vulnerable to disruption in businessSaaS startups have always shared their playbooks in closed-door conferences even though they competed in global markets
PremiumVinod Muthukrishnan was a sailor before he became an entrepreneur. From deck cadet to navigation officer aboard mercantile ships, he saw many a storm in his nine-year sojourn at sea. One of the lessons he learnt was to remain clear-headed in rough weather.
“When things started to go bad fast, your greatest talent was how calm you could be," says Muthukrishnan. As startup founders grapple with the mother of all storms in the business world, he believes those at the helm who work to a plan instead of making knee-jerk moves are more likely to come out on top of the situation.
Muthukrishnan sailed into a relatively safe harbour just before the covid-19 storm struck. US multinational Cisco acquired his five-year-old Chennai-based customer analytics startup CloudCherry in October 2019. He now leads growth for Cisco’s contact centre business unit in the San Francisco Bay Area. “We were incredibly lucky with the timing of our exit," admits Muthukrishnan. He knows how hard it will be for SaaS (software-as-a-service) startup founders in a global economy that’s come to a halt this year.
CLOSE-KNIT GROUP
The Indian SaaS community, which includes the diaspora, is a close-knit lot. So when Muthukrishnan got a call last month from SaaSBooMi, a community of Indian SaaS founders, to help out with an initiative to throw a lifeline to struggling startups, he got involved immediately.
SaaSBooMi has tied up with fintech startup Indifi to provide collateral-free revenue-based loans to help SaaS startups tide over their cash flow crisis. The loans are to be repaid from monthly revenues. SaaS companies operate on a recurring revenue model, which makes their earnings somewhat more predictable than those of many others in difficult times.
Startups that have been around for two years or more, with a minimum annual recurring revenue (ARR) of $250,000, are eligible. Muthukrishnan is helping vet the startups and guiding founders to take the loans on reasonable terms. Two other seasoned entrepreneurs—Pallav Nadhani, who sold his 18-year-old company FusionCharts to US-based Idera in March this year, and Manav Garg of Eka Software—are working with Muthukrishnan pro bono. They will also mentor the founders in navigating the post-covid situation.
Coordinating the initiative is SaaSBooMi community builder Avinash Raghava, who has seen the Indian SaaS ecosystem grow from its early days. He traces its culture back to IT services companies collaborating within the Nasscom framework to bring business to India though they competed with one another in global markets.
SaaS startups took it a step further by sharing their playbooks in closed-door conferences. This covered the whole gamut from user interfaces to sales strategies. “Never before had leaders of successful companies opened their playbooks to their peers like this. They even brought out Excel sheets and internal numbers to show what worked for them," says Raghava.
Young upstarts could learn from leading lights like Girish Mathrubootham of Freshworks, Suresh Sambandam of Kissflow and Krish Subramanian of Chargebee, who in turn engaged with the best minds in the ecosystem. Next generation leaders took the cue of sharing. You don’t see this in other domains like ecommerce, where companies mostly come together only to lobby with the government on regulations.
As India’s SaaS industry grew, crossing $1.5 billion in revenue last year, so did the community which has over 700 startups. Four are in the big league with ARR of over $100 million. Nine have crossed $25 million ARR. But over 625 startups are at an early stage, with ARR below $1 million, according to SaaSBooMi data. They are the ones most vulnerable to disruption in business. This is also evident from the response to the debt fund initiative which got 30 applications on the very first day.
Nadhani sees them falling into three categories in the post-covid scenario. The happy lot are those in areas like productivity, collaboration and telemedicine where demand has grown. At the other end are those serving industries like retail and hospitality which have got battered. “A lot of them I’ve talked to have only 10-20% revenues coming in as cash flow."
In between are startups seeing some churn but also signing up new customers. SaaS is a high margin business, so there’s room to manoeuvre. “They’ve hit cashflow problems because customers are delaying payments and new revenue will take time. They’re trying to extend their runways by six to 12 months in this unpredictable atmosphere," says Nadhani.
HELP FOR THE MIDDLE
The SaaSBooMi initiative primarily aims to help this middle category. Apart from a capital infusion to help them survive, they also need guidance on financial discipline. Young startups only bothered with growth metrics in previous years. Now they have to shift to a preservation perspective. “We’ll be helping these companies cut through fluff to survive," says Nadhani.
It’s just as important to know what costs not to cut, adds Muthukrishnan. “What elements of growth to stay invested in is important when you feel the squeeze as everyone is telling you to cut costs."
Runway extension by either capital infusion or cost-cutting would essentially cover the so-called SaaS deficit, or the upfront product development and customer acquisition costs a startup incurs. Muthukrishnan uses the analogy of a forest fire which is indiscriminate in the animals it kills. Similarly, covid-19 could extinguish good startups and not just the ones coming up in an unsustainable manner. “So we’re looking at startups with solid fundamentals solving real customer problems and growing in a healthy way."
One has to also be aware that data can be a lagging indicator in a situation where the ripple effects of covid’s impact are yet unclear. So keeping your ear to the ground and using common sense to anticipate what might transpire becomes vital.
Nadhani himself had a covid moment in February. The FusionCharts acquisition process started in November, but it was meandering along till the end of January. Then his advisors picked up on what was happening in China.
“We knew we had to move fast and be clear with our expectations," says Nadhani. “We were lucky that the buyer also moved pretty fast in looking at our data points. Strangely, we sold the FusionCharts asset on the day that covid-19 was declared a pandemic in March."
The shift from on-premise software to cloud computing has been happening over the past two decades. The rise of SaaS has favoured India because global enterprises could be served from here. Covid-19 could boost this even more, but startups have to survive in the interim to enjoy the fruit later.
Malavika Velayanikal is a consulting editor with Mint. She tweets @vmalu.
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