BSMS 44 - The party is over

• 2010–2021 were the years of plenty, with an extra push in the back from COVID
• Since growth capital was so cheap, it was easy to get away with mediocre performance 
• The bar of performance was not high enough
• Growth was seen as a metric of success, not profit 

• Add discipline to how you run, just do the basics really well
• Deliver at a higher standard of execution
• When you apply success metrics and business expectations of other industries to many companies in the software industry, software performance is poor
• People got more excited about growth than things like CAC, and getting the most out of the customers and funnel they already had
• Do your research. Find out where your competitors are lacking quality and invest your efforts in that. 

Welcome to the second season of the B2B SaaS Marketing Snacks podcast. It's no secret that we've been out for a while, but honestly, I'm really thrilled to have you join us once again on this journey. I'm your host, Mike Northfield. I lead product here at Kalungi and T2D3, and together with Kalungi co-founder Stijn Hendrikse, who has extensive C-level experience in the software world, including leading product marketing for Office 365 at Microsoft. We'll be serving up another season of conversations to help you hopefully become a better marketer or go-to-market leader or founder with the learnings from our own experiences leading marketing and revenue functions for early-stage software companies.

Something I'm really excited about this season is that we've introduced a new mechanic where you as a listener—thank you again by the way, none of this is possible without you, so I appreciate you choosing to spend your time with us—but where you as a listener can go submit and vote on other topics that you want to hear Stein and I talk about. So you can do this by going to kalungi.com/podcast, and Kalungi is spelled K-A-L-U-N-G-I. So kalungi.com/podcast. You'll see a little voting app—you can submit topics and you can vote on others. And every time that we sit down to record, we'll take one of the top three most-voted topics and we'll jam on it. So if you've ever had a B2B software marketing or go-to-market question, this is a great opportunity to, I guess get some free consulting.

So we've also heard some of the feedback that our mixing was maybe too quiet and it made it hard to listen to us in loud, busy areas like on the subway or in a hotel lobby or when you've got a couple of screaming children in the backseat. So we hopefully have fixed that for all the future episodes. So thank you to the folks who brought that to our attention. We do appreciate all the feedback, both good and bad. It helps us keep these episodes as high quality as we can. So thank you.

Anyways, we're back. We're really excited. Thank you to everybody who's reached out on LinkedIn or over email with feedback and words of encouragement. And honestly, it does make all the world difference. It makes it worth it knowing that this podcast is helpful for people and you get value from it. And if you find yourself falling into that bucket, we would really appreciate a rating from you on Apple Podcasts or Spotify. It goes a long way and helping other people find us, and it keeps us fueled to keep creating these episodes. So with that, let's jump in.

So today we're talking about the fact that, it's no secret, the last year and a half the software world has kind of changed a lot, and today we're talking about the fact that as of right now, things are different, and the party's over. Let's jump in.

Stijn:

Yeah, I think there's no excuse for sales, marketing, customer success leaders to not always find things they can do better. And the days of not doing that are over. The since party over you can't hide anymore.

Mike:

So maybe we can get started with this one. Obviously, things have changed a lot in the last year, year and a half in the SaaS, software world. We've kind of gone from a world where money was free-flowing, there's a lot of growth capital, and things have definitely changed. We're starting to see that with a lot of layoffs, a lot of changes in demand, a lot of just turbulence in the software market in general. And I know you've got some interesting thoughts on this, and you actually have presented on this topic to some other executives pretty recently. I was wondering if you might want to dive deeper into that.

Stijn:

Yeah, thank you, Mike. It's an amazing, interesting topic that many of us are grappling with. We have, even our generation, although I'm 20 years older than you even, I have not really seen other times, since I've been a SaaS executive, things have gone up usually for most of us, if you think of 2008 as the last real crisis in the financial system, and you look at the NASDAQ and the other kind of economic indicators, it's all gone up for at least 10 years. Let's call those the years of plenty for B2B SaaS from say 2010 to 2020. And Covid gave it a nice sort of extra push in the back for a bunch of other SaaS companies in the last sort of three or four-year period. But then it was over.

On, I think October, November '21, somewhere there in the NASDAQ, the S&P 500, they peaked. And right after that, we saw the first casualties of companies that may not have had the same sort of growth and economic foundation as more traditional businesses, and they were hit extra hard versus the more all-up market. So what happened, what I think happened in that kind of 10 year period, because growth capital was so cheap, the bar of performance for a lot of work in an average B2B SaaS company was not high enough.

It was actually really relatively easy to get away with mediocre execution, not just for still the marketing, relatively for customer success, I think for some of the product choices that companies made and the R&D expenses they had. I have this example that I've used of driving a car. I'm Dutch, Mike, as you know. There was an advertising campaign in the Netherlands about 15 years ago, I think, around teaching people, reteaching, relearning how to drive a car. And it was partly because cars had become far more efficient, fuel efficient, engine technology, etc., but the biggest impact on how much fuel you use is still the driver. If someone accelerates and decelerates all the time, if they don't anticipate how they when to start, for example, lowering the speed and just roll out in front of a traffic light instead of having to jump on the brakes or pivoting all the time, going multiple directions because you don't really think ahead. It's very highly fuel-consuming if you don't shift up to higher gears early enough. And it's not that different from when you run a company. And you can argue that a lot of CEOs in that kind of decade of unprecedented growth, capital availability, they got away with pivoting, "This doesn't work let's try something else. Let's scale up our marketing expenses here. Let's buy some market share. Let's go try build another capability, another product, another feature, and if it doesn't work, we'll just try something else." And there was this notion of course, that was definitely also driven by the investment climate and the actual shareholders to just drive growth, any growth at any cost, and that's no longer available, I think to most of us that luxury.

So the moral here of the story is that whether it's marketing or sales or customer success or your R&D efforts, do you have to now deliver at a higher standard of execution or higher standard of outcomes and outputs compared to the investments and the cost of doing the work? And we can dive a little deeper, but that's in general. I think what happened this at if you compare the SaaS, the B2B SaaS industry with many other industries where they don't have, they did not have the luxury, that level of growth capital, we got away with doing things not as good as we should have.

Mike:

I know you wrote this in one of our notes, but you said that SaaS was not more magical than a cell phone business. What do you mean by that?

Stijn:

Yeah, yeah, of course we have growth economics when you run a SaaS business that are super scalable and that are really effective, if you are able to retain your customers and keep selling more to them, then the value of those customers over time, the lifetime value becomes really high, which allows you to spend more upfront in customer acquisition costs to get those customers, which makes total sense, but that's also not that unique. Of course, software doesn't cost anything to produce, right? Once you have created the intellectual properties, relatively cost-effective to copy it and run it in a SaaS-based model, but there are costs to service your customers, of course, but none of that is that different from another subscription business where the lifetime value when you're able to retain your customers does not allow you to just spend as much as you want, right?

And some B2B SaaS companies just got away with far too high customer acquisition costs. And then we went from this world of T2D3 growth to rule of 40, right? To make sure that when your growth slows down, you also become more and more profitable. And to have those numbers to be in balance together, add up to 40, and that is not even really enough anymore. When you think of the new rules that now apply to the investment climate where you basically have to just generate EBITDA, you have to now, I think, be profitable, just more like normal non-B2B SaaS companies. And that's where I made the comparison with the cell phone business, which is also, of course, a subscription business model where, yeah, it's fine for AT&T or T-Mobile to invest a lot upfront and kind of buying customers by giving them a phone for free and things like that, that's the equivalent of having a very high CAC customer aquisition cost because you will make that money back. But that doesn't mean that you don't still have to be very detail oriented and very solid in your marketing and your sales and your customer service execution. So the people actually use their phone, they use minutes, etc., even if you're having an limited plan, right? If people don't use the phone, they're more likely to churn.

This is maybe not the best example, but let's say you compare customer success as a function, and we'll do the same for marketing and sales here just for fun, let's compare customer success function in B2B SaaS, a relatively, let's call it high margin, high growth for the last 10 years business to when you run a restaurant, right? If you are in the customer success function, your job is to make sure these customers stay, that they're happy, that they want to pay you more overtime, they expand. And to do that, you have a couple of tools at your disposal. You onboard customers after they sign up, you make sure that they are able to use the product. You train them, you drive a lot of readiness. You do things like feature and capability discovery. People as they use the product more, they find out more value. And by that, they may even buy more from you and you end up expanding the revenue per unit ARPU or the ACV, whatever you're measuring to calculate value per client. Imagine now that you run a restaurant and you have people walking into your restaurant and they go sit at a table, you do a lot of customer success after that moment, right? The waiter will come over to make sure that they know what's on the menu, that they're hopefully going to order really soon. And if they order one thing, you hope they will order more, and the waiter will keep checking in, "Hey, is everything good?"

At some point they want to upsell them to wine, to a dessert, and of course, have a great customer satisfaction rating after dinner. The ability of a customer success team to give customers the same type of experience as you would have to do when you're running a restaurant that typically has far lower margins and has a much higher dependency on after someone sits down at a table for them to actually buy something and they only get paid at the end of the dinner. It's another interesting difference with a B2B SaaS company. So I'm basically saying customer success had it relatively easy, and in a lot of companies, the quality of waiting on their customers and making sure that they get fantastic education on the menu and they order as much as possible, they give a big tip at the end. They actually pay their bill at the end.

The bar is just so much higher in some other industries. Let me use an example for marketing and sales as well. So marketing, a nice example would be, again, these are more commodity businesses or industries where you don't get away with buying your market share, spending $50,000 on a Gartner report to get people, influencers to tell you that your product is great or buying clicks if you're in, let's say healthcare, and you have to market to people who you want to sell a Medicare advantage plan to, not only is that a much more regulated industry, but a lot of hoops that you have to jump through from a privacy regulatory perspective, compliance, etc. You cannot just email and mail everyone. And marketers are, by the way, at some of these healthcare insurance companies are actually pretty good at that. They find ways to get the envelope in your mill and the email in your inbox at a much higher effectiveness rate actually than most marketing leaders that I know in a B2B SaaS environment.

Take an average nonprofit. If you've ever given to a nonprofit in the us, especially one of the bigger ones, you'll find that marketing proficiency and capability to actually find you even after you've moved addresses a couple times, they can find you and they'll find you on the email addresses and the phone numbers. So imagine the bar for a marketing leader in those industries versus what we get away with as marketers in B2B SaaS where we often not able to have the same level of success. I know sales, that's the best example. If you're in a software sales business, you have the luxury that the product may not have a high cost of goods. So what do, especially enterprise salespeople in SaaS typically expect that they can give 5, 10, 20, sometimes 30% discount? They've also gotten away because SaaS is so good at expanding clients later to just land small deals and then leave the expansion to the customer success team.

What happened to a salesperson actually selling and selling without having to give away a lot of discounts? Imagine you're a car salesperson and you would come to your sales manager and say, "Hey, I want to give 15% discount on this card that I'm about to sell." They would laugh you out of the room, right? Because there's no margin to do that. Or when you sell other commodity products like financial services products or pick whatever other industry almost, and the type of sales flexibility that a B2B SaaS sales executive expects to be able to have, whether it's a form of discounting or just selling a small deal or a small trial, because then the customer success team will deliver the rest of the sales value add later in the cycle. That is unheard of in many industries. So the fact that SaaS has gotten away, B2B SaaS go-to market executives, whether it's the customer success leader, the marketing VP, or the sales executive, get away with these different standards of performance is I think an important thing to think about with the new reality of you don't have millions of dollars to spend on your go-to market anymore, you may want to raise the bar.

Mike:

Yeah. Two things to add to that. On the sales side, one additional component to this is selling for the sake of selling versus finding accounts that are actually in need of your product where they are less likely to churn because your product is actually serving a mission critical need for them. And I think that goes back to your point about customer success too. I think if customer success is not able to, or through product-led growth, you're not able to get somebody to actually uptake a lot of the capabilities that you have when money is free flowing and readily available, it's easy to, we do this too. We say, "Hey, this looks like an interesting tool. Let's try it out. We have budget for it, let's give it a shot." It's easy for that to go on for three months, but when your budgets are getting tighter, you learn pretty quickly which tools and products are nice to haves versus need to have for actually running your business.

And if your customer success actually has an interesting role to play in being a differentiator for taking a product from a nice to have to a need to have, if you have an actual consultative partner and someone who is kind of really caring about your business and your success using their product. So I thought that was an interesting example, drawing parallels to between that and waiter or a host at a restaurant, trying to make sure that you get the best possible experience. And that's totally true. You would never go into a restaurant and just get ignored would be, you'd never come back. You'd be like, "Nope, that's not for me." And you're totally right. I think there's a lot of slack that's kind of been given in the software industry that was kind of masked by just a lot of free-flowing cash and people able to run some experiments with new tools that went on for a few months and padded growth numbers. And then suddenly, when things changed, you learned that it might not be the real story.

Stijn:

To be honest, I don't think anybody was really to blame here other than...

Mike:

No doubt.

Stijn:

...every kind of person who decided that SaaS companies were so much more valuable than many other industries and were willing to pay for that. Which then I think led to, if you sat in the executive room in the last 10 years in a SaaS company, we paid lip servers to things like customer acquisition cost and conversion optimization, and really all the unit economics that think about churn, et cetera. But none of those ever got the amount of excitement and attention as just pure growth. Just add more logos, add more of this, add more of that. And after you spend most of the time talking about those things, you spend a little bit of time on the optimization side, and that's just what most people got most excited about. But let's talk about the reality of being in a more, let's call it a traditional industry. Let's say we've grown up. Sure.

Mike:

So where do we go from here?

Stijn:

Yeah. Is it really that hard? I don't know. It's more work. You have a different standard maybe to hit, but it's not complicated. If you look at things like Kaizen or Lean Manufacturing, Six Sigma, there's all these methodologies that industries like healthcare, we mentioned healthcare earlier, have had to use for ages or manufacturing to just make a lot of small improvements that can add up to huge growth results and outcomes, right? If you are really serious about optimizing your funnel and you go really look at, Hey, how do I really optimize my MQL to SQL conversion? And I spend a lot of time really digging into, "Is my SDR able to follow up on an incoming lead, someone who filled out a form as fast as possible so that we do it faster than the competition, but they also might've filled out a form on the website?" Have you as a VP of marketing, really done everything you can there to make that number go from five minutes to three minutes? And if you haven't, would that help? Would that move the needle? And there are many examples like that, that are all about optimizing the margins in many parts of your business that will add up to real growth. 

And if you then bring this back to what the real state was of most marketing and sales teams in the last 12, 13 years, but that not only didn't they do the things that I just described, if you would walk into an average sales marketing meeting where people would do a review, let's say a weekly sales meeting where they'd talk about the pipeline, the numbers, and you would ask a simple question, "Hey, how many opportunities did we get last week? New opportunities from this territory, from this type? Or you would ask how many leads came in on the website yesterday?" The answer that you expect in either of those two questions is a number. It's not a sentence, not a couple of words. It's not a paragraph. It's definitely not someone clicking around on a HubSpot or a Salesforce screen. It's a number: five opportunities, eight, 12, 500 leads. And the reality is that most of us have sit in rooms where those answers were not answered by a number. 

And now again, let's take a healthcare example. Imagine you're the nurse who's taking over the night shift, the emergency room of hospital, and you walk in 8:00 PM at night, you're taking over and you ask the outgoing nurse, Hey, how many critical patients were brought in during your shift in the last eight hours? You expect a number, you probably get a number, five people. And then after that five number, you probably get some extra information, like five people of whom one was discharged already, the other four are in these rooms. These are the things to really keep an eye out for, and that's totally fine. But the first part of the question was answered with a number, and that's very different from most B2B, SaaS sales, marketing, customer success teams, where simple questions like that often cannot be answered with a number, and you cannot grow numbers that you don't know your numbers. So getting to that level of preciseness is step one. And step two is to use methodologies like lean manufacturing, etc., to constantly optimize to just get better at all the small parts that make up the total amount of results that you have. That is really where you can take this, Mike. And I think a lot of B2B SaaS executives today are struggling with not having that level of experience, not being comfortable with doing that. They've always lived in a world where you had to come up with an answer in like five minutes and then just go experiment and go try something new—a lot of those experiments also never got finished—sometimes when you try a new campaign or you try a new positioning or you're experimenting with pricing, usually if it doesn't immediately yield results in a couple of weeks or sometimes months, we just try something else. And that is just not really feasible anymore when you're really building a more mature business and you have to optimize in the margin. So that's I think one of the things you could think about.

Mike:

By the way, on the topic of speed to follow-up time, the bar is so low in B2B, I don't know if you've ever...

Stijn:

No, tell me.

Mike:

...if you've ever been a B2B buyer and you request a demo or you request to talk to a salesperson, the time to follow up or get a follow-up from somebody is so slow. I was looking through my posts, and I have a saved one from somebody who I follow that ran an experiment. They were looking to buy a new tool and they reached out to 20 vendors. Half of the vendors didn't follow up within two days. And it's just like the bar is low. Just there are so many things that you can do to just make it simpler for somebody to buy or get access to information or reroute them so that they don't have to talk to somebody like an SDR who doesn't maybe have great understanding of the product. They can just speak to a product expert. There're a lot of things that are very easy to beat your competition on, and that was just one example that I wanted to highlight.

Stijn:

Pick one of your competitors and basically do some mystery shopping and find out whether their landing pages are confusing or they don't respond to a form fill very fast, or their sales conversations are not really well conducted. People are not trained to answer all your questions. Now you've found probably five, six things that you can just beat them on, right? Call back faster, have a better landing page, do a couple of AB experiments at that level, right? So yeah, I think there's no excuse for sales, marketing, customer success leaders to not always find things they can do better. And the days of not doing that are over. Party's over.

Mike:

Party's over. Onto phase two.