Month Five – Yep, I missed a few months…

It’s almost half a year into this pandemic, if you can believe it! If March 2020 was the longest month ever, the last few months feel like they’ve flown by. It’s almost like everyone is getting used to the new normal, and time no longer inches along at a glacial pace.

July 2020 continued to demonstrate the same overall results I’ve seen in the last few months for both of the SaaS-focused companies. The most obvious takeaway was nothing abnormal about the month; it was boring, routine, and predictable. In 2020, that’s a welcome sign.

For QuotaGuard, very little changed in the overall business environment for cloud application service providers from my vantage point.

For Appointment Reminder, there continues a slow return back to normal with some sectors (travel) still not returning in full force yet.

QuotaGuard Static IP’s

QuotaGuard had normal subscription growth in June, and I didn’t notice any lingering effects from the pandemic during the month. As businesses continue to migrate towards a new normal, many customers now have their work from home teams established. Companies are moving forward with normal business operations, including using cloud infrastructure services.

Appointment Reminder

Appointment Reminder had a few clients return with notable exceptions from our travel industry customers. This is a welcome trend, but we’re still likely to have many companies never to return. The start and stop nature of many state reopening plans has caused too much havoc on smaller businesses.

We’ve seen new customers sign up as they need more appointment scheduling software to plan for the future, and we’ve been a welcome beneficiary of that trend.

The team is also working on updating the website for a new fresher, cleaner look, and I hope to have that go live in August or September.

IT Spending Bounce?

Now that we’re well into the new normal, I am starting to wonder…will there be an IT infrastructure spending boost in the future as the pandemic becomes less of a threat and the future looks more positive?

Since many companies still aren’t operating with completely back-to-normal budgeting, plans, or operations, this may be wishful thinking or too far off to assume will come to fruition. Still, it is something I’ve been thinking about a little bit lately.

That’s a lot better than the “how bad can this get” thinking of just a few weeks ago.

Hopefully, there is a delayed spending boost to come at some point in the future. It could be 6 months out, or it could be two years from now. But once the rear-view mirror sees more pandemic, a delayed spending boom is a possibility.

Last Words

All in all, a very routine month with mostly blocking and tackling work on a day to day basis.

After the last few months, a boring month of normalcy was a welcome change.

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Writing this at the end of April, we now have a full month of global shutdowns behind us, with the partial reopening of some Chinese manufacturing and small portions of the US economy.

Many businesses have rapidly adopted a delivery or curbside pickup service to try and keep the doors open.

(If you haven’t read March’s report, you can find it here: Online Business Results During a Pandemic – March 2020 Results)

April QuotaGuard and Pandemic Thoughts (B2B and B2E Customers)

Fortunately, QuotaGuard customers in April continued March’s generally unresponsive reaction to the global pandemic, with a normal level of new customers, growth in current customers, and rate of customer churn.

I made a point of responding in customer service emails that we were running the business as normal since the team was already remotely working around the United States, so the shutdown didn’t require any changes for our support and development teams.

Surprisingly, none of our customers were concerned we’d be unresponsive or working fewer hours.

In fact, I felt that April was one of our busier months. It is not just due to the usual work with customers and continued development, but also because now our offices are full-time out of our homes and since we can’t leave, we can’t really leave the office either. It felt like work was constant and never-ending.

Very few customers mentioned the ongoing business challenges, and even if they did so, it was mostly to wish us health and good fortune in the coming weeks.

Takeaway (Reemphasis): IT Departments Are Essential Businesses…*

Just like I mentioned in the March update, it’s eye-opening how business operations continue on normally for essential IT services.

I would love to pretend this is something I had the foresight to envision when I decided to work on products and services that are part of the cloud ecosystem’s infrastructure. Still, I don’t have anywhere near that level of futuristic insight.

I’ve seen new projects started this month that I would have assumed would be put off for a few months until the economic picture became clearer. Once again, the marketplace disproved some of the assumptions that I believed in heading into this economic headwind.

*…Until they are not

I’ve been developing and managing software projects through a few seminal periods in the last 30 years of seemingly non-stop technology-based business growth.

I learned COBOL for Y2k, shuffled around San Francisco following the crash of the Internet dot.com bubble in 2000, scrambled for new consulting clients during the 2008 recession, and now find myself trying to navigate the Unknown Unknowns of the 2020 pandemic.

Those prior events in my career left me with a strong level of skepticism that this downturn should spare IT spending simply because this time, “it’s different.”

It’s intellectually reckless to believe that IT spending can’t or won’t be impacted by the looming 2020-2021 recession, as those prior implosions decimated vast swaths of technology spending and tech infrastructure companies, just like mine. Yet, fortunately, so far, I don’t see it showing up on the top line or the bottom line.

That leaves me wondering, is IT investment more bulletproof today than it was in the past, simply because IT continues to be more and more of a core aspect of business continuity? Or is the momentum of IT spending just enough to push the hard decisions down the line for a few months before the bottom starts to fall out, as it has in the past?

Takeaway: Price Points Matter…Maybe?

There are many articles and people out there that constantly tell you to raise your prices, raise your prices, RAISE YOUR PRICES!

There is nothing wrong with that sentiment. Many companies have increased their prices significantly, and it has worked out for them very well.

Yet, I wonder how that is going at this very point in time.

The price points we operate QuotaGuard are a line item that’s not (yet) coming under scrutiny for medium to large-sized businesses. Many of our customers are on a subscription plan that’s not enough to move the needle to save a struggling business. Still, it would certainly be a challenge to continue operating without the service we provide for this low price point.

Still, I wonder if that would be the same if our prices were doubled what they are today.

Maybe this is a chance to raise new customers’ prices (never, ever on current customers) and see what happens? I’ll leave that as a thought experiment for myself for another time.

April Appointment Reminder (B2B Customers)

April proved to be right about where I expected it to be for Appointment Reminder based on what happened to revenue at the tail end of March 2020. We were down 8.7% for the month on the top line. Due to some cost rearrangements I’d made a few months ago, the bottom line wasn’t hurt quite as bad, which is very fortunate considering revenue is down around 18% in six weeks.

I hope that there is some stability coming in May as two factors converge; small pockets of business reopening and the exhaustion of the number of businesses that need to cancel because of the pandemic. Only time will tell, of course.

Opportunity from Adversity

One opportunity that will occur in the future is that more companies will need appointment reminder-like services that didn’t need them before.

I doubt we’ll be able to sit in a barbershop for an hour before being called into the chair. The world’s barbershops will now need to take appointments and text their customers when it’s their time to come to get a trim.

This could open up a new market for businesses that never needed appointment reminders previously.

To take advantage of this, I’ve written targeted ads for Adwords, put up landing pages addressing this need for new companies, and will monitor their performance over the next couple of weeks to see if there is an uptick in need for new services in the future. I’ll pass along what I learn in May 2020.

There is Heartbreak. This Is Not the Same Type of Churn

Churn is the enemy of a SaaS-based business. Every churned customer is lost long term revenue, customer interaction, and mutual support.

I get upset whenever a customer cancels on me. I take it personally, even though I shouldn’t. It’s just business; it’s not me.

Yet, I feel they are saying my business that I work hard on every day isn’t worth their support anymore. It can influence my entire day. Sometimes I’m in a bad mood, and I can’t remember why. Then I think about it, and it’s “Oh, that’s right, a $5/month customer canceled this morning…” and it ruins my whole day. Over $5, that’s how much it affects me.

The churn that’s happening now does not have that same feeling. The churn now is one of sadness and empathy. That’s one more business that is scrambling to survive. Our monthly costs are low, so if $49 is the difference between a business surviving or never reopening, I know it’s getting desperate very quickly.

A majority of the people we meet in my life are not business owners. They are W-2 employees, independent contractors, bartenders, retirees from the public sector, etc. Very few of these people understand the incredible toll it takes to start, operate, and sustain an ongoing company.

I believe running a business is one of many noble professional callings because it is difficult to be successful by continually creating and delivering value for your customers for a long time. It is hard. Many business owners do it because it is hard.

Therefore, it really pains me to see owners losing all they have worked for, forced to lose their business, and no way to fight for their own survival.

I do hope I see every customer come back at AR because that hopefully means their business survived and will continue to prosper. We need more business owners running companies, delivering services, creating jobs, and propelling the economy forward. Hopefully, every prior AR customer – whether they return to us or not – is operating again soon and continues that mission for our global community.

It Could Be Worse. I Could Have Tried To Be A Tech Unicorn

It’s tough to complain that AR’s income is going down during these extraordinary few months of adversity, considering we have not had to lay off any staff and are vastly more profitable than AirBnB, Uber, and WeWork combined.

None of those companies ever seriously planned for adversity, and they are now suffering for that lack of foresight.

I won’t say I saw any of this coming, but I know I try to build and manage my businesses with a lot of flexibility to adjust to the eventual adverse market conditions. Ask my wife. She knows I’m always planning, “What if this or that goes bad…then what?”

Tech unicorns are only (sometimes) successful in a perfect environment where investors continue to give them cash to stay afloat.

This is no longer that environment.

Takeaway: Never Operate Your Online Business Like What You See From Silicon Valley

Don’t ever mistake Silicon Valley’s hubris for how a real online (or any…) business should be run.

Frankly, I only study their business actions to learn how not to run a sustainable business. Ignore profit and rack up losses to grow top-line revenue? Over hire because we’ll need them “someday…”? Take on debt to build a product nobody asked for in the first place?

Unicorns can sometimes get away with little marketplace education, poor business acumen, and out of control execution, but never assume you can do the same in your business.

Ironically, behaving the opposite of how tech unicorns act allowed my companies to weather this storm better than the most well funded, professionally advised, industry experienced, and over-promised companies from California.

For that, we can call April a manageable, yet also sadly disappointing, month. One that we survived.

Now, onward to the challenges looming ahead of us for May…

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Want to learn more about my journey acquiring and operating online companies, including other failed acquisition lessons learned?  Check out Online Business Ride Along, a monthly deep dive into my journey, with actual online investments and monthly P&L’s for each businesses.

The Coronavirus pandemic has closed a majority of economies, banned retail and in-person businesses, and brought the global economy to a halt in a manner unlike any experienced before by anyone alive today.

I’m pretty sure a lot of business owners learned a lot about how stable, solid, necessary, and vulnerable their businesses were in the first few weeks of March.

At the start of the closures in early March 2020, I’m managing two online businesses (and a few smaller projects) with a few thousand customers spread as far across the globe as possible.

Some customers are operating directly in the most affected spaces, like retail, travel, and entertainment. Other customers are working harder than ever as more and more of their business success is dependent on their continued – and increased – online productivity.

For a business-to-business company focused on a set of products and services, I’ve seen both sides of this issue play out in various ways in the first month of the shutdown.

Hopefully, I can capture just a few down on paper for posterity.

Initial Reaction

Like almost any business owner the world over, there was some initial disbelief that the solution to a global medical crisis was to shut down the economy of every country on the earth immediately.

The jury is still very far out regarding whether heeding this extreme reaction was advisable, but that is what we collectively did, so we have no choice but to move forward with the situation we have been given.

Once it was obvious that governments would close all non-essential businesses that had a face-to-face interaction component, thoughts of how to survive became paramount for everyone invested in the ongoing viability of their companies, businesses, and their own livelihoods.

I can only speak of my small visibility into the businesses that I manage, so I wanted to write about what I experienced during the months that this shutdown continues in more of a journalistic fashion.

So here goes nothing!

First Month for QuotaGuard (B2B and B2E Customers)

The month of March 2020 seemed to be the longest in human history. I thought it was just me until I saw multiple cartoons and memes pointing out how painfully long March felt to everyone.

Obviously, it was a busy few weeks trying to prepare for the unknown of what was about to happen.

Fortunately, as of March 31st, not a single QuotaGuard customer has written us using any variation of the phrase “because of the pandemic, we are doing X, Y, Z…” which is surprising. In fact, the month of March continued to be business as normal.

Overall Picture from QuotaGuard’s Point of View

In total, for March, I didn’t see cost-cutting at a level that would cause me concern at this early phase of the pandemic.

Sign-ups continued at a normal, to even a slightly accelerated pace. Since QuotaGuard is part of the overall move to a more cloud-based infrastructure focus, the business may be benefiting increasingly from the overall growing need for cloud services occurring from businesses moving to WFH across the globe. But that’s just a guess, considering no new customer has said they are starting with us due to current events either.

In fact, if I weren’t aware of what was going on outside, I’d have no idea – based on my interactions with the QuotaGuard customer base – that anything had changed in the economy.

One Customer Example of (Possibly) Cancelling Due to the Closure

There was only one prominent larger retail store chain that I saw go from a large plan to $0, yet they did not cancel their subscription.

Not canceling a subscription is usually a good sign because when customers cancel a subscription, they lose all their configuration, historical data, and integration within our infrastructure.

But, if a customer needs a short pause, they usually switch to a lower plan, but they don’t cancel.

Maybe they are moving their integration from staging to production, or maybe they intend to pick back up on a new project again soon. Therefore, I always look to see if a customer cancels or downgrades, to see if they are churning or just pausing for a bit of time until our service is needed again.

In this particular case, I saw that company closed their entire national chain of stores the day before they downgraded with us, so I’m hoping once those stores open back up, that account will go back to its normal level of usage, and we’ll be back in business with them.

Takeaway: IT Departments Are Essential Businesses

One lesson that I learned from this month is, “IT departments are ‘essential businesses,’ they need to keep operating, continue to pay their vendors, and operate as if the business is running and will continue to run in perpetuity, even if their customer-facing business is closed.”

In mid-March, I wrote on IndieHackers, “If a national lock-down occurs, will customers cut off “in progress” projects and cancel current subscriptions…possibly to pick them up again in the future? Or will most tech companies (by far our biggest customer segment) continue to work, deploy, and create new projects from remote locations?”

I guess now I know a bit more about the answer. I’m never going to feel 100% confident we’re going to sail through this with no issues, but I’m feeling better as of the end of March.

If you’re trying to think of a product or service to build, buy, or have designed for you, having an offering that is integrated into a company IT department might be a good idea, as IT never closes (even if the Internet is down for days, the IT department will still be working).

No matter what is happening globally, IT departments’ tools are likely to continue to be needed and/or increased during periodic changes to normal business operations, such as pandemics. It’s not a bad idea to be selling those tools as a long term business plan.

Takeaway: Not All Customers Quit For Financial Reasons

I spent one Saturday morning at the end of March compiling a list of customers who churned in the preceding four weeks, assuming that some of them did it for financial reasons. I emailed each of them saying that if they were having cash flow trouble, write back, and we’ll figure out a way to make it work for them during the pandemic time frame.

Not a single one wrote back, not one!

Those customers all left because they no longer needed the product. Not for financial reasons that would have been strong enough from my offer to help to save the project they were using QG for in the first place.

This really surprised me, I thought we’d get more of a response, but alas, that’s what I got! A bit of a head-scratcher, for now. I haven’t given up on some “win back” campaign, but so far, it looks like that’s not going to be a very successful endeavor.

First Month for Appointment Reminder (B2B / B2SMB)

(At the time the first half of this was written, there was no shutdown order in the USA yet, so I’m keeping it in there to show what my thoughts were at the time and how they changed through March 2020)

Appointment Reminder is the type of business usually in higher demand at this time of the year since it is tax return prep time. That demand causes an increase in CPA / Tax Prep company customers returning from years prior.

What I obviously didn’t expect was a pandemic at the same time.

With the extension of tax filing dates, I could see the CPA revenue stream continuing a few more months out than usual, which is obviously good for business. Yet, some CPAs also wrote in saying, “they’d be back in a few months,” implying they were going to take some time off until taxes are due again in July.

But that small bump will likely be dwarfed by the pandemic and the public/government reaction to it in the short term for Appointment Reminder.

AR is predominately a business that customers still need to keep setup and running during a short term loss in business velocity. At the beginning of March, I didn’t see a wave of cancellations, nor have I seen a diminishing number of signups vs. a typical March. Yet, many of our customers are SMB’s and a prolonged (by which I mean 4 weeks plus) shutdown of their business will likely cause bankruptcies for some of them.

It is important to point out that AR only runs for businesses in the USA and Canada, so any economic changes in those two countries will have a heavy impact on AR.

By the end of March 2020, we saw about a 10%+ pullback in customer billings almost exclusively coming from customers who had to cancel due to their businesses’ shuttering.

Almost all of them said they would be back as soon as this was all over, but that’s only if they are all still in business.

Many of AR’s customers are small businesses, nail salons, barbershops, yoga studios, exercise class locations, etc. Obviously, these are the types of businesses that everyone worries will fail before the economy can get back to a respectable level of traction, as they likely have a high fixed cost and little flexibility to survive a sudden cessation of income.

I imagine April will see the same contraction level – if not an accelerated amount of closed or postponed accounts. Obviously, that hits our viability as a going concern as well, as fixed costs are tough to get out of quickly.

Takeaway: Software Margins Save Your A** in These Situations

We all know that software has a higher margin and much more of a variable cost structure (I’m generalizing a lot there. Bear with me, as I realize some online businesses aren’t this fortunate), and with less usage, our costs will go down a bit. I’d guess maybe 2-3% reduction in costs for every 10% in lost revenue.

Compare this with the total loss of business for an Amazon store selling travel-related products, or an e-commerce business with no recurring revenue structure as part of the income plan, or an FBA store that either has a warehouse full of product they can’t sell or lost its Chinese production pipeline for a few weeks. Each month, those types of businesses must find new customers, convince prior customers to buy again, and struggle to keep their supply matching demand.

When you’re working with software products and services – especially those with a recurring revenue model and high margins – your business product is likely integrated into the way your customer makes money from their customers. Because of this, you may find that software businesses are a more stable bet than most other online businesses when times get rough in contraction periods, recessions, depressions, and even pandemics.

The higher margins help your business weather the storms because even if many customers need to cancel, your margins can keep you in the black through a prolonged storm… and even the occasional global hurricane.

Like many small businesses, if AR can survive to the point where the economy is allowed to function again, and most of the customers come back, it will survive through the pandemic. If a loss of 40-50% of customers is permanent, then AR would still be profitable from its margins, fun to operate, and continue to help SMB’s recover in the future as the business environment gets back to normal.

End of March Thoughts

This will continue to be a tough time for non-governmental employees, gig contractors, and small business owners in particular. I am afraid that governmental steps to curb real and perceived threats to public health and safety will come at the expense of those three groups almost exclusively when the dust settles (hopefully) in a few weeks.

The best we can do is move forward, accept the things that we can not change, and double down on the things in our lives that we have control over and manipulate for the better.

The ongoing viability of my type of software products and services, especially ones with a strong recurring revenue / SaaS component in the revenue model, further highlights why so many businesses are moving rapidly to a subscription-based economy.

Just imagine if my local car wash had created a monthly subscription-based service before this pandemic (I kept telling them to do it)? They would likely still have many customers paying for the subscription, even though they can’t get car washes right now.

I’m still paying for my gym membership, not because I can go to the gym, but because I know it will help out the small gym owners get through this difficult time and open soon. I’d be paying my car wash too, but they never opted to consider a subscription-based business model.

Looking ahead…April 2020 will have a full 30 days of lockdown, and those results will prove to be very interesting, I’m sure.

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Want to learn more about my journey acquiring and operating online companies, including other failed acquisition lessons learned?  Check out Online Business Ride Along, a monthly deep dive into my journey, with actual online investments and monthly P&L’s for each businesses.