Tough market forces tech startups to make a hard pivot on customers
"He knows his whole back's to these ropes/it don't matter/he's dope/he knows that/but he's broke" - Eminem
Technology startups have relished selling to their well capitalised industry peers in recent years.
Later stage startups backed with generous VC funding have bought myriad software products and services from peers as they scale; from collaboration to security toolings, data analytics to FinOps to compliance products.
Sales teams revelled in that market. Such buyers have been agile, non-hierarchical, open to trying new products or platforms and not encumbered by the glacial procurement cycles and compliance hurdles in other quarters.
Almost overnight that’s changed. For many software startups, their fellow startup pipeline is drying up almost faster than their investors’ tears at slumping valuations have turned to a ruthless focus on trimming costs.
That’s forcing a hard rethink on who to sell to and how to do so.
A series of conversations held by The Stack’s team this week showed many software sales teams pulling an aggressive handbrake turn as they look to crack verticals that were previously less of a priority.
Fintechs and software scaleups are making way for consumer packaged goods; tourism, travel, leisure and health (TTLH); sports and media companies; and energy providers (a few examples) in many quarters.
Those are companies with large numbers of customers, distributed global presences, a focus on using customer and third-party data more intelligently and for many, a sustained focus on modernising infrastructure.
Digital transformation continues to move the needle for them and they know it.
Tough market for tech startups highlights diverging leadership views
A marked cultural divide is emerging among technology startup leaders in this market too.
At some, marketing, HR and other “softer” elements of the company have been first to be put to the sword.
The story is this: “We got flabby, we got ahead of ourselves, our investors want us lean and the ROI of every hire has to be crystal clear” – and often that’s fair. We’ve encountered many firms with $1 billion+ valuations with barely functioning sales functions and completely disjointed sales and marketing teams; equally common is field marketing and content marketing or PR divisions who are completely siloed or pulling in different directions.
Other leaders are taking a different view. They raised big, they have runway, and they’re confident in the uniqueness of their value proposition. They’re hellbent on powering through a downturn of 24-36 months (views vary) and spending to do so, but they’re tightening up their operations, rethinking KPIs or OKRs for marketing, aligning them more closely with sales and product teams, and making sure that their leads are better qualified.
For both types of firms. relationships with existing customers are getting more love, amid hopes that expanding where previously landed is going to be easier than getting a foot in the door with cautious prospects.
Regardless, the fellow tech startup customer pipeline having dried up has forced recognition among many that out in a real economy, among companies not stuffed to the gills with silly money, decisions do take longer, business cases need to be more robust, leads take longer to warm and relationships take longer to build.
Banks don’t move fast and break things. Car makers are not agile. Governments have to account for every coin. Change management at large manufacturers is not easy and nor – anywhere else – is facilitating the actual use by employees of newly adopted software. (Change fatigue is a thing.) These may seem obvious things to state: Of *course* technology should solve real business problems and be able demonstrate the value of doing so. But seemingly, as a bubble of scale-up-to-scale-up selling subsides, this has been a culture shock to many.
A market of people willing to try things because they look shiny, sound sexy and feel cutting edge (yes, that market was firmly there) is, in short, drying up more each week, as a post-2008 era of easy money fades.
It’s back to basics out there. Be prepared to explain, very simply, why your software or service solves a problem, saves money -- not costs it in endless training and painful migrations -- and really moves the needle for CIOs. This has got even harder, given that so many digital leaders are looking to consolidate their stack. Trusted partnerships are everything right now. If you don’t have them, be prepared for it to take longer to build them.
