WebSummit Rio '23 — Managing SaaS Products as a Startup
As a startup, maximizing the value of your SaaS (Software as a Service) subscriptions should be a top priority, especially if you’re operating with a limited budget. While it may seem straightforward when the team is small and lean, as your startup grows and scales, duplicate subscriptions can quickly become the norm, leading to unnecessary expenses.
This panel shares valuable insights, tips, and strategies to help you get the most out of your SaaS subscriptions without breaking the bank. You’ll learn how to optimize usage to avoid overpaying for unused seats, negotiate pricing and terms with vendors, and implement effective cost-control measures. Give it a listen!
Transcript
Thank you so much for joining us. We are going to talk about SAAS. I just saw a stat from Okta that said that the average tech company is using more than 150 SaaS services today. This sounds like a lot, but the wealth is certainly not spread evenly across industries or parts of the globe.
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And Bianca, I wanted to for us to start by you telling us a little bit about some of the global trends you were seeing in terms of SaaS and what's hot, what people are using, where the growth areas are.
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Thank you Harry. It's good to be here. Companies are adopting digital transformation and SaaS.
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SaaS is really thriving, so we're seeing increased adoption across the board. Just yesterday I was seeing statistics that actually in 2024 we're expected to see the investment in SaaS products to rise 12% and that will generate pretty much 4.4 trillion in investment in products.
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So we're pretty bullish on this. And in terms of trends there are four trends in particular that we're excited about as Alexa Ventures. The first one is the integration with ai machine learning. I know everybody's talking about it now, right? But fact is that the integration with these emerging technologies allows, has products to become much more customized and personable.
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To give you an example right now hospitals are able to find out much earlier Pot patients who are prone to actually developing chronic diseases. And this is because of the use of algorithms. So this is super exciting for us. The second trend that we're excited about is the verti verticalization of SaaS.
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And we're seeing more and more suites being actually developed to cater the needs of an entire industry. We have one company in our portfolio, which I'm on the board of, it's called Log Comics. They are developing a suite for the supply chain industry, allowing them to plan to automate and transact in the supply chain system.
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The third one that we're excited about is tech enabled communities, and we can talk more about this, but to that end, we're seeing low code and no code solutions that are allowing entire communities to build on top of solutions. And the fourth one that we're very excited about. Is a product led growth movement that we're seeing more and more here in Latin America.
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I know that in the US is more developed, but it's truly this idea of having a product get sold through their own features through the product itself. So those four trends are super exciting that we're seeing on the size industry. I was talking to somebody here at the conference who told me that there is SaaS everywhere.
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The fact that SaaS is generally something you pay for, has an impact in some countries. Where it's a little bit harder to come up with the money and in those countries, maybe like open source software that's not SaaS is really popular just cuz it's also great and is free. Are you seeing that and are there any particular reasons where that's true?
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Yeah. Yeah, we're seeing that, well in Latin America SaaS adoption is really raising and I think that having role models, companies that have already created, successful SaaS product. Such as one that I used to work for, which is pretty much the HubSpot of Latin America. It's called RD Station, and it was the largest exit the largest m and a transaction in Latin America.
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They're allowing actually, there, there to be an education in the ecosystem about the use also of those softwares. So we're seeing this very positively, Don. It feels like SaaSS has been effective life in the US for like maybe 15 years or ever since. Google Docs got started and AWS came along.
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But tell us about the current trends that you're seeing at arc, Don.
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Definitely. So first I'll just take a step back and think about the macroeconomic backdrop that we're all experiencing in Silicon Valley and globally. For venture backed software companies venture capital funding was down 53%.
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In Q1 2023 year over year, and that has rippled throughout the valley and throughout the broader SaaS ecosystem. At arc the nature of our business as a digital bank for hyper-growth technology companies is that we integrate with the finance stacks of these SaaS businesses. All of our customers, particularly on the non-dilutive capital side, are B2B SaaS businesses.
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So from our vantage point, we have a very proprietary dataset of venture backed B2B SaaS businesses in Silicon Valley. And we're seeing a few trends in that B2B SaaS niche for see through series B companies. First of all, in light of this macroeconomic backdrop I was just describing, what we're seeing is companies are pulling way back on opex They're looking to go from this growth at all cost mantra that we all enjoyed in 2021 through q1, Q2 of 2022.
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In overnight, these businesses flip the switch and now are looking to be default alive or cashflow positive, or certainly have positive unit economics. And so rationalizing the long tail of SaaS tools, the 150 plus SaaS tools across these software businesses. That's an easy place to start cutting costs.
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And so when we're underwriting new businesses at arc, what we're looking for are mission critical, deeply embedded SaaS products that can't easily be ripped out. Those companies are the most insulated from this cost cutting exercise. And if you're a founder of a company that's looking to become default alive, what we'd advise you to do is a couple of things.
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One, negotiate your SaaS contract. Look for end of fiscal year end of quarter to actually negotiate these contracts and then invest in processes to drive more efficiency throughout the tech stack and ensure that you're staying on top of your vendors. Those are some of the key trends that we're experiencing and what we're advising startups to address this shift from growth to profitability in Silicon Valley.
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Bianca, do those trends. In terms of the downturn line up with what you're seeing in other parts of the world?
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Yeah, absolutely. Honestly, I think that the downturn that we've seen is really across the board. It's not only a us reality and here in Latin America we have been advising our companies to really, s take a step back and understand how actually to extend runway, mission critical software, mission critical costs are the ones that must be capped.
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The other things, you. Whatever is not necessary. You should not have it in your p and l and you at Alexia Ventures, we focus on investing in companies that are not capital intensive, right now, more than ever I've been seeing, and investors mentioned that, focusing really on the p and l on unit economics, on sustainability, on the long term, this is really what solid businesses are made of. And so I think that it's a very important moment to find the best founders who are resilient.
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And we've seen different prices. We know that this is also showing us incredible opportunities, but it also requires founders to be very laser focused on what really matters.
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It seems like one of the challenges of SaaS is that it's, there are so many services that are incredibly easy for anybody to sign up with. With a credit card. Like when we started using Slack a past company years ago, my boss basically got it for us. And I would not be surprised if he didn't even ask our IT department.
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And I'm guessing that some of those 150 SaaS services that a lot of companies are using are like under the radar screen or maybe duplicate of, and is one of the challenges just figuring out what you are actually using before you can even get to the point where you can ask yourself, should we continue to use this or not?
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Yeah. And the statistics that you brought is actually interesting because 150 applications is the average that you find on every company. But if you go to larger companies, you can get up to 450 software solutions within a company and on the, startup side all the way to 80, which is still a lot for a startup.
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One more reason why it's so important to take, have a close eye and. One suggestion that I would give, and it might sound simple, but you must have someone owning this, right? Or maybe a couple of people. I would suggest your finance person and your IT person, work with the heads of business units within a company to really evaluate what is really needed, what's not, create policies and processes around usage.
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That you can communicate to the entire company. Might, again, might sound simple, but, so you would be surprised how many companies just do not do that and all of a sudden go and find out that they're, there's maybe two or three communication and collaboration tools within a company that No, we actually must choose one.
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There's really two ways that I would approach that question. One for the operations of Arc, and you hit the nail on the head, dedicated finance lead. To rationalize to be laser focused on analyzing every line in the p and l particularly across the operating cost structure, and just be really critical about how important is this individual SaaS tool to the success of the business As a cash burning venture backed software company, it's important that every single line item is scrutinized and measured against roi.
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That's how we do it at arc and we categorize all of our SaaS expenses that are occurring and we're rigorous about cutting them or not renewing the contracts when they expire. The advice that we give, and I'm biased because we're a digital bank that offers spend management solution, is to companies, but embracing modern technology across the finance stack.
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So working with a company like Arc Ramp, Brex. And using the modern finance tools to identify recurring spend that's perhaps redundant or where you could achieve cost savings by renegotiating a particular SaaS contract across your tech stack. It seems like it's always been true that the software that people within organizations love to use is not always the same stuff that it, people love, given that it people care about things like, Management and stability and security.
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As companies look at what they're using and what they might get away with not using, how do you factor in whether the people in an organization actually are gonna use this stuff or not? At ARC specifically, we have one leader within each functionary of the business. So thank engineering, product design, sales, marketing.
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There's one. Individual stakeholder who's responsible for the p and l, the co, in particular, the cost structure and ensuring that every new SaaS tool goes through a formal procurement and approval process. So we set that up early. It's fairly atypical for an early stage company at the seed or pre-seed stage to be that rigorous about their cost structure.
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We are a finance organization, so we leaned in early and hired finance headcount early. But to your point we encourage all startups to do this designate one owner for an individual function area and ensure that every new SaaS tool that's introduced to the business has positive roi, will be broadly adopted by the organization and is approved by the finance team who actually owns the overall cost structure.
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Yeah I would add to that, and again, I think you have already mentioned it, but negotiate terms, right? And. Having been on the other side, I was part of a sales B2B company. I know that who negotiates really gets the best deal. It's important to do that. And I think also communicating across the board what are the tools that you have as a company.
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Sometimes those are decisions that are siloed and some people on the team know. I have heard many times, some person on the HR team didn't know that the team and customer success used one. Platform, right? So communicate across the board. Communication is really important. And more than that, do trainings around those softwares.
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All of those SaaS B2B companies, they have incredible, customer success onboarding teams. And I know, I think it's crucial to allow those team members to know which products are being used and know how to use them well to the extent that they can. I'm used to seeing pricing pages for SaaS services where there, there's a fixed price for small businesses.
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And another plan for medium sized businesses and for enterprises, it says, call us and we'll give you a deal. If you're not a huge company, are there scenarios under which it is possible to cut a deal or get a better price than is listed? You? I believe so, but also in the current market dynamics that we're in we've been seeing companies prioritize all in one or bundled solutions and not necessarily the best in class.
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And this is mostly from a cost perspective. We're also seeing companies prioritize cost cutting platforms, right? What, whatever will make their financial systems more effective and quicker, to work on. Rather than revenue generators. This is very much focused on the market dynamics that we're in, but I'd be curious to hear your perspective.
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It's a really astute question. And what I encourage other founders to do is talk to other founders and operators, talk to other. Finance team members about what they're paying for a particular finance tool. Talk to other members, revenue leaders from other startups of a similar stage to understand what their price point was, what the duration of the contract was, and where there were areas to actually negotiate on price.
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We negotiate every contract at arc. It's one of my favorite pastimes. And we encourage all of our customers, all of my friends, the other founders that we work with across Silicon Valley to negotiate. And do it at the end of the quarter because that's what you're gonna get the most leverage when the AEs are trying to make their numbers in the last week of the quarter.
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As everyone here knows, the Okta study I mentioned also said that they're an awful lot of organizations who are paying for Microsoft 365 and or Google Workspace and or Zoom and or Slack. I can totally understand why that's true because we, I think we pay for all of those at Fast Company, but, Is that kind of silly on some level, given how much repetition there is among those product suites, and should you get rid of at least two or three of those?
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No, nothing frustrates me more as an operator than redundancy across the tech stack than paying for redundant, unnecessary tools due to disjointed processes cross-functionally. Right when HR isn't talking to finance, isn't talking to revenue, you end up having these redundancies across the tech stack
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So like I said in this particular macro environment, it's important to stack rank all of your SaaS tools and cut out what's redundant or not mission critical to the business to improve runway. And sorry, just to compliment, but I think. Founders do this as soon as possible because the larger you get as a company, it's not only the processes that you're hurting, but it's also knowledge that you're losing within the company.
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I think that if you make a very conscious decision of the tools that you're gonna use, you're gonna be able to acquire more knowledge and keep it, cuz I've been there, maybe some of you have been there when you actually have to move to another crm or you have to actually make, a decision on a different collaboration tool.
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But you have all the files there, This gets significantly worse as you get larger as a company. So do this as soon as possible. Create those processes still when you are an early stage startup, and you're gonna be much better off. Said. Bianca, you mentioned ai, which is the trend of the year and probably the decade and maybe the century.
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It seems like it's probably poised, upend a lot of the things about almost all the SaaS surfaces we use. But this early in the, in The trend, is it possible to have a sense of how SaaS might be impacted by generative AI and other forms? Yeah. The third, the first thing I will say is we, as a firm, Alexa Ventures, we invest into early stage startups SaaS, b2b, ai, and blockchain.
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But AI has been very crucial part of our thesis. I think it's very positive that generative AI is now just allowing, US consumers to get a better sense of the technology which has been built. Has been it's been built for a long time. I think it can be transformational across the board to all startups, to every single company, and my advice to you would be, as a ceo, as the founder of a company, you have a responsibility at least to understand, to what degree you can add inter intelligence, artificial intelligence, machine learning models to your company.
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It might not be at the core of what you do, but it can significantly improve. Automate optimize your value proposition your processes. So yes, I think it will transform the way we do business. I think we have to be responsible towards it. I've been reading a lot, even experts mentioning the power of ai, but also the responsibility that comes with it.
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But we're super bullish. We believe that it will it will change the way we do things. And I'm curious to hear how you guys are adopting it. Yeah, I agree with everything you said. It's my view that artificial intelligence is the most transformative innovation of our lifetimes and CEOs, operators, technology companies that are not adopting this technology and leveraging it across every function of their business will be left behind, will be.
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We'll lose to competitors who are embracing the technology, who are using it to drive efficiencies across the tech stack, across offline redundant processes. The business at ARC specifically we're looking for ways to leverage artificial intelligence to make our existing processes across engineering, sales and marketing underwriting and risk more efficient, and particularly on s and m.
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To use the technology to reduce t to drive outsize volume growth at a lower marginal cost. And there's a number of SaaS products in the market today particularly in the latest YC batch to plug some of the YC companies that are banking with arc that take open ai, take chat, G P T and build.
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SaaS products to drive productivity and have positive ROI out of the gate. And we're leveraging a lot of those tools at arc, which is driving some of our our tail of SaaS spent, no code and low code. And the idea of knowledge workers within an organization, building stuff without a lot of expertise has been a big trend.
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It seems like AI might completely transform that and ra rather than the people in the company creating stuff. Maybe AI can do it. Do we have any sense of whether low-code and no-code will get washed away or have to change a lot to, to matter? To be honest, I think that they're complimentary.
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I actually think that low-code, no-code solutions are really necessary in particular in emerging countries such as Brazil, others in Latin America. Because of two aspects, right? The market is getting more competitive in customers. Companies are asking for simpler, more easy to use solutions.
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This is also just a matter of maturity of the software development ecosystem in general. And the second point is, let's just be honest, we have a huge talent gap in particular when it comes to technical skills. And so we need simpler solutions to allow actually a wider range of people within the companies to.
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Work around those, or built on top of, it's also tied to us as to our belief of tech-enabled communities. You, once you empower communities, but you have to do it in a simple way, right? Then you can do so much more. So we really believe it's complimentary and it's also very necessary.
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These products in my mind, low code, no code, artificial intelligence. The reducing, they're dramatically reducing the barrier to entry in entrepreneurship and building technology and driving innovation. I view that as a net positive for society. Leveling the playing fields across borders across technical skillsets, helping bridge technical gaps.
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This is a net positive to certainly to consumers, to economies, in my view, to business as well. We think competition's a great thing. It rises all tides. And these new products entering the market help drive competition and improve overall technological innovation. Yeah, and for us we always say that we're backing the Latin American founders that are building global tech.
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And I think, a couple of years or five years ago, this wasn't really, there was an underdog feeling. I feel like now it's such an important moment for Latin America because we feel that we can compete with global technology and that's really, I think that's really inspiring.
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I love it. It's nice to end on a positive note.
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Thank you so much Bianca and Don for your expertise.