How Indian SAAS businesses have been faring against COVID 19 pandemic?

Deal Structuring & Mergers & AcquisitionsBy Profit Board Last updated on Aug 11, 2020

 

India’s unheralded Software-as-a-Service (SaaS) sector is likely to emerge as a rare bright spot for investors, even as overall risk capital investments plunged in the first half of 2020, hit hard by the ongoing Covid-19 pandemic. How has this sector been faring against the COVID 19 pandemic? What are the learning from this sector?Let us dive in.

The pandemic has hit all sectors hard. SAAS is no exception. The disruption caused by pandemic has opened the door for an opportunity for an economic reset with a clean slate. For SAAS businesses, the economic uncertainty has lead to budget cuts, layoffs and enterprises would like to limit their investments in technology hardware, which gives an edge to SaaS companies.

All existing strategies need to be revisited. Businesses need to resort to winning by making new rules (thank you – Kobayashi Maru). There is this new window for growth, it becomes more important for SaaS companies to create products that will help enterprises in improving business efficiency and productivity.

 

Indian SAAS market is hard wired to weather out this COVID 19 storm

 

According to the 2020 edition of Bain & Co’s India Private Equity report, co-authored with the Indian Private Equity and Venture Capital Association (IVCA), the Indian SaaS market is expected to grow around 50% annually to over $20 billion in 2022 from about $6 billion in 2019.

The report credits the broader business strategy of Indian SaaS companies — of targeting both enterprises and small and medium businesses (SMBs) across domestic and global markets, as companies seek to harness big data, advanced analytics and machine learning by turning to software on demand based in the cloud. “In the global markets, these companies are able to offer high-quality products with cost arbitrage due to local talent and thus satisfy the demand for a high degree of verticalisation. They are also benefiting from an increased digital penetration across verticals and a growing adoption of SMBs in the local market,” the report stated.

 

The Indian SaaS landscape has grown 1.5X faster than the global SaaS market due to acceleration in digital consumption caused by the crisis.

 

In terms of revenue, India’s SaaS revenue has reached $3.5 billion as of March, 2020, growing at 30% CAGR, with 75% of it coming from global sales, according to a new collaborative report by Nasscom in partnership with SaaSBOOMi ( a community of Indian SaaS founders,) and Zinnov.

 

The report “Riding the Storm: Towards the Giant India SaaS Opportunity,” claims that India can become a global hub for SaaS by 2025 by strengthening the ecosystem that includes a strong push from the government, access to a strong funding pipeline and focus on building SaaS skillsets and an effective Industry mentorship program.

 

The SaaS industry in India has witnessed accelerated growth in the past couple of years, with 75% of the demand for Indian SaaS products coming from overseas markets. India’s burgeoning start-up landscape and its rapid strides in digital adoption are one of the key contributors to the growing SaaS adoption in the country. Currently, India has 6 SaaS unicorns—Zoho, Freshworks, Druva, Icertis, HighRadius and Postman—and is expected to see the emergence of many more by 2025.

 

The Indian SaaS industry today has more than 1,000 companies with 150+ companies generating an annual recurring revenue (ARR) greater than $1 million and is on the way to become the global hub for SaaS.

 

By 2025, the pure-play India SaaS industry currently at $2.5Bn revenues, has the potential to grow to $13-15 Billion, clocking a 6X growth. Some measures include building India’s brand as a ‘Global SaaS hub’ through marketing, visibility and trust, building a non-VC funding model requiring to grow current SaaS industry base, creating specialized SaaS focused accelerators & incubators and promote tier-II/III and non-metro locations to develop SaaS companies in India.

 

From our experience, we have seen a few common traits that have defined the success of our top performing SAAS businesses. Some of which are:

1. Focus on healthy unit economics –

Unit Economics is the basic financial building block of any business. When any business has to make a clear decision between growth and profitability, it’s important to find the right mix. This is where it gets difficult for SaaS businesses  as they generally operate on a subscription model. The unit economics is calculated as Lifetime Value (LTV) of a customer divided by Customer Acquisition Costs (CAC). However, correct lifetime value of a customer is difficultto estimate, especially now.  In the SaaS industry, higher customer lifetime value leads to better unit economics. Companies that build strong customer relationships are not just able to retain customers but also leverage them for further business growth.

 

2. Focus on long-term increases in cash flow

Secure customers for the long-term. Try to get as many people to sign annual contracts as possible. Signing an annual contract will guarantee a year’s worth of revenue, increasing cash flow and expected runway. A verified way of ensuring is incentives. Offer complimentary two months’ extra subscription. Or a 20% discount for upfront lumpsum payment, etc. At the same time, stop the delinquent churns.

 Allocate your existing resources to achieve priority business outcomes. Segregate expenses into fixed, variable, avoidable, categories.

 

3. Agility and Innovation

An agile organisation is the one that can quickly respond to the fast-changing business priorities, technology, consumer behaviour and ensure positive outcomes for the organisation.  

Many companies still follow a traditional operating model in which dedicated finance professionals support specific areas of the business, with a focus on management reporting, budgeting and planning, and ad hoc analysis. Coverage for those business units may be guaranteed, but finance staff deployed in this way rarely have time to step away from their unit-specific tasks and help shape financial strategy for the business overall.

Based on our experience, a fully agile finance organization would look like:

  1. It would be focused intensely on stakeholders
  2. It would comprise a flat network of teams rather than a traditional hierarchy
  3. It would convene focused project teams made up of staffers with cross-functional skills
  4. It would foster an entrepreneurial mind-set in its members

 

4. Focus on  customer segmentation and sales review processes

 

The risk of sales and customer experience teams getting inundated with customer requests is real. This not only distracts from winning new business as companies rush to protect existing business. It may also result in uneven treatment of customers and undesirable impact on customer profitability and churn in the future. Sales leaders may consider establishing a rapid response team to set guidelines, review and approve requests, and provide negotiation support. An updated view of the pipeline is important for rapid response efforts — and may require greater discipline from sales teams as market volatility may necessitate more frequent updates and expanded data points. This is also the time to refresh customer segmentation, based on factors such as business risk, profitability and propensity to churn, to support triage decisions.

 

 

5. Rapid rollout of new product features and functions

 

As customer success teams focus on usage and renewals, they will gather input for the product development teams on new features and functions that can help customers, particularly as they navigate shutdowns and work from home due to COVID-19. For example, customer IT departments may benefit from new service management capabilities to support remote workers. Companies may look to financial solutions for additional reporting to support crisis decision-making. SaaS providers who rapidly deploy new product capabilities to help customers will have another mechanism to drive customer loyalty.

 

 

 

Report Credit: Bain & Co., Livemint

 

Connect on LinkedIn:
https://www.linkedin.com/company/profitboard-ai/

Connect on Facebook:
https://www.facebook.com/itsprofitboard

Talk to Us

Leave Us Your Contact Details and We Will Get Back to You