If giant, sleepy car companies can shift to make ventilators, then nimble software companies should have a much easier time repositioning their products to suit the current market; after all, software is just a bit of code — isn’t it?
Indeed, the last few weeks have seen B2B software companies move fast to adapt to new market conditions. For most, the playbook has been to cut all discretionary spend, enforce pay cuts, kill bonuses, reduce headcount, hunker down and serve existing customers well to ride out the storm.
But that sounds a lot like “normal” businesses. Nimble startups can take it up a level and make further corrections at lightning speed — from the minor to the profound. Let’s look at what startups are doing to adapt themselves, sticking with their core market but ensuring they provide the best possible fit for customers.
In a simpler age, we’d buy Microsoft Office on a CD (remember when computers had CD drives?), and that product would last for five plus years. Then Microsoft saw the light and pushed everyone onto Office 365 and a subscription model, instantly shifting from a transactional revenue model to SaaS and recurring revenue.
Transactional models make sense when things are going well; you share in the upside of your customers. However, the opposite is of course true, and this is where more conservative recurring revenue models really show their power and value. In circumstances like those we’re seeing now, companies may well be happy to make a switch.
London-based Karma was a B2B2C business operating transactionally: it sold to restaurants helping them shift excess stock by selling unsold meals onto customers (which also provided a marketing opportunity for the restaurants). Now, it’s pivoted to B2C and recurring revenue, selling subscription veg boxes to consumers and buying direct from wholesalers — who currently cannot sell to restaurants.
For cash-rich startups, offering rental models for traditionally transactional things helps their customers deploy opex, not capex — increasing the likelihood of closing a sale as the customer doesn’t have to part with as much cash upfront. The same applies to deferring cash collections for customers — if the vendor has enough cash buffer, giving customers a payments holiday can be another effective mini-pivot.
Services revenue is typically shunned in VC circles — the usual strategy is to become a 100% recurring revenue business. However, we’ve seen companies redeploy developers towards custom work or implementation, both to avoid layoffs of great talent and to generate extra revenue that would otherwise be passed over to professional services firms. It’s a pivot that runs contrary to the usual VC mindset but it’s definitely something to consider.
Struggling to sell your airline? Why not emphasise the added extras — loo roll, for instance.
On a serious note, the Covid-19 shock caught all companies with boom market strategies running: how to grow even more; how to get the marginal sale. Now, the story has flipped into complete defensive mode: how to keep your customers in tough times. The best founders have already re-looked at their products and redefined them in that light.
One of our portfolio companies, Showpad, a Belgium-based sales enablement company, has moved from making sales collateral easily available across all sales forces towards marketing a coaching paradigm of teaching salespeople how to sell from home, and keeping them all connected. Like many, the team has refined their offering, focusing on training and keeping teams agile in this environment, whereas before it was about sharing the best content and having the slickest buyer experience.
On the lighter end, it can be as simple as tweaking your marketing message. You don’t want to be pushing out a message that’s jarring in the current climate. You definitely don’t want to be wasting money on pointless digital marketing (similarly, how many adverts are you seeing for local gyms?).
Consider repositioning a boom-times strap-line — “close more deals” — to something more 2020: “reduce operational costs”. Focus on helping cost-cutting and hard ROI. You aren’t changing the product, just emphasising a different business case. Make sure you’re focused on people who have the most need and addressing their key pain points, which may have changed dramatically in this new reality.
Staff scheduling software Deputy.com, for example, has been pushing marketing messages centred on helping manage wage costs, as well as how restaurants (who make up a chunk of their customers) can stay in touch with their customers while closed.
This is the hardest to affect at a deep level. Teams have strong connections and expertise that can’t simply be rewired overnight.
For B2B software businesses, this climate will prove positive in the longer term as it spurs digital transformation plans that had been simmering away, making them a top priority and not just a nice-to-have.
UK telehealth startup AccuRx which, prior to the coronavirus pandemic offered a GP to patient SMS service, spent a weekend in March building out a video calling feature. By early April, this was being used over 35,000 times a day. Meanwhile, GloFox, a vertical payments and management system for gyms, has built out a virtual class management feature.
And, similarly to Karma (whose move also counts as a value proposition shift), Bay Area-based Cheetah has moved from enabling independent restaurants to order wholesale food and supplies for next-day delivery to selling directly to customers. As a side note: it has just closed $36m in Series B funding.
Companies that get this right will come out stronger and leaner, having guided customers through a very difficult time and established themselves as core parts of the new normal. They’ll have become ‘thought partners’ — no longer mere vendors.
And that’s where every startup should want to get in 2020 and beyond. By navigating the current situation with agility and clarity of purpose, the next generation of winners will emerge when the pandemic is over. The seeds are being sown now.