Technology & Leadership
Can You Recession-Proof Your Customers?
“Enterprise sales processes are slowing and some deals that feel like they were won are not getting across finish lines because of CFO mandates on no new spend.”
At Osage Venture Partners, we are already hearing these rumblings. Not everywhere and not at every portfolio company, but enough to see that spending sensitivity is beginning to increase across multiple sectors. I am sure we will hear it even more as we get into third quarter board meetings. Growth rates will likely slow in many companies in the coming months and companies which have “nice to have” versus “need to have” products will feel it more. From our learnings in past cycles, we know that ROI-driven technology sales do fairly well in economic downturns as the technology/labor equation readjusts, but there is usually a freeze or tightening of budgets at the beginning of a downturn with a gradual loosening of dollars over time. So, while growth rates will likely slow, the good news is that growth from new customers will be achievable for companies with strong product-market fit.
While tightened budgets often hit new spend the hardest, existing spend across the business is highly scrutinized. CEOs of software companies must be acutely aware that many of their buyers are being asked by senior management to rank the criticality of their technology spend. What is the ROI of each software product? Is the product cutting costs through automation? Is the product increasing efficiencies and productivity? Is the product streamlining business operations? In other words, is the product living up to the promises from the sales cycles?
As buyers rank the criticality of their technology, CEOs of software companies need to take proactive steps to put their company in the best position to prepare for and weather the current economic downturn in addition to the scrutiny of their customers, sponsors, and the customers’ finance teams. Here are some suggested actions:
- Segment your customers. If you do one thing – do this. Focus on the big dollar customers first and leave the small, loud, or unsatisfied customers for the end. This is not about logo retention but dollar retention. Focus on extending your runway.
- Score your customers. If you have not scored your customers for level of satisfaction, do it immediately – and score them for value, not just lack of complaints. Your “green – yellow – red” ratings (or more sophisticated scorings) need to be based on product usage, value delivered or goal achievement, and customer fit. The great thing about most SaaS products is that you already have this data, or can infer it. Focus on what can make a difference. Turn your yellows into greens first. Can you provide resources to make them more successful? During a downturn, the reds may be lost causes – and that’s ok.
- Ensure facetime with decision makers. Schedule quarterly business reviews (QBRs) with all key customers – whether or not you consider them satisfied. There may be subtle issues or politics that you do not know about that could put your relationship at risk. For example, your buyer may be feeling increased pressure to rank the criticality of their tech spend. Facetime with that buyer goes a long way and will help your ranking. Go to the meeting with data. Show metrics that prove your ROI – product usage, goal achievement, and qualitative feedback. Arm your buyer with the data they need to prove a high criticality ranking. Second, try to get as high in the organization as possible. Don’t stop with your day-to-day users or sponsor – identify the person who controls the budget and ask them to participate. Is there a high value offering you can provide (that costs you little)? Is there a product feature they want that you can accelerate? Now is the time to make your satisfied customers even more happy (or to identify and fix small things that might put your relationship at risk).
- Act beyond the QBR. If your relationship with the buyer or sponsor is strong, dig into what you can do to help them. It is likely that they will be under pressure to decrease cost and increase performance – the more you can do to drive value to the customer from the relationship, the safer you will be. This is not about cutting price, but maybe finding ways to expand usage or to provide additional training to grow the user base. The more users you have on your product, the safer you will be.
- Accelerate renewal decisions. Give a modest discount for an end of year renewal to be agreed to in October. You might be competing against many more products for limited budget at year-end and the discount might matter. The economy could be worse and the pressure greater sixty days from now.
- Design additional incentives for turning annual contracts into multi-year contracts. Because things might get worse before they get better, try to lock in customers for a timeline beyond what we expect to be the deepest economic downcycle. Consider fixing the price for three years which might calm inflation fears and worries about price increases next year.
- Think about a managed service offering. While this is more expensive for the customer and more revenue for you, it might render a win-win for the customer by enabling them to eliminate people who use your software while maintaining the benefit of your technology with your more efficient, hopefully lower cost, managed service offering.
While this list is certainly not comprehensive, it can offer some low-lift ways to remain top of mind with your buyers. Most importantly, as software CEOs and Customer Success leaders, you need to be proactive about recession-proofing your customers. If you need to spend a little more or concede some on terms to retain a lot of value, then these are dollars well spent. Make a plan, work with your team, talk to your customers, and put the big dollar customers first.