The Road to 2021: Operational and Financial Considerations for B2B Software Firms

Longevity Starts Now

Leadership teams across the software landscape are working overtime to adapt strategies, effectively communicate with teams, and ensure sufficient liquidity to endure the crisis and prepare for the road ahead. In many ways, these three areas are always at the forefront of a tech CEO’s mind—COVID-19 has just turned up the volume.

In any economic environment, growth is driven by a combination of two factors: product and sales. In our conversations with management teams navigating the current market dynamics, we’ve noted some key tactics leaders are using to position their companies for growth and longevity beyond the crisis.

Product-Led Activities: Revisiting the Roadmap

If customer retention was not your number one priority before the start of the pandemic, it likely shifted there soon thereafter. Securing revenue under contract is critical to the continued success of any platform in a time when companies are looking to cut costs. As customer acquisition cost reports often demonstrate—retaining a current customer costs less than converting a new one.

From a product roadmap perspective, customer feature requests and additional integrations are not necessarily the most interesting work for developers. However, responding to and integrating user feedback will help drive increased adoption and improve customer satisfaction.

This situation demands you take a hard look at your product roadmap and who it really serves. Prioritize those features that will keep customers happy and close the gap with competitors.

If you’re not in the habit of talking to customers (maybe you’re a pure self-serve model), try opening the lines of communication to get some feedback. Conduct a survey by email, activate an in-app poll, or repurpose some of your team’s time toward customer check-in calls. If you are already doing these things regularly, consider increasing the frequency. Listen closely to what your customers want and allow their needs to direct your resources.

Going back to basics may require a new rally cry for the team—it may be time to focus on being evolutionary instead of revolutionary. Pursuing ambitious feature sets that will be major game-changers (efforts that perhaps have a higher risk in return) are often considered the “fun” part of this industry. But the “business as usual” tasks—feature requests and integrations—give existing customers a reason to stay and perhaps a reason to pay you more. While the product enhancements themselves may not be that exciting, the increased renewal rates and upgrades they can drive are exactly what is needed right now.

To the extent that you have a horizontal solution that could appeal to multiple end-market customers, you may consider repackaging your offering to make it more attractive to verticals that are less constrained at the moment. For example, if you’re not a pure-play solution for the restaurant industry but have done some business in that vertical with plans to expand your offering, you can look at shifting resources to a vertical that is more likely to convert under the current market dynamics.

Sales-Led Activities: Evaluate and Reallocate Sales and Marketing Budgets

Smart marketing always involves developing a well-informed strategy, testing, looking at the data, and iterating. In a normal economic environment, experimentation is celebrated and encouraged. But when cash is scarce, focusing your budget on proven tactics is the best way to ensure a return on your marketing investment.

If you normally review digital marketing metrics monthly, consider increasing the frequency of these reviews. Look at daily snapshot metrics and bi-weekly performance reports. While you need to give a campaign some time to prove itself, you should also be able to make quick adjustments to design or copy to avoid wasting your budget on underperforming campaigns.

Marketing budgets may be strapped, but in-person events being reimagined virtually could create some wiggle room in your T&E, sponsorship, or professional development conference budgets. Reallocating those dollars to proven strategies will better serve you near-term goals.

Focus on Fundamentals

Measuring activity against goals is not only a best practice for running your company but a critical data set for potential investors. KPIs or OKRs matter more in a crisis. In fact, during and following periods of economic decline, investors give extra attention to the KPIs that impact growth and profitability.

If you haven’t been measuring individual, team, and company performance, or if those efforts have been inconsistent, now is a good time to refocus. Understanding the drivers that underpin each element of success will help ensure that you’re pulling the levers available to you to hit those metrics. These are the activities investors will want to see to gain comfort, especially if metrics are plateauing or declining.

As the deal dynamics shift away from a sellers’ market and toward buyers, businesses considering a capital raise or sale will have to contend with a new valuation paradigm. The flight to quality that began prior to COVID-19 has been accelerated, and valuations are coming down. If a transaction isn’t necessary at the moment, it may be in your best interest to wait it out. (You may be surprised to read this advice from investment bankers who work on a contingent basis, but at least you can trust we’re being honest!)

For institutionally-backed companies with aggressive growth plans and cash burn, a fuse has already been lit. You may not have the luxury of waiting for optimal market dynamics, and if the goal is to achieve the financial and operational milestones to support your next financing round, you have to be that much nimbler.

Keeping in mind that acquirers evaluate acquisitions according to a build/partner/buy framework, successful execution of strategic partnerships could lead to acquisition opportunities down the road. Well-performing partners tend to be acquired.

Nuanced Guidance for Better Outcomes

As you determine the best timing for a transaction, establishing or continuing a dialogue with an adviser will allow you to build a relationship over time and develop a history together. Our team regularly engages with founders long before they are ready to transact, which allows us to add value along the way. We help by making connections with strategic partners, introducing prospective customers, and networking with experienced executives looking for new roles all while serving as a sounding board for the operational and financial decisions that your business faces.

For those who may have an imminent need for M&A or capital raising advisory services, our team is available as a resource to you. We welcome the opportunity to share our perspectives on the market, learn more about your business goals, and understand how we can help you be more successful.

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