In every company’s history there comes a time (or two or three or four times!) when your momentum slows and the sales curve begins to flatten. A period of flat or declining tech company growth can be one of the most trying and frustrating times for software and hardware company managers. I don’t believe it’s as difficult as the startup phase, when “crib death” is an ever present fear. And of course a no growth, flat revenue scenario is much preferable to declining sales combined with negative profitability that follows, which leads to a “death spiral” if no effective action is taken.
What Do You Do When Your Revenue Curve Stops Climbing?
But I do find this situation is often more confusing to tech company management teams than either the start up or death spiral scenarios. This is because it often occurs just after a period of fast growth and prosperity, where it seems that the company can do no wrong. As a result, senior managers are often in denial about what is happening—whereas in the startup or death spiral situations the situation is much more obvious, usually motivating folks to take fast, decisive action.
Search for the Culprits, Blame for the Innocent
With flattening tech company growth, it’s easy to blame things that may not be the true cause. I often hear excuses and tactics such as the following:
“The marketing department just needs to put out better promotions. Fire the VP Marketing and bring in someone who will get the job done”.
“The sales force isn’t selling hard enough, they just need to close more deals. Get the VP Sales off the golf course and tell him to kick some butt, or he’ll be the next to go”.
“The channel is useless; they’re taking 30-50% but they aren’t pushing the products—take more deals direct”.
“We just need to charge more for our products; we’re leaving money on the table”.
“Cut the price to stimulate demand.”
“The UK distributor is fat, dumb and happy—sign two more of his competitors to motivate him and maximize sales in that country.”
Now, some of these reasons may even be accurate and some of the proposed tactics could possibly be useful. But I have found, quite often, that things of this nature aren’t the fundamental issue and beating up the sales force, cutting or raising prices, or messing with your channel balance may exacerbate the situation and make things even worse—not better.
The Real Problems of Slowing Tech Company Growth
Sometimes the answer is as simple as “All good things must come to an end.”
Tech company growth cycles don’t last for ever, as much as every technology company CEO, VP marketing and VP Sales wishes it would. There is a natural cycle that occurs with revenue that is related to the life cycle of your products. Also, the overall economy dips, competition heats up, novel marketing programs age and are copied by competitors which reduces their effectiveness. Market segments get saturated and customer budgets are re-targeted to the “next new thing.” Stuff happens—always! The only real questions are when and why this slowdown has occurred.
So what’s a befuddled and perplexed tech company CEO to do?
Finding a Solution
The first thing I recommend is to really spend some time getting to the bottom of things. Instead of shot-gunning blame that may be misplaced, or impetuously blowing up established pillars of the business—conduct a real, objective analysis of the nature of the slowdown. I don’t suggest paralysis by analysis by any means, but do take the time to gather some data, so that your actions will be based on more than knee-jerk reactions.
Past that, it’s hard to generalize on a course of action because the proper action will depend upon the details of what you find in your analysis. But for the sake of discussion, let’s say that while there are a few factors that you find which could be leading to slower growth, but there isn’t a “silver bullet” issue that can be “fixed” to get the revenue curve again pointed up and to the right. Below are some general steps that I’ve found may enable you to restart tech company growth. I might add that many of them are most effective if you begin them prior to actual revenue flattening:
Try marketing programs you haven’t used before
Usually when you get in a period of high company growth, there is a workhorse program or two or three that has worked well for you and there is a tendency to “keep doing what works”. Nothing wrong with that, it can be very efficient at the right time. Unfortunately, even the best conceived marketing programs eventually run out of steam. One of the keys to having consistently good outbound marketing is too be constantly testing new ideas, placing small bets and fine-tuning them if there is enough success to continue. As I’ve written before, product marketing is part art, and part science—with the art portion unfortunately usually being upfront. You need to do a little trial and error to find a good program and then the science part kicks in, using data you’ve gathered to optimize it. But the key to continuous outbound marketing success over a long period of time is to be constantly testing new ideas, in good times and bad. If you wait until your growth has already slowed, you may scramble for quite a while trying to find a new set of marketing programs to hang your hat on.
Have an internal “company growth” brainstorming session
Ideally you are doing this before you fall into a revenue rut. But regardless, do bring together people in your organization to give visibility to their ideas that may give the top line a kick start. Do hold these sessions in an open, non-threatening and non-political environment. It’s important that people are able to speak freely and not be ridiculed if they come up with an idea that appears “too far out of the box”. That is often where strategic breakthroughs are made. And don’t just limit these sessions to executive managers. Remember, the people at the bottom of the org chart are often the ones closest to the business and are sometimes able to more easily spot a big opportunity that the company could capitalize on.
Hire some outside help
Consultants have a very bad name in some companies—unfortunately, sometimes with good reason. But bringing in someone with deep marketing, sales or management expertise with a different viewpoint than the internal management team can sometimes be the quickest way to new approaches that will turn the ship quickly. Sometimes internally it’s hard to see the forest for the trees. I’d recommend staying away from folks that a) have a cookbook formula, b) have only been consultants and not operating executives, or c) take too much of an academic approach. Every company, market and point in time is different and needs to be analyzed as such. But hiring the right outside consultant or firm who is creative, analytic and has “been there and done that” can have a big positive impact on a tech company’s growth prospects.
Look at entering an adjacent market
If it’s determined that your current market space is getting saturated, one of the first things to do is to look at adjacent spaces. Preferably, look somewhere that you can leverage your current marketing, distribution and brand, but also consider where you can possibly apply existing company technology to a totally different customer’s problem. The key here is to avoid if at all possible going to a complete green field that looks attractive because it’s large or growing fast, but where you have no real strategic advantage to compete on. Again, it’s best to be taking this step in anticipation of slowing growth in your current business—rather than waiting until it happens. Getting traction in new areas can take some time.
Consider M&A to fill out your product line or distribution system
If you’ve been caught by a surprise slowdown in tech company growth and you need to do something quickly, a strategic acquisition can sometimes be the answer. I warn you to proceed with caution here. M&A is fraught with danger—statistics show that most acquisitions don’t work out well. You need to think it through, proceed carefully, and don’t get overly excited by the thrill of the deal chase. If done well, however, a strategic acquisition can be a real shortcut to entering an adjacent space, filling out your product line and utilizing an existing strong distribution system, or adding sales channels to your strong product offerings. Just remember it doesn’t necessarily need to be a huge deal if you can “add-value” to the acquired business. You’re not usually looking for revenue here (that’s VERY expensive), but assets that you can add value to and exploit via your existing infrastructure.
Think it through before you start shooting
There are obviously endless other potential avenues to explore when attempting to jump out of a revenue rut. You can develop new products internally, for example. But if you don’t start very early before the slowdown that may take too much time to affect the coming crisis. I wanted to suggest a few ideas to stimulate your thinking—and more importantly, steer you away from some “knee-jerk” reactions that often make a situation even worse.
What have you done in the past when you need to restart your tech company growth? Post a comment below and fill us all in on your strategies.
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Why is it that it is so hard to predict when you’ve sold 50% of your market? That market is quantifiable. That market isn’t growing.
Why is it so hard to know when you leave the early mainstream market and enter the late mainstream market?
Beyond predicting when the switch must be made, there are things that must be ready:
1) The application must be rewritten to address the particular characteristics of a late mainstream user.
2) The enactment chains that sell to this late mainstream user/customer must be deployed as well.
3) Cost management must be in place. Cost management should not be in place before the market has changed, because it will kill wealth creation too soon.
4) After making the above changes, find a new technolgy.
Yes, you are correct – this is a tough time for management to understand and react correctly. This is a good time to bring in someone from outside. They can be more objective. Also you might have a Board member who has seen this before and can be of help.
Phil,
I think the most important advice you gave is don’t jump… do the analysis and there are no silver bullets.
The way most software companies continue to grow are;
Expand you distribution model geographically
Expand your distribution model by adding additional distribution channels (When I look at distribution models I consider inside sales another channel just like field sales, web sales, channel sales or OEM sales)
Add additional product(s) to your distribution channels (key here is to make sure the products you add align with your user and buyer persona’s like your current product line otherwise you may create more challenges)
Segment your market to identify market segments (could be geographic segments, could be vertical/industry segments, could be company size segments, could be current customers versus new customers segments or a combination of all four) that are growing faster than your overall market segment. Segmenting for growth is an exercise every company should go through every year. It allows you to invest and align your scarce resources against the fastest growing segments of your market.
Just a few more thoughts…
All the best and nice blog!
G
George, thanks for the excellent additional comments. -Phil
Tom, great comments. Those questions can have answers that may take some time to implement, however. -Phil
I have found the best solutions to reversing declining revenue is to ask good questions before leaping to answers like cutting prices or firing the VP of Marketing.
I use a list of prepared questions to identify growth activities. For example, I ask:
1. What problem are customers struggling to solve?
2. What is a hassle we can solve?
3. What’s our niche?
Great article Phil, as always. I’ve found that a good first step in these situations is plot the company’s 3-year sales against the industry’s and whatever sub-segments are applicable. Much of the industry data can be gleaned for free by looking at pubished articles from Gartner, Forrester, financial analysts who follow the space, et. al.
Great to hear from you, Mike.