26 Apr Why a Go-to-Market Strategy is Critical during Economic Uncertainties
In this episode of Shoot the Moon we are diving into why a go-to-market strategy is important during an economic down turn. Listen to what we’ve experienced and our advice.
What happens during an economic downturn:
- Buying cycles elongate
- Customers cut discretionary spend
- Multiple levels of approvals happen at targets, slowing down the process
- More competitors start searching for the same deals
What you can do:
- Specialize in what you’re best at – what it means to specialize
- Pick an industry and work on addressing critical pains where they
- Make things easy to buy
EPISODE TRANSCRIPT:
Mike Harvath 00:04
Hello, and welcome to this week’s Shoot the Moon podcast broadcasting live in direct from Revenue Rocket headquarters in Bloomington, Minnesota. Today, I have my partners Ryan Barnett and Matt Lockhart with me. Revenue Rocket is the world’s premier growth strategy and M&A advisory for tech enabled services companies. Gentlemen, welcome.
Matt Lockhart 00:27
Hey, Mike. Hey, Ryan, good to be with you. We’re screaming in the spring here, have closed out Q1, and great to be with you. And for those of us who are who hunker down and hibernate in the great white north, it’s pretty nice to feel the sun. Right, right.
Ryan Barnett 00:46
Oh, absolutely. And it feels like a bit of a winter and in a couple of ways that we’re hoping turns into a blooming spring. And one of those things that we’re we’re talking about today is in times of economic uncertainty, much like we saw in the winter of 22. And the beginning of 2023, is what can tech enabled firms do to really start to, to get through some of that uncertainty and turn it into a great spring and summer? So have some questions for both Matt and Mike here today on what that means for customers? And, and what that means. So, Mike, do in tradition, get us started on, you know, what happens during an economic downturn, typically, for b2b and IT services related companies? Yeah, thanks,
Mike Harvath 01:43
Ryan. You know, as we saw some softness in Q1, and, you know, probably extending a little bit into q2, oh, we’re starting to see some light at the end of the tunnel with additional opportunities for our clients. You know, certainly during times of uncertainty, buying cycles, elongate, with your customers, you know, they begin to cut discretionary spend, you know, they have all these different levels of approvals, and things start to become much more hard to move deals forward. And then you start, you know, having more competitors sort of in the space and often joke, you’re always in competitive, you’re always in competition with someone who’s going out of business. So there’s people who are, you know, much more aggressive on pricing than you may otherwise see. And sometimes that can create a disruption in the marketplace. And so, you know, we’re going to unpack today a little bit on the podcasts, how you can insulate yourself from some of those things, and certainly fortify the business for growth during these times of uncertainty.
Ryan Barnett 02:55
I think it’s easy for decisions to get delayed, it’s easier for people maybe not to say absolutely no, but for people to act and act upon things that are more pressing, especially more pressing on something that regarding splitting, losing money, or losing or spending money unnecessarily, for, they may not shoot for the moon, but you know, Matt, I’d love to get your opinion, you know, you know, what happens to that? It here, but also, you know, are is everyone impacted by the same same cycles?
Matt Lockhart 03:37
Yeah, Ryan, I, you know, just to add to kind of what Mike was saying is by experience, you know, partial budget cutting, right, as he talked about just new customer, acquisition can be tougher, you know, customers tend to delay starts of, of work or starts up new contracts. And, or, as I, as I mentioned, they, they just reduce the they reduce the spend, oftentimes, they may renegotiate look for, you know, look for discounts, right. And, you know, we’ll we’ll get into a number of these things, but I think that, you know, in what’s oftentimes important is that it’s an opportunity for technology firms to sort of reevaluate what is most important to their customers. What are the most important and or core services that are most valuable to their customers? And, and making sure that you’re aligning all of your motions towards you know, what’s what’s really what’s going to be most attractive to your customer’s Now sure, as you mentioned, not all firms are affected equally, you know, some things are more important. They can’t be cut, right cybersecurity being a good example of that. And, or cloud, you know, modernization because the payoff is just so distinct. But I think that in in sort of analyzing, what are those things that are less likely to be affected? And then how do you play into, you know, how do you play to those, play your strengths against those, those opportunities that aren’t going to be as likely to be cut. And
Ryan Barnett 05:45
you bring up a really great point that the when you have something that is extremely valuable, and it’s something that almost in my camp cut category, that becomes something you invest in and and that is something we’re firms can grow through the investments in, in. In that space? When we look at our client base of technology enabled services business, oftentimes, those are the critical functions, the remote work type functions, the the Always On type, backup, and recovery, are they always on office? I think those are, if you are, if you’re part of a category that is critical, that’s going to help your growth. Same thing goes when you’re trying to to, if you’re trying to sell a company at this point, or you’re trying to buy another company, you’re gonna look for those companies that can have strong cash flows throughout any kind of economic downturn. And tech enabled services, because of the work that you do today, can really enable enough cash flow for you to be attractive to buyers, and also for buyers to put put money in safe havens. That kind of go back to the strategy side. Mike, I’d love to have you dig into a little bit of our work? What are some ways that clients can? Or that technology services companies can make sure that their companies continue to grow through times of tumult?
Mike Harvath 07:19
Yeah, for sure, you know, I think the days of, you know, what I call much more a fab or anything for a buck regarding technology, either deployment or support, or, or really implementation of apps have long been over. But what’s important to note is that our fastest growth and most profitable clients are the ones that certainly can weather the any commodity economic, either downturn or uncertainty better than others. And the best way to do that is to, you know, certainly specialize in what you’re best at, right. And specializing typically means picking a very finite set of service offerings or technology sets that you specialize in, whether that be in you know, managed services, or cybersecurity or custom development, or app implementation with a specific app, or whatever that might be, you know, specializing in those technologies. And being the best that you can be, is super, super important. Obviously, then deploying that, again, stuff in the industry, or vertical, is, we think, also very important, it’s certainly proven to be the fastest path to growth and profitability and prosperity amongst our clients. And, you know, the fastest growth, most prosperous firms are certainly ones that specialize in sort of a finite set of offerings, and deploy that against a finite set of markets. And the more narrow that is, typically, the faster they grow. And so and there’s a lot of reasons for that. Certainly, there’s, you know, the market set will look for specialists in the technology as well as specialists in their industry, when they’re looking at competition. In a period of, of greater competition, you’ll stand out and be at the head of the line with those buyers. And we’ve certainly seen companies that do that well grow through downturns grow through economic uncertainty grow through things like the pandemic. You know, they’ve been very, very effective at continuing to grow and be what I like to call up into the right. The growth chart while the market may be somewhat tumultuous, and I think a thing that a lot of firms overlook, is really making things easy to buy. And this has a lot to do with product as a nation of services. So it’s not a complete Chinese menu that customers get overwhelmed with, it needs to follow a pretty prescriptive approach about how customer can engage. And it has to be easy to understand and easy to buy. And I would say, saying that it’s much easier than doing it. You have to think a lot about, you know, is this a branded service? Does it have a finite price point? Can you engage with that client in a way that is makes it easier for them to say, yes, all those things are critically important. You know, and they aligned to a an offering we have here called specialized verticalized, some product as SVP, you can learn more about that on our website at revenue rocket.com. But we’ve certainly found that to be over the time, the best strategy to, as I say, go up until the right.
Ryan Barnett 11:04
Yeah, and, Matt, I know you’ve done a ton of work in this area to help companies get to a place where they can really addressed critical, critical needs of their customers. Can you expand a little bit on some of the details there, what companies should or what IT services companies should start to do to part start honing those offerings and start looking at vertical markets and positioning kind of what they do? Yeah.
Matt Lockhart 11:33
Let’s, let’s start at some core principles, right? How strong is your customer and market analysis and research? Right? So how, how well do you know your customers and their needs, within a vertical or within a within a segment, you know, for example, and there’s a ton of market research as again, that’s a great place to start. But then validating that research against a the work that you’re doing today. And then be continuing to, to really engage your customers in a consultative manner to understand do they align with what sort of general market research can be? I think another, you know, really strong strategy is to, you know, understand, within your technology capabilities, do you have partners and channels, and really ensuring that you’re in alignment with your key partners, your key technology partners, both in their go to market be it a vertical go to market or a segment go to market, as well as in the, you know, sort of spent specialized differentiation, right. So it’s just this constant analysis and, and feedback loops of, here’s what we are today. Here’s what our customers and the market is needing today. Here’s what they’re talking about for tomorrow, right. And here’s our roadmaps to be ahead of our competition, and meeting the customers in into the future, but then also ensuring that you’re competitively differentiated, meaning you’re doing it better. You’ve got the specialization that that Mike talked about. Now, working in a downturn, is actually a really interesting opportunity to sort of apply these things, of course, you are going to want to, you’re going to want to cut your own discretionary spending. So you may not be going to market Dibley with new offerings or advanced offerings in that downturn. But what a wonderful opportunity to plan and be readied internally for when, you know, the gas starts coming back. Right. We’ve helped a number of clients in those phases. And and and do just that. And so you know, and then the the sort of the last thing that I’ll say is, is that customers are cutting discretionary spending. But you know, that the champions that the business leaders want to want to turn that back on. And so being able to ensure that you’re going to be in the game is is thinking about applying those same planning and roadmapping activities that you’re doing internally, along with the customer and looking for opportunities to potentially invest in key customers. So that you know, basically, you’ve already got a seat at the table. You know, when the market turns in the spam returns.
Ryan Barnett 15:02
Yeah, great, great summary, man, that’s really helpful for a customer to understand that. Mike, is there anything, if you look at this economic downturn when it comes to or just change or tumult, maybe not necessarily a downturn, but can accompany use mergers and acquisition to help build a strategy like this? Or is this something that you need to do in house? Or both? Or how does someone start to formulate and integrate an SVP strategy? And how does in does that play into acquiring a firm to help with that?
Mike Harvath 15:46
Well, I think, you know, our experience tells us that most firms have some level of concentration in markets, you know, and they may have a sort of undeclared vertical, just by the nature of, you know, if one, for example, education focused client, you know, begets another or whether that’s manufacturing or, or funding financial services, or wherever it might be right. Over time, you tend to attract, you know, those birds of a feather type clients, and oftentimes, you’d become more verticalized than you might think. Certainly leveraging, you know, a couple of thoughts are when I think you have to have a, you know, four to five organic strategy in order to really get your head around what is an ideal strategic fit as it relates to acquisition. But part of you know, the thesis around doing any acquisition is that, you know, there’s going to be a strong strategic fit, that will complement your organic strategy. Certainly, there needs to be a cultural and financial fit as well. But you know, buying a firm that has strength where you might have some opportunity or weakness, can help you fortify your strategy, right, and purely from a growth perspective, that is sort of a smart business decision. We’ve often said you leave about 50% of your growth potential on table, but not having a proactive m&a initiative going on. I think, in particular, in times of tumult, that’s important, we tend to see more sellers, at least be open to having conversations, when there’s more economic uncertainty. And that can sometimes make at least getting a conversation going easier, you know, may make, getting a conversation going with a firm that, in the past wasn’t open to the conversation of being part of something bigger, open their mind to having that conversation, and you just never know where that might go. So I think, you know, there are a couple of things that come together here that I think are important one, you can look to fortify your own strategy and approach and customer coverage by looking at doing a transaction with a very specific profile. But beyond that, you may be also in a position to have more conversations. And you might add another time the economic cycle. Just because, you know, people are more open to exploring various opportunities and thinking about doing business differently.
Ryan Barnett 18:27
Yeah, you know, it’s interesting, Mike, I didn’t hear anything there about people willing to sell their company for less, and kind of take less, or buyers getting the deal was really interesting to hear to say, you can increase your market share and your abilities by buying the right company and combining forces at the right time. And that strategic growth can really help through acquisition to either build an adjacency type strategy or or double down on your vertical markets and or enhance some IP to help kind of a win win deal on both sides. Right.
Mike Harvath 19:10
Yeah, I mean, I’ve another comment on that is, you know, I think conventional wisdom would tell you, you know, over time in other industries, that time of economic certainty would mean that there would be more, you know, for lack of a better term, desperate sellers or sellers that might just want to get out because they’re running into such material. So, you know, economic headwinds. One, I don’t think that’s the case economically right now, but but to something that’s probably changed since the financial crisis of you know, 2007 and 2008. Where that did occur, by the way is that you know, technology now is just so much more integrated and seen as a as a requirement for companies to operate and be more efficient. In in some sectors, you know, of tech, we’re seeing Actually firms buying more end user clients buying more technology in order to be more efficient and maybe be able to rationalize staff even. And I certainly think that trend will probably continue, as we look at, you know, how AI impacts markets. And, you know, it also means in this is a sort of a fascinating thing I’ve tracked over the years, as, you know, technology as is a growing sector of the GDP, certainly displacing other sectors. And it grows, you know, at about 1% of GDP per year, which is a phenomenal growth rate. And when we begin to model that compared to where it is now at, you know, you can argue it hovers around 30% of the GDP, you know, in 20 years, we could be in a situation if it continues to grow at the current pace, at half a GDP or a big percentage, much more material percentage of GDP. So anytime you have a sector that’s growing at that fast, taking share, GDP, you know, share gross domestic product share from other areas. I think it’s seen as, as absolute mission critical tool. And, you know, thankfully, for those of us that work in and around the technology world, it means that we’re we’re somewhat fortified from market tumult in a having it be more catastrophic and thus impacting valuations.
Ryan Barnett 21:35
That’s a great point. Mike, that that’s the only that’s the last questions I had. mantel turned over to you for any closing thoughts.
Matt Lockhart 21:46
You know, I was thinking about one thing is Mike was talking about that, you know, regardless of whether or not your firm is how much your your firm is affected in a, in a downturn, or when there is softness, keep your best people do in when you’re thinking about cutting, if you’re cutting, right, appropriately cut in those areas, that is not affecting your ability to deliver moving forward. So if we, if we think back, oh, shoot six months, nine months, people were it was it was all about people. It was it was like I can’t find good people, right. I that I there’s a scarcity of resources. It drove acquisitions, right? And sure, yeah, there’s, there’s there’s not as much need right now. But in six months, or nine months from now, by GM, I guarantee you’re gonna want to have all the people that you have on board today. So keep your people and invest in them, especially in times of downturn, because when you’re coming out of that, that’s going to be a real competitive advantage. So, last little thought there. Over to you.
Mike Harvath 23:15
Thanks, Matt. With that, we’ll tie a ribbon on it for this week’s Shoot the Moon podcast. I encourage all of you guys to tune in next week for more tips and tricks and tidbits on growing your technical services business. We’ll be unpacking some further thoughts about growth strategy and m&a at that time. Thanks again and make it a great week.