December 8, 2022

CEO and Co-Founder, airSlate. Empowering anyone to get creative, innovate, and automate to digitally transform their workflows.

The world of technology is no stranger to change. Whether we bring about change or respond to it, we thrive under volatile circumstances. But the change that has occurred — from the success of the industry pandemic to large-scale layoffs in 2022 — has sickened even the most tech-savvy.

In the second quarter of 2020, Google, Apple, Amazon and Facebook won 38 billion dollars profit. Two years later, according to Crunchbase, roughly 41,000 employees US-based companies in the technology sector were laid off by early September 2022. Why? Because a number of factors — including inflation, rising interest rates and slowing growth after the pandemic — are causing investors to shift from evaluating companies on growth potential to valuing them on profitability and cash flow.

This has forced tech companies, mostly in a growth mindset from the pandemic, to recalibrate on a dime. The list of companies laying off employees shows the amount of economic anxiety running through the industry. It includes big hitters like Netflix, Robinhood, and Better, with the latter two laid off amazingly 30% and 50% of their workforcerespectively, as reported in the aforementioned Crunchbase article.

Most conversations about such layoffs like this article so far, have been directed to focus on the market and the investors, businesses, and employees affected. Nobody, it seems, is acknowledging the impact that these layoffs will have on customers, specifically small and medium-sized businesses (SMBs) that are SaaS customers.

While enterprise SaaS customers should feel little or no change as a result of these layoffs, it is likely that SMEs will bear the brunt of them. I’ll go into more detail below, but a quick explanation is that most SaaS companies aren’t built to serve SMBs easily, and the more effort it takes, the more difficult it is to accept the marginal ROI of these accounts as portfolio belts tightening.

So as businesses flock to the economics of their units, it is the customer-facing teams serving SMBs that will be cut, leaving real customers in the dust. Thus, it is up to SMEs to get smarter about who they buy their SaaS products.

The economics of unity of everything

SaaS companies don’t try to set up their SME clients for failure. But when they create complex products and/or processes that require regular handholding to run their customers, they don’t guarantee customer success (or theirs) either. It all comes down to the unity of the economy.

Let’s say an SMB customer buys a year’s subscription to SaaS for $5,000 while an enterprise customer buys one for $100,000. If it costs a SaaS about $5,000 to close a deal, they recoup their expenses and make a huge profit from their enterprise clients while instantly losing money to their SME clients. Taking into account the cost of configuring, deploying and enabling customers to use a complex product, a process that involves an employee ecosystem – they burn a lot of money on their smaller customers.

These companies hope to make money as the SMEs expand and buy more of them. But when you are evaluated on profitability, it is a gamble that few companies are willing to take.

This is what causes companies to focus on higher annual contract values ​​(ACVs) in these moments, even if there are far fewer of them. Because SaaS companies make money from them right away—by giving away services to all of their $5,000 customers and reducing the number of employees responsible for those services—they save money right away.

brix, which was announced in June That they were abandoning their small business clients is a great example of a company doing this exact calculation in an effort to increase profitability.

Unlike Brex, companies with the reins of custom development and support don’t necessarily abandon their SME clients entirely. But with the new trend towards profitability, the likelihood of these customers being left to figure out the product for themselves is high.

What SMEs Should Look for in SaaS Products

The current economic pressures are unlikely to change the approach of most SaaS companies towards serving SMEs. It is therefore wise for SMEs to adjust their purchasing criteria accordingly. Here are some things they should look for:

1. Products and services that operate on a self-service basis. If a company offers self-service products, it has traditionally been able to provide a great experience to small vending customers without individual assistance. It uses powerful and cheap configuration and deployment options to get its small customers up and running. Self-service also allows the company to support a large number of small and medium business customers, which means that it has honed the services it offers.

2. The ability to confirm the right tool before buying. If an SMB customer can test the product before committing to it, with a free trial or free subscription, that’s a good sign. On the other hand, the company says that it is confident enough in its product and believes that its use will convince customers to buy. On the other hand, the customer can try the product and feel confident in their decision to buy or walk away.

3. A friction-free buying experience and a solid reputation in customer support. SMB should search for Easy, convenient and fast buying experience as it is a potential indicator that the company is used to serving its customers efficiently, especially the younger ones. Perhaps the company’s customer support reputation is even more important. If a company’s support is praised for being responsive and providing helpful and timely assistance, it means that the company has carefully built a supportive infrastructure for low-touch customers like themselves, who will troubleshoot their own issues.

There are many lessons to be learned from the massive layoffs of the past few months, especially for small and medium businesses. While it is unlikely that SaaS companies will change their approach to serving SMEs, SMEs should change what they look for in SaaS providers. By finding companies that offer a top-notch self-service experience that are still profitable for the company, SMEs will leave themselves less vulnerable to dismissal when the next period of economic uncertainty inevitably comes.

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