As worsening global macroeconomic conditions continue to hit technology businesses, Indian software-as-a-service<\/a> (SaaS<\/a>) startups, stuck in a limbo, especially at the early stages, are actively reevaluating their product and sales strategies to offset a loss in margins, customer churn and slowdown in overall sales cycle.

Lengthening sales cycles due to involvement of finance teams in purchase decisions and continuing cost shedding by enterprise customers are posing challenges of falling revenue for Indian SaaS startups<\/a>, which may lead to down-rounds, or funding at lower valuations than the previous round, founders and investors ET spoke to said.

To add to the troubles is the limited runway for several startups, as funding taps dry due to global macroeconomic slumps, which may potentially lead to shutdowns in the next two to three quarters if the overall situation doesn't improve, at least three people in direct talks with some of these startups said.

To counter the slowdown, SaaS<\/a> companies, which cornered large rounds at high valuations from investors during the funding peaks of 2021 and 2022, are actively looking at pivots, in terms of product, demographic of customers and looking to sell to global markets such as the US and Southeast Asia.

The SaaS industry is also forced to offer deep discounts to sign up customers for multi-year contracts, putting additional pressures on their margins.

According to a dozen founders and investors that ET spoke to in the space, the industry is going through a “reset”, as the going gets tough with SaaS companies taking a direct hit with customers tightening their purses. Even practices of selling software to other SaaS startups<\/a> (to show sales growth) has stopped as most companies are stuck in a tough spot and actively taking calls to prune costs through restructuring exercises.

“The overall mood in the SaaS industry is uncertain and a ‘reset’ (in terms of valuation and growth guidance) is happening. Earlier, SaaS companies were selling to other SaaS companies, with venture capital money being used to buy software and drive business growth – which has stopped (among software firms). All that has changed and from an enterprise point of view, only ‘mission critical products’ are being considered for purchase, but those too under a lot of constraints,” said a serial entrepreneur in the software space.

Sales cycle double, CFOs make calls<\/strong>
Now decisions regarding software spends have moved to finance teams, with chief financial officers (CFOs) giving the final sign offs, instead of the concerned business heads, as pressure to rein in cost mounts.

This has led to sales cycles almost doubling for some players from 2021 and 2022, depending on the industry.

“How will deals be struck if customers themselves have no money? At this point in time, it is very hard for SaaS companies to build a solid growth rate. Now there is added due diligence on every deal, asking if the software solution is really required right now or not … it usually takes us one month to close a deal, this was the case until 2021 and early 2022. Now it is taking us at least two months to close a deal,” said a third early-stage founder ET spoke to.