I wrote the first version of this article in the midst of the COVID-19 pandemic. Its subsequent economic impact was already on the horizon. It was a period of paying attention to the health of your employees, your customers, and your organisation. We all felt the consequences of the pandemic in the period that followed. All management teams during that surreal period were scenario planning. Strategising how to navigate those troubled waters, and product leaders were on the front lines facing enormous waves.
While during the pandemic a lot of businesses felt impact on revenue they were also faced with scarcer cash when the dust settled.
In 2022, “Valuations of fast-growing public SaaS companies plummeted from 46.2x to 11.0x revenue in a year’s time” according to OpenView SaaS report.
Funding became harder. Profitability became critical part of funding discussions.
A lot of things changed and although the conditions may have altered, we still use a lot of the learnings from that period while we take bold strategic moves to meet today’s market challenges. After learning from past challenging market conditions, and also speaking to other Product experts, I have compiled a list of five important aspects to have in mind and challenge your strategic perspective.
1. Cost optimizations
You already know that Cash is King and cash preservation is an anticipated, if not expected, move. It is also certain that the cutbacks are an important part of any scenario planning. However, be mindful of what costs you cut and when.
Labor is and has always been, one of the highest investments in a business. Product leaders need to sharpen their situational awareness skills to be able to make decisions based on the profitability of each component in their product portfolio. It is also important that these decisions are not taken unilaterally but in collaboration with counterparts in other business disciplines, such as marketing, to understand the implications of their decisions as any product decision cascades throughout the organisation.
For example, new development on add-ons to the product portfolio that have not yet monetized may not be able to be fully brought to the market as the necessary marketing spend could be proven prohibitive.
Overall, marketing is another big spender of the budget, and in today’s reality, the ROI on Product Marketing investments needs to be cautiously assessed, knowing that new customer acquisition will likely be affected by altered market conditions. An adaptive marketing spend strategy could prove to be a better option in these cases.
2. Retention
Product leaders work closely with Customer Success, and directly with the customers to nurture the company’s customer base. As a Product leader you already know you need to pay attention to support tickets, customer feedback, etc.
What you need also to keep in mind is that you will not be the only company that will be looking critically at procured services. It is imperative to make sure your product stays well above the line compared to those that will be cut. Beyond customer happiness, you also need to attend to customers’ feelings of safety.
And this is not the same thing. Management teams will be looking at services with increased thoroughness and any additional risk to their business will not be tolerated. So if there are any dark corners in your products that could cause instability to your customers, they may need extra attention. They always needed attention, only now you cannot put off dealing with them anymore. The balance of investment across innovation, maintenance, and tech debt needs to be looked at carefully.
At the same time, anything you can do to underline the monetary value you unlock for your customers deserves another look. This may have already been in your roadmap but perhaps it has been hidden behind more exciting revenue-generating components. For example, think of your product reports. When was the last time you gave them some attention? Do they just show numbers or do they explain to your customers how much money you help them make or help them save?
3. Product Investments
As new customer acquisition may slow down reverting resources to product components that help your expansion revenue with existing customers, or improve your retention, is a wise choice.
Do you have customer cohorts in market segments that are more likely to survive any unstable market conditions? Prioritize product efforts that cater to their needs seeking for new business or upsell opportunities. This means looking carefully at your target market and how you are servicing each part of it. Ideally, you should be reviewing your product portfolio for modules that already have a good track record on upsells and a healthy pipeline in those healthy customer segments.
As part of a budget review, you may have paused or revised your hiring plan, but that is not enough. If you have a front where you could make wins, you will be better off reshuffling your resources to put fuel to those efforts that have a higher chance of success, rather than sticking to the roadmap you put together at the beginning of the year / end of the previous year end.
You may also like to have a closer look at product led growth (PLG) and product led sales (PLS) if with moderate product investments you could unlock additional lead generation assuming your marketing spend could be trimmed in a time like this. Important to note: PLG or PLS are not cost cutting strategies. It is review of potential market segments and addressing them with a matching GTM. It does require investment and is not a shortcut approach. But could give you a new pocket to tap into for growth.
4. SaaS on SaaS
We are in an era where product acceleration is achieved by building SaaS products on top of other SaaS products. This allows businesses to focus on the unique value they offer to their customers and prevents internal investments to be allocated in reinventing the wheel on problems that are already solved better by others.
While it is a great model, it can introduce risk if those service providers go out of business. As a product leader today, you do not only need to have candid discussions with your customers but also with your partners.
You will need to have your scenario planning to mitigate risks in areas that are exposed to your customers. It is important to prioritize such plans rigorously by looking at the ARR at risk when it comes to functional product dependencies and always be mindful on what is core vs what is strategic investment in deciding what you build in house.
5. M&A
If your business is a scale-up you have likely been pursuing growth through an M&A strategy to serve multiple customer segments, with multiple products, across numerous countries. In challenging market conditions, the cash runway for many businesses will start to be shortened. This could mean that several opportunities for acquisition at a preferable valuation point may present themselves.
It is important to realize that past ARR is no guarantee to future ARR especially when the market dynamics change drastically. Where an investment in a specific product or product category would make perfect sense a quarter ago, now that may not be the case if market fluctuates. A careful look at such opportunities with criteria that will go beyond the cost of purchase is important. For example:
- Is their target market one that is likely to remain healthy? If not, pivoting their go-to-market will require additional investment which is an additional consideration for a possible acquisition.
- Is their product something that requires substantial ongoing investment? For example, a commoditized type of service is likely to require continuous investments to retain market relevancy in a crowded red ocean, while at the same time their growth may be pressured from the market conditions to a degree that they may not be able to be self-sustainable.
Your investment span will also be challenged , and one needs to think about the total cost of ownership as well as the pressure that this will add to your organization.
6. Fueling it all: Product Operations (a bonus point)
All the decisions and trade-offs described in this article need one common ingredient – data. Product Operations is the method for getting great data to make great decisions quickly. I am a strong advocate of the value of Product Operationsto any product organization and even more so at a scale-up. Knowing your product financials will allow you to see where and when you may need to repurpose existing resources to more healthy parts of your product offering or towards revised priorities.
With Product Operations established, you can effectively manage churn, implement operational cost reductions, track where your investments go, or quantify risk areas to help you prioritize your mitigation efforts are all things you can do, and more. Situational awareness is one of the basic skills of a ship commander, and that is what you need when you go into battle in troubled waters.