By most accounts, selling B2B software has grown increasingly difficult over the last few years. In fact, 75% of buyers say their average buying cycle has increased in length over the last 24 months as buying committees expand and enterprise purchase cycles lengthen, according to Forrester.
As economic uncertainty looms, procurement processes are becoming more rigid and buyers are scrutinizing their budgets as they brace for impact. Yet the news isn’t all doom and gloom. Although budgets may be shrinking, that doesn’t mean they’ve dried up completely. In fact, cloud budgets are expected to increase 22%, adding approximately $90 billion to the global cloud budget, according to IDC. This largely untapped budget represents a huge potential opportunity for ISVs to weather an uncertain economic climate.
How can software companies better navigate this changing economic landscape, and how can they weather a potential downturn? During a recent Tackle webinar, Mike Asher, CFO of Neo4j; David Schneider, General Partner at Coatue; Benjamin Cook, CFO of Tackle; and John Jahnke, CEO of Tackle, explored these questions. Here are four key takeaways from their discussion.
Although turbulent economic cycles are nothing new, the devil is in the details: Extrinsic factors, such as world events, can impact the economy and influence how companies respond. “I’ve seen a bunch of boom times and downturns in the economy,” said Mike. “This is just the latest one, but each one has a different wrinkle.”
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The “wrinkle” this time is a confluence of high inflation, changes in how investors are investing, supply chain issues, and the rising costs of finding and retaining top talent. Despite that, Neo4j — like most companies — is still spending, albeit more judiciously. “There’s lots of uncertainty, which makes everyone more hesitant, including us at Neo4j,” he said. “We’re still spending on important initiatives, but we’re trying to say, ‘all right, what’s the must have? What do we need to spend now? What can we push off?’”
As for selling software in the current climate, the pace may have slowed, but significant deals are still happening. “We’re still getting deals done, there’s still a lot of demand for our product,” he said. “But we are seeing, especially on some of the bigger ticket items, deals take a little bit longer, with more scrutiny where there’s yet another level of signatures.”
“This economic cycle is slightly different from prior cycles,” noted David. “In the past, there was a seminal event that started the downturn, such as with Lehman Brothers closing or the dot com crash. I think we’re surfing a wave into a recession at this point with different parts of the market slowing things down, but almost everybody’s going through another layer of inspection in the sales process.”
Tackle’s CFO Ben Cook said that the current economic climate has put a spotlight on new vendors. “At Tackle we think about our overall tech stack and ensure every technology we utilize has value for us. I think that it’s pretty common, especially across tech companies, to go through that same increased level of rigor overall.”
Sellers must think more strategically about how their product solves problems for buyers, and how that product can be positioned as a “must-have.”
You have to associate yourself with a mission critical activity, that’s your job as a software technology provider. It really is important for you to link to something that’s important.
“If you’re in the ‘nice to have’ or ‘luxury spend’ category going into a downturn, you’ve got to figure out how to convert your current positioning to something else in order to be successful,” said David. “You have to associate yourself with a mission critical activity, that’s your job as a software technology provider. It really is important for you to link to something that’s important.”
That kind of insight into the buyer’s priorities requires targeted questions about the buyer’s needs. “Asking those questions — whether in a good cycle or a bad cycle — is an opportunity for you and your sales team to think about where your product stands against other priorities,” said David. “Who’s driving it? What happens if buyers don’t purchase it? And what’s the best way for them to acquire it?”
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In just a short amount of time, the approach to software purchasing has changed and the onus is on companies to prove the value of their products more quickly. “In 2021, money was just pouring into tech companies,” said Mike. “It was really about growing at all costs and investing for the future. For us, we were buying software with an eye on buying ahead of the curve. But one of the things that we look at now is what do we need right now?”
The economy may be in flux, but “cloud transformation” — taking advantage of cloud-based technologies to boost efficiencies and scale business — continues.
The economy is giving people pause but the mega trend is clear: the cloud transformation is happening.
“Every company is still moving their workloads to the cloud,” said Mike. “The economy is giving people pause but the mega trend is clear: the cloud transformation is happening.”
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Although some of that transition to the cloud may not be progressing as rapidly as it was, the momentum is still moving in that direction. As companies continue to migrate to the cloud, making software purchases via Cloud Marketplaces are expected to ramp up, as buyers begin to see the benefits (including simplified procurement) of purchasing software through a consolidated cloud budget. In fact, Tackle’s 2021 State of Cloud Marketplaces Report found that 61% of buyers said they had purchased software through one of the Cloud Marketplaces in the last year — a 39% increase over 2020.
Over the next five years, you’ll continue to see the lines between cloud budget and enterprise software budgets start to blur, and that will turn into a trillion dollar super budget.
The needle will continue to move, as 83% of buyers said they are likely or extremely likely to purchase through the Marketplace in the future. “We’re really seeing things start to accelerate,” said John Jahnke, Tackle CEO. “Over the next five years, you’ll continue to see the lines between cloud budget and enterprise software budgets start to blur, and that will turn into a trillion dollar super budget.”
Despite some apparent caution around software spending, companies still intend to make the most of Cloud Marketplaces. “Even though there is more ‘thoughtfulness’ going into purchases, we’re still going to invest a whole lot more with the Cloud Providers this year than last,” said Mike. “Overall, our spend is significantly higher this year with the Cloud Providers and the Marketplace.”
For ISV’s, one of the best ways to unlock new revenue sources is by tapping into committed cloud spend, which is the amount a company agrees to spend with a Cloud Provider on cloud services, and can be used on third-party software purchases through the major Cloud Marketplaces. If there’s an additional $90B being added to cloud budgets around the globe, sellers have to find a way to attach themselves to that.
Taking advantage of this rapidly growing budget can provide some degree of revenue support during an economic downturn. ISVs that emphasize the value proposition of burning down committed cloud spend have a better chance of closing deals faster — an important consideration in an era of extended purchase cycles.
The option for buyers to burn down that cloud spend through Marketplaces removes an additional barrier to sales. In other words, if a buyer has committed $5 million to the cloud over two years, it’s far easier for that buyer to say “yes” to a software deal in order to help reach that commitment and avoid leaving money on the table.
Just start asking your buyers, ‘Would it be easier to buy from us on your cloud bill? Do you have a strategic relationship with a Cloud Provider?’
In the months ahead, it will be increasingly important to remove friction for buyers who have become accustomed to saying “no” as the default. “I think it’s about focus, keeping it really simple and thinking about the majority of buyers and where their wallet is,” said John. “Just start asking your buyers, ‘Would it be easier to buy from us on your cloud bill? Do you have a strategic relationship with a Cloud Provider?’”
Think of Cloud Marketplaces and cloud budgets as a “speed ramp” to a deal: it doesn’t guarantee that a deal will close, but it does give software sellers the opportunity to tap into sources of revenue that may already be contractually obligated.
Although SaaS companies may be facing some challenges in the coming months, there’s certainly reason for optimism. Cloud Marketplaces aren’t a silver bullet against uncertainty, but they can be an effective insulator against economic turmoil. With increased cloud budgets and continued enthusiasm for Cloud Marketplaces as an efficient and cost-effective channel for software sales, ISVs can create more ways to win during a tumultuous time.
To see how Tackle can help you get listed and scale your Cloud Marketplace revenue, schedule a demo.
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