How are Indian B2B SaaS companies balancing high growth with capital efficiency

Trailblazers adopt product innovation strategies to win niche market opportunities and drive capital efficient growth. Dashers invest in sales leadership and build partner-led expansion strategies to scale enterprise accounts and optimize their sales and marketing operations.

Balancing growth and addressing key challenges 

Indian B2B SaaS is targeting a positive growth for 2023 despite some weakening macro-economic trends. In the survey, only 20% companies indicated ARR growth targets of less than 50%. As many as 80% companies are aiming higher; equally split between hyper growth (50% to 100% ARR growth) and ultra-growth (more than double growth). In other words, eight out of 10 companies are targeting 50%+ ARR growth.

CXOs are prioritizing a combination of business strategies that accelerate growth while being capital efficient. There is a high emphasis on product-centric adoption through approaches such as innovation in existing products, upselling and cross-selling as well as promoting partnerships and new products. In addition to that, pricing structures are customized to meet the parameters that small and medium enterprises demand.

Another key strategy that CXOs choose is quick product iterations and building differentiation through automation and AI/ML capabilities which improves customer experience while building a strong initial value proposition.

HCM, CRM/CDP, AI platforms and FinTech are the top sub-segments targeting ultra-growth. Planning for the next level, Indian B2B SaaS companies are at present targeting niche opportunities in small and mid-sized enterprises through product innovation, differentiated pricing and product modularity to optimize burn rates. 60% of the companies surveyed have reported these as their top strategic priorities. The trends in the survey also indicate that companies are shifting from product-centric growth to sales-centric growth as companies scale in size. However, there are challenges inhibiting capital efficient growth. One of the top challenges is delay in customer closure cycle and sales inefficiency. Here, sales transformation is a key challenge highlighted by the majority of respondents in the light of current macro environment. 

In the near term, organizations need to address challenges related to optimizing sales closure cycle by streamlining sales operations, understanding client-end integration and mitigate skill-gap requirements. India is poised to become the next SaaS capital and B2B segment has the potential to be the flag bearer, driving long growth and value.

What opportunities lie in the future

Given significant dry powder build-up due to a market pullback by leading SaaS-focused Indian VCs/PEs that are picky about their investments, the focus is on companies that have strong unit economics. For Indian B2B SaaS companies with a demonstrated path to profitability, this presents an opportunity to raise capital on favorable terms, and double down on growth.

Moreover, the high-growth, high capital efficiency signature of Indian B2B SaaS opens up significant M&A opportunities for it. While our report finds that M&A is the least favoured growth strategy of Indian B2B SaaS, the emerging class of capital efficient large Indian B2B SaaS companies can explore M&As to consolidate their market position and enhance their product capabilities. Indian B2B SaaS companies are also expected to emerge as attractive M&A targets for global software companies looking to augment their product capabilities in niche areas.

While Indian B2B SaaS companies navigate through the current global market outlook, it continues to be compared with the Indian IT services sector, on how soon it can overtake services and take a bigger slice of the GDP pie.