The Strategic Retreat actually usually works really well in the short term
I see SaaS companies quickly get to cash-flow positive by really only servicing in-bound customers with high intent
It’s just your growth rapidly decays, usually in just one quarter
— Jason ✨Be Kind✨ Lemkin (@jasonlk) January 6, 2023
So for at least 60%-80% of us, times are at least tougher than a year ago. Later stage venture capital has evaporated, and budgets are at least under more scrutiny. Time are at least tougher not for all of us, but most.
So what do you do?
Well, at a practical level, many SaaS companies are doing a Strategic Sales & Marketing Retreat. While I get it, it’s important to understand the trade-offs.
What’s a Strategic Sales & Marketing Retreat?
- First, you tell marketing to only focus on initiatives that bring in revenue now, this quarter.
- Second, you stop sales hiring.
- Third, you often increase quotas in sales.
This “flash diet” does work for many SaaS companies, at least the ones with mini-brands that are at scale. At least at first. Why? Well, even after even $1m-$2m ARR, and certainly a bit later, most of us get a decent amount of our qualified leads and prospects from zero and low-cost marketing:
- The high-intent in-bound leads still come in. The ones that searched you out. And their CAC is basically $0.
- Word-of-mouth and referrals still come in. Assuming you treat your customers well.
- Concentrating leads in top sellers keeps deals closing. We’ve talked about this before on SaaStr, and it really works. Focusing more leads on your top closers closes more — up to a point.
So for a short period, the Strategic Retreat in SaaS seems to work. The company gets more efficient, and often even cash-flow positive, very quickly. The free leads are free, and the best sales reps are the cheapest in the end, so concentrating leads in their hands saves you money there too.
Your CAC, in fact, can fall to close to $0. Woo-hoo!
But the problem is if you take this too far, growth immediately falls — and then just decelerates from there. You end up with a fraction of the pipeline you’d hoped for 6-9 months out. You end up without enough capacity on your sales team to hit the plan for the end of the year. And most importantly, the competition takes those other deals. The ones that cost a bit more to find, work, and close.
So this isn’t the most profound post, but I want to at least provide 2 takeaways:
- First, don’t take too much solace in your improved burn rate if you implement a Strategic Retreat. You may have no choice, but at least realize you’re mortgaging your future here.
- Even in tougher times, at least put as much into Sales & Marketing as you can afford. Do a very careful, nuanced budget process and literally just figure out how much you can spend in both Sales & Marketing in the coming 12 months. And give the team their budgets and let them do their best with it.s
- Remember that the Incremental Customer in SaaS is so expensive, but if they stay, they are so worth it. Those medium- and even low-intent buyers may take forever to close, and be so expensive to find. But if they stay 10 years, it’s totally worth it. Especially if they refer 1-10 other customers. And what the top competition often does is play to win by acquiring the Incremental Customer, the harder ones to get, and even play Dominant-Dominant Strategy.
In any event, the time comes when many of us do have to implement a Strategic Retreat. Just make sure you have a plan later that same year to recapture that lost territory. And whatever you do, don’t just blindly cut Sales & Marketing. At least give them the most budget you can. You’ll need it.
Marketing budgets have been cut.
But … you can’t cut your way to growth.
Pipeline is already suffering. pic.twitter.com/K9Mi6mvpn5
— Jason ✨Be Kind✨ Lemkin (@jasonlk) April 22, 2023
And a related post here: