Growth Isn’t Automatic Even For Technology Companies

At times, virtually all companies face growth challenges, even technology companies. In fact, many technology companies have low variable and high fixed costs.  As a consequence, fluctuations in revenue can have a profound impact on the bottom line. Whether it’s simply stalled growth or the bigger issue of declining revenue. Growing technology companies may believe even more growth is possible. Growth can be affected both by a company’s ability to generate new customers as well as a company’s ability to retain and grow existing customers. Customer retention is often a key issue for technology companies. And, all parts of the organization can have a profound impact on growth. Areas such as accounting and legal can either make revenue generation easier or much more difficult.

It’s important to review all areas in the company that either contribute to or hinder growth. In general these fall into the following categories:

  1. Marketplace. Here companies can face a number of issues ranging from a declining market for its products to significantly increased competition or substitute products or services. This is especially true for technology companies.
  2. Sales and Marketing. Companies often find that their sales and marketing processes are either inefficient, ineffective or both.
  3. Customers. Even if companies participate in a growing market and are very successful at bringing in new customers, a poor customer experience resulting in significant customer attrition can cause revenue declines.

 

This blog discusses some of the tools companies can use to uncover and address issues in each of these three issues.

Marketplace.

Several techniques can be used analyze the current market. Once the market situation is better understood, appropriate actions can be taken. Some markets face rapid change and an uncertain future. Technology, energy and healthcare are three markets where this is particularly challenging. Approaches like scenario planning can help companies rigorously examine possible future environments that can help them identify risks and opportunities. Looking into the future of technology is quite challenging and some of the industry’s most notable leaders have been notoriously wrong:

“I think there is a world market for maybe five computers.”

Thomas Watson, president of IBM, 1943

“There is no reason anyone would want a computer in their home.”

Ken Olsen, founder of Digital Equipment Corporation, 1977

Nevertheless, technology companies always need to be looking at least 3 to 5 years out in order to look for changing market trends, new entrants and substitute products. Research in Motion (RIM) at one point had over 40% of the smart phone market and just recently announced that they were going out of the hardware business entirely. Had they foreseen the changes taking place in the marketplace they could have taken several actions to mitigate those impacts. They could have focused on their expertise in secure networking and leverage that through other handset providers. Or they could’ve adapted their own handsets more rapidly to the form factors that replaced them.

A number of well understood techniques can help companies understand their environment. One of the most prominent is Porter’s 5 Forces which include the bargaining power of customers and suppliers, the threat of new entrants and substitute products and the competitive strength of the industry. Once the current and future market is well understood, the company can formulate a strategic response. Possible actions include product modifications, new products, new distribution channels, product eliminations, changing geographies and price changes.

 

Sales and Marketing

Volumes have been written on sales and marketing. Both new and mature companies often face challenges in effective sales and marketing operations. As is the case with market issues, an important first step is identifying any issues. More often than not, the focus is on the sales organization and the sales process, and particularly the proximate sales process. This is far too narrow.

Rather, current thinking focuses on what is generally called the “customer journey”. This involves every interaction that a customer has with the company starting with their initial search for a product or service and continues through their continuing experience as a customer. A walk-through this journey, will help companies identify any number of issues and opportunities that are the subjects of entire books themselves. In today’s digital world, over 70% of the buying decision is made before the company is ever contacted. Companies are increasingly relying on very sophisticated content marketing approaches to address this issue. Some key questions technology companies need to answer include:

  1. Does the company have a good understanding of their target market?
  2. Does the company have a good understanding of what their best prospects look like?
  3. Does the company have sufficient presence in the market that they can participate in a prospect’s initial research? This may include useful online content, participation in independent market research or traditional public relations.
  4. Are there effective mechanisms in place for suspects to self-identify as prospects or for company marketing activities to identify them?
  5. Is sales execution effective? Any number of issues can affect sales execution.
  6. Are appropriate salespeople hired?
  7. Is the sales force properly trained?
  8. Is incentive compensation appropriate?
  9. Are sales processes appropriate including the use of tools such as a CRM?
  10. Is the data in the CRM current?
  11. Are the sales forecasts accurate?
  12. Do all parts of the company that touch the sales process, including finance and legal,

Insure they facilitate the sales process?

 

Customer Experience

More often than not this is the most important area. As mentioned earlier, no matter how effectively companies acquire new customers, if they have significant turnover in their customer base, revenues will suffer accordingly. Technology companies, in particular depend on customer retention and recurring revenue. Customers have jaded, and often humorous views of technical support:

I was walking through an office one day and a user said to me, “At last! It’s taken you long enough. I pressed F1 (help button) over 2 hours ago!”

So how do companies that face the significant customer satisfaction challenges inherent in their businesses improve? Here are five steps that companies can take to significantly improve customer satisfaction and gain substantial improvement in financial performance.

  1. Seek constant feedback and measurement. In order to have a comprehensive customer satisfaction program, companies need constant feedback on how they’re performing and need to establish a baseline measurement. Surveys, interviews and social media are common means of developing baseline measures such as satisfaction statistics and net promoter scores. There are also multiple external sources such as G2 Crowd (the yelp of software) or analyst ratings from companies such as Forrester and Gartner.

While these more quantitatively focused survey techniques are useful, they rarely tell the whole story.  Companies need to exploit many other, more personal, qualitative feedback channels.  Senior management needs to regularly meet with customer decision-makers.  A powerful institutional mechanism for feedback is a well-functioning, independent user group.  User groups can systematically collect and aggregate extraordinarily useful feedback on company and product performance at relatively low cost.

Qualitative and quantitative data needs to be proactively documented and tracked over time.  But, most importantly, companies need to take appropriate action based on this feedback. Seeking feedback is usually viewed very positively by customers.  However, companies that fail to act on specific service or product issues will see customer satisfaction plummet relative to where it had been if they hadn’t sought customer feedback in the first place.

  1. Establish a customer centric corporate culture. The previous chapter mentioned the importance of culture. Many companies are notorious for having a corporate culture that treats the customer as an inconvenience at best. For example, at one company, a post-implementation debriefing meeting was held.  The installation team was asked their view of how the project had gone.  They universally reported the project had gone well and that the installation was successful.  However, when asked how the customer felt, they said the customer was very unhappy.  Clearly the culture of this company was focused on internal rather than customer satisfaction.

 

Cultural change is a challenge for firms in any industry, but is often most difficult for technology firms.  The more substantive interactions that take place between a broad base of employees and customers, the easier this cultural change will be.  Better empathy and understanding are the inevitable result.  These interactions can take place in a variety of venues ranging from involving customers in product design to active participation in user group activities.

  1. Establish multiple regular points of contact. In order to drive improved customer satisfaction and experience, companies need to maintain multiple points of contact in the customer organization and in particular, these points of contact need to be at all levels.  One company had a very stable software product that was very popular with the users.  Customer support at the user level was consistently rated as outstanding.  Nevertheless, this company was in serious danger of significant customer losses.  This company, while maintaining excellent contact at the user level, completely failed to maintain any relationships at the decision-maker level.  Since the market was undergoing rapid change, the decision-makers made the assumption that the current vendor was not keeping pace and were actively seeking alternatives they considered more state of the art.  The vendor was not involved at all in helping to influence the strategic direction of the customer.

 

  1. Create multiple opportunities for engagement. Companies need to establish multiple mechanisms through which they can engage customers. Very effective traditional approaches include advisory boards and user groups.  They range from informal ad hoc customer councils to user advice on specific product developments to formal long-established independent user groups.  More and more companies are now using social media and community development techniques either independently or in conjunction with established user groups.

 

  1. Make your company easily accessible. One of the most frustrating and satisfaction deflating things for customers is having a problem and not knowing who to contact or having a contact and getting no response. One well-known software vendor changed their support system to save money.  Technical support had a recorded message that they no longer took phone calls and only worked through online chat. While issues could be resolved, the fact that customers could no longer talk to anyone directly creates a significant negative reflection on the company.  Companies need to be easily accessible through as many channels as possible-phone, chat, e-mail and in person.  In person can range from a visit by a salesman to a local company or user group events.

 

The benefits of improved customer satisfaction are significant including improved financial performance, increased sales and reduced expenses.

 

Case Study

A large enterprise supply chain software company was facing a crisis. On the surface, the issue was rapidly declining revenue, persistent losses and a pending liquidity crisis. The company had burned through virtually all of the cash raised through the public offering over a period of five years. The crisis forced the board to remove the CEO and CFO and bring in a new CEO to quickly address the issues.

After talking with employees and key customers, it became clear to the new CEO that, for a variety of reasons, there was open revolt among the customers. Most customers were Fortune 100 companies with complex supply-chain challenges.  Many, if not most, were looking to replace the company’s products with competitors and several had filed or were threatening to file lawsuits. Publicly available customer satisfaction measures placed the company at or near the bottom of the industry. The root causes included:

  1. Substantial amounts of capital had been invested in product development. But, this development was focused on exploring new architectures and not enhancements desired by customers. In fact, virtually no customer input was sought. Customer saw no viable upgrade path going forward.
  2. Virtually no interaction with customer decision-makers was taking place. This exacerbated the view that there was no path forward with the company’s products.
  3. Day-to-day customer service was viewed by the company as largely an annoyance. Customer issues were left unresolved for extended periods.

Working with a cross functional team of key employees, the CEO developed a new organization structure focused on resolving customer issues. A knowledgeable senior employee was assigned to each key customer. That employee and the CEO visited every customer. The new organization was empowered to mobilize the company’s resources to resolve issues immediately. At the same time, it was necessary to refocus product development on features critical to customer success. The new architectures were abandoned. The importance of customer satisfaction was reinforced throughout the company in order to shift the culture. As a result of these changes, the liquidity crisis was averted, revenue growth was restored and the company became profitable.

Summary

This blog outlines the myriad issues that may affect a technology company’s growth. A number of these affect a company’s ability to acquire new customers. These issues include changes in the market, marketing programs and sales execution. Other issues impact a company’s ability to retain current customers or maximize the total value of those customers. Improving the customer experience and focusing on customer satisfaction can profoundly improve retention and growth. Taken together, these actions can materially improve any company’s growth and performance.

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