Cross-Practice

10 Best Practices to Get Ahead During an Economic Downturn

Strategies for Your Business to Thrive, Cut Costs, and Grow

When things get bumpy in business, conventional wisdom says to cut costs and ride out the storm. But stormy seas can also present a real opportunity for those who know how to navigate them.

TSIA has helped hundreds of technology companies navigate times of both “smooth sailing” and economic downturns. Through this, we’ve learned important best practices you can use today.

These aren’t the things the other “industry experts” are telling you that you should do. These are  observations from a company that has helped its members overcome every business challenge, including multiple recessions, using our wealth of actionable data.

So, what strategies can a company use in an economic downturn?

Here are 10 strategies that TSIA KNOWS your company should employ to get ahead in an economic downturn. 

 

1. Grow Your Service Revenue as Customers Extend the Life of Existing Assets

When times are uncertain, budgets for new capital and purchases freeze up. But that doesn’t mean your customers are stopping what they’re doing. Customers try to extend the life of their existing assets longer and wring more value from them.

You can make money by upping their support level, fixing things that don’t work right, integrating your solution with newer technologies, and teaching them how it all fits together.

Maintenance, support, professional services, education services, and customer success  revenue can grow in a downturn because you’re helping your customers extend the life of their existing technology. But how do you find these customers? You have more clues than you think, and your support logs are a treasure trove of information.

• Do you want to sell more education services? Check your support logs to see who’s been calling in with how-to questions.
• Do you want to sell more professional services? Check to see who’s been looking for help on making things work correctly.

Your customers are trying to stretch their budgets and existing investments, and your services can help them do it.

2. Focus Messaging Around Productivity and Efficiency–Help Customers Do More with Less

In a time of budget cuts and headcount caps, your customers’ focus turns to employee productivity. Is your solution messaging about all the wonderful things your customers can do with your technology? Is your value proposition based on features and functionality? Our experience at TSIA would suggest that you have to focus your messaging to customers on how your solution helps them do more with less.

Ask yourself:

• How does your technology have an immediate impact on employee productivity?
• How do you help your customers save money or make more money with the resources they already have?

If you can’t answer those questions quickly, easily, and without a lot of marketing jargon or technobabble, then you’d best go into a conference room or a Zoom meeting and not come out until you can. The market message you have now needs to be dramatically different than the one you had just a few short months ago, and productivity should be the anchor.     

3. Optimize Your Upsell and Cross-Sell Capabilities

When customers are budget conscious, it’s going to be hard to find those “mega deals” to make the quarter. Smaller transactions add up and become more important when fewer large deals are getting done.

On average, it costs more than double to land a new dollar of annual recurring revenue from a new customer than it does to get that same dollar from an existing customer. But in order to grow customers cost-effectively, you need to invest in your upsell and cross-sell capabilities.

• Make sure you have offers that are designed for existing customers. These offers should be easy to understand and easier to close. Great examples include increases in capacity or features, value-add services, and data/analytics insights.
• Turn your customer success teams lose on driving these upsells (more on that in a bit). TSIA data has shown that when customer success is primarily responsible for upsells, technology-as-a-service (XaaS) growth rates increase by double digits.
•  Assess how many of those transactions (including renewals) you can enable digitally, without any sales involvement. If you make these relatively easy investments, you can grow existing customers cost-effectively.

4. Find the Industry Segments and Customers that Are Thriving and Focus on Them

During the COVID-19 pandemic, online collaboration software and e-commerce took off like a rocket. Companies that were helping build out networking and work-from-home infrastructure excelled. And some parts (not all) of the healthcare industry did well, too.

There are always segments who are withstanding the conditions better than others. Business during a recession might not be business as usual, but some businesses still thrive in an economic crisis. You have to do a better job than your competitors in finding them.

But you can’t leave this to your salespeople to figure it out on their own–they are heads down just trying to make the quarter. Product management should lead the charge here. They need to create offers that are designed for specific verticals or segments. Vertical or industry-specific delivery expertise should exist in your service organization as well.

Don’t leave it to sales to find the segments that are thriving and craft their own offers. Product management needs to lead the charge with services close behind them.

5. Aggressively Sell Offers That Feature Agile Scale and Pricing Options

Put yourself in your customer’s shoes. If you had to make a technology purchase right now, would you make a big capital investment without the flexibility to adjust capacity? Of course you wouldn’t. You’d buy what you need right now, and expect flexibility on capacity and pricing down the road.

That’s why the steady march to subscription-based XaaS offers has now broken into a dead sprint. If you want more details on how this looks, catch Thomas Lah’s quarterly Technology Business review. True XaaS offers have flexible scale and pricing options, and the ability to add features and capacity as you go.

If you’ve been hesitant to double down on selling subscription-based XaaS offers, now is the time. Customers will want this flexibility, and they aren’t keen on being locked in. Fixed-scale-and-price offers decline in attractiveness. If you don’t give them that choice with your offerings, someone else will.

6. Move Renewal and Expansion Responsibility to Customer Success

If your salespeople are still in charge of closing all of your renewals and low-complexity upsells, you’ve got an expensive, antiquated model. And, if you’re paying as much commission on a renewal as you are on a new deal, your model needs a total overhaul.

TSIA research shows that when the customer success team has primary responsibility for renewals instead of the sales team, there’s no material change in the renewal rate. However, when the sales organization has renewal responsibility, growth rates plummet by double digits.

Plus, you’re paying full commission to salespeople when they close these non-complex renewals and upsells. When you involve the customer success function, you’ll be executing these sales at a far lower rate of commission (about 3% of contract value for renewals versus close to 10% if the sales team completes the deal) with similar cost reductions for upsells.  

The customer success team is deeply in tune with what’s happening with the customer—use that to your advantage. Lowering the cost of sales with better customer engagement is a winning formula.

7. Anchor on Business Outcomes That Are Uniquely Important in a Downturn to Sell More and Reduce Discounting

Maybe you’ve thought about making the move to outcome-based selling, but it’s never been the right time. Maybe you’ve been confused as to whether outcome selling is really any different than solution selling or value selling. It’s actually an entirely different approach, and one that anchors your engagement around the key performance indicators (KPIs) that actually matter to the customer. This smarter approach to selling is critical if you want to thrive in a downturn.

Our XaaS Revenue Optimization benchmark study looked at the effect of having a formalized review process that confirms the alignment of the deal being sold and the documented business outcomes that a customer is trying to achieve. The study showed that the review process led to:

• XaaS growth rates skyrocketing from just over 16% to more than 23% year-over-year
• Win rates jump by more than 13 percentage points
• Discounting also plummets by similar margins

Aligning deals to outcomes has positive downstream effects on expansion and renewal, and you will sell more and reduce discounts. It’s time to get on board with outcome-based selling and engagement.

8. Build Capabilities That Will Improve Your Market Share When the Economy Improves

During the early days of the COVID-19 crisis, TSIA wrote extensively about how to use your “pit stop.” The idea is that when an auto race slows down for some reason, you pull off the track, fill the tank, and change the tires.

When the market slows, the temptation is just to drive harder and push your people and customers to the limit to make the number. But maybe there’s an alternative approach. 

Use the time to step aside and fix some things you know need to be fixed. Develop the capabilities you know need to be developed. Overhaul the processes that you know are holding you back, but you’ve hesitated to work on because you’re afraid you might miss the quarter.

One obvious area where you should grow your capabilities is around analytics. TSIA recently released our APLAER framework (pronounced “A-player”--as in “You can use data to turn a B-player or a C-player into an A-player”). We’ve doubled down on our research on how you can use data to put your sales resources on the right deals with the right proposals at the lowest possible cost of sale.

At TSIA, we put our money where our mouth is. We use data and analytics to help us know which members need our help and create easy-to-understand dashboards that let us know which customers aren’t adopting our solutions. We used our pit stop to grow this critical capability and we suggest that you do the same.

9. Invest in Your Managed Services and Customer Success Capabilities

Customers need more help. Their staffs are stretched thin, just like yours. They’re going to be interested in getting more help from their suppliers. Managed services emerged as an industry segment because customers either didn’t know how or couldn’t afford to buy and manage their own equipment.

In this particular downturn, customers are dealing with not only the standard economic challenges they’ve dealt with before, but the problem is now compounded with a labor shortage. They can’t hire people to run your technology, even if they can afford it.

This unique situation provides a great opportunity for you to take some of the burden off of your customers’ shoulders. Double down on your managed services capabilities and make sure to include them in your pitches.

Also, as if you needed another reason why the customer success organization is so important, it can help drive the adoption of your technology that your customer would normally take on themselves.

Customers don’t want to have underutilized technology sitting around. If you show them that you can drive adoption effectively if they invest in a premium customer success offering, that’s a lot more appealing than having a bunch of expensive shelfware.

10. Be a Proactive, Supportive Leader to Your Channel Partners

The channel ecosystem was already experiencing extreme turmoil with the industry’s movement to XaaS. Add in an economic downturn, and now suddenly it’s a total pressure cooker. This turmoil is the reason TSIA launched its XaaS Channel Optimization practice a couple of years ago, and all the more reason for you to invest in your partners and channel ecosystem right now.

It’s also why you need to be a great partner more than ever. As your partners scramble to make their numbers, they’re going to...

• Anchor on the vendors who make it easier for them
• Look for leads (because they probably don’t have the same type of marketing budget that their vendor partners have)
• Need data and insights so they can serve your joint customers better and grow their spend in the process

If you can do these things well, you can make real inroads with your channel partners and deepen your relationships with them.  

Anyone can be a good partner when times are good. When the chips are down, the vendors who invest in their channel partner relationships are the ones who will emerge victorious when things pick back up.

Making Good Decisions in a Bad Economy

Finally, ask yourself this question: is it more important to make good decisions in good economic times or in bad ones? The answer is obvious. And these 10 best practices and business strategies will help you make those good decisions.

For our member companies, we encourage you to lean into TSIA harder than ever. We have the research that allows you to make decisions based on actual data, not gut feelings. If you do it right, you can gain a lot of ground on your competitors during an economic downturn. Not only can you be “recession resistant,” but find long term success that will outlast any economic decline. 
 

  July 29, 2022