Driven newsletter archive
Issue 21. March 7, 2020
Make like a cockroach | Coronavirus black swan | Manage your ‘scary factor’ | Canceled industry events
Do you think the health risks of the coronavirus are overblown?
I do. But the economic risks probably aren’t.
No one knows how much this virus will disrupt business or how long the upheaval may continue.
But hopes that it will pass fast and fairly harmlessly seem to be fading.
In the past week, we’ve seen how bad it may get. Already, the speed of new developments is dramatic.
The biggest effects are still narrowly contained in a few industries. But they could spread much more broadly. And even faster.
The unknowns contribute to economic uncertainty and risk for all.
You’re no doubt bombarded with news about the coronavirus. You can hardly escape it.
But maybe you haven’t had time to think through the implications, to connect some of the dots.
So I’m devoting this entire issue to likely implications for tech companies.
I lay out the risks I see, and I suggest ways for B2B SaaS companies to help mitigate them.
Bottom line: This week it became clear that you must take the business threats seriously.
Tody we focus only on the coronavirus and its implications for revenue leaders in B2B SaaS companies.
You’ll start with a quick roundup of well-substantiated facts from reliable news sources.
You’ll also get practical suggestions for what to do now to prepare.
The suggestions are mainly for companies that sell higher-ticket SaaS products to bigger companies.
One founder stated her perspective in striking terms:
“Founders right now should focus on being a cockroach and not a unicorn.”
–Hayley Leibson, founder of Modern Basket
Source: David Pierce, Protocol Source Code Newsletter, March 6, 2020.
I take her to mean that in the crisis that appears to be developing, survival skills will trump bold ambitions.
Modern Basket, if you’re curious, is an invitation-only, concierge service that helps people connect with food brands that meet their personal preferences. It aims to do for food what Stitch-Fix does for fashion.
In this week’s issue…
We look at these topics, in order:
- The big changes we saw this week
- Warning from Sequoia capital to portfolio companies
- Manage your ‘scary factor’
- High cost of canceled events
This issue is a whopper. It’s the biggest Driven yet.
If it doesn’t show in your email client all at once, be sure to click on the link you’ll to view the whole thing.
I’m sorry for the length, but there are so many urgent issues to cover this week.
As always, I urge you to skim and scan.
Your reading time this week is about 19 minutes.
As I said last week, I’ve been tuning Driven’s estimates of reading time to be more accurate.
This one assumes a reading rate of 200 words per minute. (That’s the same as for Medium.)
TRENDS | COVID-19 | ECONOMY | NEWS | ANALYSIS
Big changes we saw this week
So far, the coronavirus has infected about 100,000 people worldwide. The United States has 300 known cases, with confirmed cases in at least half of states.
The death toll here was 17 this morning.
Best estimates suggest that the mortality rate is between about 1% and 3.4%.
The higher number is the percentage of known infected cases who have died. It’s almost 20 times the death rate for familiar strains of flu.
But it’s hard to extrapolate from that to an overall fatality rate. That’s because the number of people infected is unknown.
The actual death rate for infected people may be as low as 0.16% for people outside China’s Hubei province, where the outbreak began. That’s about the same rate as for the flu.
In contrast to the coronavirus, more familiar strains of the flu viruses have sickened 26 million in 2020. They normally kill about 400,000 a year globally.
This year they hospitalized about 250,000 and killed about 14,000 people in the United States alone. That was as of February 21.
So why are we so fixated on the risks of the coronavirus?
New York Times reporter Max Fisher says it’s because it “hits all our hot buttons for how we misjudge risk.”
U.S. economy is strong, but stress cracks are appearing fast
Economic fundamentals in the United States are still robust.
Despite huge volatility in equities markets last week, lagging indicators are solid. Job growth for February was very good, with 273,000 new jobs added.
But remember, lagging indicators don’t suggest future directions.
Travel and tourism get hammered
In several big sectors, things are crumbling fast.
Airlines and travel industry have been hit with a club.
Dozens of organizations have canceled or postponed big events. SXSW in Austin, Texas, just cancelled their event for mid-March.
It brought 416,000 visitors to the area and generated about $336 million in revenue in 2019.
The Calle Ocho Music Festival in Miami, which drew about a million visitors in 2019, has also been cancelled.
(More on canceled events below.)
Many organizations have curtailed travel for their employees.
On Thursday, the U.S. Centers for Disease Control (CDC) issued a directive for most of their nearly 11,000 employees to avoid all unnecessary travel. The order excluded from the ban any trips directly related to containing health crises.
‘Devasting,’ like 9/11
Airlines are set to lose between $63 billion and $113 billion in revenue this year.
San Francisco has no known cases of Covid-19 in the central city, but several in surrounding areas.
Even so, Union Square was almost empty during business hours late this week. The area is packed with upscale restaurants, shops, and hotels,
“It’s devastating. We’re experiencing what we experienced right after 9/11.”
So said Anna Marie Presutti, general manager of the Hotel Nikko. Occupancy rates in the 533-room hotel have dropped from nearly 90% to just below 50%.
The situation in Seattle, commercial center of the state with the most known cases, the downturn is also starting to show.
Organizations suspend activities or encourage employees to work from home
Stanford University canceled in-person class meetings for the next 2 weeks.
On Friday, Apple encouraged its Silicon Valley employees to work from home.
Microsoft, Amazon, Ford Motor, CNN, Citigroup, Twitter have put employees through work-at-home drills.
Effects on shipments and supply chains
Exports from China dropped by 17% for the first 2 months of the year.
The decline was caused mainly by quarantines and plant closings there.
The supply chain effects from interrupted supply in China will likely be felt in the United States toward mid-March.
That could mean emptier store shelves for consumer goods retailers.
Worse, declining exports could interrupt operations in manufacturers that import parts from China.
Such importers include the U.S. automotive industry, which employs nearly 6 million Americans directly and indirectly.
Business insurance probably won’t help
Insurance that protects companies against interruption of operations is unlikely to offer much relief. That’s because it usually covers only “direct physical loss or damage.”
OECD cut its forecast for economic growth
The Organization for Economic Cooperation and Development (OECD) has cut its projections of global economic growth.
The group, based in Paris, thinks the world economy will grow by only 2.4% this year, thanks to the virus.
That’s the lowest level of growth since 2009. It’s down from OECD’s prior prediction of 2.9% growth before the virus outbreaks.
They think the economy could return to 3.3% growth in 2021 if the outbreak in China peaks in Q1 and stays contained in the rest of the world.
Those are starting to sound like big ifs.
If not, growth could plummet to as low as 1.5%. That would put many countries into recession.
Even if you’re not so concerned about the health effects of the virus, it pays to think hard about its potential effects on your company’s revenue and profit.
A New York Times headline said it well on Friday: “Disruption of society is likelier than death.”
“Workplace vs. Coronavirus: ‘No One Has a Playbook for This.’” Mike Isaac, David Yaffe-Bellany. Karen Weise. New York Times online. March 6, 2020.
REVENUE | STRATEGY | COVID-19 | OPERATIONS | ADMINISTRATION | LEADERSHIP | MANAGEMENT | FUNDING
Warning from Sequoia capital to founders and CEOs: Coronavirus is a black swan of 2020
A black swan is a highly improbable event that has a huge effect.
Analyst Nassim Nicholas Taleb has devoted an entire book to the subject of black swans and risk management.
Sequoia Capital sent a message this week to founders and CEOs of their portfolio companies.
“Question every assumption about your business.”
–Sequoia Capital, message to portfolio companies
Here’s a recap of key points from Sequoia’s message, published on Medium:
- It may take several quarters to contain the spread. It will take even longer for the global economy to regain confidence.
- Your company may experience softening demand.
- Monetary policy from central banks isn’t likely to stimulate our way out of this situation.
- Some companies have seen a drop since December. Others have seen a drop more recently and are now at risk of missing their Q1 revenue for 2020.
- Software companies are less affected by supply chain disruptions than hardware companies are, but they are not immune to “cascading economic effects.”
“…Nobody ever regrets making fast and decisive adjustments to changing circumstances. In downturns, revenue and cash levels always fall faster than expenses.”
–Sequoia Capital, message to portfolio companies
- Many companies have banned all “non-essential travel.” and all international travel. Expect your business to be affected If you depend on in-person meetings to conduct business, to develop business, or to manage partnerships.
Here are Sequoia’s recommendations:
1. Watch your cash runway.
Can you withstand a few bad quarters? Have you made contingency plans?
Where can you trim expenses in your business without drawing blood?
Act early to avoid more painful consequences further down the road.
2. Be prepared for delays in raising funds.
Private financing could soften, as it did in 2001 and 2009.
What would you do if it’s harder to raise cash in 2020 and 2021?
“Many iconic companies achieved great success in hard economic times. Constraints focus the mind. They provide fertile ground for creativity.”
3. Expect to revise your revenue forecasts.
Your customers may change their spending habits.
Deals that seem certain may not close. Don’t be caught flat-footed.
4. Get more from your marketing.
Your customer lifetime values may decline if churn increases.
You may feel you need to reign in marketing spending to maintain consistent returns on your marketing investments.
Given the uncertainty, you may want to raise ROI targets for marketing spending.
5. Control your headcount.
Consider whether you can do more with less and raise productivity.
I take these as euphemisms for cutting people.
6. Control your capital spending.
Make sure your plans are sensible in an uncertain environment.
Also consider whether you may have opportunities to gain ground by accelerating your spending.
Make sure your decisions are deliberate.
Those who survive “…are not the strongest or the most intelligent, but the most adaptable to change.
–Charles Darwin, cited by Sequoia Capital
“The Information’s 411–When the VCs start to Worry.” Tom Dotan. The Information. Podcast. March 6, 2020.
SALES | ADMINISTRATION | AMANGEMENT | HIRING & STAFFING
Improve your value-to-risk ratio
In enterprise SaaS sales, you often have a shadow lurking in the wings like the Phantom of the Opera.
It’s the prospect’s perception of risk.
It’s especially powerful in enterprise deals or other big-ticket sales to bigger companies.
In this article, you’ll read about how your buyers are likely to think about the risks your solutions may present. You might call them your “scary factor.”
You’ll also read 8 ways to help achieve your revenue goals despite your buyers’ heightened perception of risk.
This should be worthwhile reading not only for leaders in Sales and Marketing but also for those in Customer Success and Product.
The goal is to help your customers make an informed buying decision so they and you can both move forward.
Why it matters now
Unless your revenue team is prepared to address the buyer’s perception of risk head on, you may lose a sale you’ve forecast to close.
You may lose it to an alternative with lower perceived risk. Or more likely, you may lose it to the status quo, or no sale.
Or the buyer’s process may stall, leaving you and your company hanging without revenue after a long, expensive sales cycle.
In uncertain times, the buyer’s perception or risk is likely to be magnified to the point of distortion.
With the coronavirus scare, buyers’ perceptions of risk are likely to be acute.
When buyers think about risk
The buyer’s preoccupation with risk shows up early in a prospect’s decision process. (See Figure 1.)
Figure 1. Shifting buyer concerns: perception of risk during the decision process
Then it declines until the buyer evaluates alternative solutions.
It rises sharply and peaks just before the buyer makes the final decision.
This concept comes from Neil Rackham, one of the first to study sales scientifically. He conducted massive research projects for Xerox and IBM in the 1970s.
The research into shifting buyer concerns is old, but to my knowledge no one has suggested it’s outdated.
The graph suggests that there are better and worse times to help buyers work through their perception of risk.
If you’ve ignored the topic of risk through your buyer’s Phase 2, expect delays and lost sales in Phase 3.
How buyers think about risk
Let’s move from research results to ideas that are based on my own experience and speculation. They probably aren’t original to me.
Apologies to the sources of these ideas. I can’t remember where I might have borrowed them from.
Even if these ideas aren’t new to you, I think they’re worth repeating now. That’s because they offer a helpful way to visualize your challenge in winning business during times of uncertainty.
Buyers make informal, often unconscious assessments
I believe business buyers are always making an informal assessment of rewards versus risks.
Consciously or unconsciously, they balance potential value or benefits against potential costs and exposures.
They think about these factors both from their own perspective and also from their company’s.
If buyers come to think the risks of your solution outweigh its potential rewards, your sale is headed toward the shoals.
Each SaaS product has its own value-to-risk profile
Each solution inherently offers a different profile of risk vs reward. You might visualize the relationship as it appears in Figure 2.
Figure 2. Value-to-risk profile for a hypothetical enterprise SaaS application
The horizontal baseline represents time as you move from to right. The vertical axis plots potential value against potential cost or risk exposure.
The zone above the baseline, shown in green, represents benefits or value. It shows how much value your customer’s company can generate from using your solution.
It also plots the amount of benefit your customer can expect.
Both the shape of the curve and the area beneath it are important.
Some solutions deliver a lot of benefits fast. Others offer smaller benefits that accrue more gradually.
The zone below the baseline, shown in red, is cost or exposure to risk.
Here again, both the shape of the curve and its total area are important.
The total risk is the entire area in red.
It’s determined by both the amount of cost (height of the curve) and the duration of the project (the width of the curve).
Enterprise SaaS: Higher risk, higher value
The value-to-risk profile in Figure 2 is typical for a hypothetical enterprise SaaS application. Both the red and the green areas are big.
Note that the curved line plummets fast and deep below the baseline. This occurs shortly after the sale.
Throughout a long implementation process, the costs and resources requirements continue. They may drag out for weeks, months, fiscal quarters or even years.
The longer the project continues (the wider the curve) and the more it costs (the deeper the curve), the greater the total project risk.
As the project draws to a close, the risks decrease and the implementation costs abate. The project is ready to cross the baseline from negative to positive territory where the benefits start to accrue.
Transactional SaaS: Lower risk, lower value
Let’s compare the risk-to reward profile for two other kinds of B2B SaaS solutions. Figure 3 shows a profile for a hypothetical transactional B2B SaaS application.
Figure 3. Hypothetical value-to-risk profile for a transactional SaaS application
Here you see an application with a much smaller risk zone in red, and a much bigger and longer value zone in green.
This is easier to sell. So it has shorter sales cycles and requires less involvement of a salesperson. That’s why we call it a transactional sale.
It’s probably also less risky because it’s less likely to be mission critical to the buyers.
Product-led growth SaaS: Very low risk, variable value
And the third example of a hypothetical value-to-risk profile is for an application sold under a product-led growth (PLG) model.
In Figure 4, the risk is tiny because the application is relatively fast easy to implement. Its cost is also low.
The value of the application is also likely to be smaller, though it may grow continuously for a long time.
You see why the PLG model has huge advantages over enterprise sales that require big implementations.
Figure 4. Value-to-risk ratio for a hypothetical product-led growth (PLG) SaaS application
Your sales messaging and marketing content can’t ignore the topic of risk in hopes it won’t occur to our prospects.
Risk is already high in the minds of your prospects, and the coronavirus is likely to make it more so.
When companies perceive risk and uncertainty, they’re likely to opt to continue with the status quo.
So you must address it head on, and you must do so at the right times.
The more time, effort, and cost required to implement an enterprise solution, the greater the prospect’s perception of risk.
8 things you can do right now
1. Explore ways to mitigate implementation cost and risk.
Does your enterprise SaaS application require a substantial implementation?
If so, your prospects are likely to be concerned about whether your people or theirs are likely to fall ill. That could stall the project and increase risk for them and their company.
How you can implement remotely?
How might you reduce travel costs and the risks of disease transmission?
2. Work with Product to design products that are faster and easier to implement, at lower cost.
You can accelerate implementation times and reduce costs by providing more complete and easier APIs.
You can offer more prebuilt integrations to other popular applications.
You might offer pre-configured applications for specific target industries. By doing so, you could help reduce the need for custom configuration.
Brainstorm ways you might borrow plays from product-led growth (PLG) applications.
3. Work with Marketing to produce content that helps your salespeople discuss risk with prospects.
Marketers can work with sales to understand and address customers’ most burning questions and perceptions of potential risk.
Then they can help develop content for sales enablement.
Marketers can also create testimonials and case studies that address prospects’ most likely concerns.
Few case studies do this. Most focus only on successes.
4. Understand that a prospect’s perception of risk is likely to vary across various parts of their company.
In any company, the various business functions are likely to see risks differently
For example, Finance, Legal, IT, and Compliance organizations are each likely to have their own concerns and perceptions of risk. And theirs are likely to differ from those of the Supply Chain group.
Be sure you’re prepare to discuss and mitigate risk for each organization.
5. Make sure your salespeople know how to sell value.
If you can’t minimize the risk of implementing your solution, maximize the prospect’s perception of the value it offers.
Learn to quantify and document the value you offer.
Calculate the prospect’s cost of doing nothing.
Train your reps to do value selling.
Document a process that helps them do it consistently.
6. Focus on selling products that have an attractive value-to-risk profile.
If you have several products or services you can sell, it may be smart to put more resources behind those that offer the best value-to-risk ratio.
7. Focus on winning renewals and upsells.
Be sure you renew current customers. Lavish Customer Success attention on them.
8. Show how your solutions help mitigate other risks your prospects are concerned about.
For example, if your solution enables remote collaboration, show how it enables your prospect’s employees to work from home effectively.
Show how it can help reduce their employees risks of travel and contamination. Show how that can help reduce a company’s potential liability.
For SaaS providers that don’t take some of these actions, I suspect sales cycles that are already long will soon get even longer.
MARKETING | SALES | REVENUE | EVENTS | COVID-19 | RISKS
Toll for canceled events likely exceed $500 million in U.S. alone
If you rely heavily on events and face-to-face meetings, take appropriate steps to adjust and adapt to canceled events and travel restrictions.
One group estimated the potential cost at $500 million for the United States. That’s in direct costs. And the estimate came out before the cancellation of the massive SXSW event in Austin Friday evening.
It would have brought about 417,000 visitors to the city. It generated more than $330 million in revenue in 2019.
Costs and revenue losses ripple through
It’s not just event organizers who lose money. It’s the whole ecosystem of service providers involved in delivering an event.
It’s also the attendees who lose money on canceled plans.
Maybe your company will lose revenue opportunities because you can’t sell at planned events.
More than half of B2B marketers rate in-person events and trade shows at the top of their list for channels that help convert business.
If you’ve been planning an event you must cancel, you may also lose hundreds or thousands of hours of staff time.
Noteworthy cancellations, postponements, or shifts to virtual
Event-related announcements accelerated throughout the past week.
Mobile World Congress, an event that attracts about 108,000 to Barcelona each year, has canceled.
Facebook has canceled their F8 conference for developers. They’d expected about 5,000 in San Jose in May.
Google announced their Cloud Next ’20 conference would be recast as a virtual event. They’d expected about 30,000 in Las Vegas in April.
SaaStr, an industry conference for about 12,000 attendees in San Jose, postponed until September.
SalesLoft was planning for about 2,000 attendees at their REV20 conferene in Atlanta in March. Now that event will go virtual.
Qualtrics expected about 16,000 at their X4 Experience Management Summit in Salt Lake City in mid-March. They’ve rescheduled for early fall.
Demandbase had scheduled their ABM Innovation Summit in San Francisco for mid-March. They expected more than 1,000. They’ve rescheduled for fall, with a virtual keynote to be delivered on March 17.
Adobe has canceled their live Summit 2020 in Las Vegas for the enf of March and early April. It attracted about 16,000 in 2019. The event has gone virtual instead.
SXSW canceled Friday. The event brought 417,000 attendees to Austin, Texas, in 2019. About 26% of attendees were international, from 105 countries. The event brought in $336 million in revenue last year.
93% of members of the Global Business Travel Association said they’d canceled no travel arrangements. (This was as of February 27.)
But that news seems unlikely to represent current circumstances.
Spokespeople for the airline industry said cancellations began just a week ago (in late February), and some flights are now as much as half empty. Things are changing very fast.
Tech companies big and small have canceled events in recent weeks.
The pace of cancellations increased as more cases of Covid-19 appeared in the United States.
Depending on the spread of the disease, the more cancellations are likely to follow.
They could continue through this current prime event season and into June.
Things you can do right now
If you’re planning an event, make contingency plans. Be prepared to cancel if infections continue to spread.
Consider going digital instead.
If you plan to attend an event, buy travel insurance.
If you must cancel, this is a good opportunity to see if the event was are as crucial to your business as you’d thought.
Prepare to provide uninterrupted operations and staffing in case of further restrictions on travel.
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Have a great week!
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