With several months of market insights and observations from the field, we know what to ask differently, and that is a great starting point. Human bandwidth is the constraint for B2B tech companies to solve for, and investors to invest behind.
Through the end of 2020, Covid will remain a challenge for all commerce, whether dealing with the downside or trying to figure out your best upside. Even those with a SaaS model, which has an awning of protection thanks to long-term contracts, will be selling for ¾ of their fiscal year through a purchase cycle undergoing rapid changes in buyer budgeting, purchasing processes, and customer needs. Tech companies need to re-assess their client segmentation including end-market dynamics (stimulus included), updated view of their customers’ tech strategy, and back-to-work plans, and geography of the customer’s workforce. Knowing the answers will provide the required insights for updating customer prioritization, product development, sales and marketing, and implementation (with or without partners), and M&A strategies.
Stax’s industry analyses and state-specific data on economic rebound shows a substantive difference in economic activity and short-term growth curves by industry and region. Our field research on customer intent to purchase, return to offices, transportation/school availability, and potential to travel has been predicting the current level of return by customer and segment for the last few months. It is easy to see how an organization could be trying to sell into a dead zone while missing a fast opening nearby. The number of new customers used to forecast, and where you think they will come from, all need to be updated.
We highlight the potential tailwinds and headwinds, and what questions to ask to prioritize the levers of product, sales and marketing, and allocation of investment, including M&A. What is a headwind and tailwind will vary by player, but a framework helps layout the facts for consideration and each reader may move some of these items from one section to the other.
Every company has been going through a similar tearing-down of operations and costs, adapting to remote working, expanding needs for improved workflow processes, determining what can be moved to tech-enabled, automated, collaborative, e-commerce, and reduce costs while increasing customer ease-of-use and security. Even healthcare, typically slow to adopt, is being forced to rapidly introduce more technology and that change will be long-lasting (Telemedicine).
Some companies still see tech as operationally required, while others will see it as more strategic than ever and try to use the situation to move forward faster. The SBU can make more of their own decision. Expect greater tailwinds for those with better-distributed offerings, easier UI, and interoperability, enabling a more flexible workforce to use the technology so that implementation is easier and total output is better in parallel with reduced costs. These offerings will have the potential to win share from those that are less cloud-based, do not integrate well with other platforms, or need more hands-on training. If you have a sticky product and you have built adjacent products around it, this creates a protective moat.
Industry specialization and maturity of competition in your market matters too. Harder for players to break into new markets without significant investment or M&A. Given reduced access to customer environments (due to lack of available customers to talk with, industry conferences, etc.), it will take newcomers longer to learn enough, to be a threat.
We are seeing wide differences in expected business closings/openings, and operating levels by end-market, balance sheet strengths/weaknesses, and the ability for an organization to do anything about their situation. In March, companies started cutting costs and hoarding cash, with CFOs tightening expenditures and CEOs creating mandates, reversing trends Stax identified years ago in technology sales when purchase decisions were shifting from the CIO to more distributed decisions. There are some battlefield decisions enabling more distributed work, e-commerce, and other critical needs, but changes in the ability to purchase larger permanent solutions, speed to purchase, price negotiations, and integration will all be prevalent for the remainder of the year and have long-lasting implications. Rather than budgets expanding across the board, many are making faster, forced decisions to reduce one cost before taking on another.
Status Quo – core systems will not be ripped out, but growth is constrained to new features/pricing and customers are reviewing existing features for real usage and negotiating to reduce the cost of add-ons and negotiating for longer duration discounts. Workforce reductions will also reduce needs for seats. And likely many will reduce what they can now, while they consider what could be a longer-term, more efficient solution. If your technology is not core, a complete system, or easily connected, then there is greater risk of being replaced. What does this mean for technology companies and diligence on technology companies?
Reporting at all levels. With distancing, there is less visibility into usage. Providers will have to maintain their status as valuable or be high on the list for potential cost reductions.