I came across this interesting article a few days ago talking about how SaaS companies might be vulnerable in a recession. This was timely as yesterday I was having conversations with some entrepreneurs on a similar topic. These were all early stage startups and I was curious what their thoughts were about the current economic situation in the US and abroad.

This group didn’t have much though about the the current economy (Are we in a recession? Are we heading toward one? Are we coming out of one?). Largely, this is because in an early stage startup, all your energy is focused on just getting stuff done. Recession or not, it’s still a struggle for a startup to close those first few customers, build that buzz. One interesting bit that came out of the question was a sense that the cost of outsourcing will continue to go up over the next year. There are indications that outsourcing to Eastern European locations will catch up to the cost of outsourcing to India within a year. A rising tide raises all boats…eventually.

I find it interesting that this article focuses primarily on SaaS for the enterprise. If/When there is a recession, SaaS offerings for consumers would be the first ones to be hit. If a consumer is spending $25/month or $150/year for a SaaS service, they may start asking themselves if they really need it. And that is the beauty of it, if they don’t or can’t afford it anymore, cancel it.

The really interesting question is will consumers do that?

As the economy shifts, you will start to see the true management abilties of the leaders behind all SaaS offerings. How efficient is their operation? Do they have a cash cushion to weather the storm? What will they do during that storm? There was an interesting interview with the CEO of SaaS provider Zoho who boot strapped his company and continues to do so. I found an interesting correlary to the previous questions and how AdventNet (who own’s Zoho) weather a few previous storms in their past. I find it interesting how they used downturns in their market and economy to spin up other SaaS based offerings. I also found the comment about the number of Engineers at SalesForce very interesting.

SaaS will be an interesting area to watch in the next 9-18 months.