Dawn Of The SaaS Zombies

They are already out there—walking amongst us. A growing horde of undead SaaS companies that no one wants to acquire or invest in.  

These are subscription revenue driven SaaS businesses with low to no-growth and early-stage valuation rounds that contained growth expectations that have failed to materialize. These Zombies lurch forward in niche markets as once novel tools or with weak business models. You can't shoot these Zombies in the head like you would a normal Zombie; SaaS Zombies can survive without a CEO, and I'm seeing a growing number of headless SaaS Zombies.     

SaaS Zombies stay alive because their subscription revenues keep the cash and revenue flowing for a period of time, just not at the levels hoped for or invested in. Data from the Kauffman Foundation shows that early stage high-tech companies actually start subtracting from the labor market after 5 years as they move on from the frenzy of their early growth years. High-tech start-ups are great job creators when they are starting-up, not so much when they start to mature.  

A SaaS Zombie can't raise capital at ever-increasing valuation levels, but it can survive by doing the same things that no-growth big companies do; focus on productivity and consolidation and pray for innovation. As the data above shows, this is exactly what early stage tech companies do, eliminate jobs. Doing the same with less, that's a productivity boost although it usually doesn't feel like one for the people left doing the boosting, but that's how the math works.        

Like any company, SaaS Zombies who cut their workforce can stop burning cash and scale to their level of recurring revenues to stay alive for long periods of time. Working against this however is the ability to innovate, product cannibalization by a competitive market and customer/employee flight. These companies frequently have MRR churn in the 2% range and are struggling to acquire customers and grow existing accounts.  

Some Zombies can survive by eating other Zombies, in the hopes that they find some growth synergies as industry rollups or complimentary product combinations. Zombie financing rounds from existing investors, also known as "dead money walking," or down financing rounds are already trending, but these businesses face hard operational decisions that aren't a part of their DNA.   

Eventually, some Zombies will be sold, but at much lower valuations than expected—it's a buyer's market and will remain one for these companies. IPO's will be difficult to impossible without a growth story and eventually many Zombies can and will die, but at least they will have kept their chances for some kind of an exit alive—and when the Zombies are running rampant, staying alive is the name of the game.

Buy Social Inc. Here Now!