Over the past year, we’ve witnessed one of the most tumultuous times in the history of software. Fearless founders and teams have battled seemingly never-ending and unprecedented obstacles — from macroeconomic uncertainty, to banking collapses, to geopolitical instability, to recession fears. For startup leaders and operators right now, it may seem that the blows keep coming. But know that you are not alone — even the most battle-tested leaders have been challenged, as many of these headwinds are not idiosyncratic and have impacted everyone in the industry.
We’ve unmistakably moved into a new paradigm, and much of the industry’s thought leadership and benchmarks from the past decade-plus of bull-market exuberance fail to accurately capture the nuance and conditions of operating through a volatile period. Cloud leaders will inevitably experience up and down markets depending on the market cycle.
As we approach the 24-month mark of this bleak period and start seeing more light at the end of the tunnel with stabilizing macro conditions and recent watershed IPOs and M&As, we reflect on seven lessons about resilience based on actions that growth-stage SaaS leaders took over the past year to equip founders to weather any future storms.
1. Leverage expansion as a durable growth driver
During recessionary periods, companies should be prepared to face “double-whammy” headwinds impacting both new customer acquisition and existing customer expansion.
For new customer acquisition, it becomes unsurprisingly harder to land new logos in an uncertain market environment due to frictions such as:
- Lengthened sales cycles.
- Delayed deals.
- Increased budget scrutiny (e.g., requiring C-suite sponsor sign-off for new deals).
- Required additional justification for new procurements.
- Frozen budgets that block new software purchases.
- Turnover of key stakeholders.
Cloud leaders will inevitably experience up and down markets depending on the market cycle.
All of these headwinds take a fast-acting toll on sales efficiency. For instance, in 2022 we saw CAC payback periods for EMCLOUD (Emerging Cloud) companies extend significantly to an average of 30 months, even skyrocketing to 40 months in Q1 2023. These statistics were dismal when compared to the benchmarks for CAC payback periods during more exuberant market periods, which are closer to 12 months for SMB-market focused accounts, 18 months for mid-market-focused accounts, and 24 months for enterprise-focused accounts.
Image Credits: Bessemer Venture Partners
In addition, while existing customer expansion motions are also not immune from headwinds, there are more levers to pull on this front, such as: