SmoothSpan Blog

For Executives, Entrepreneurs, and other Digerati who need to know about SaaS and Web 2.0.

What Business Strategies Does this Economy Call For? Get Strong Fast!

Posted by Bob Warfield on February 3, 2009

These are confusing times at best, and depressing times at worst for some.  Patterns are hard to come by.  I spend a lot of time keeping my ear to the ground via networking.  I look for underlying trends and try to make sense of what they mean for strategy.  Often the pressures of the bad economy lead to strong beliefs that are completely conflicted from one conversation to the next.  In other words, the noise level is extremely high.

One of the biggest examples of this contradictory feedback comes from the quarterly results of various companies.  IBM does extremely well.  Apple likewise.  Google, pretty good.  Microsoft, disaster to the point Techcrunch is composing verse about it.  What’s the pattern there?  It’s hard to see until you really dig down, but it looks to me like it’s a matter of the strong getting stronger and the weak getting weaker.  It’s a momentum play, with the momentum hugely amplified by the web, which reduces the friction of learning who is strong and who is weak.  Strength is not simply a function of financial strength.  Microsoft is as strong or stronger than any of these companies when it comes to cash and their ability to generate more cash, but their momentum is not to the upside.  This is more a matter of strength as viewed from the base of potential customers.  Perhaps it is an amalgam of momentum, customer satisfaction, and expectations for the future. 

Define it how you will, but IBM clearly has been strong and getting stronger.  Their sevices-and-software-over-hardware strategy is working.  Apple, despite Steve Jobs’ health problems, is strong.  Every time I turn around I’m meeting someone else recently converted to using a Mac laptop or having just purchased an iPhone.  They’re loving it.  Google, is in an interesting position.  They’re near the fulcrum of the tipping point, slightly on the positive side.  Their core franchises are strong, but the market sees that there isn’t a tremendous amount of life left there.  They want to believe Google will invent enough great new things to carry on, but they’re less sure.  Then there is Microsoft.  Steve Ballmer, it’s time to get your house in order, for its been a long time now in disarray.  You’ve fundamentally missed both the Internet and Open Source movements completely.  You’re in the middle of missing the SaaS and Cloud movements.  I’m not sure how many megatrends an organization can miss and remain intact no matter how good their core franchises are.  Especially since these megatrends are corrosive to those core franchises.  Ironically, as I was writing this very passage, IE7 announced an abnormal termination and crashed.  Fortunately, WordPress didn’t lose a single character, which is testimony to that particular cloud app, though not that unusual among cloud apps.  Guess which company I think is stronger? 

Think about your organization.  Are you strong?  Are you aligned with the megatrends?  Or are you defensive?  There is still a lot of fight left in the On-premises versus SaaS melee.  Some days it almost seems like the on-premises guys want to completely discount SaaS as a fad that will fail shortly.  But then we see SAP’s results, Oracle’s results, and Salesforce.com’s results.  If SaaS is just a fad, why doesn’t it fail now, under the harsh spotlight that is this economy?  Which companies are stronger, SaaS or On-premises?

Like so many things that are factors in our success, “Strong” is a function of perception.  It’s hard to measure objective facts and come up with a true “Index of Strength”.  But it’s not hard to recognize Strong qualitatively or intuitively.

Strength in this economy is measured in another important way.  I’ve heard over and over again about how hard it is to acquire new customers.  If they come at all, they require a lot of convincing.  Skepticism is at an all-time high.  Perhaps this is another way to explain the strong versus week phenomenon.  The strong have given people a reason to believe, while the weak have given them reasons to doubt.  This translates directly into important strategy changes for the economy, some are taken from the playbooks of earlier economic downturns, others are much fresher.

First and foremost is the shift of companies in what they are looking to buy.  Cost savings is the benefit on everybody’s lips.  This is one of the ones from earlier playbooks.  We’ve seen it before.  It is closely allied with Hard ROI.  If your solution doesn’t deliver a real measurable benefit, a Hard ROI, that’s a problem.  If you can deliver immediate cost savings, that’s a Hard ROI.  If you can deliver top line revenue growth like a Zuberance, so much the better.  My company, Helpstream, has worked hard on delivering Hard ROI.  It hasn’t been enough simply to enable our product to deliver savings in Customer Service.  We went on to measure and document that savings in our installed base.  We even went so far as to enable the product to measure the ROI for customers and show that to them on a standard report.  Because of that, we’re one of the few Enterprise 2.0 or Social Media startups that I know of that can talk concretely about ROI.  That’s the sort of reason to believe that’s needed in this economy. 

Given a Hard ROI proposition to sell, the next question becomes reaching the right prospects.  This goes back to the Strong versus Weak idea.  Which prospects are most likely to view you as Strong?  Properly segmenting your market, and making sure you’re calling on prospects most predisposed to view you as Strong is essential.  We’ve seen this clearly at Helpstream.  Sales calls have tended to be bipolar.  If we’re talking to the right audience, they get our ROI proposition immediately and want to move quickly.  If not, we’re pushing a rope uphill.  In our case, Marketing Automation companies really understand what we’re doing with Community and the Web Channel very clearly.  We’ve closed InfusionSoft, Marketo, and several others.  Each one of them, by the way, also seems to be doing well despite the economy. 

This concentration of Marketing Automation companies brings to light another important strategy for Strength:  focus on micro segments until they reach a tipping point.  People in a microsegment are part of a community.  They know each other.  They change jobs inside that community.  They share a common language about what they do, and a common perception of what they need.  Each one you close in a micro segment makes the next one a little easier.  Focusing on pushing micro segments (or even relatively large verticals) is an effective strategy that I’ve seen work in a number of companies I’ve been involved with, but it works especially well in down economies because people need as much credibility as possible to buy.  Micro segments deliver that credibility by showing that others like your prospects have bought and been successful with the product.

This brings me to my last strategic observation.  It’s another one from the old playbooks.  A lot of people are saying it at the moment:

Now is the time to focus on your existing customers.  Make sure they are happy.  Make them happier still.   And ask for their help.

Seth Godin has two recent posts along these lines.

Others have echoed similar themes.  Guy Kawasaki’s list of 10 things that indicate a CEO is clueless are related.  Even better is his list of 6 things a small business CEO should be saying now.  They play well against this backdrop:

1.  We’ll never raise another nickel.  In other words, we have to get that Hard ROI out of everything we do.

2.  The marketing budget is 0, but we still have to get to market.  More Hard ROI, and Social Media is mentioned directly.  The key to this kind of marketing is the micro segmenting idea targeted at communities that can be reached online via your existing customers.

3.  Engineering needs to make something so compelling that the $0 marketing budget is not a problem.  We have to deliver a product that has Hard ROI!

There is more, but you get the idea.

What else could your startup be doing right now to make itself strong? 

Chris Cabrera at Xactly had an interesting take on it–he went out and bought his nearest competitor and effectively doubled the size of his company.  That’s strong!

Twitter is raising another round at a $250M valuation.  That’s strong!

3 Responses to “What Business Strategies Does this Economy Call For? Get Strong Fast!”

  1. darrellross said

    This is a well-written piece. Your comments re: Hard ROI echo a recent conversation with a sales exec for a large healthcare IT company. She indicates that everything they sell these days is wrapped with a Hard ROI. In many cases this is documented as part of the discovery/pre-sales phase. The one contrary note is that there is still a need for on-premise solutions for the healthcare space. These organizations are striving to extend the life of their big iron legacy systems + are under HIPAA requirements to maintain patient data in-house and off the cloud.

    Best,

    Darrell Ross
    http://www.enablus.com

  2. ajaydawar said

    Bob,

    As usual, a great blog post. Can you suggest a link to a post or study that compares the cost structures of SaaS companies vs. On-premises?

  3. datastay said

    I just found this blog and it’s amazing! Great Post!

    We’re treating the poor economy as an opportunity, simply because we’re are able to communicate and provide the immediate cost savings that companies are so desperately interested in. Any marketing communication that is sent out to prospective customers articulates the possible Hard ROI that is provided by our products and services.

    For the previous commenter, Datastay is having a webinar on “How to use Cloud Computing to Weather an Economic Storm”, we may be able to provide with some of the information you’re looking for. Please visit http://www.datastay.com if you’d like to register.

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