Latest quarter is down. SaaS companies saw 5 straight quarters of growth before falling to 21% in Q3. In our view, one quarter a trend does not make, so we don’t think it’s time to sound the alarm yet. However, if Q4 shows another decline, then the SaaS space may be in a downturn. The last time there was a dip was Q2 2021, when SaaS growth fell to 19% from 22% in the prior quarter, so there is precedent for a dip, but note that growth resumed in the following quarter (Q3 2021 came in at 21%).
In your own SaaS business, watch out for elongating sales cycles, increased sales process complexity/hoops, reductions in customer budgets, and reductions in sales and marketing efficiency (measured as New ARR/S&M spend) as warning signs. If the warning signs are there, hunker down, find ways to cut costs, and pull back on the S&M spend. It’s ok to grow slower while staying cash efficient; save your cash for when the environment improves. It’s not ok to become less efficient to maintain growth. At some point that’s unsustainable.
Sammy is the Managing Partner and Co-Founder of Blossom Street Ventures. Visit us at blossomstreetventures.com and email directly at firstname.lastname@example.org://blossomstreetventures.com/metrics/