Despite significant headwinds in the first half of 2023, the US economy continues to defy predictions of a recession–largely thanks to strong job growth canceling out the effects of interest rate hikes, layoffs across tech and media, and the well-publicized failures of several financial institutions.
Although that spells good news for revenue leaders, the threat of recession is ever-present–with the Covid pandemic serving as a recent reminder of how quickly companies can have to pivot from expansion to belt-tightening in response to events beyond their control.
AI is burgeoning but most early stage SAAS platforms continue to struggle with top line growth based on historical standards.
With that scenario in mind, Carpe Diem Partners was interested in discussing how Chief Commerical Officers and SVP’s of Sales in SAAS businesses reset their companies growth strategy. The firm interviewed 61 senior executive leaders in historically fast growing SAAS companies ranging from $10mm to $1B in ARR. On our minds: how these leaders have responded to the current market , and how they partnered with the board to weather the fiscal storms.
Pre-Existing Relationships With Board Members Matter
While these conversations yielded a number of specific strategies, the one thread connecting each of them is the importance of preparedness. Leaders who have no plan for pivoting when market conditions change are significantly less likely to navigate the difficult environment successfully than those who engage in regular contingency planning exercises.
Additionally, those with strong pre-existing relationships with board members are more likely to find a receptive audience during periods of tumult–particularly if they are committed to communicating openly and honestly about their challenges.
Strategies for Managing Revenue in a Downturn
Across the revenue leaders surveyed, a number of specific tactics and strategies for operating in straitened circumstances emerged. Among these were: finding opportunities to get closer with existing customers to ensure retention; identifying operational efficiencies; and identifying opportunities caused by the tighter market conditions.
1
Partner with existing customers
Several leaders noted that their chief focus in down cycles is to ensure that existing customers remain satisfied. That mindset is particularly valuable in the tech sector, where subscription-based pricing is ever-more-prevalent. The heart of this strategy was best summed up by one leader who identified their company’s approach as “Over serve, over engage, over communicate – important in growth but really important in down cycles.”
2
Explore operational efficiencies
On the other side of the balance sheet, reducing expenses can also help revenue leaders to maintain margins during periods of contraction in the wider economy. Leaders noted that specific tactics can include everything from freezing expenses to exploring a variety of pricing options to help clients who may be struggling to justify spend.
3
Look for new opportunities
“Headwinds can present a new opportunity,” noted one executive, who also cited mobile growth through the pandemic as a “significant opportunity for us, especially in health – this drove a new lever for us to find adjacent markets and expand into those.”
While finding solutions to appeal to new clients may seem counterintuitive during difficult economic environments, a number of leaders endorsed the strategy, and pointed to specific tactics such as mining customer data sets to identify opportunities, as well as exploring flexible pricing and even taking advantage of downtime to prepare for growth.
How Revenue Leaders Partner With Boards
Perhaps the most significant challenge faced by revenue leaders during a downturn is the degree of increased scrutiny from investors and board members–a fact that several executives readily acknowledged.
For those who have been through these scenarios before, the importance of strong relationships emerged as the single most important factor for successfully partnering with their boards–a strategy that is best begun long in advance of the downturn ever beginning.
As one leader noted, a key part of lies in “build[ing] the right relationships, establish[ing] the right dialogue. Find out what’s important to them then tailor the discussions around those. Some want lots of details, others less […] Sales’ job is to be aware of what is happening in the market and always stay ahead of it. Covid was an anomaly, and everyone had to react, however those that had effective disaster contingency processes identified were able to adjust quickly.”
For those who find themselves navigating through a downturn, another leader advised “being brutally honest with the Board during times like this. Build a bottom up model for forecasting and budgeting, based on strong assumptions or reality in the current market. Speak from the same page, no false promises or false expectations. Really understand your Board members and what motivates them […] The Board must be the biggest skeptics of the business and the team needs to embrace that and work with them.”
Key Takeaways
While no leader wants to face a downturn, those that expect and actively plan contingency and board relationships are more likely to succeed when they arrive. In addition to conducting regular scenario planning exercises, revenue leaders should also be invested in building strong relationships with their boards, even when market conditions are good. Indeed, by including board members on scenario planning, revenue leaders can build trust and gain buy-in for their downturn strategies before these eventualities ever arise, enabling a faster pivot and more latitude than leaders who are unprepared.
