Over the last few years, the number of startups and solution providers in the technology space has been growing to handle everything from social media marketing and customer experience personalization to fraud prevention and shipping management. A market crowded with service providers can be good for ecommerce merchants, because it’s easier than ever to find solutions that work with your business model.
But technology isn’t the only factor to consider. To make sure you’re picking vendors and partners who will stand the test of time and help you compete in a rapidly accelerating field, it’s also wise to consider each option’s funding structure, experience and data resources.
Ask about investment strategies
Many SaaS providers that serve ecommerce are getting investments, especially now that the pandemic has pushed many customers to digital channels. As you do your due diligence on potential vendors and partners, you’ll likely find reports on how much investor capital they’ve raised, in how many rounds, and from which investors. Impressive funding can be an indicator of innovation and confidence. It should also encourage you to look more closely.
Venture capital can be a double-edged sword. It can help companies recruit top-notch technologists to innovate and improve their offerings. Or it can drive business decisions that reduce product and service quality. It's no surprise that investors expect a good return on their investment. Some investors are in it for the long haul, but some want to maximize ROI faster than the median time-to-exit for their industry.
Short-term ROI typically calls for rapid revenue growth. Startups can achieve growth over the long term by developing excellent products and marketing them well. Short-term growth often requires a strong focus on sales. It’s not uncommon to see investment-heavy solution providers with sales and partnership teams that are much larger than their engineering and deliverables teams.
Another factor to consider is that investors seeking short-term growth also want high margins. Increasing margins typically requires cutting costs, and that can affect customers through cuts in service and infrastructure.
As you review prospective solutions or partners with investment capital, it’s smart to ask:
- What’s the track record of the company’s investors? Are they known for building long-term value or pursuing short-term ROI?
- Is the company investing in talent acquisition and product development?
- Is customer service limited, especially for the rates customers pay for the service?
- What’s the overall quality of the company’s service or solution?
Ask about experience
Solution providers who have been in the market for a while have the experience to help their customers and partners deal with challenges they’ve seen before. However, many startups are young.
To identify experienced partners and providers, it’s important to look not only at the company’s founding date but at how long they’ve been serving customers and helping them solve real-world problems. Types of experience to look for include:
- Has the company successfully navigated previous recessions and bubbles?
- Does the company have experience working with customers and partners in your industry? In your vertical?
- Does the company have experience providing solutions in the geographic markets you operate in or plan to expand into?
- Does the company have experience working with customers or partners of your company’s size?
Ask about algorithms
Experience is important for algorithms, too. Because so many SaaS companies rely on proprietary algorithms to power their solutions and on machine learning to improve those algorithms over time, it’s important to know:
- How long has the company’s algorithm been in use?
- How large is the database that feeds that algorithm?
How much do these questions matter?
These questions may seem like overkill when you’re choosing a solution provider or looking for a partner, especially if you’re impressed with the technology on offer. However, the consequences of choosing a SaaS company that’s more flash than substance can lead to problems if their bubble bursts. For example, if a company fails to hit growth targets in time to satisfy investors, it may be subject to severe cuts to raise margins. Or it may be sold to other investors who start their own round of cuts and sales growth.
Rarely, the focus on growth and investment can take a dire turn. For example, fraud prevention provider NS8 recently had to lay off hundreds of employees after the FBI arrested the CEO and charged him with altering the books to make the company appear more attractive to investors. Major crises like this have the potential to impact customer experience.
For merchants who want solutions and partners that serve their business well over the long run, investment totals and new technologies can’t take the place of due diligence. When combined with experience, good data and a focus on long term value creation, investment and innovation can create a “virtuous cycle” that propels customers toward their goals. Without the right experience, information and focus, though, capital and technology are not enough to help merchants compete and win in the increasingly competitive ecommerce space.