The technology industry was one of the sectors most affected by the economic crisis ZIRP, i.e. zero rate of interest policy era.
Companies that were once flush with VC money, guarantees and a focus on “growth at all costs” have modified their face. When money was low cost, it was much easier for investors to bet on what Packy McCormackfounding father of a strategic and investment company Not boringcalls “Faith index” — or the belief that the company can make money in the future. Currently, an indicator of belief in technology such as artificial intelligence with a clearer path to economic value is high, whereas in the past, more speculative categories corresponding to cryptocurrencies had higher confidence rates.
Conviction rates and rates of interest are inversely related. As the economy cools and rates of interest remain high, investors will probably be less more likely to rely on their faith in future money flows and revenue multiples. After the ZIRP era, investor attention shifted to profitability, and firms went to great lengths to exhibit this.
From conversations with friends, I have heard that firms use tactics that result in high customer acquisition costs and low profits. Spending 3 to five times more on every dollar of revenue is a thing of the past – areas corresponding to paid promoting, marketing programs and engaged enterprise salespeople are the first to maneuver forward.
So what’s the best solution when the pressure on your online business shifts from growth to profitability? Invest in your existing customer base through expansion and renewal while reducing costs in other areas.
Ouroboros SaaS
Before we get into the details of the best ways to focus on your customers, let’s talk about why it’s so difficult to build a customer relationship in SaaS.
At first, the idea of a easy technique to deploy software in the cloud held great promise for buyers. Instead of months of RFPs from the CIO (and even longer on-site implementation times), a business user could theoretically purchase and “deploy” SaaS software to satisfy their needs with minimal hassle and no involvement of the IT department.
Fast forward to today, and the same ease of deployment that fueled SaaS’s popularity – combined with the ZIRP-era flood of cash into already crowded markets – has made SaaS software more commoditized and transactional than ever before. How Jamin Ballpartner in Altimeter capitalwrites in one of my favorite newsletters, Cloudy judgmentWe live in an era of focused firms gradual improvementsnot transformational leaps.
One results of this is the spread of “snowman” startups are accelerating the race to the bottom, lowering prices to win and stay alive at all costs. Reasoning? They may increase prices in the future. I have personally seen firms increase the price of seven-figure contracts at renewal by a factor of three or more, effectively throwing themselves off the bill, further accelerating the downward spiral.
As the snake eats its own tail and the market commoditizes itself, I often ask myself: is loyalty dead?
Incrementalism definitely makes it harder to build long-term loyalty. Few firms focus on something truly revolutionary – most frequently, products are either cheaper for the same functionality or have a slight advantage as a consequence of revolutionary functionality. Regardless, if you are in an industry where your product keeps recuperating than the last, the best technique to survive is to get closer to your customer.
In the next article, I’ll share some of the most vital ways you may align your team to be customer-centric, which in turn will enable you to extend your online business expansion and retention revenues.