Surviving the Rest of 2023 and 2024 as a Software Vendor
Author: Shane James
I have spent 23 years working in the corporate world and have witnessed the dot com bust, the near financial collapse of 2008, and the more recent COVID crisis. In 2022, I noticed signs of another economic downturn on the horizon. I work in the information technology (IT) vendor space. I have observed that finance and IT are the first two industries to show weakness when a looming economic downturn is imminent. Companies must cut costs during difficult times and try to cut unneeded expenses first so they don't have to lay off people. Software vendors are often the first to go, especially software they view as non-essential.
In April of 2022, I noticed a reduction in spending and informed someone I knew well that the next couple of years would be challenging. Although I am not a finance expert, as an executive in the IT industry, I am an expert in dealing with customers. The spending cuts began in November of 2022 and have continued since then. These cuts are expected to continue until company executives and finance experts feel the economic headwinds have subsided, which may not happen until the middle or end of 2024. As a result, software vendors and other companies need to work harder than ever to retain and expand their customer base. Unless your company provides a "must-have" software application, there is a high probability that your software will be eliminated from your customer's expenses.
I have some critical questions and points to discuss.
Are you confident that you are providing the best support to your customers? While good support is usually enough in a normal economy, it's insufficient during tough times. Your support should be so good that your customers consider your company not just as a vendor but as a consultative group that helps them achieve their goals and objectives. Achieving this is challenging. Do your CSM and/or TAM have the necessary skills to make this happen? If not, what steps are needed to ensure they acquire the required skills?
Does your product have a specific product-market fit unique to your customers? Many companies claim that their product is a "must-have," but in reality, would you as a buyer consider it a "must-have" when faced with the current challenges? The truth is that most software products are optional in a poor economy.
Does your product meet all the promises made during the sales cycle? Understanding if the customer's use case aligns with the software is not good enough. You must also be able to grasp what problem the customer is trying to solve and quantify the value of the software in achieving their desired outcomes. Hearing that the software aligns with their use case may be expected, but does not necessarily mean it will provide the customer with the desired outcomes.
Take some time to reflect on these questions and answer them honestly. If you struggle to answer these questions confidently, it may be time to refocus your efforts. Remember that the foundation of a successful product lies in simplicity, user-friendliness, problem-solving capabilities, and proper market positioning. Even the most dedicated customer success team won't be able to fix fundamental issues with your product.
Here are my suggestions:
Evaluating your customer success team and determining whether they have the necessary skills and tools to provide the best possible support is essential. Be systematic in your approach by tracking and regularly improving their performance. Gather customer feedback through surveys and direct communication to involve them in your customer success strategy.
It is crucial to understand how your customers use your product. Do they use it daily, weekly, or only when needed? If they use it daily or weekly, kindly request them to demonstrate how they do that. Inquire about what improvements they would like to see in the product. Take your time to focus on the strengths and weaknesses of the product. If they use it ad-hoc, find out why. That is usually a sign that your product may not be fundamental to their business.
Providing feedback to engineering and product management teams about what you learn is crucial. Don't make it a complex exercise that takes several weeks to complete. Instead, try to collect and provide feedback daily or weekly, preferably in real-time. The faster the product teams know about the issues, the quicker they can decide how to improve the customer's view of the software. Your company will succeed more if customer success and product teams work together.
To ensure success, it is crucial to involve the deployment or customer success teams early in the sales cycle. This is especially important for new customers, as early involvement of these teams, especially during POC and scoping, increases the chances of a successful long-term relationship. For existing customers, it is essential to ask them about their expectations during the purchase process. Identifying any gaps and filling them through professional services or education is critical. Regardless, it is crucial to pay attention to the promises made.
Software vendors will likely experience higher-than-average customer turnover in these tough economic times. As a responsible vendor, it is crucial to ensure that you and your teams are doing everything in your power to meet your customers' needs. However, it is vital to avoid getting bogged down in individual issues for every customer and instead focus on categorizing significant issues, addressing each one carefully, and gathering customer feedback. While it is essential to maintain innovation, developing better processes to handle the current economic challenges is equally crucial, ultimately leading to improved performance when the economy rebounds. Wishing you all the best for the rest of 2023 and 2024.