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Cross-Practice

3 Ways Tech Companies Can Thrive in an Economic Downturn

Knowing How to Cut Costs and Where to Find New Growth

5 min read
By Thomas Lah
With inflation mounting, supply chains in question, and an uncertainty of when things will go “back to normal,” it’s no wonder technology executives are worried. Many companies are still reeling from the fallout of the pandemic and in the middle of fundamental shifts in their business practices.

Now more than ever, companies need guidance on how to steer through the rough waters ahead. TSIA is no stranger to helping our members through tough times—we have the right resources to provide the right insights at the right time to navigate this economy. Our research team has been compiling best practices that will have you come out of this crisis stronger than you were going into it.

So, how can you turn an economic downturn into a business advantage? Here are three key strategies needed to not only survive, but thrive.

Become a Better Decision Maker

The state of the industry is going to force you to make a lot of decisions…fast.
  • Where will you cut costs?
  • What investments will you make going forward?
  • How do you spin up new offers?
  • Which type of offers have the best opportunity to produce revenue?
  • Should you increase spending on renewals?
  • How will you tackle discount leaks?
What you use to drive those decisions matters. You need to know when to pivot, when to stay the course, and what other companies are doing in your industry. With customers dealing with their own fallout from the downturn, there is more on the line with every deal, renewal, and expansion opportunity. It is more important than ever that you are armed with the insight needed to get it right the first time.

"When the economic conditions are tough, the burden on management to be good at what they do is actually higher than when the economy is booming.
- J.B. Wood, TSIA President & CEO


Examine how you are validating your decisions. It’s easy to let emotion guide decisions in times of uncertainty, so make sure you are surrounding yourself with people who will help you make data-driven decisions. Good data allows you to make better decisions, which makes investing in good data paramount.

Ask yourself: what resources can you tap to make better informed decisions? At TSIA, our members have access to our research reports, surveys, benchmarking, and more. We even recommend interactive strategy sessions with our researchers and other members—think of it like an "intelligence-as-a-service" offering.

Knowing the latest data will allow you to be at the forefront of what’s next and discover innovative solutions to your problems. Remember…

Best practices are not convenience, they're survival.

And you won’t know how to implement best practices if you don’t know what they are. Without this first step, you won’t be able to effectively execute what TSIA is calling the two critical tricks to navigating the economy: knowing where to cut back and where to find revenue.

Know Where to Cut Back

I’m sure you would all agree that your budgets are under pressure right now. With the DOW and NASDAQ in a constant state of flux, your investors want to see a steady cash flow and the downsizing of departments that are less profitable.

However, our research shows that cost cutting across the board during a downturn is a fatal strategy. The goal shouldn’t be to “cut as much as you can,” but rather to only reduce the operating costs that don’t cut into the productivity or efficiency of revenue generation.

Additionally, some business units may be less profitable right now, but hold the key for your future growth. This is especially true for those of you looking to migrate to XaaS offers and a recurring revenue model. Don’t be so focused on what investors want right now that you lose sight of what your customers will need in the future.

Digital transformation is on the rise in every facet of the tech industry, but it takes companies on a financial journey that includes up-front revenue loss. TSIA’s fish model illustrates the financial growing pains companies making the switch go through as they transition out of their old revenue model.
“Words”
TSIA's Fish Model

Revenue will dip and costs will go up as you make the necessary changes to support new XaaS capabilities. However, once on the other side, the revenue and cost lines switch trajectories and the long-term benefits of digital transformation can be felt.

While this is encouraging for the long run, it means that there is still a financial reckoning to deal with in the present. Costs will need to be cut, but from where?

Budgets are made up of thousands of line items, so it’s important to know exactly where to go to find savings. This is why gathering data is a crucial first step and will otherwise have you guessing at which budgets you can afford to cut.

Know Where to Find Revenue

The idea of “finding revenue” might sound impossible given the economic circumstances. Instead of spending the majority of time worrying about where you’re losing money, focus on the places where revenue CAN be grown in this economy.

During the height of the pandemic, the rise of remote work and distance learning was paired with the skyrocketing value of virtual enablement tech. This sector saw an increase in revenue despite the largely down market, highlighting how there are always sectors that are going to grow, even in tough times.

This isn’t an anecdote specific to 2020, but is true in any economy, where even undesirable factors still drive growth. When I say “growth” I am not just referring to growth inside of industries, but also the potential to grow revenue streams inside of your company.
 

"You can find revenue growth within certain businesses inside of your company today.”
- J.B. Wood, TSIA President & CEO

This could mean promoting or cross-selling current offerings in different ways. It could also entail looking at your current offerings and spinning out a new revenue stream that speaks to what your customer needs in this tough economy. One of our latest blogs outlines a few ways to grow your revenue, including segmenting customers and focusing on outcome selling.

In our new book Digital Hesitation, we talk about how adoption is actually a revenue-generating act. A key inhibitor of growth is lack of adoption, and this will only become more true as the subscription model takes an even deeper hold on tech.

“Focusing on driving consumption will undoubtedly result in faster growth at a lower cost.” - Digital Hesitation

One way to fund adoption efforts is to monetize at scale. Our research shows that approximately 57% of the tech industry uses a three-tiered system (categorized as “good, better, best”). This offers your customers the ability to meet their needs and stick within their budget, which might also allow them to stay on as customers.

Navigating Economic Uncertainty Throughout Your Organization

Now that we have an overview of how to steer through the current economy, let’s look at what that entails for different parts of your company. Below, you’ll see top ways to cut back and find revenue for every function inside of your organization.

Customer Success

Where to cut back:
  • LAER Efficiency: In order to make effective cuts, you’ll need to understand the best practices to drive efficient customer engagement across the entire life-cycle journey. TSIA’s Land, Adopt, Expand, Renew (LAER) customer engagement model is a way to look at the customer journey and each team’s function inside of it. Focus on increasing efficiency inside the LAER model will allow you to do away with duplicative motions that cost time and money.
  • Digital Engagement: Before cutting back on human resources, understand where to leverage digital capabilities to increase efficiency while reserving the use of your elevating customer success managers (CSM) for the moments that matter.
  • Data-Driven Compensation: Use compensation data to help ensure that your organization is not over-funding customer success roles.
Where to find new revenue:
  • Charter for Expansion: Understand how customer success teams can be responsible for expansion to help drive substantially higher growth.
  • Monetization Strategies: Know how to create offers that align with customer needs while also driving additional revenue to fund and grow customer success.
  • Gain Back Lost Revenue via Proper Alignment: Identify organizational and operational misalignment that can bleed revenue. Then, apply best practices to implement proper alignment and turn those losses into gains.

Customer Growth and Renewal

Where to cut back:
  • Frictionless and Automated Renewals: Identify inefficiencies in manual, sales-heavy renewal processes and build “frictionless” and automated renewal practices.
  • Pay Less for Expansion and Renewal Activities: Leverage lower-cost resources like customer success and e-commerce for increasing the effectiveness and decreasing the cost of expansion and renewal activities.
  • Reduce Marketing Costs for Lead Generation: Leverage service touchpoints and services-generated data to find new opportunities with existing customers at a fraction of the cost of marketing-generated leads.
Where to find new revenue:
  • Maintain Revenue by Maximizing Renewals: You can’t grow recurring revenue without protecting your existing revenue base. Understand how to keep your existing accounts whole while facing customer pressure to discount and down-sell.
  • Grow Existing Customer Revenue through Expand Selling: Leverage all touch points of the customer life cycle to identify and even close low complexity expansion opportunities that otherwise wouldn’t be worked by the sales team.
  • Align Teams around Customer Growth: Understand how sales, services, customer success, and marketing work together to grow existing customers.

Education Services

Where to cut back:
  • Pivot to E-learning: Learn to identify and evaluate opportunities to accelerate e-learning adoption vs. instructor led sessions.
  • Reskill Current Talent: Understand how to assess organizational talent and identify opportunities to cross-train existing resources rather than hiring new resources.
  • Use Virtual Training: Rather than incurring the costs of sending education services resources to customer sites, know the scenarios in which virtual training can be equally, if not more, effective.
Where to find new revenue:
  • Implement Education-as-a-Service Offers: Learn how to launch online subscriptions to training content and instructor-led subscription offers.
  • Target Existing Install Base: Leverage data and analytics to segment the base for customers with complex solutions that have not been formally trained.
  • Leverage E-Commerce Platforms for Education: Understand how to create low-friction, easy-to-purchase options to which customers can subscribe.

Field Services

Where to cut back:
  • Track and Manage Utilization and Productivity: Ensure that the right resource with the right skill is leveraged at the right time.
  • Improve Incident Management: Understand how efficient incident management resolution directly reduces cost per incident.
  • Telemetry Utilization: Optimize telemetry utilization to increase remote management and reduce on-site costs.
Where to find new revenue:
  • Leverage Field Resources for Cross-Selling New Offers: Educate field service engineers on the utilization of TSIA’s LAER framework to identify expansion and cross-selling opportunities.
  • Develop Residency Offers: Monetize field service engineers with residency offers—especially if customers are going through their own downsizing.
  • Monetize Out-Tasking Opportunities: Establish simple out-tasking offers leveraging field resources to perform complex or arduous technical activities.

Managed Services

Where to cut back:
  • Leverage Signal Liquidity: Analyze delivery operations data to identify and digitize complex or repetitive service delivery activities.
  • Reduce On-Premises Activities: Evaluate high-cost, on-site functions to be executed through remote operations.
  • Rebalance Resource Distribution: Leverage insights to identify opportunities to properly balance resource distribution between high-cost and low-cost functions.
Where to find new revenue:
  • Evaluate Offer Portfolio for Completeness: Identify gaps in offer continuum and introduce new offers that provide a complete continuum of services.
  • Monetize Customer Success: Monetize premium customer success for managed clients—especially large, complex, or multinational companies.
  • Accelerate XaaS Offers: Accelerate the introduction of fully managed cloud and technology XaaS offers.

Partner Channels

Where to cut back:
  • Segmentation Coverage: Understand how and where to leverage partners to cover segments of the market that are too costly for direct engagement.
  • Enable Partners Across LAER: Deepen partner relationships by shifting focus beyond the initial sale and expanding focus to adoption, expansion, and renewal capabilities at greater scale and lower cost than direct sales.
  • Maximize Key Partner Relationships: Analyze and categorize partners based on greatest cost efficiency. Allocate partner program enablement funds to partners that produce the greatest impact on growth with the lowest level of effort.
Where to find new revenue:
  • Leverage Partners for Expansion: This includes expansion in every sense–expanding your presence in regions or countries where you have no direct sales force, or expanding deeper into industry verticals.
  • Leverage Consultancy Expertise Aligned to Specific Business Outcomes: Implement programs targeted at existing partner-base customers.
  • Learn how to educate partners on the customer-centric value of XaaS portfolios: Effectively incentivize for high-growth segments such as XaaS and Managed Services.

Product Management

Where to cut back:
  • Enact Data-driven Product Retirement: Leverage analytics to understand how and when to end-of-life unprofitable and/or low growth products.
  • Decrease Sales Costs: Learn how to shorten sales cycles with Product Qualified Leads (PQLs).
  • Reduce Cost of Service: Engineer complexity out of and embed serviceability into the digital experience. Adopt practices that are proven to accelerate downstream LAER Efficiency.
Where to find new revenue:
  • Accelerate Migration of Customers to XaaS: Define customer outcome-aligned value propositions as insurance against discounting. Create informed, phased migration plans for customer migration to your XaaS offer for more resilient revenue streams.
  • Portfolio Monetization: Define your XaaS offers with flexible pricing options that ride market trends. Adapt prices in line with the tech industry response to economic inflation rates.
  • Product-Led Growth: Leverage data and insights to embed the motions of customer acquisition and growth into the product experience and to drive product expansion.

Professional Services

Where to cut back:
  • Optimize Resource Management: Ensure alignment between supply and demand. Identify gaps in the resource management functions that impact business decisions related to revenue, headcount supply, and demand.
  • Use Data-Driven Compensation: Get the data required to identify where over-compensation is occurring and where organizational shape might be top heavy.
  • Establish Global Centers of Excellence (PMO, RMO): Identify overlapping capabilities/redundancies that can be centralized and rationalized, such as geographic or line-of-business duplication of functions.
Where to find new revenue:
  • Set Data-Driven Pricing: Leverage professional services market rates research to identify where prices are too low, relative to industry benchmarks. Create initiatives to strategically increase prices where appropriate.
  • Enact Project-to-Subscription Migration: Evaluate project-based offers that can be converted to high-value, subscription-based service offers.
  • Maximize Attach Rates: Understand your performance compared to industry/peers and adopt best practices to improve attach rates and increase adoption of premium services offers.

Service Offer Management

Where to cut back:
  • Eliminate Confusion and Complexity: Eliminate portfolio confusion by rationalizing your end-to-end service portfolio and reducing redundancy across service offers.
  • Eliminate Ineffective Practices: Identify inefficient service offer realization and life-cycle practices while optimizing offers for simplicity and scalability.
  • Minimum Viable Experiences: Define minimum viable experiences for customers to ensure offers aren’t over-engineered and delivering value that has not been monetized. Ensure a consistent approach across the entire portfolio.
Where to find new revenue:
  • Optimize Portfolios for the Customer Life Cycle: Establish offer portfolios that deliver value across the entire customer life cycle. Create portfolios of service offers that continually build on incremental layers of value.
  • Maximize Expansion and Upsell Opportunities: Target existing customer base of support customers for expansion and upsell opportunities. This includes migrating managed clients to XaaS offers.
  • Leverage Offer Data and Analytics: Make sure the sales team is not underselling at the point of sale. Reinforce with data-driven insights on how premium offers influence the customer’s business results.

Sales & Revenue

Where to cut back:
  • Increase Sales with Fewer Salespeople: Leverage data and analytics from the entire customer lifecycle to place the right resource on the right deal at the lowest cost with the highest chance of success.
  • Customer Lifecycle Revenue Optimization: Understand where to eliminate ineffective activities that lead to revenue loss and latency. Improve win rates and make sales more efficient through analytics. You’ll be able to pay lower commissions by leveraging e-commerce and customer success for lower complexity transactions.
  • Decrease Cost of Sales: Identify which critical practices drive down Revenue Acquisition Cost (RAC) and lead to cost-efficient growth.
Where to find new revenue:
  • Increase Sales Effectiveness and Win Rates: Leverage data and analytics to inform the optimal sales process, maximize revenue per prospect, and increase total contract value.
  • Use Data-Driven Expansion and Cross-selling: Leverage lifecycle analytics to identify key customers to target for expansion and find new cross-sell opportunities without additional marketing expenses.
  • Outcome-Based Customer Engagement: Increase sales, adoption, and renewal by leveraging outcome frameworks to drive the right discussions and ensure clean handoffs with customer success.

Support Services

Where to cut back:
  • Data-Driven Staffing: Identify support services staffing levels relative to the volume of incoming incident demand and in comparison to total employee population. Understand which support roles need to be trimmed and which should be invested in to help drive additional scalability, efficiency, and effectiveness.
  • Reduce Cost per Incident: Leverage data-driven insights to implement knowledge management foundation that fuels self-service.
  • Accelerate Customer-Informed Investment Efficiencies: Leverage closed-loop feedback processes, specifically related to Customer Effort Scores. Identify processes and technologies that already reflect lower customer effort.
Where to find new revenue:
  • Leverage Support Resources for Expansion and Cross-Selling: Identify offers that will resolve customer challenges.
  • Monetize Support Activities: Evaluate support activities performed for subscription solutions that are not specifically monetized. Define minimum viable experience driven by the support team and develop standard offers to attach to subscription offers.
  • Work with Service Offer Management Teams to Develop High-Value, Tiered Support Offers: Leverage technical expertise in the delivery team to create compelling value propositions in the offers.

Steps Toward Your Future Growth

"When you are facing economic challenges, the number one instinct of almost every CEO is to cut costs and forget about growth… but TSIA has data-driven evidence that shows that our members can not only cut costs, but grow. ”  
- George Humphrey, TSIA VP & Managing Director, Service and Delivery Research and Advisory

While there are many ways growth is hindered in an economic downturn, our research has shown that there are still best practices for coming out on top. By focusing on the two “tricks” of navigating the economy, you ensure that your company will do what might seem impossible: grow.  
 

 July 22, 2022

Thomas Lah

About Author Thomas Lah

Thomas Lah is executive director and executive vice president of TSIA. Since 1996, he has used his incisive analysis, strategic thinking, and creative solutions to help some of the world’s largest technology companies improve the efficiency of their daily operations. He has authored several books, including, Bridging the Services Chasm (2009), Consumption Economics (2011), B4B (2013), and Technology-as-a-Service Playbook: How to Grow a Profitable Subscription Business (2016), and Digital Hesitation: Why B2B Companies Aren’t Reaching Their Full Digital Potential (2022). He is also the host of TSIA’s podcast, TECHtonic: Trends in Technology and Services.

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