Tech firms must adapt to today’s transformation

“Tech companies that are making the shift to selling SaaS are going through what they call ‘the chasm of death,’ because they're going to have a significant revenue drop-off from that perpetual to the SaaS revenue model,” Nicholson said. “They don't get paid all of that revenue up front anymore.”

That means tech companies also need to change how they invest in customers. “They used to invest in the new licenses sales force, but now they have to invest in customer engagement and retention,” Perkins said. “There’s a lot of pressure to build and keep customers, which is even further magnified when growth is slowing — when you know that every one of your cloud customers is thinking, ‘How can I spend less?’"

If you sell SaaS, you don’t have a guarantee of perpetual licensees. You essentially need to resell licenses on a regular basis, investing more in customer engagement, support and retention.

Automate your inefficiencies

It’s important to recognize where and how you can further capitalize on your prior transformation investments. “You have pressure for the infrastructure to reduce cost and be more efficient, so harvest the investments you’ve made in data and technology,” Perkins said. Intelligent automation has often been one of the quicker paths to transformational returns, and one that can be adapted to meet more needs. You might have already undergone one round of analyzing and automating processes to gain greater efficiency, but there can be another layer of opportunities at a level above, where you think in cross-functional terms. There, you can apply custom solutions or even a limited application of an existing ERP solution. “We used to think of intelligent automation, but think of it as hyper-automation,” Nicholson said. “It's about operating more efficiently at doing what you're currently doing, in the back office or front office.”

Clarify your forecasts

Your back office needs to keep up with today’s demands, but it also needs to help you plan for tomorrow. “There’s a legacy challenge of being able to accurately forecast revenue in software companies,” Nicholson said. Data-driven forecasts can become more complicated after large changes like the ones we’ve seen in markets and workforces. “Look to apply AI machine-learning algorithms, to more accurately forecast what your quarterly revenue is going to be,” Nicholson said. “Analytics and data can help weave together your staffing, planning, and forecasting, especially when you look at sales organizations. Where do you most effectively deploy your resources going forward?”

Engage your customers

Lastly, consider how your back office can help to proactively drive business factors like customer engagement. Some of the data and processes that drive better forecasts can also help to drive better decisions about how you engage customers and adapt your strategies. Do you have a 360-degree view of all of your interactions with customers and what they are doing with your products? That transformation can even feed into the products your customers see. “What are the implications, as you think about driving tech transformation within a tech company? You can be building it into your product. Use it in analytics, use it in customer engagement,” Perkins said.

“You have the customer deployment and support side of it, and then you have the internal operations side,” Perkins said. “Tech transformation applies to both of those. You need tech transformation today, and you need it in every step of the value chain.”

The growth of a tech company often follows a pattern. “I've always drawn an S-curve,” Perkins said. “They start small, they scale quickly and then they plateau in terms of growth. There's a different set of challenges for them at each one of those stages.”

Traditional strategies included going public with an IPO or being bought by a larger competitor. “Now, maybe the upslope is much longer than it was in the past,” Perkins said. “If you were thinking you’d have an exit in 18 months, now it might be 36.”

“The question is: If you’re now looking at three years instead of 18 months, do you have the strategy in place to support that business plan?” Nicholson asked. To build a flexible plan that guides your business growth, you need to understand your business through data.

“Tech companies are awash in data,” Perkins said. “It’s critically important to invest in initiatives that mine that data, and get it to the right people.” Companies need to make sure that leaders have updated data to answer strategic questions like:

1. How are we maintaining and building revenue?
2. Where do I get the highest and quickest return on my development investment?
3. How can we efficiently and proactively cybersecurity and regulatory compliance into our products?
4. How are we anticipating and preparing for software or hardware supply chain issues?
5. How are we driving more efficient and profitable product development?
6. How are we using technology to improve risk management?

Companies need to keep funding data analysis to answer strategic questions. The question is how to save cost by building on existing infrastructure, because funding can be hard to find in today’s market. “One pressure that all tech companies have right now is trying to finance initiatives,” Perkins said. “Money is much more expensive than it used to be, and valuations are going down. For emerging and mid-market companies, the middle of that development S-curve is going to elongate. They are going to stay private longer.”

“But tech companies are going to continue to grow. Tech will grow more slowly than it has, but it will continue to grow and probably outpace the economy,” Perkins said.