You might know I am writing my second book, themed “Remarkable Resilience,” and in essence, I aim to answer the key question: What are the secrets SaaS businesses leverage to not only bounce back from adversity but to come out stronger as a whole.
A big aspect of addressing this challenge is the question: How can we keep growing ARR momentum and more specifically: How to make a market downturn your tailwind? So this is what I’m addressing in this blog.
Step 1: Get crystal clear about what’s changing and what’s most challenging.
A market downturn always results in a shock effect – whether it’s the recent COVID pandemic, an economic crisis (like we’ve seen in 2008), or a regional (or global) conflict (such as the effects of what’s happening today in Ukraine). And that results in an unpredictable reaction that can last for months, even years.
And although the analysts are often not in agreement about the answers – one thing they agree about is: Crisis brings opportunity. And that opportunity is hidden in the changing priorities. What used to sell well up to yesterday, not necessarily sells today anymore. This is about the perception of value. Something that was mission-critical yesterday can become a nice to have today – and vice versa. So it’s not that everything ‘locks’ (at least not for long) – investment priorities shift. And that’s the opportunity to not only meet your forecasts but to exceed them.
So the first priority is to get a deep understanding of ‘what’s changing’ for your ideal customers. In what ways does this change affect their business – and hence their perception of value?
Here’s where the Broken Triangle model that I describe in my book The Remarkable Effect (page 24/25) helps in getting clarity.
Populate an extensive list of the challenges your ideal customer will need to address to keep their business alive (and ideally come out stronger). Then rate each problem on a scale of 1-10 for each of the following three questions:
- What’s still highly valuable (in the eyes of your ideal customer)?
- What’s (become) highly critical or urgent to them?
- Where can you exceed expectations?
This will give you a formula (1 * 2 * 3 = total score) – and hence a solid understanding of the new reality for your customers. It will allow you to see the wood before the trees again to determine your own priorities.
From here the strategic work starts: What can you do differently to turn the market downturn into a tailwind for your business? Here are some angles to critically review:
- Where are you positioned extremely well in line with the renewed priorities?
- What dots can you connect? What are the shifts that matter most? Are there any themes?
- What new critical objections have to be overcome to keep or grow momentum? Think f.ex. about how cost sensitiveness changes expectations around time to value / ROI.
- Finally, review with your product, marketing, sales, and services team what needs to be added, adjusted, or eliminated? Mind you – sometimes the answer is not in ‘more’, but in ‘less’.
Question for you to reflect upon:
If you look at your SaaS business with an investor’s eye – what unique value could you leverage to turn (the current) market turmoil into a tailwind behind your business?
Step 2 – Find the gold
Angle 1 – Refocus on the shifting priority
Zooming into the shifting priorities can bring many opportunities to turn a downturn into your tailwind. The art is in seeing the shifts. And often, that’s hard. As they say, often we can’t see the wood before the trees – we are too close to the problem. We’re also biased. We keep telling ourselves the story that ‘This is what we do, and this is what we do best.’ So it’s hard to acknowledge that customers can start to see that differently when adversity hits. But this doesn’t make the opportunity less.
Let me give you an example from the weekly podcast interviews I do with startups from around the world. Here’s one from Maria Colacurcio, CEO of Syndio. She shared this in the podcast interview we did in October 2021.
I remember the Monday when the Dow had its biggest drop in history because of COVID. We were right in the middle of raising our series A. That was a really scary moment for us as a company because we didn’t know what would happen. Like everyone else, we thought, ‘What’s going to happen to q2 and the rest of the year? Are people just going to stop in their tracks?’
Many of us saw that there was this freeze first, and then the layoffs came. And for us, we never went out. We never were a system that wasn’t absolutely critical. We never became a nice-to-have even in a moment of extreme stress and anxiety for companies because of adverse impact. So as companies were thinking about layoffs, they had to make sure they were doing this in a way that protected their legacy and that they were doing it, making sure that fairness wasn’t taking a backseat.
And so we were an incredibly valuable solution for our clients during that time. And then that evolved into this massive movement around racial equity in companies. And we saw an incredible tailwind from that because we had created a solution from the beginning that was ultimately configurable, where you could run analyses simultaneously across comparison. So you could look at gender alongside race and ethnicity and whatever way you want it. So once leaders started to make commitments around addressing racial equity in companies, we were a really obvious way to fulfill and take action on that commitment.
The critical takeaway from Maria’s example is:
- Step back – and always aim to see the big picture. It’s easy to get into shock mode because the world is falling apart. But in this chaos, opportunities hide.
- Understanding context is critical. Understanding what’s changing in the context your customers use your solution can turn it from nice to have into something mission-critical.
- Don’t be hung up on what you think your solution is or should be. Winners adjust their positioning to paint a crystal clear picture in the mind of their customers around what they care about most. It’s not set in stone.
Question for you to reflect upon:
What have been the top 3 external pressures that have shifted priorities for your customers over the past year? Has this impacted the positioning of your product or business for worse or for better?
Angle 2 -Refocus on the new constraints
Another way to find new areas for growth when the market hits a downturn is to dig into the question: What are the new constraints that people/companies have to work within?
It might very well be that the priorities haven’t shifted, but the way to achieve them has become a lot harder and requires a different way of working.
“We noticed in the heat of the pandemic that more and more sales were becoming remote. Traditionally there had always been different functions within the sales organizations that had been remote. Still, when the world changed, everyone had to move into a situation where everything was done remotely.”
“Solving this wasn’t just about automating these things. It’s about helping that human salesperson who’s interacting with another human -the customer – and do their job better in this new setting.”
“What we noticed is that, in parallel to helping the salesperson do their job better, there’s a whole organization here, a go-to-market organization, which is now working remotely as well. They used to work side-by-side.”
“Normally, if you’re sitting next to someone, you can solve problems more quickly. However, you need a different way of sharing best practices.”
“So they need the tools to engage better, but they also need a shared dynamic knowledge base to work from together. So that was a problem we addressed.”
When a market downturn happens – there are 100s of opportunities like this where you can help your customers make a difference in achieving the results they aim for within the new constraints they have to deal with.
Just think about your customers having to achieve the same targets
- …with fewer people
- …with less budget
- …without being able to meet face to face
- …within a new set of rules & regulations
- …while meeting a different set of customer expectations
How you leverage this opportunity differs. The three most common ones are:
- Repositioning: It can very well be the solution you have already has remarkable ways to address this new constraint. It was, however, never a big issue until this moment. Then the answer is merely about repositioning.
- Resegmentation: It can very well be that the constraint you’re spotting is only making a specific segment of your target market suffer – then the opportunity is in sharpening your segmentation.
- Reprioritizing your roadmap: If your solution isn’t yet optimal or optimized to help customers make a difference within the new constraints they face, the opportunity is in adjusting your roadmap.
That leaves me with a question to reflect upon:
What are the top 3 constraints that have put more pressure on your customers in the last 12 months? How are you positioning your SaaS solution to leverage that potential?
Angle 3 – Refocus on the Horizontal vs Vertical
Economic downturns rarely similarly impact every industry. In other words, some verticals get hurt more than others. And the sorrow of one is the opportunity for the other. Therefore, another valuable angle to find a tailwind for your business is to look into your ability to make a difference across multiple vertical markets, i.e., horizontally.
Let me share a personal anecdote.
During my time at Unit4, we constantly saw the swings in demand between the public and the private sector. This is because unit4 specializes in the “services” industry, i.e., industries that deliver their value through people (not products). One example I can recall is the burst of the internet bubble in the early 2000s. It did hit the professional services market hard. But we saw that the public sector market remained much more stable (merely because the government had to step in big time – hence needing advanced financial management systems) and made up for the dip.
I remember speaking at an event in Rotterdam called ‘Out of Chaos’ at the end of 2005, as the market picked up again for Professional Services. Demand spiked for specific technology capabilities because priorities shifted (from survival to growth mode again). Unfortunately, shortly after these early signs of revival in the private sector, a dip followed in the Public sector due to elections in several countries – which typically stall government investments—a familiar pattern.
The critical lesson to learn from this: It doesn’t hurt to understand:
- Which problems do you solve like no one else today that can transcend across industries?
- What options can you create to have eggs in multiple baskets if a market downturn hits the market?
- Which of these options would have the highest chance of succeeding in a downturn?
Step 3 – Focus on accelerating traction
Angle 1: Refocus on extreme fast ROI
Let’s zoom in on the aspect of renewed priorities. As they say, ‘Cash is king’ – but this is particularly true in times of a market downturn. When uncertainty hits the market virtually, every company gets very sensitive about where they spend their cash resources. Cash flow is king, right?
Jeff Jonas, CEO of Senzing, shared this in his blog COVID-19 Business Risk — My “Back of the Cocktail Napkin” Exercise.
“For Senzing, I believe our focus should be on new business opportunities whereby our customers can achieve a Return On Investment (ROI) in under nine months — because when top-line revenues are collapsing, “cost take out” is a necessity.”
I decided to interview him concerning this to uncover the big lessons to learn.
The first one is in the corner of ‘first principles’: Anticipate Market Corrections and design your business around that.
“We have always been designed as a self-service first business, where people can download and run. That gave us some resilience. Adding to that, we’ve always designed for cost takeout, which gave us resilience. I’ve been going out of the gate with my company that there will eventually be a market correction. By designing for a sub-nine-month ROI, I wanted market correction to be a tailwind.
Let me explain: If there’s a significant market correction, for example, the stock market drops 20 or 30%, and everybody’s having top-line revenue pressure. What happens is that people will optimize to spend money for cost takeout. If they can spend 500k on us and then start saving 500k in the first year and a million every year after that – they will spend money on that.
So the bigger the market correction, the bigger the tailwind I would get. So I had this decision early on. Yes, we could have focused on the most sophisticated features. And yes, I could sell it for the fancy stuff and have a bigger pipeline. But I chose that I’d rather have a resilient pipeline from the inception.
I have customers where cost takeout is just eight days. So the more economic pressure there is, the more wind in my sails when you get ROI that fast.
I was interested in the following question: Did everything fly when COVID kicked in? And the answer was ‘no.’ And this has to do with specific dynamics and ever-changing norms.
So the second lesson is: Where do you have an opportunity to break the norm (again).
What we realized, however, was this. Every company we deal with goes through the process of ‘discovering us, trying us, buying us.’ Somewhere between discovery and buy, they have to trust that our technology works, that it’s easy to use, that you’re going to be there forever for them. And one of those components is their confidence in our accuracy. No matter how cheap you are, it would have been a bad choice if your accuracy is horrible.
And as such, the ‘Proof of Concept’ process is very typical in our domain. It typically takes up to six months. We were already like ahead of the curve in terms of averages. But it wasn’t good enough. Our fastest PCs were maybe 45 days to two months, and in a downturn, that’s still too long.
So we doubled down our investment in helping organizations accelerate ‘their journey to trust.’ It resulted in our one-day PoC.
Something that can take up to six months can now be done in as little as six hours. That half a mil investment pays back itself probably every two months now.”
Long story short – this move has helped Senzing to not only survive adversity but come out stronger altogether.
Question for you to reflect upon: On a scale of 1-10, how would your ideal customers rate your ability to deliver fast ROI? What could you do to slice cost-take-out 10x?
Angle 2: Refocus on winning the heart of the end-user
From the many interviews I did with B2B SaaS CEOs, another common theme raised to the surface: Focus on helping your customers. This can be through your product, customer service, and so on. And this is where another gem hides to turn a market downturn into a tailwind: Win the heart of the end-user in areas where they struggle most.
Market downturns virtually always have an impact on people. For example, insecurity builds (think f.ex. around the risks of layoffs), work patterns, workflow, and work conditions shift (think what COVID shredded the office culture we’ve been accustomed to), etcetera.
This provides many opportunities to make a difference for end-users within your mobile app, the front-end of even the back-end. And doing that well can build a solid swell of demand for the usage of your product.
In my interview with Nimrod Priell, he touched upon how this played a role in his company, Cord.
“What gave me a lot of tailwind and belief we could make this could happen is that we’re serving to constituents – the end-users. End-user wants to be in focus, they want to work faster, and they want to work more simply.
When collaboration is afforded to them (the most prominent examples are Google Docs, Notion, and Figma), they want to use it. So it’s a natural phenomenon, in a way.
The second is the SaaS vendors. SaaS companies love it because it gives them a way to provide the user with more value, which helps with their value prop, which helps with their retention, as more users in the organization use it. And that helps with their expansion as more people get to see it and use it.”
The lesson to be learned here is to look for aspects of your solution that grow in priority and value when adversity hits. Look for what’s changing in the way they work – and where do you have an opportunity to remove friction in a way that could spark a viral effect. For many SaaS vendors, this appeared to be anything that had to do with collaboration, particularly cross-application collaboration. Before the pandemic, it wasn’t a big priority but became a massive one due to the shift towards ‘Working From Home (WFH).’
This provided the tailwind for Cord, but equally for the SaaS vendors that leverage their APIs inside their application. A win-win for everyone.
Another helpful example that I got recently reminded about is coming from Voicea, acquired by Cisco in September 2019. When I interviewed Omar Tawakol back in that same year, he shared the mission behind his company, which was to turn the ‘fear of missing out into the ‘joy of missing out when it comes to how people go about participating in meetings.
Voicea was well ahead of its time by ‘listening into virtual meetings’ and creating a summary that includes all the action items and critical insights. Imagine the virality effect kicking in when the virtual meeting culture exploded in March 2020.
Again – another example of small shifts in working patterns where new frictions arise that impact how people work and deliver value. Making a difference around those frictions by refocusing your focus on a specific aspect of your solution can turn into a very profitable tailwind for your business.
Question for you to reflect upon: What’s the one aspect of your SaaS solution that you could leverage to make a remarkable difference for your end-users in dealing with the new reality. And how optimize for virality?
It all starts with recognizing what’s changing and is most challenging for your ideal customers.
This is about answering three simple questions:
- What’s still highly valuable (in the eyes of your ideal customer)?
- What’s (become) highly critical or urgent to them?
- Where can you exceed expectations?
With the insights from this exercise, you can start to tune your business in various directions. The three most obvious ones:
- Refocus on making a difference around shifting priority that your customers have to deal with
- Refocus on making a difference around the new constraints they have to overcome
- Refocus the horizontal strengths of your offering on specific verticals
The most significant opportunity to create a tailwind in a market downturn can be a mix of all three angles.
The next thing to prioritize is how to take away all the objections to saying no, arguments to delay, and frictions that hinder adoption.
Two aspects that will make the most significant difference:
- Refocus on extreme fast ROI
- Refocus on winning the heart of the end-user
Every crisis brings opportunity. It’s what you do with it. That’s about mindset.
We can hide in our shells or be the creator of change i.e. raise our hands and see where we can help our customers make the most significant difference.
What option do you choose – that’s the question.