We’ve felt it – everybody has. The “credit-crunch,” the “downturn,” or whatever you want to call it. The impact of this latest wave of economic news is being felt globally. A lot of companies, small and large, have put their plans “on hold” indefinitely.

So we’ve wondered – what is the outlook for SaaS development in this market? What do new ventures have to look forward to? Well, there are several thoughts on that. Amy Wohl, the author of Succeeding at SaaS, wrote in her recent blog entry:

I’ve been stating strongly that this is the best of times for SaaS. In an economic downturn, companies should — and do — find a solution that requires no capital investment and little or no labor very appealing. When you add the fact that it can often get projects started more quickly, it’s easy to see why it’s so popular.

So buyers need SaaS even more in this time than ever – but that still doesn’t make it easy for ISVs and startups to consider, much less lay out the cash for new products. Many just see SaaS as just more industry hype of an idea with a long history. Certainly SaaS is a different business model for those with traditional, licensed products. Is it profitable? Yes – with a great product (of course), but it is true the cash flow in a On-Demand model takes a different approach. The typical startup advice is to have four years of “runway cash” on hand for a SaaS business. I’d say that’s true – but not always. The customers we generally work with are serving a vertical niche that they understand well. They know the “tipping point” for features their market requires and are willing to build to it and leverage the Agile product management approach to continuously improve. They know how to get to their customer base because it is well-defined. They can continue to build their product to serve markets horizontally over time. They aren’t trying to replace a general purpose, desktop application. From what we’ve seen, these are key points in successful SaaS products right now.

SaaS industry pundit Jeff Kaplan wrote an article for Seeking Alpha that’s worth a read. I like this quote from his article:

The truth is that there are many successful (i.e., profitable) SaaS companies. Salesforce.com (CRM) is experiencing exponential growth, achieving unprecedented customer satisfaction ratings and reports limited profits only because it is seeking to win market share and could easily generate greater profits if it wanted to accept slower growth.

That is the point after all – the roadmap, the market, and the opportunity define the need for cash – not SaaS or On-Demand business models themselves. There are lots of strategies, but those are the choices everyone has to make in every business. The opportunity in this market – it seems to me – is to fill a growing need.