With recession doom and gloom all around, revenue leaders are laser-focused on cutting costs to weather the downturn.
But Ajay Agarwal, Clari board member and partner at Bain Capital, has been through his fair share of downturns, and he has a word of advice to those who find themselves reaching for the red pen: Careful what you cut.
“The reality is you can’t cut your way to market dominance, you can’t cut your way into becoming a multi-billion-dollar company,” he says. “You only do that by growing.”
Growing in a tight macro-environment might sound counterintuitive, but you have a shot if you can map your revenue to growth areas and invest accordingly. Here’s how it’s done, according to Agarwal.
Segment to spot growth areas—and leaks
Cuts often start as boardroom conversations during a downturn. Leaders speculate about what’s dragging on the business. But grounded in hypotheticals, this way of working is a symptom of poor Revenue Precision, or end-to-end visibility into the revenue process, according to Agarwal.
“Businesses lack clarity around what’s dragging down their bottom line,” he says. “They’re largely sharing anecdotal data and guessing. So that winds up being an exercise in validating a certain hypothesis —doing a bunch of work and iterating—as opposed to coming into that discussion knowing the answers.”
The key to showing up informed, says Agarwal, is to segment your revenue so you can spot weak and strong areas in real time. That means grouping revenue into geos, verticals, business sizes, and maturities—and any other categories that might reveal trends among subsets of customers. The insights you derive can prove transformational.
“Oftentimes you’ll find you have different levels of product-market fit in those segments, different levels and intensity of competition,” says Agarwal. “You may even have different qualities of teams that are executing. You may have sales motions that are more alien versus more core to what you know and what you’ve been good at. So as a result, you have a lot of different variables that you're trying to think through and understand to diagnose where the leak is, where the opportunity is, and where you can lean in or de-emphasize in a scarce-resource environment.”
Lean on your segmentation exercise to strategize
Once your customers are segmented, you can drill down on key metrics in each area and compare them to top-line stats. Think TAM, win rates, sales cycles, plus efficiency metrics like CAC ratios and churn. Which segments are falling behind? Which consistently leak revenue? Cut accordingly and invest in the areas where the business is clicking.
Recently, Agarwal did a segmenting exercise with a SaaS company in his portfolio. It yielded a new picture of ideal customer size: “We ended up leaning into the upper mid-market tier and enterprise, and almost exited out of SMB.”
Don’t be surprised if you decide to pivot away from an entire segment.
The same exercise at another of Agarwal’s portfolio companies uncovered outsize strength in the European market. “That resulted in us scaling up even more aggressively in Europe,” he explains. “We’re paying for that by bringing down our investment in the Americas, but that’s an example of how you go through this exercise and you realize you have plenty of TAM, things are working, we have a lot of momentum. And everything about that business is better: our close rates, our win rates, our sales cycle.”
Watch what you segment
The need to segment is especially acute for larger businesses, where it might otherwise be impossible to know what’s driving the numbers. “You’re aggregating all these regions and segments, so at the macro level, it’s hard to know what’s driving performance,” says Agarwal, who notes that even if revenue is growing overall, risks could be hiding in the macro. “You may have certain things that are really underperforming that get muted by the roll-up.”
Regardless of company size, segmenting shouldn’t be a one-and-done exercise you tuck away until the next downturn. In a perfect world, you have real-time segmented data at your fingertips in a Revenue Platform that gives you access to both high-level metrics and trends as well as granular account info to pinpoint drivers in a given segment. Close rates down in APAC? Looks like two key decision-makers didn’t get CFO sign-off in time last quarter.
And it’s not only executives who need this kind of visibility. Frontline managers and directors need it, too—at least in their respective verticals or geos. Revenue Collaboration & Governance (RevCG) best practice calls on leaders to cascade visibility so that every revenue-critical employee is empowered to act on the data every day.
“You want to know as soon as possible that things are changing so you can act,” says Agarwal.
Run revenue like a pro with Clari
In tough economic times, every dollar counts. That’s why finance leaders need Clari’s Revenue Platform to help navigate external factors and focus on precision and profitability.
Book a demo today to see how Clari helps you run revenue better during a downturn.
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