Currently, there's a lot of uncertainty around what's happening in the market. Customer behavior has changed so fast it's impossible to know what's next. As an operator, this makes it tough to make decisions, because there isn't a ton of data out there to guide our decision making.
To help, Reforge CEO Brian Balfour + Profitwell co-hosted three webinars about Growth in Turbulent Times with the smartest people we could assemble on short notice. Huge thanks to Patrick Campbell, Cyan Banister, Dan Hockenmaier, Elena Verna, Fareed Mosavat, Guillaume Cabane, Mark Fiske, Mark Roberge, Noah Freeman, and Russell Glass, who brought data and valuable prospectives to share with our community.
About the Authors
Brian is the Founder and CEO of Reforge. Previously, he was the VP of Growth @ HubSpot. Prior to HubSpot, he was an EIR @ Trinity Ventures and founder of Boundless Learning and Viximo. He advises companies including Blue Bottle Coffee, Gametime, Lumoid, GrabCAD, and Help Scout on growth and customer acquisition.Learn More
Patrick is Co-Founder & CEO of ProfitWell, the industry-standard software that helps companies like Atlassian, Autodesk, and Lyft with their monetization and retention strategies. ProfitWell also provides a turnkey solution that powers the subscription financial metrics for 14,000+ companies. Prior to ProfitWell, Patrick was an Economist at Google and the US Intelligence community.Learn More
Mark is an Operating Partner at H.I.G. Capital, a Private Equity firm with over $53 Billion in assets under management. Previously, he served as VP of Marketing for Credit Karma, VP of Global Marketing for Ancestry, and Director of Marketing for the Gap family of brands. From startups to the Fortune 500, Mark has scaled marketing teams across acquisition, lifecycle, monetization, brand, and UX.Learn More
Dan is the Head of Strategy & Analytics at Faire and a Program Partner at Reforge. Previously, he founded growth strategy consulting firm Basis one, and led consumer growth at Thumbtack.Learn More
Elena is currently the Interim Head of Growth at Dropbox, and was previously Head of Growth at Amplitude. She is a growth hobbyist, helping companies build product-led growth models. She is a Program Partner at Reforge, Board Member at Netlify, and Advisor to Clockwise, SimilarWeb, and Veed. Previously, she was SVP of Growth at SurveyMonkey and CMO at Miro.Learn More
Fareed is the former Chief Development Officer at Reforge and was formerly a Director of Product at Slack, focused on growth in the freemium, self-service business. Previously, he led growth and product teams at Instacart, Zynga, and other startups. Fareed is one of Silicon Valley’s foremost experts on product-led growth in both consumer and bottoms-up SaaS companies.Learn More
Building a Framework for Turbulent Times
Phases of Crisis: Shock → Adjustment → New Normal
As growth leaders, our first responsibility is to understand where we are and provide context for our teams. That's tough to do when uncertainty is this high, but Fareed Mosavat, Former Director of Growth at Slack, provided a helpful framework for how all crises unfold: Shock → Adjustment → New Normal.
Right now we are in Phase 1: Shock, where a major event has suddenly changed how customers behave, which in-turn impacts businesses. Specifically, the world is battling the coronavirus through quarantines, social distancing, and other measures. We're all just trying to weather the current storm as safely as possible.
Later, all crises enter Phase 2: Adjustment, where the storm has passed and a broader recovery begins. As the coronavirus is brought under control and lockdowns are lifted, the Adjustment Phase will see individuals, companies, and governments try to repair the damage from the outbreak. At this point in time, it's impossible to say what the extent of the damage from coronavirus will be.
Eventually, each crisis establishes a "New Normal" in Phase 3, where life finds a balance and sense of stability, which may or may not be substantially different from before the crisis.
No one knows how long and how severe each phase will be. No one. Faced with that level of uncertainty you need to maintain optionality and be proactive in responding. Dan Hockenmaier (Growth Advisor, Basis One & ex-Growth @ Thumbtack) provides a really helpful framing of optionality and what recoveries might look like in this post.
Don't wait for things to go back to how they were, because they might not. Be proactive and maintain perspective. Here's our panelists' best recommendations for developing your response to turbulent times.
1. Throw out your OKRs & Goals. This is a 4-6 week sprint.
Just accept that whatever plan you had for Q1 and Q2 are now gone. Even if your business is largely unchanged so far, the context of your customer's lives and businesses has been disrupted. Your planning and operational horizon should the next 4-6 weeks, according to Mark Roberge, Managing Director @ Stage 2 Capital. You need to act quickly and deliberately to collect new data and understand the current landscape of your industry. Your operating cadence should increase to daily so you can learn and react as quickly as possible to what's happening in Phase 1. This does NOT mean that we'll be past the coronavirus outbreak in 4-6 weeks and that we'll be on to Phase 2. Nobody knows what the world will be like in 4-6 weeks. But a 4-6 week sprint helps you organize your focus and activities while gathering more information to make longer-term decisions.
2. Deploy your rapid response team & don't make unforced errors
You need to re-examine all your messaging and touch-points throughout your entire marketing, sales, onboarding, and retention processes. Photos of groups of people on your website? Probably not appropriate right now. Old automated sales emails still going to prospects? Those likely need to be substantially updated or paused. Do you even know what ads you are running? Elena Verna, ex-SVP of Product & Growth @ MalwareBytes, recommends organizing a single cross-functional rapid response team with executive sponsorship that can make quick decisions about what to remove, what to reposition, and what to double down on. The first priority is to avoid unnecessary mistakes and seeming out of touch. (See post #2 for a rapid response team check-list and lots of tactical items).
One thing that doesn't seem to be effective is mentioning COVID-19 in your marketing or sales messages. Noah Freeman and the team at Social Fulcrum have been testing consumer messages over the past few weeks and mentioning COVID appears to be a strong turn-off. Instead, Noah recommends focusing on how your product solves the new problems that your customers are encountering. Which brings us to point #3...
3. Understand how your customer's lives have changed
Over the next 4-6 weeks, you'll be making calls based on intuition rather than lots of statistical data. Chances are your product-market-fit or one of your other four fits just changed because your customer's lives have changed. You need to understand their new motivations and behaviors as quickly as possible so that you can revalidate your core personas and core value propositions.
Go back to the drawing board with a cross-functional team on the most basic of questions: who you sell to and why they buy your product. Start by talking to customers and prospects. Ask how their motivations and budgets are changing. Find out how they feel. If you see new types of buyers purchasing your products, interview them as well. Ask previous customers why they stopped buying. Get the CEO on the phone with customers if necessary. Use this qualitative sprint to detect shifts in value propositions. In the B2B space, Patrick Campbell and the team at Profitwell have seen a rapid shift toward offers that focus on 'saving costs' rather than "increasing revenue". If appropriate, do some message testing with new value props via ads or a segment of your email list.
4. Develop an Endure or Adapt Strategy
To paraphrase Paul Graham, there are two paths through a crisis like the current one: Endure or Adapt. Based on what you're hearing from customers, you can decide to hunker down by cutting costs and waiting it out. Or you can decide to find new opportunities and adapt in a way that makes your business stronger when Phase 3 eventually arrives.
How you select your path depends on 3 factors.
- How your specific business, customers, and industry are impacted at present. If you see the emerging landscape before your competition you may be able to adapt before them. If your business has heavy capital infrastructure that cannot be redeployed, you may have to endure. After you've done your customer re-discovery, you'll be in a better situation to answer a bunch of strategy questions...
- Does your product solve one of the new problems your customers just encountered?
- If not, can you shift something about your product or value prop that does solve a problem they now have?
- Is there a market segment that you couldn't sell to before who might be more willing to talk to because their revenue just fell off a cliff?
- Do you need to fundamentally rethink part of your business model in light of potential enduring headwinds?
- If you've been holding off on making a strategic long-term shift because it could impact short-term revenue, is now the time to consider the move if revenue is already down?
- Your level of risk tolerance. Choosing to adapt now can be a tough choice because it will likely increase your risk by introducing new variables into an already volatile situation.
- Your balance sheet and cash position. Your ability to adapt or endure will ultimately be enabled or disabled by your finances. Do you have enough cash to invest in adapting? If you plan to endure, are you profitable? If not, how much runway do you have?
5. Replan your financials accordingly
This advice is primarily for the CEOs, Founders and executives, but it's helpful for everyone to understand. First, cash is king right now. Funding may dry up or at least become more difficult to obtain over the coming months so it's critical that businesses have at least 12 months of runway, although some panelists recommended 24 months (More on fundraising in the Leadership post). To understand your new runway, you have replan your financials based on current changes. Russell Glass, CEO at Ginger, recommends doing 3 new scenarios if your revenue is currently down.
- Base: Take the most conservative scenario that you previously presented to the board and make that the new base plan. If you didn't have a conservative plan on file, go through your customer discovery and take your best guess and how their spending might shift by segment.
- Worse: 20-30% below your Base Plan depending
- Worst: Another 20-30% below your Worse Plan
On the other hand, if your business is booming do 3 new upside scenarios in a similar fashion. Either way, you'll be able to better assess your options and act accordingly. You'll also want to update the scenarios regularly based on new information and changing macroeconomic factors. Next, we’ll dive in tactically by sub-topic.
Your Rapid Response Checklist
When we hosted our webinar series on Growth in Turbulent Times, the most enthusiastic audience response occurred when Reforge expert Elena Verna offered the playbook she recommends to her clients. Here's her checklist for quick wins right now.
- Create a tiger team that can tackle all realtime changes to messaging throughout the entire experience. Make sure they have executive support (up to the CEO) to move quickly with limited bureaucracy.
- Remove any unnecessary projects that aren't extremely focused on responding and adapting to the current situation.
- Scrub all inappropriate messages and images from all marketing, sales, product, and retention touch points. Double check automated emails, sales scripts, and edge cases you might not be thinking about. Don't be insensitive during a crisis.
- For example, during the pandemic, she advised not to mention COVID-19 in core messaging. You'll come off as exploiting the situation and early test results from Social Fulcrum indicate the mention COVID in acquisition flows tanks conversion rates.
- Cash Is King so watch leading indicators of churn like platform engagement.
- Look for users whose behavior has increased or decreased significantly. Find out why engagement has changed.
- For users with major decreases, can you do anything to prevent churn before it happens?
- When churn happens ask why they churned and if they plan to come back when things improve. Can you win them back now with a promotion?
- Try to fix mechanical churn ASAP. Mechanical churn is when automated payments don't process, usually because a user hasn't updated their credit card. According to Patrick Campbell (Founder & CEO of Profitwell), you can usually win-back about 75% of those users with good follow-up. That's cash you should be trying to save right now
- Collect customer feedback
- Read every auto-renew cancellation
- Listen to sales call recordings
- Look at the support tickets
- Interview your best customers, your new customers, your prospects, and any customers with dramatic changes in user behavior.
- Watch for new personas researching your product. Do qualitative interviews to find why they are now coming to you and what problems they are trying to solve.
- Watch google for shifts in keywords for your categories
- If you think you can reposition your value prop as a solution to new problems then...
- Test new positioning on social (either organic or small paid tests)
- Test new positioning to a segment of your email list
- Once validated, update your core user flows and product experience
- If you think you can reposition for new audiences, then develop new targeting lists and try some sample campaigns to those audiences.
- Remove friction from your acquisition flows and demonstrate empathy.
- Consider longer trial periods or different bundles to build up a larger pool unpaid users that you can monetize later as things return to normal.
- Understand that your user's lives are impacted and try to build goodwill by helping them during this stressful timeframe.
- It is difficult to pivot your product development cycle and deploy new products or features in the near term. Do as much as you can with marketing before making pivots or shifting your product development. (More Product Development suggestions in Post 3)
- Some businesses are booming right now. If your business is doing well, pay it forward by offering free product to educational providers, non-profits, or others in need. It's good for your brand, but more importantly, it's good for your team's morale and it's the right thing to do for the world.
Overall, the game is now about speed and profitability. Collect data rapidly, make smart decisions quickly, and evolve every 24 hours.
Shifting Product Roadmap in Turbulent Times
As Fareed likes to say, “You can only experiment on the users you have today and on how they are behaving today.” Because of the massive disruptions of COVID-19 users for many products are behaving very differently than they were just a few weeks ago and how they are likely to behave over the long term. So running core product optimization experiments now would be like running an experiment over a major holiday, i.e. not a good idea. The data will be so atypical that it won't be valuable beyond the immediate COVID-19 influenced circumstances. So Fareed suggests pulling back from day-to-day optimizations on your core flows. Or if you continue testing, at least be prepared to retest and rollback when we transition to Phases 2 and 3 of the crisis.
Shorten your investment horizon
Product management and engineering teams are often working on projects that impact the business 12 months in the future. While you don't want to overreact to the crisis, the level of uncertainty implies that you take less risk now by focusing on projects with a shorter investment window. This is especially true if you are cash constrained with limited runway. So what are some short-term areas where you can redeploy resources?
- If your demand is spiking, focus on new user experience. You likely have new types of users entering your ecosystem right now with different needs and problems. What can you adjust in your acquisition flows to better speak to these new users? What of your product experience can you adjust to better serve more of these new personas' needs?
- If your demand is declining, focus on retention. Fixing mechanical churn (which happens when auto-renewal payments are declined typically because of credit card issues) is a good way to quickly improve cash-flow. Most mechanical churn revenue is recoverable.
Make the Product a 'Must Have'
If the downturn lasts long enough, every finance department will ask teams for a list of expenses that can be cut. Consumers will start looking to make similar trims to their spending. Your product or service will go into 1 of 2 categories: Must-Have or Nice-to-Have. Nice-to-Have products will be cut. If you don't know which list you will be on, find out ASAP.
Start by watching your leading indicators of churn, like changes in product usage. If you are seeing slowdown in usage, find out why, and invest in building loyalty. If product usage is being driven down by cost cutting or, in the B2B space, by a slowdown in your clients' businesses, be prepared to offer customers promotional terms so they stay with you through the recovery. Product teams may be able to quickly deploy 'pause' features so users can save money now without actually leaving the product for good.
Surfacing churn indicators to the entire company can be an incredibly powerful way to rally an entire company around initiative focused on keeping at-risk customers. Ultimately, your primary goal is to leave the period with as many customers as possible, including free customers that can try to convert during the recovery.
B2B Growth in Turbulent Times
Industry variance and warning signs on the horizon
Some SaaS businesses, especially in the work from home space, are booming. While others are seeing strong headwinds as businesses pull back on incremental spending. SaaS as a whole is trending slightly down as of 3/26 (according to the Profitwell Growth Index). But there are significant warning signs on the horizon. It's likely we're going to see substantial increase in cancellations as we move into April billing cycles and some businesses may begin actively cutting SaaS costs. As Guillaume Cabane (Growth Advisor, G2 & ex-VP of Growth @ Segment & Drift) points out, a substantial portion of SMBs are experiencing massive revenue declines during shelter-in-place orders. Those SMBs are facing the first order effects of the coronavirus impact. SaaS companies will be impacted when those businesses actively cut costs or go out of business, which are second order effects. The impact to SaaS may just be delayed. Unless your business is thriving, you should be prepared for what second and even third order effects may mean for your revenue.
Focus on generating cash, not just bookings
As we've stated previously in the series, Cash is King because it preserves optionality and will hopefully give the economy time to recover. Patrick Campbell, Founder & CEO of Profitwell, suggest trying to update your terms to collect more cash upfront. If you have existing clients on monthly plans, can you move to quarterly or annual plans by offering a small promotion?
Additionally, about 30-40% of SaaS churn is from credit card payment failures. This type of mechanical churn is often unintentional can be recovered. Turn on recovery programs as a way to boost revenue. Try to prioritize this at the beginning of the month when a lot of automated billing takes place.
For businesses deploying promotions, Patrick strongly recommend bundling additional features into a base price or offering one or two extra free bonus months. Bundling and bonusing are often more effective than discounting and they provide more cash immediately. Finally, offering an unlimited plan for the short term may make sense and could even be a strategy to capture marketshare during this upheaval.
Many B2B acquisition tactics are not working
Obviously Field Marketing and In-Person Sales are gone. Acquisition costs for some paid digital channels are increasing. Many RFPs are on hold. If you were using IP detection software to see which companies were visiting your website, that's no longer effective as people are now work from home IP addresses. Even sales demos are more difficult as many working parents are too busy to talk to salespeople.
Therefore, any working acquisition assumptions about CAC and LTV need to be immediately recast until you get a better read on how customer behavior and conversion is changing. Guillaume Cabane recommends immediately exiting high CAC, low LTV channels as they are unlikely to be profitable.
Look for Ways to Adapt
Mark Roberge (Managing Director @ Stage 2 Capital) suggests that you should start by updating your Ideal Customer Profile and your Core Value Prop to fit the current situation. Can you shift your industry focus to verticals like telemedicine, food delivery, or work-from-home that are skyrocketing right now? Do you have value prop that solves the new pain points that your customers are facing? Start testing immediately to find new product-market fit. Marketing and Sales leaders should be attending or reviewing recorded discovery calls every single day to get a sense of how the market is changing and how customers might respond to new messaging.
Take care of your sales team
If macro-economic factors are negatively impacting your business, that's not your sales team's fault. This is an unprecedented event in modern times. Consider temporarily updating your comp plan and reducing quotas for the next 4 - 6 weeks while collecting more data about how you'll be impacted. This shouldn't be a long term comp adjustment, just something to help lower the anxiety. This can be a great opportunity to set the tone that everyone needs to be hustling but that we're all on the same team.
B2C Growth in Turbulent Times
Advertising Media Is Cheaper, Conversion Is More Expensive
Over the past month, many businesses pulled back on media spend while consumers on quarantine have been spending more time online. Due to the increase in supply (available ad impressions) and decrease in demand (ad budgets), CPMs have been dropping across Facebook and Instagram, where Noah Freeman and the team at Social Fulcrum focus most of their time. (You should follow the Social Fulcrum blog for the latest changes in the ad markets.) Through the week of 3/22, Facebook and Instagram CPMs & CPCs declined about 45% for B2C companies in the US before a slight recovery the week of 3/29. Prices vary based on the specific strategy of the campaign.
Source: Social Fulcrum
In the graph above, Prospecting campaigns target users who have never visited the website. Retargeting campaigns target users who have visited the website but not purchased. Retention campaigns attempt to drive repeat purchase by targeting previous purchasers.
While this decline in media prices might seem like a potential windfall for advertisers, it's not. Onsite conversion rates declined even faster, about 53% overall, before making a recovery in recent weeks.
Source: Social Fulcrum
The result is that the cost per purchase is fluctuating wildly depending on target segment, but up 20% overall. Retention audiences, which are typically the highest quality and the most likely to buy, are ~2x more expensive than before COVID impacts began in early March. You need to validate your own campaign costs, but overall the cost per purchase for your business is likely to be up.
Source: Social Fulcrum
Remodel Your LTV Assumptions and Adjust Budgets Frequently
No matter what is happening to your CAC (customer acquisition cost), Mark Fiske (Former VP of Marketing @ Credit Karma) recommends revising your LTV assumptions to be far more conservative. With consumer behavior fluctuating this wildly, you have to assume that longterm retention will be just as variable. Aim for breakeven on the first purchase for transactional e-commerce businesses. For subscription businesses, consider dropping your retention assumptions to a couple months to account for people who are only buying for the quarantine timeframe. Even if you are experiencing a flood of demand, don't assume that any new customers will stick with you when this is over.
These CAC and LTV fluctuations also mean that your previous budget allocation is almost certainly incorrect. At a minimum, you'll need to revisit budgets weekly until things settle down. And the best teams are holding daily stand-ups to adjust strategies and tactics as soon as new data is available.
Playing Offense with New Tactics
If you haven't changed all your ad creative, you should strongly considering doing so. More advice from Social Fulcrum suggests that ads mentioning COVID-19 by name perform poorly, but ads that say things like “In this difficult time…” or “You want convenience and safety” are doing relatively well. Ads showing boxes on doorsteps and that focus on reliable fast delivery are also effective.
Here are some other tactics to consider:
- To boost campaign effectiveness (as measured by ROAS), you might try a promotion. It's best to focus on simple site-wide discounts that consumers can easily understand.
- If your competitors have turned off all their ad spend, you can try running conquesting campaigns to grab market share
- People are bored so you can probably increase your email frequency without a spike in unsubscribe rates
- Consider how you can leverage free channels. West Elm scored a ton of free publicity by creating virtual backgrounds for zoom.
- Look at implementing geo-targeting on your campaigns. Consumer spending has dropped less some areas than others. You may be able to exclude hardest hit geos to boost performance.
Collecting Data Gives You an Advantage
Overall, the next few weeks will continue to be rocky, but if you can keep some campaigns on, it will give you more data sooner about when things begin moving toward healthier levels. If you see the recovery happening before others in your industry, you'll be better positioned to accelerate out of the downturn. Keep remodeling and reworking until you establish confidence in your new operating models and assumptions. For more on scenario planning and what recoveries might look like, check out Dan Hockenmaier's blog entirely on this topic.
Leadership in Turbulent Times
Fundraising will be difficult but not impossible
After high profile IPOs underperformed over the past year, investor sentiment shifted from a growth-all-costs mindset toward valuing solid unit economics and profitability. The impact of COVID-19 and the potential for a recession are reinforcing that mindset. As such, businesses without strong unit economics may struggle to access capital over the coming months. High CapEx businesses without a clear path to profitability may have an especially hard time fundraising.
The good news according to Cyan Bannister is that investors are still taking meetings and there is still a lot of capital to be deployed. Investors will be looking for strong indications that your product is a must-have, not a nice-to-have. That means strong retention and customer loyalty. Regardless, anyone raising money over the next few months will likely have to accept lower multiples and valuations, meaning higher dilution.
Regardless, CEOs should continue taking meetings, building relationships, and getting feedback from investors. Russell Glass suggests that asking for advice is one of the best ways to build relationships with investors during a time like this. VC partners have visibility into a wide range of companies and a much broader view of the market than a single CEO. Asking them about what they are seeing and what suggestions they are offering their portfolio companies can be a good way to get to know a potential investor.
Communicate Transparently and Bring People Together
In any time for high anxiety, your employees want to hear from the CEO... even if you don't know what the future holds. A common mistake for an inexperienced CEO can be to become less communicative and try take on all the stress when they don't have all the answers. That will often lead to employees making up stories for themselves. A better approach is to acknowledge what's happening in the market and within your business. Tell employees what you and the executive team are doing to navigate the situation and how you will 'come up with a plan'. Ask for feedback and questions all along the way. This will not only provide a greater sense of security for the employees, it will help the CEO collect information and consider differing points of view.
This can actually be a time to rally the team. People want to keep their jobs, and they want the company to succeed. While you need to make greater accommodations for the disruptions in your employees lives, many people will be willing to work even harder to help get to the other side. Launch your rapid response team, provide a framework for your response, and you might be surprised by who steps up and how the team comes together during adversity.
Be Kind to Yourself and to the Team
This is an extremely hard time in many people's lives. To keep things in perspective, don't forget that millions of people are sick, and thousands are dying from COVID-19. Moreover billions of people are under shelter-in-place orders. Countless small businesses are closed at least temporarily but many of them will not reopen. Parents are homeschooling their kids while trying to work. And people stuck inside, isolated from their normal routines will suffer a variety of negative emotional impacts — that includes you.
It's okay if you need to take a break. It's okay if you're scared and stressed. It's okay if you don't know what to do — no one else does either. We're all just trying to get through this as safely as we can. So cut yourself some slack. You cannot protect and care for others if you are drowning.
Your team will make mistakes, especially if they are working longer hours and juggling greater responsibilities at home. Cut them some slack as well. When someone screws up, maybe let that slide or use it as a teaching moment. Perhaps, more than anything else, your employees want to know that you care about them. Thank them for their efforts, and look for ways to show them just how much you care. And remind them that like all dark times that have come before, this too shall pass.