Challenges for B2B SaaS 2023

Software as a Service (SaaS) has gained considerable traction in the tech industry in recent years. Businesses have been taking advantage of the convenience and flexibility of SaaS solutions, and the ongoing pandemic has only sped up the adoption of such technologies.

According to Statista research, the SaaS industry has grown by over 70% in the past three years and is expected to keep increasing by at least 15% per year. This is especially evident in investments in pre-seed and seed startups, which have ballooned from $27.4m in 2012 to $258m in 2022.

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However, as the world continues to face numerous challenges, what does this mean for B2B SaaS platforms? In this post, we will explore some of the potential issues that B2B SaaS businesses may face in 2023.

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B2B SaaS business model's challenges in 2023

Inflation and increasing product development costs

Inflation has been steadily increasing worldwide, with the US - the biggest SaaS market - at the helm of this unwanted trend. Even traditionally steady Western Europe has been affected by rising prices. The same applies to Eastern European countries, which have historically been strong start-up hubs, such as Estonia and Poland.

As a result, everything is becoming more expensive, which can be particularly challenging for bootstrapped companies that rely on cash flow from current clients. To combat this, companies must try to increase their Average Revenue Per User (ARPU) through up-selling and cross-selling efforts. In addition, the cost of developing a product has also been on the rise, and hiring developers can be very difficult as well as managing their work.

Nowadays it’s better to hire a complete team of experienced developers as they will save you money by avoiding bad practices that usually lead to rewriting the code and losing your clients through bad performance. They also might know hacks like building no-code/low-code MVPs and other ways to save money in order to achieve long-term business goals.

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Decline in the number of SMBs

The global economy is unstable and with prices going up, so are the costs of doing business. This could lead to a decrease in the number of small and medium-sized businesses (SMBs) worldwide, which could result in fewer customers for B2B SaaS companies, making the market even more competitive. However, so far, the data has not shown a significant decrease in SMBs - as of October 2022 closure rates have remained consistent at 19% since January 2022 (20%).

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Continued commoditization of SaaS

The number of SaaS entities created every year means that the sector is becoming increasingly crowded. According to Crunchbase, there were 3052 SaaS companies founded in 2021 and 1069 in 2022. This makes it harder for companies to find a niche and differentiate themselves from the competition.

SaaS tools are becoming more and more commoditized and while software still has a substantial economic value, it may no longer be the most exciting technology out there. New technologies, such as NFTs, blockchain contracts, web3, quantum computing, and metaverse are gaining popularity and could take some of the spotlights away from SaaS solutions.

This could lead to the emergence of new roles in companies, such as COOs and pricing chiefs, to ensure optimal business operations.

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Managing hybrid work and dispersed teams in a post-pandemic world

The pandemic has pushed remote work to the forefront and nearly half of all employees now work in a hybrid model, with 83% declaring that this is the best way to work in the future.

While this can be beneficial for companies by cutting down on office space costs and allowing them to access talent from different regions, it also comes with some issues.

Companies must make sure that their workplace is optimized to maximize collaboration, productivity, and the well-being of their employees. This means dealing with different mindsets, and attitudes, changing the rigour of meetings and fighting Zoom fatigue.

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Reduced willingness to pay for paid products

The freemium model is becoming increasingly popular with many companies offering free versions of their products. This trend, combined with the product-led growth model, will likely lead to a decreased willingness to pay for paid products. While the freemium model can be great for customer acquisition, it can make it hard to monetize the business. This could be especially difficult for bootstrapped companies, which may find themselves competing against VC-backed peers.

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Shift towards usage-based pricing and monetization reengineering

Usage-based pricing models have been gaining traction over the last few years, with 25% of SaaS companies adopting this model in 2021 - up from 20% in 2019. This trend is likely to continue, with 79% of companies projected to adopt or restructure their usage-based monetization by 2023. While this can be beneficial for both customers and companies, it can also be very challenging to restructure the entire billing model.

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Poor customer experience

Improving customer experience is key for SaaS companies, but it can be difficult in a saturated market. Gartner research found that SaaS customers complete more than 60% of the buying process without engaging with the vendor.

This means that companies must focus on providing outstanding customer experience throughout the part of the customer journey that happens on their platform: from onboarding to ongoing support.

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Service decentralization and unbundling

Customers now expect to be able to pick and choose software from different providers to create a seamless stack. This means that B2B SaaS solutions must be able to integrate easily with other platforms. So a major differentiator for SaaS companies could be providing a strong product that can easily integrate with other solutions.

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Privacy and compliance changes

As the world becomes more privacy-oriented, companies must ensure that their software helps them stay compliant in handling customer data and keeps data secure and protected. As laws evolve, companies must act quickly and provide regular product updates to stay in step with the changing legal landscape.

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Poor support system

Customers may be discouraged from using a solution if they encounter difficulty implementing it or have difficulty using it. To ensure customer satisfaction, companies must provide excellent support and make sure that the supporting systems are user-friendly. Failure to do so could lead to customers abandoning the product.

The top crucial challenges for SaaS owners include: 

• user onboarding, 
• customer support, 
• billing, 
• bug reports.

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Challenges? Or maybe opportunities

The SaaS industry has seen remarkable growth in recent years and is continuing to evolve with the introduction of new technologies. While there are a number of challenges that B2B SaaS businesses may face in 2023, such as inflation, commoditization, and privacy and compliance changes, companies that are able to adapt to these changes and deliver value to their customers will be well-positioned to succeed. 

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As we can learn from companies’ valuations there is still plenty of room for new startups to be founded. Look at the enterprise value of companies established after 2015:

In the upcoming articles, we will be looking at how B2B challenges can be turned into opportunities and at the current trends in B2B SaaS.

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If you are looking to develop a software project or maintain and optimize the current one, Winalife can be your technology partner. Our team of experienced developers is here to provide you with assistance, no matter the complexity of your project.

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