November 12, 2020
- Cloud-based enterprise software companies seem recession-proof, according to a new report from OpenView Venture Partners with data from over 1,200 enterprise cloud software firms between 2018 and 2020, with 400 respondents this year.
- These companies responded quickly to the coronavirus pandemic and their software became a necessity for many customers, allowing them to grow faster than the NASDAQ and S&P 500 overall.
- Companies with a product-led strategy, which relies on the product itself as the primary way to drive customer growth, have been especially successful, the report says.
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Cloud-based software companies have largely shook off the effects off the coronavirus pandemic, according to a new report from VC firm OpenView Venture Partners, which collected data from over 1,200 enterprise cloud software firms between 2018 and 2020, with 400 respondents this year.
“Data from our 2020 survey answered the burning question on everyone’s mind: ‘What was the
impact of COVID on enterprise software?'” the report reads. “The answer: enterprise software is recession proof.”
One in five company respondents in 2020 said that their expected budget saw no impact, or even a positive impact, from the pandemic, while another one in five saw a negative impact of less than 10%, the report said.
Separately, public cloud-based software companies have also rallied back from a 50% plunge in March, and grown faster than the NASDAQ and S&P 500 overall.
How were these enterprise software firms able to do so well?
First off, these software companies moved quickly in response to the downturn, according to OpenView VP of growth, Kyle Poyar, by shifting their marketing strategies for new use cases and customers.
What’s more, cloud-based software has become a necessity for customers as they move their businesses online. As a result, these companies were much more durable than expected, Poyar says. And while many companies had layoffs early on in the pandemic, enterprise software companies are now ramping up hiring, making the job market more promising, Poyar says.
“When you’re thinking about it from a buyer perspective, they realize that it’s more expensive to do without their software, both in the short term than long term,” Poyar told Business Insider. “Software is helping make team members more productive … It would be very short sighted for a customer to look at a recession and say, let’s cut software.”
A product-led growth strategy led to gains
Companies with a product-led growth strategy grew even faster than enterprise software companies overall, the report says.
A product led growth strategy means that a company relies on the product itself as the primary way to drive customer growth. Companies in this category will use tactics like offering free trials and making it easy for companies to buy the software directly, instead of having to rely on salespeople.
Some common examples of companies like this include Slack, Dropbox, Atlassian, and Zoom. Snowflake and Asana, which both went public this year, also use that model.
Users now have more time during the pandemic to discover new software and bring those tools to their companies, according to Poyar:
“I think with the pandemic, we’re seeing a shift to remote work all of a sudden empower these individual users to be far more proactive,” he said.
Companies that take this strategy often grow slowly in the early days, but after reaching $10 million in annual recurring revenue, these companies are able to scale faster, the study said.
“Product led growth companies are able to grow faster and more efficiently,” Poyar said, “Because they’re taking things that would be done in a manual intensive way and putting that into the product.”