We can all see the writing on the wall. Staring down what appears to be a two- to three-year recession is uncomfortable, but it’s not the first time we’ve been here.
On a recent episode of Pavilion’s Thank God It’s Monday podcast, host Tom Alaimo sat down with Tropic CEO David Campbell to discuss the current macroeconomic conditions in the startup world.
“Incredible companies have been forged during different economic downturns,” said Campbell. “The key to success in those companies is adaptability.”
A recession doesn’t have to be all doom and gloom as long as you’re prepared. The tactics and processes that have been at the forefront of success for sales teams in recent years are likely not going to be effective in the years to come.
Here are some of the highlights from Tom and David’s discussion on how a change in strategy can drive future success, even amid a recession:
Recessions can be alarming, but recent economic downturns have given startups a wealth of collective knowledge on what we can expect. 2008’s economic recession and the brief downturn during the start of Covid-19 provide a playbook for informing what investors and founders should be prepared for with their companies.
“In periods of rapid growth, in a growth-at-all-costs economy, which we’ve been seeing the last few years, so much of the investment is placed on empowering the sales team,” said Campbell. But in periods of recession, focus shifts from empowering the top line to protecting the bottom line. Startups are using tools like Tropic to monitor shifts in buying behavior to empower sales teams to adjust their approach to severe changes in the market.
In the current macroeconomic conditions, Campbell separates companies into three zones, “Bucket one is ‘you’re in trouble,’ bucket two is ‘you’re okay,’ bucket three is ‘you’re on top.’ Most tech companies are just trying to get to ‘okay.'” Okay, in this case, is 2.5x growth year over year, but at 50% gross margin, at 120% net dollar retention. “The focus has shifted to how we get our margins and our net dollar retention up. Those are the levers that companies today have to pull.”
In terms of purchasing behaviors, Campbell is already seeing pressure to consolidate and eliminate overlapping tools. Take the way hybrid teams communicate: “A year ago, you might have one team using Slack, another using Microsoft Teams, some using Zoom. That used to be fine; what we’re seeing now is that’s not fine.” Companies today are rationalizing larger enterprise agreements, and you’ll get cut if it can’t rationalize you. And tool affinity matters less than cost.
Other topics discussed regarding the current economic conditions for startups include flat renewals across the board, how businesses prioritize better payment terms even over the net value of a contract, and how running a company and writing a novel aren’t such different pursuits after all.
Listen to the full discussion here.