Business

How Canadian SaaS is proving its resilience in the face of COVID-19

Canadian SaaS hit new heights in 2019. What can be done to maintain this amidst and after COVID-19?

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L-SPARK’s annual 2019 SaaS report found that the Canadian SaaS sector was worth $5.1 billion, up from $1.6 billion in 2018. This developed alongside increases in funding and deals size across regions.

With such rapid growth, there was certainly cause for excitement for the direction in which Canadian SaaS was headed in 2020.

And then the COVID-19 crisis hit, changing the game for SaaS companies across the globe. The main priority for the majority of SaaS companies has been redirected to reviewing cash reserves and actioning a “preservation mindset.”

Of course, SaaS companies are resilient, and since most are cloud-based, many can continue operating while their employees work from home or even have a remote workforce already. ‘

But that’s not enough. Keeping the engine stoked and operational is only beneficial if there are paying customers to use the service — which is how this crisis is impacting even the most digitally-advanced of companies.

Many SaaS companies are being forced to make tough decisions and nail down their strategy in order to make it through this crisis in one piece.

Here’s what COVID-19 means for the Canadian SaaS industry and how businesses can plan for continued growth once the crisis passes.

A new reality for the SaaS industry

With the advent of isolation measures, adoption of technologies and digitization has gone from something that’s “nice to have” to a matter of survival for many companies.

Now forced to deliver services via online channels which might have previously been conducted in-person, organizations in sectors such as finance and retail are having to change the way customer care is delivered.

They are now totally reliant on digital interactions in order to maintain levels of customer acquisition, retention, collaboration, and even networking.

Meanwhile, operations, management, and command and control arms of businesses in sectors such as manufacturing are leveraging digital tools and connected IoT applications to be able to implement remote processes.

All of this provides fertile ground for SaaS companies to step in and provide vital solutions to help keep businesses operational. But it’s not all rosy, as the demand for travel and hospitality-related products, amongst others, takes a serious dive.

Let’s take a look into how COVID-19 is impacting Canadian SaaS sectors.

What does COVID-19 mean for different Canadian SaaS sectors?

Despite being by nature a digital product, many SaaS startups are being negatively impacted by COVID-19. For example, Toronto-based Ritual has been forced to lay off more than half of its  employees and plans to reduce its operations due to the pandemic.

The app, which allows customers to order food for pickup from restaurants to avoid waiting in line, is suffering due to the mass enforced closures of all restaurants to the public.

As well as hospitality, the pandemic is hitting travel-related products too. Hopper, an airline-ticket-purchasing app based in Montreal, has also had to conduct mass layoffs as the airline industry faces near total shutdown.

Toronto-based fintech Clearbanc has cut 8% of its staff to stay operationally afloat. The company provides funds to startups through equity-free investments — demonstrating the knock-on effect of the crisis and how deep it stretches into adjacent sectors.

However, there are many SaaS players experiencing an increase in demand for their product. This is most apparent for products that are providing critical services, such as health tech software.

For example, telemedicine companies such as Maple Corp and Dialogue Technologies are experiencing a huge surge in requests for virtual consultations.

Meanwhile, Hypercare, an app that helps physicians communicate via messaging, workshops and schedule management, is using its technology to share information with nursing homes to avoid unnecessary in-person assessments.

This is as well as facilitating coordination between emergency departments and homeless shelters, and allowing hospitals to efficiently manage on-call ICU physicians.

In addition to critical services, there are also a number of digital tools that are working hard to scale in order to facilitate remote collaboration and virtual education.

L-SPARK alumnus EssayJack, an online essay writing platform, is offering an indefinite free trial. Thrive, another L-SPARK graduate, is an online marketplace that helps professionals transition careers.

The company is also playing a crucial role by helping to reposition people professionally amidst widespread layoffs.

Having also gone through the L-SPARK program, Heyday is now offering its e-commerce chat solution free of charge for three months to help retail stores stay afloat while brick-and-mortar premises remain closed.

While helping to combat the worst effects of the crisis by offering customers extended free trials or upgrades, SaaS startups also need to find ways to retain their existing customer base and acquire new ones.

Many of them are doing this by pivoting to a more payment flexible model. This could mean simplifying digital payments by accepting alternative methods such as Stripe, offering free credits, or allowing customers to defer payments.

Cybersecurity startup ClickArmor has been championing this approach recently, in order to retain its customers and help them stay digitally protected during this especially vulnerable time.

How SaaS companies can commit to growth, now and post COVID-19

Like any business facing economic uncertainty right now, SaaS companies should first and foremost take stock of their financial status. This starts with realistically assessing current and future revenue, and entails a review of all of the revenue expected from existing customers, and all near-term potential customers.

This should be combined with a critical assessment of variable expenses. Every line item that doesn’t directly contribute to increased revenue in the next six months should be a candidate for reduction or elimination.

Doing this will help businesses determine exactly what is necessary to continue operations, and what can be cut.

Next, SaaS businesses looking to remain operational and boost the chance for post-crisis growth should review the market for what potential opportunities might exist after the economic situation improves.

Companies should look at the competitive landscape of their sector: Is the business in a better financial position than its competitors as it enters the post-COVID-19 stage? Will its customers emerge in a better financial position than their competitors?

If the answer to these questions is yes, then the organization should explore the possibility of acquiring those that have been very negatively impacted and find themselves in a weaker financial position. They should also explore hiring options: there will be a lot of talent on the job market that has been laid off or is likely to be laid off.

Finally, SaaS companies in this position should investigate the areas of their business that could be strengthened by investment in research and development, given the fact that their day-to-day competitive engagement in the market are likely “taking a breather.”

The crisis is by no means over, and there is still a significant period of economic volatility and uncertainty ahead. However, companies should be doing everything they can to increase their chances of continuity and growth.

Whether they have been hard hit by the crisis or are experiencing increased demand, COVID-19 has no doubt disrupted operations for all SaaS companies.

A combination of careful market assessment and strategic decision-making on business expenditures will be the key to maximizing performance, both during and after the crisis.

Ultimately, the Canadian SaaS landscape has forever changed. The digital transformation of all arms of a business has now become a critical and necessary part of any strategy going forward. Adapting to this new reality requires change, but with change comes opportunity.

SaaS companies should embrace and lead this effort, using the next few months to adapt, innovate and pivot with agility.

Disclosure: This story is brought to you through an ESPACIO portfolio company.

Investors shoveled $5.13B into Canadian SaaS companies this year, up $3.5B from last year: L-Spark report

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Leo Lax
Leo Lax is the Executive Managing Director at L-SPARK -- the destination for Canada’s startup and tech ecosystem to learn, share, plan, execute, measure, adjust, scale and succeed.