Great Companies Emerge from Recessions Because They Learn, Adapt, and Overcome
As part of German Accelerator’s “Pass The Mic” series, we hosted a webinar to address how to manage sales and keep customers for B2B companies during tough times. #GAmentors Joshua Amrani (CEO, The Amrani Group and one of our #GAalumni) and Brandon Atkinson (CEO & Principal Consultant, 46 Summits Consulting) provided actionable insights on how companies can navigate the COVID-19 environment. Joshua approached the topic from a sales and customer acquisition perspective, and was complemented by Brandon who has post-sale and customer success expertise.
Due to COVID-19, how are buying trends different from what you’ve seen in the past?
Joshua: We are seeing a lot of CFOs and COOs taking control of organizations. In large organizations, we are witnessing broad procurement rules across all divisions, meaning the spending thresholds are much lower and sales teams will need approvals from lower management quicker in the sales process. This all boils down to if you can either save a company money or have a strong ROI, enterprises are buying and adopting technology very quickly. If you don’t fall into these two categories or aren’t a pure transactional sale, then I would say there are not a lot of companies adopting those types of technologies right now.
Brandon: To start, you have to segment all your customers into one of three buckets: barely surviving, striving, and thriving. The striving companies are getting by and looking internally to review how to take this opportunity to reoptimize for long-term success. Therefore, there is some opportunity for selling foundational building initiatives. The thriving companies (e.g. video conferencing or logistics) might be buying net new since they are growing. You need to determine what category your customers fall in and then target your upselling strategies appropriately.
Looking at upselling and contract renewals specifically, what changes have you seen?
Brandon: All companies, even those in the thriving mode, will take this opportunity to renegotiate their contracts. This is why it is important to understand which category your customer falls in (barely surviving, striving, or thriving) and have different negotiation strategies for each segment. Companies should be having very frank, human conversations with their customers to make sure they are a priority and can still be of service.
With existing customers, there are four strategies you can deploy: changing payment terms, offering short term discounts, an outright pause, or reducing the scope. If you use the pause strategy, it’s better to pause just the payment and not the usage. You want your customers to stay addicted to you and not get used to you not being around. No matter what, you are going to have these discussions and decide how to approach the different segments.
As it is a very difficult time for a lot of people, how do you adjust the contract negotiation process?
Joshua: The main issue I currently observe with early-stage sales teams is their focus on the “why”, instead of focusing on the “when”. All early-stage B2B companies need to understand the point in time when a company wants software deployed and why feeds back into this. Knowing organizational “when” they have to hit targets, like showing reduced infrastructure costs, will help you drive the sense of urgency through the sales process.
During negotiations, how do you judge the scale to which you are a priority?
Brandon: For existing customers, some of this is the stuff you should always do anyway, it’s just more important than ever. If you are not saving the customer money or making the customer money, you are not a priority. If you haven’t already, the more you can show ROI models and quantitatively backup how you saved money is something in which you should be investing.
Joshua: Net new sales is becoming pretty clear right now. For pre-Series A we recommend a 7:1 pipeline ratio (number of qualified deals: closed deal) and for post-Series A/ pre Series B a 5:1 ratio. This is because conversations are becoming very black and white. You should be looking at your pipeline very early on and examining whether the qualified deal has the potential to close. Spend your time and critical thinking energy exploring other verticals where you are a top priority!
Shifting topics, let’s explore offering temporary discounts. How aggressive should you be and how do you value those commitments?
Brandon: This goes back to having a playbook in advance and not making decisions on the fly for a given customer. You need to sit down with your CFO and conduct sensitivity analysis and modeling. First segment your customers, name what discount strategies the sales team is authorized to use, and see what you can afford from a macro perspective. Create a plan, document the plan, train the team on the plan, and then execute the plan. Make sure you keep talking to the team everyday about how the plan is working and make adjustments if necessary.
Joshua: There is a tendency for early-stage founders to get customers in the door during a “logo grab stage” where many early-stage founders are quick to please, quick to say yes. The risk is you start bringing on customers who you truly don’t know the lifetime value of versus the cost to maintain the customer. You have to be very careful in the scope of your engagements when you are trying to close the deal. Something as simple as promising to have someone on call during East Coast working hours can lead to a very serious cost of needing an FTE, which is just something you said at the last minute. Two or three extra lines in a contract can destroy your company’s valuation. In summary, there needs to be a system of checks and balances for early-stage companies; I don’t believe sales reps should be approving discounts or add ons without C-level engagement as this could be detrimental to the company’s financial health.
What alternatives are there to discounts? What other tactics can startups use today?
Brandon: You need to start being creative and force yourself to think out of the box about how to sell and retain customers. For example, I am working with a SaaS company in AdTech with all their customers being retail. We spun out a service offer so that they will be the user of the technology for the customer; from the customer perspective its net savings and from the company’s perspective it is keeping the value creation going. Knowing this is a short-term arrangement for the next 6 months to protect the software revenue long-term.
We always say try to “think out of the box”, but what are your top tips for startups on how they can approach this?
Brandon: Talk to your customers! An example is how Airbnb approached this, the CEO reached out to all their customers and as a result, pivoted to online services to adjust to the new reality. Obviously Airbnb is still suffering, but they are able to continue driving revenue and engage customers. Take a strength of yours and apply it differently.
Joshua: I have been reading quite a bit recently on VCs who have been through 3-4 recessions before. I think there is an incredible value in reading history around these moments and understanding what the world looked like at the time. Reading up on these have provided a new lens on opportunities to change your business.
Brandon: This is an important point! I have personally lived through the Dot Com bust, 9/11, ‘08, and now this, and it is very easy to get demoralized. We need to remember a lot of great tech companies, such as Microsoft and Netflix, were founded during a time of recession. It’s because everything bad creates an opportunity for something new and good. When there’s disruption, that’s when our DNA as entrepreneurs really kicks in, so lean into that!
Right now, would you prioritize your existing client base or should you focus your creativity towards growth?
Brandon: You need to prioritize retaining your existing customers first and foremost. An example of how to be creative, if you have a professional services group that always bills hours and there’s not a lot of hours to bill now, use this time to have that group offer free training for customers or special projects. Use this time to deepen your relationship in authentic ways. Customers will remember who had their back, sooner or later this will pass. You want to make sure you are on that list because that loyalty will last.
Joshua: I would emphasize building trust and loyalty with customers during this time. The opportunity to do that is greater now than it has ever been. This transcends to outside of business, perhaps you could send all your prospects a specific book, like Endurance: Shackleton’s Incredible Voyage. Think of this long term, today you may not get the sale but down the road, they will remember how you made them feel during this time.
Brandon, in preparation for this webinar you mentioned “good times hide sins.” Can you bring some context to this saying?
Brandon: When you’re a venture-backed company with a long runway and the economy is good, you want to land grab. All of a sudden things get hard and you need to get back to the basics. Now more than ever, it’s about flawless execution. This starts with outstanding internal communication. Then it moves into redefining success to help the team not become lost in the confusion. After that, you need measurements and real-time data to make daily adjustments towards your goals. Finally, it comes down to great execution – this is where playbooks for the different segments are important. This is why great companies come out of recessions, because they were forced to get their basics right and a solid foundation was built.
How useful do you find LinkedIn for sales? Do you recommend approaching mid-management or higher management?
Joshua: With LinkedIn, there are a lot of sales automation tools that allow you to blast everyone globally at one time. What I can’t stress enough right now is hyper-personalization. You have to make people feel like you know their business and can relate. Generally speaking, using Aaron Ross’ predictable revenue strategy, the higher you go in an organization you are going for a recommendation and not an ask. If you write a very personalized message and ask a CEO for a recommendation you have a higher probability of a response than asking for 15-20 minutes of that CEO’s time. If you can, always be trying to add value of some sort in these communications.
For startups entering new markets, what is the best and most effective way to approach customer conversations during this time?
Brandon: This is one of those times where it is better to listen than to talk. In other words, start from a place of empathy and then ask really good questions. An upside to this environment is that personal is the “new norm”. There is an opportunity to build an authentic human connection with customers right now and I hope this stays with us after the crisis is over. This is something important for a European audience to note: Americans are more predisposed to talk about children and home life on business calls. This makes people more attainable and personal.
In terms of the cadence of reviewing your data, does COVID-19 change that frequency?
Joshua: From a forecasting perspective we are seeing an increase considerably. Your feedback loops and opportunities to make small adjustments need to be much faster than it’s ever been. This comes from more communication, not necessarily more meetings. Make sure you really understand your data and you may even need to start tracking different data points than you have in the past. You don’t want to be 8 months down the road in a 9-month sales cycle and realize there were a lot of learnings you should have had during the discovery phase that you didn’t adjust to.
Brandon: Today you need more real-time access to data. With sale churn forecasts, updates once a week is not acceptable, you need daily updates. This translates to more data and not more meetings. With that being said, the management team should be having 20-30 minutes stand up fashion meetings each day to review changes they should be made aware of.
How do you adapt your sales compensation these days if any?
Joshua: There are a few ways you can approach this. If your reps are not hitting quota, a standard conversation I am hearing is whether or not to adjust sales commissions. For larger companies, they are running promotions to help get their sales reps paid on the reductions in quota. The truth of the matter is smaller companies don’t have the cash flow upfront to make their sales reps whole. As an early-stage company, you can’t give away the money you don’t have. Try to arrive at a balance which keeps your sales associates motivated, some tactics include incentive structures or give a bonus for annual deals paid upfront. Understand the psychological aspects of it, because as a salesperson you attach your success to hitting your numbers. If you are not hitting your numbers you are worried about getting fired, if you are worried about getting fired you are not doing your job as effectively as possible.
Brandon: From the customer success side, I am seeing the CSMs who’s comp is based on outcomes, rethinking their goals and shifting to become more leading indicators of those outcomes. For example, an increase of usage from 5% to 10% is a change earlier in the value creation.
What are your projections for the future?
Joshua: We will see highly quantifiable ROIs. I believe we will reach a point where technology will show an arrow either going up or down and that will dictate whether or not your solution is adopted. The current environment is going to accelerate us there very quickly.
Brandon: It goes back to all the best practices thought leaders are talking about, such as ROI, will become mainstream because only the companies that use them will survive.
In summary, is there any advice you would like to offer for our startups?
Joshua: Going back to an earlier point, while it is difficult for founders you need to have tough conversations with your team and your prospects. If you are not a priority you need to stop focusing on that relationship and look towards other areas of our total adjustable market. You need to realize you cannot be just a sales rep anymore; you need to understand marketing! You can’t say you don’t know how Google Ads work or how to run paid campaigns on LinkedIn. You need to understand customer success and retention. All the top executives I have spoken to are all learning right now, unfortunately, I am not witnessing the same pattern with millennials and early-stage sales reps. This is really a time to learn and grow. At the end of the day, I am going to hire the sales rep who understands how to run a LinkedIn paid search campaign and understands leading indicators for customer success renewals, not the sales rep who crushed their quota.
Brandon: I agree, this is the time for learning! This again is why great companies come out of recessions, because they learn, adapt, and overcome. Make sure you are having a lot of conversations with customers, access to real-time data, and listening to everyone within the organization so you have outstanding world-class situational awareness. During the lockdown, just focus on how to make the best out of what you have right now that leads to long-term positive outcomes.