Investor POV: The responsibility investors have to help leadership teams adapt in a changing market

As the market shifts away from a “grow-at-all-costs” mindset, top-tier investors are responsible for helping leadership teams adapt their operating strategies in a changing market. Based on our work with hundreds of the top leadership teams in software, here is how the most successful companies are reprioritizing to be successful in 2023 and beyond.

2023 brings new measures of success

The pandemic years preceding the current market downturn were unlike any other for software startups. With the transition to remote work and a need for better ways of collaborating, we saw the rapid adoption of software products and platforms to better enable our new way of working in virtual environments. This was an absolute boon for young software companies, and to keep up with demand and capitalize on the market opportunity and low interest rates, most software companies adopted a “grow-at-all costs” approach that was rewarded as software valuations soared and capital continued to flow.

But when the dual geopolitical and economic crises hit in early 2022, it became clear that pure growth would no longer be the most crucial factor driving software valuations. As interest rates have risen and companies have scaled back on spending, the market has shifted to reward efficient growth that balances growth and profitability. At the same time, growth tailwinds have also shifted to growth headwinds for many software companies. This means that leadership teams must not only measure success against new financial metrics, but they must develop new operating strategies for leading the business day-to-day and succeeding together as a team.

Making an operational shift

However, many leadership teams do not have experience making this operating shift. The last economic cycle was 15 years ago – meaning that for most startup founders and leadership teams, this current cycle is the first meaningful downturn they have experienced as working professionals. They know what worked two years ago isn’t working today, but they don’t know the best way to adapt and move forward with an efficient growth mindset. The frustration is palpable –and understandable. That’s why in this new environment, one of the primary responsibilities of investors MUST be to support leadership teams by helping them build the new operating muscle that will guide them through this transformation.

…in this new environment, one of the primary responsibilities of investors must be to support leadership teams by helping them build the new operating muscle that will guide them through this transformation

Investors must deliver strategic support, not just capital

One of the best ways to accomplish this? In addition to capital, investors must deliver strategic support that comes both from their own pattern recognition AND in the form of operational experts that have deep experience in both types of market environments. Before joining Insight, I spent 15 years leading software companies through both pure growth and efficient growth environments, and I have personally seen the difference when investors proactively deliver that kind of operational support. That difference is not just on the bottom line and in the company’s near-term valuation, but in the confidence, cohesiveness, and professional growth of the leadership team to build a durable, sustaining business.

At Insight, I’m fortunate to work with hundreds of ex-operators that are a part of the Insight team, supporting hundreds of Insight portfolio companies to support leadership teams to improve the performance of every organization function. As we look at the commonalities of the last 12 months, there are five operating priorities that consistently underpin those companies successfully transitioning from pure growth to efficient growth.

Five operating priorities of successful companies in 2023

Companies that make the shift from pure growth to efficient growth have spent the last 12 months:

1. Building a deep, cross-functional focus on a clearly defined target market and ideal customer profile (“ICP”)

If decisions around resource allocation, focus, and growth are not grounded in predictive data about the market segments and customers most likely to buy and retain the current product, the business is being set up for failure. Investors should ensure that portfolio company leadership teams are equipped with the latest data and analysis to draw simple, actionable insights about the ideal customer profile most likely to buy and grow over the next 12 months.

When efficiency is critically important, strategic operating priorities and investments must orient towards customers that are most likely to convert at each stage of the journey – from interest to opportunity to close to retention and advocacy. And most importantly – leveraging ideal customer profile data isn’t just about smart sales and marketing. This data should also define a focused, compelling product roadmap designed to meet the needs of a market that might just be narrower than it was 24 months ago.

One of the hardest things about getting the ICP analysis right? It means teams must have the willpower to say NO to prioritizing investments that support other segments of the market.

2. Orienting the business to focus on retaining existing customers

While identifying the ideal profile to acquire new customers is important, retaining existing customers is mission critical. According to Harvard Business Review, acquiring new customers can cost five to 25 times more than retaining an existing one. Under the guidance of investors, leadership must double down on retaining and growing their current customer base by shifting resources and teams to allocate a higher percentage of their investment to their existing customers.

What does that look like?

Companies should re-evaluate activation and onboarding processes to ensure time-to-value is both reduced and more consistently achieved, product roadmaps should heavily prioritize those product gaps driving churn, real-time data on customer usage and engagement should be a key part of the business’s KPIs, marketing contribution should be measured both in pipeline generation AND customer engagement and advocacy, and sales and customer success org structures should be re-evaluated to ensure adequate coverage for existing customers. 

3. Thoughtfully re-evaluating organizational design and operating cadence

It’s the responsibility of leadership, and especially the CEO, to clearly define each team member’s role in helping the company succeed. Without clear delineation and a sense of ownership among employees, the waters get murky—this leads to work that is less effective and does not put the company on the path to efficient growth. Thoughtfully mapping out roles, responsibilities, and success metrics cross-functionally across the organization will ensure alignment and establish strategic priorities, clear ownership of initiatives, and minimal duplicative efforts.

This is especially critical if a company is facing a reduction in workforce. Unfortunately, it is not uncommon to see situations where restructuring decisions are managed only at the departmental level, leading to drastically misaligned resourcing, such as product teams eliminating a specific team focused on partnerships while sales teams plan to lean more heavily on partnerships as they reduce direct sales headcount.

4. Taking the time to define the ideal business workflows – and then optimizing a tech stack to support those workflows

The kind of rapid growth we experienced over the last few years meant companies quickly and repeatedly bought technology to support the growth. The kind of incredible software solutions out there made this easy—but what wasn’t easy was reconciling whether that technology was duplicative to something else bought in another part of the company.

That means today, many companies have tech stacks that have by accident defined their processes, but all too often, those processes are redundant and inefficient. That has to change in an efficient growth environment. While it may seem daunting, this is exactly the time to map out the ideal workflows that support your customers, partners, and internal teams, and then define which technologies support those processes—not vice versa.

5. Identifying more and better ways for customers to self-serve throughout the entire customer journey – purchasing, onboarding, expanding, and advocating

One of the most common decisions made during times of pure growth was to build out manual processes and teams that compensated for product and automation gaps. The truth is the growth happened faster than the product could keep up, and those decisions made absolute sense 3 years ago. But today, they don’t.

In most companies, there is so much opportunity to deliver more automation and self-serve capabilities in the products, allowing the business to ultimately deliver more value with a more automated customer experience. Now is the time to ensure the product roadmap delivers on these enhancements – streamlining the buying, onboarding, expansion, and retention process for customers and allowing team members to focus on higher value activities.

Investing in long-term success

At Insight, we believe that it is our responsibility to help our portfolio companies actively and operationally tackle these new priorities and build strong operating muscle centered on growth AND efficiency. It is not just our responsibility to offer financial support, advice, and partnership. Offering strategic guidance through our Onsite team of experienced operators is a differentiator for firm and an investment in the long-term success of our portfolio companies.

More than ever, operational experts and platform teams are not just a value add that come with an investor’s term sheet—they are a trusted lifeline for growing startups in any market environment. By rolling their sleeves up alongside founders, these operators help find the quickest and clearest path to efficient growth by providing sophisticated support that saves startups capital, time, and resources at any stage. We may still be in the thick of a tough market, but with the right operational experts at their disposal, founders and leadership teams can trust that shifting from pure growth to efficient growth is attainable and achievable.

Katie Bullard Senior Operating Advisor More By The Author