I never expected my first substak post to have such a somber title, but as you will find out if you stick around, this is not a doom and gloom article. Contrary to that, this article presents meaningful ways in which companies can adapt to the downturn and weather the harsh climate ahead of us. But before we can offer hope, in the form of metaphorical Tech Valyrian Steel and software breathing dragons, we can’t ignore what those of us who experienced prior downturns can recognize as a familiar pattern, there are rough waters ahead.
In a recent article, “2023 will be a graveyard for startups” Maelle Gavet the CEO of Techstars shared her take on the challenges companies will face in 2023. The article highlights the fact that early stage startups will find it more difficult to find backers and late stage companies will scramble to stretch their available funding, or face the harsh reality of a down round, or worse. Maelle also offers hope in the fact that tough economic times often lead to increased creativity which could result in the founding of industry changing companies or the breakthrough of existing ones in the next couple of years. As it turns out, creative thinking can also help existing early stage and growth companies weather the coming tech winter.
Regardless of whether you subscribe to the extreme tech graveyard prediction, or simply to the uncomfortable tech winter ahead, it is clear that companies looking to survive and thrive through this downturn will have to adapt. Throughout the recent tech boom and up to earlier this year, there was a lot of emphasis and a high premium placed on growth, almost at all costs. That story very quickly changed to focus on operational efficiency, unit economics, customer retention and cash preservation. Leading to mass layoffs and shrinking headcounts. However it will be a mistake to think that it means companies are not expected to grow, that is still the goal, but no longer at all costs, the name of the game in the coming years will be efficient growth. Companies that figure out how to maintain growth rates, even in difficult economic times are the ones who will come out the other side of this victorious, because as the bacon saying goes, every balance sheet looks better with growth in it.
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Before we look at building new growth engines, there are several adjustments that can be made to optimize the existing sales centric revenue growth, as suggested by Sahil Mansuri (CEO of Bravado), when hosted on Lenny’s podcast in the episode “How to hit revenue targets in a recession”. Sahil covered solid advice on “how to shift your sales strategy to meet the market” (spoiler alert: cold calling will be less effective, develop ways to get warm intros instead) and “how to set a conservative plan that still allows you to lean into growth when possible” and even how to better align sales comp plans with the needs of the business. I am not discounting any of that advice, on the contrary, I recommend that every founder and tech CEO listens to the interview. However, I doubt that the solution to weather the coming downturn lies only with better management of the sales team. Companies will no longer have the privilege to achieve growth by adding more sales and marketing headcount, they simply wouldn’t be able to afford it.
The key in my opinion is for companies to balance their growth strategies from only relying on expensive sales headcount centric approaches to adding more cost efficient ones? Which growth strategies can be added that will both be practical, affordable and still achieve results? Look no further than at how PLG (product led growth) companies have been delivering YoY revenue numbers upward and to the right for over a decade, while keeping customer acquisition costs low and in some cases approaching $0. You can’t get more efficient growth than this . Now as you may rightfully point out, most tech companies are not set up as PLG companies and many are not even SaaS companies, how can this be relevant to those? As it turns out, with some creativity, many of the PLG growth tactics and strategies can be implemented in one shape or another even at traditional tech companies when the product is not user facing, such as in infrastructure solutions, and even when self service is not possible. I will share some relevant examples here and in future posts.
In the next post we will dive into practical examples for achieving growth even under limited budgets and tough economic conditions. The examples will span across the three growth pillars, reducing customer acquisition costs, increasing growth and retention and improving monetization. As it turns out, there are many ways to drive growth that don’t include adding more sales and marketing headcount.
Happy growth explorations - Excelling Growth
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