12 May Complete the Stack – How the Ecosystem Thrives in a Downturn
May 12, 2022
You may be familiar with a few of these stats about how customers value integrated solutions:
-Customers will pay 20% more for an integrated solution (Digital Bridge).
-The top two most important factors in considering a MarTech solution is internal and external integrations (CDP Institute).
-Over a two-year period, customer satisfaction with solutions increases in direct proportion to the number of integrated products from 30% with no connections to 80% with four (Vendasta).
With annual SaaS customer churn at 30% and only 60% of SaaS customers actually using their licenses (Zylo), I’d say that the SaaS industry faces serious headwinds if it’s going to meet Forrester forecasts of growth in ISVs from 175k today to over 1M by 2028.
Add in a huge tech correction, concern about growth overall, and the potential for a recession, and B2B SaaS seems headed for a tough road ahead.
Given the current situation, I have three predictions for the SaaS market facing a downturn, including Customers, SaaS Vendors, and their Partner Ecosystems:
-Prediction #1: SaaS company growth will slow while operating income will increasing; GTM investment will be redirected from customer acquisition to customer satisfaction.
-Prediction #2: Customers will spend less on new licenses and more to ensure that the solutions they already have work together to produce better results.
-Prediction #3: Creating end-to-end solutions through Partner Ecosystems will be the one counter-cyclical investment that most contributes to B2B SaaS growth, profitability and customer success.
What Will B2B SaaS Companies Do?
During the last recession average annual revenue growth fell from 40% pre recession to 10% during the downturn. Although 80% of the companies continued to grow, they shifted focus to increasing operating income by safeguarding cash and improving operating performance.
Now, the same things are happening; growth is slowing and being redirected from customer acquisition to customer satisfaction and LTV. Customer Success teams are seeing greater investments and it’s becoming harder to justify adding BDR and AE resources given their longer time to value.
What will B2B SaaS Customers Do?
Just as B2B SaaS Companies are re-directing investments from new to existing customers, SaaS Customers are redirecting investments from new solutions to enhancing the value derived from their existing tech stack.
Tech Stack improvements are being made in the following areas:
-Improving internal efficiencies. Rather than cutting staff or services, companies are leveraging customer self-service options to improve order efficiency and remote customer service, leveraging data and automation to improve response times, and looking to create more robust solutions to challenges with sales and operations.
-Boosting sales team productivity by leveraging partner ecosystems and partner attach – see #3 – to increase quotas without adding sales reps.
-Solidifying customer relationships by improving CRM interoperability and measuring influence attribution while gaining greater insight into customer sentiment and satisfaction.
-Investing in disruption-proof tech by continuing to abandon on-premise solutions in favor of cloud solutions and infrastructure, investing in agility, remote work, security, and dev/ops.
Instrumental in ALL of these investments is solution interoperability – aka, applications and data that are integrated. The fastest growing and best performing SaaS Companies are continuing to improve and invest in their product/platform, partner, and communities to ensure interoperability with their customers’ tech stack and operating environments.
What Role will Partner Ecosystems Play in the Downturn?
Creating end-to-end solutions through Partner Ecosystems is the one counter-cyclical investment that most contributes to SaaS company growth, profitability and customer success.
As with investments in direct sales, the C-Suite is being tempted to clamp down on Partner Ecosystem investments. Doing so is very unproductive, especially in light of the first two trends. The most powerful counter-cyclical asset to place in the hands of CSMs during a downturn is high-priority, battle-tested integrations that improve solution interoperability and LTV. If your competition slows down on investing in tech partner solutions while you continue to ramp, in 12-mos, your company will have a huge competitive advantage, not just lasting out the downturn, but crushing it on the other end.
Beyond the benefit of promoting integrations to improve customers’ existing tech stacks, smart SaaS Companies are investing in making it as easy, cost effective and profitable as possible for new companies to integrate to and GTM with their products.
As the clamor for end-to-end solutions increases and SaaS customers prioritize integrations, your company needs to do three things very well:
-Invest in integrations as a competency making it easy and cost effective for partners to integrate to their offerings.
-Demonstrate that tech partners can make money by co-Xing with you (co-Innovating, co-Marketing, co-Selling and co-Retaining) to increase their incentive to integrate and partner.
-Embedded partnering into all parts of the business to allow GoToEcosystem strategies to scale and then drive network effects.
In short, Partner Ecosystems will not only allow companies to outperform their peers during a downturn but will provide the greatest engine of rapid growth and out-sized performance when the sun rises again and economies rebound.