We're in a tech downturn. The funding environment has dried up suddenly, and both startups and large companies have suddenly been confronted with the fact that they need to make their runway last a lot longer.
For a software company, the biggest cost by far is employees' salaries, and as a result several companies have done layoffs over the past few months. However, there are several other ways to cut costs or increase cashflow before having to do a layoff.
1) Pull forward future revenue
Most SaaS products are either billed monthly on a credit card, or annually on invoice payments. If you're billing customers monthly, offer a billing option to pay upfront annually for a discount. If you have customers on annual contracts, offer a discount for them to pay 2, 3, or 4 years upfront.
If your customers are themselves struggling with cashflow, they probably won't go for these options. But if you're selling to customers who themselves have a strong cash position, then they'll see this as a net long-term savings if the discount is strong enough. At Airplane, we have several years of runway, so we're willing to pay upfront for tools that we're already certain we're going to keep for many years to come, if it gets us a discount that significantly outpaces the yield we'd get on that idle cash.
Go down your customer list and contact everyone to see if they're open to pulling forward future payments in exchange for a discount. Be careful with the messaging though–you don't want to scare your customers and lead them to believe you're about to go out of business.
2) Sell consulting services
One of the best ways to generate revenue quickly is to take on work that you wouldn't normally do because it doesn't scale. For example, let's say your company offers an analytics SaaS product. You and your coworkers probably know a lot about analytics–what the various best-in-breed data tools are, how to integrate things together, how to gain insights from data, etc. You can re-sell this expertise as consulting services that you can charge a lot more for than for pure software. This isn't a great way to build a scalable software business, but might be necessary to keeping you alive in the short term.
Talk to your top customers and ask them what kinds of value-add services they'd pay for. If you have close enough relationships with your top customers, you may already have a sense of what business problems they're struggling with, and you could proactively pitch some of these things.
3) Increase your prices
For B2B products, demand tends to be somewhat inelastic. At my previous company, Heap, we increased our self-serve prices significantly multiple times and saw no reduction in conversion rate from free to paid. It's worth experimenting with whether a simple price increase might accelerate your revenue growth and therefore extend your runway.
4) Introduce or extend "contact us" pricing
Most B2B enterprise products are sold with custom pricing plans that have to be communicated by a sales team. We've all seen the classic SaaS pricing page with free, self-serve, and "contact us" enterprise pricing.
The goal of this strategy is to allow the sales team to more effectively price discriminate and maximize contract value for large customers. If you don't have this option, introduce it, and charge a lot to enterprises. If you do have this option, consider expanding the scope so you have the ability to price discriminate effectively for a wider swath of customers.
There's of course a downside to this strategy–making your pricing more opaque may repel some customers and reduce your general adoption rate in the long-term. But it could also increase short-term revenue, which may be what you need to survive.
5) Generate partner revenue
Most B2B SaaS products don't exist in isolation–they have dozens of points of integration with complementary products. To continue the example above, if you sell an analytics product, you might find yourselves recommending that your customers buy a specific data warehouse or ETL tool to complement your solution.
Many sales and customer success find themselves making these kinds of recommendations regularly to customers. If there are specific vendors you're already recommending consistently, contact those vendors directly and see if they have a partner referral program. Often, partners can pay out 10 to 50% of ARR as a referral fee–don't leave this money on the table if it's available.
6) Get higher yield on your idle cash
Make sure you're maximizing yield on the money in your bank account. Over the past several years, this hasn't been a very fruitful strategy due to low interest rates. But right now, in the US, there are options to get 3-5% yield on your savings. At Airplane, we have some cash in First Republic Bank in a higher-yield savings account, as well as some cash in Treasure Financial that has even higher yield. There are plenty of other options out there as well.
One word of caution: just stick to high-yield options based on normal, government-backed financial instruments like US Treasury Bills. There are companies offering even higher yields but they're generally using a much riskier strategy, like this company that used a crypto-based strategy to offer 15% yield, and then lost everyone's money.
7) Explore alternative funding sources
New VC funding rounds are becoming extremely rare. But there are other financing options available to startups. Companies like Pipe and Capchase give cash upfront in exchange for guarantees of future revenues–e.g. if you have $1M of monthly revenue, they might pay $20M for the next 2 years of revenues (these are example numbers).
Another option is venture debt. Banks like Silicon Valley Bank also offer debt services to companies that bank with them, as do firms like TriplePoint Capital. For modest interest rates and some warrants, you may be able to get a loan that extends your short-term runway.
8) Explore R&D tax credits
Most tech startups in the US are eligible for some amount of R&D tax credits. If you're spending money on developing novel products, i.e. paying software engineers to build a new product, then there are likely tens or hundreds of thousands of dollars of of tax credits you can claim from the US government.
Services like Neo.tax, MainStreet and Pilot can automatically claim these for you for a fee, or to truly maximize your earnings, you can file the paperwork yourself.
9) Look into government grants
In addition to R&D tax credits, there are several other grant programs you may be eligible whether you're based in the US or other countries. This article lists a few of the more common ones available to tech startups.
A word of caution: the timeline for approval for these can be long, and the time and overhead in applying for these can be arduous as well.
10) Manage your accounts receivable
If you're billing customers via invoice, it's possible that your customers are behind on payments if you haven't been diligent about following up with your customers' accounts payable departments. Look at your outstanding accounts receivable (AR) and aggressively chase down any overdue invoices. If this is a big problem, you can also incentivize your sales team to do this–for example, you could have commissions not get paid out or only partially get paid out until the customer has actually paid.
11) Recover money from failed credit card charges
If you're using Stripe or another service to charge customers' credit cards, many times, a customer's credit card might result in a declined charge, but this can be recoverable if the customer didn't intend for this to happen.
Make sure to have alerting setup to inform you whenever charges are declined, and follow up with these customers quickly to get them to update their card details. If you're using Stripe subscriptions, you can also have Stripe automate this–navigate to Settings > Billing > Subscriptions and emails, and make sure "Send emails about expiring cards" is enabled.
12) Sublease your office
Rent is often the largest non-payroll expense for a startup. If you're stuck with a long-term office lease, you can have the team work from home, and sublease out some or all of your office. The best case is if you can do a direct sublease with a company willing to take over the whole space. It's worth asking your investors if they know other portfolio companies looking for space in your area. Barring that, you could use a service like PivotDesk to list your space on their marketplace.
13) Cut your own salary
As a startup founder or CEO, you're ultimately accountable for the survival of the company. At my previous startup, my co-founder and I paid ourselves the legal minimum wage for ~3 years to maximize the company's chances of success. That's obviously not realistic for everyone. Cutting your own salary isn't a great idea if it impacts you to the extent that you're no longer an effective leader. But consider whether what you're currently being paid could take a bit of a haircut.
14) Ask for discounts
For many of the services you use, there may be discounts you're not taking advantage of. Most cloud vendors (AWS, GCP, Azure, etc) offer volume discounts, and if you talk to an account manager there, you might be able to get an even steeper discount. Many startups pay hundreds of thousands or millions of dollars to these services without ever spending time to speak with an account manager. If you haven't already, reach out to them.
Also, there may be discount programs that your company qualifies for. Segment offers their service for free to qualifying startups, and many other vendors have specific discount programs for startups, small companies, specific accelerators, etc.
15) Consolidate and substitute vendors
Do you need to pay $150/user/year for Zoom Pro, or are you alright just using Google Meet for free with your $12/user/month Google Workspace plan? Do you need brand-new Macbook Pros for every employee, or can you get away with refurbished laptops? There are many vendors for which there's a lower cost or bundled alternative. It's worth going down the list of each and every thing on your latest credit card statement and see if there's another option.
16) Reduce your cloud costs
Almost every startup extensively using AWS, GCP, or Azure has some low-hanging fruit in terms of cost optimization if they haven't already explored that option. Services like Vantage and CloudZero give insight into your cost breakdown and areas where you could save money. Regardless of whether you use one of these services, having an infrastructure engineer on your team do a mini-project to find easy cost reduction levers can be worthwhile.
Finally, there are very likely other areas for cost reduction that you may not have thought of. It may be worth telling everyone at the company to spend at least 1-2 days really thinking deeply about any potential cost reduction ideas they have for the business. You may find interesting opportunities to cut certain vendors, replace certain services, etc.
