SaaS Startups That Ignored VC Advice to Cut Sales and Marketing Were Better Off This Year

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The Cut-Back Conundrum

In the face of a downturn, many venture-backed startups have been forced to make significant spending cuts in an attempt to maintain their high valuations and minimize their burn rate. However, new data from fintech firm Capchase reveals that some of these companies may be getting the wrong advice when it comes to where to downsize.

The Study

Capchase, which lends non-dilutive capital to SaaS startups, analyzed over 500 SaaS companies across various metrics, including revenue, runway, and growth between August 2021 and December 2021, as well as April and August 2022. The results were surprising: companies that didn’t cut spending on sales and marketing actually fared better than those that did.

The Unexpected Finding

According to Miguel Fernandez, co-founder and CEO of Capchase, he was initially surprised by this finding because it doesn’t align with the advice many VCs are giving their portfolio companies – at least on Twitter. However, the results do make sense when considering another key takeaway from the study: bootstrapped software companies were performing better than VC-backed ones.

Why Cut Sales and Marketing Spending Won’t Work

Fernandez explained that while cutting sales and marketing spending may provide short-term cost control, it’s unlikely to have long-term positive impacts. In fact, he argued that this approach could ultimately hurt companies in the long run. "They have to make up in growth what they are losing in multiples," he said.

The Consequences of Cutting Sales and Marketing Spending

Fernandez emphasized that if companies need to cut resources from this area, it’s better to focus on retention rather than bringing in new customers. He pointed out that investing in customer retention can be a winning strategy for SaaS companies. "It is much easier to retain a company customer rather than get a new one," he said.

The Benefits of Retention

In fact, Fernandez highlighted an example where a startup had almost zero new customers but still managed to grow 25% year over year. He attributed this success to the company’s focus on retention. The data also shows that SaaS startups in Europe are more focused on this strategy, which is why they tend to perform better than those in the US.

The Advantage of Being Bootstrapped

Fernandez noted that bootstrapped companies seem to be performing the best when it comes to growth metrics. He attributed this success to the fact that these startups don’t have as much pressure to grow at all costs or hit certain milestones and metrics for a future funding round.

The Takeaway

While Fernandez emphasized that the data shows SaaS startups are not in terrible shape due to this year’s downturn, he also stressed that it’s essential to wait and see how these companies will fare next year. In conclusion, the study highlights that venture-backed startups should reconsider their approach to spending cuts and focus on retention rather than short-term cost control.