Lessons in SaaS from the 2008 downturn — what can we expect?

Alex Kayyal
Mar 26 · 4 min read

We are all facing the same existential threat right now — and it’s profoundly more challenging than anything else most of us have experienced. At Salesforce, our priority has been on making sure our employees, families, and communities are safe and healthy. We’ve also maintained our focus on customer success and Salesforce has shared a number of valuable resources to help our customers navigate this unchartered territory.

At Salesforce Ventures, we are acutely aware that founders and teams across the globe are struggling with how to make difficult and sometimes painful decisions — what course of action to take, how to rewrite 2020+ budgets, and what assumptions to make around customer adoption, revenue growth, sales efficiency and cash burn. Of course startup CEOs are always operating in uncertain conditions, but the current situation calls for an entirely new level of thoughtfulness, analysis, and grit.

This pandemic is obviously different than any other downturn and so much is still unknown, but I thought it might be helpful to take a look at some data around the last big financial crisis of 2008/2009 to see if there are any valuable lessons we might be able to draw on.

For context, during the 2008 downturn, the Nasdaq index fell by nearly 50%. It took about 170 days for the market to hit bottom. So far in 2020, the Nasdaq has fallen about 30% in less than 30 days due to COVID-19, making this one of the fastest and steepest declines in history.

Here are three metrics and how public SaaS companies were impacted in 2008:

Revenue Growth

For this analysis, we’ve looked at three periods, each comprised of three quarters: pre-crash, mid-crash and post-crash¹.

Growth rates by company, by period (quarterly growth YoY)

Across the board, and regardless of revenue size, most companies experienced significant reductions in growth rates during the 2008 crisis. Athenahealth was a notable exception which saw modest growth acceleration, as some SaaS businesses were more defensible.

Summary revenue growth rates

The median quarterly growth rate (YoY) prior to the crash was 44% growth. This fell to 11% in the 3 quarters after the trough of the crisis, representing a reduction in growth rate of 74%. Importantly, this was true regardless of ARR/revenue level. On a more positive note, SaaS companies did continue to grow (despite the lower rate), which is certainly not true of other industries during this period.

Sales Efficiency

It is pretty intuitive that sales efficiency will get worse in this period. But by how much? We’ve defined sales efficiency as the ratio between gross margin adjusted incremental quarterly revenue and S&M spend in the prior quarter.

Sales efficiency by company, by period

A similar picture emerges, where sales efficiency deteriorated for almost every company in the benchmark.

Summary sales efficiency

Sales efficiency fell from 68% pre-crash to 30% post-crash, resulting in a 56% deterioration in efficiency. Interestingly, however, for many companies we started to see a rebound in efficiency 6–8 quarters after the trough (as sales efficiency improved from 28% during the crash to 30%).

Cash Burn / Profitability

Finally, we’ve turned our attention to cash burn and profitability. Here we use EBITDA as a proxy for cash flow and look at the evolution of the “rule of 40” over this period (which suggests that a software company’s growth rate + FCF margin should combine to ~40% or more).

Rule of 40 by company, by period

Most companies saw significant declines here as well, as sales efficiency deterioration, lower revenue growth and large people costs resulted in lower EBITDA margins.

Summary “rule of 40” metrics

Companies here saw a 39% decline in profitability, as the median “rule of 40” fell from 41% pre-crash to 25% post-crash.


The next few quarters will be tough for all of us. The good news is that every company in this benchmark survived the crisis, and went on to become an even bigger company. Recovery rates were also relatively quick, and definitely quicker than other industries (as growth picked up by Q4 2009).

This will be a defining moment for us all, both professionally and personally. It’s more important than ever for all of us to do what we can to plan ahead while also ensuring the wellbeing of our families and communities.

Big thank you to my colleague NK who helped with putting this blog post together!

Source for data: Capital IQ
(1) As Salesforce is on a January year-end, the figures represent quarterly numbers for the periods ending April (Q1), July (Q2), October (Q3) and January (Q4).

Salesforce Ventures

Salesforce Ventures invests in the next generation of…

Alex Kayyal

Written by

Partner at @SalesforceVC. I invest in the next generation of enterprise tech.

Salesforce Ventures

Salesforce Ventures invests in the next generation of enterprise technology to help companies connect with their customers in entirely new ways.

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