How Tech Companies Will Win in 2020 and Beyond

What’s in store for the next decade?

As the new millennium rolls into its twentieth year, the tech industry is experiencing unprecedented disruption. Cloud computing, which only 10 years ago was a relatively new way to execute and deliver applications, is now an essential part of virtually every IT department’s infrastructure. Recurring revenue, or aaS (as a service) models, are the preferred way IT and Line of Business buyers procure offerings. Large cloud service providers such as Amazon, Microsoft and Google are increasingly gaining power by aggregating solutions and gaining direct access to customers. All of these trends will hit a tipping point in 2020, causing massive upheaval and transformation for technology providers and their go-to-market (GTM) leadership. The Alexander Group has identified five key trends that will shape the industry and six essential actions that GTM leaders must take to ensure profitable growth in 2020 and beyond.

2020 Trends

1. New Level of Customer Expectations: The classic IT purchasing dilemma, “best of breed” vs. integrated solutions, will become a historical anomaly. Cloud computing, converged infrastructure and advanced open-source development platforms are creating an environment where customers now expect best of breed functionality AND ease of integration for their technology purchases. In addition, in 2020 customers have come to expect information and support at all times and through multiple channels. What does this mean for technology vendors? More focus on partnering with other vendors for integrated solutions, more focus on ensuring a positive customer experience throughout the life cycle and leveraging technology to support customer self-education and service.
2. Unprecedented Change in Routes to Market: New purchasing channels and routes to market will dramatically evolve. The traditional tech VAR is either evolving their business to XaaS (Anything as a Service) or planning for extinction. Cloud Service Providers (CSPs) and hyper-scalers are now providing more than traditional infrastructure, enhancing their offerings through aggregated solutions with ease of use procurement and billing. This is a big “watch out” for technology vendors who may be at risk of losing their direct relationship with end-customers.
3. Unavoidable Turnover: The demand for high-tech sales and account management talent will become an all-out war that will continue to drive companies toward innovative methods (in addition to compensation) to attract and retain top performers. With virtual negative unemployment, attracting and keeping top talent is already a major challenge. In addition, with XaaS go-to-market models requiring more advanced business- and use case-oriented skill sets, expect to see turnover rates continue to increase to 20% annually or higher.
4. New Rule of 50? – Wall Street, PE firms and others who set the guideposts for valuation will increase their standards surrounding growth and profitability, due to tightening capital markets and potential recessionary trends. Traditional valuation standards such as Rule of 40 become more draconian, potentially leading to “Rule of 50.”
5. Continued March to Consumption-Based Pricing, Including Infrastructure: The XaaS business model will expand to include IaaS (Infrastructure as a Service) and leverage pricing that is aligned to usage consumption vs. subscription only. Pressure on companies to grow recurring revenue as measured by ARR (annual recurring revenue) will continue to increase. Additionally, customers who have become used to SaaS (Software as a Service) and PaaS (Platform as a Service), and are enjoying the benefits of lowering capital expense and paying for value, will want more. Going into 2020, customers will demand further leverage of the XaaS model. In response, GTM leaders will need to think about how to deliver on pay-as-you go, whether in a software or infrastructure environment.

2020 Mandates for GTM Revenue Leaders

1. Develop core competencies around customer “use cases.” Use case is the new value proposition. In the world of recurring revenue, customers will reward technology vendors who are able to identify, optimize and expand value associated with utilization of their technology solution. Marketing, sales, service and even product groups need to update their vocabulary and center their efforts behind plays that enhance the customer’s utilization of the offering. GTM leaders should align marketing campaigns, sales plays and service plays around a prioritized list of use cases. This will have the effect of not only delighting customers, but also creating a common cause and purpose across different functions.
2. Optimize a revenue-generating Customer Success strategy and coverage model across all segments. This is especially true as more customers purchase XaaS through either subscription- or consumption-based models. Customer Success has existed since the early days of SaaS, most often set up as an organization or set of roles to ensure adoption of the vendor’s solution. While in theory successful adoption should lead to reduced churn rates, and greater opportunity for upsell and cross-sell, companies are only recently assigning accountability for growth to the Customer Success organization. This is evidenced by an increasing number of companies putting Customer Success roles on at-risk sales compensation plans–currently around 30% of XaaS companies. As pressure from Wall Street and private equity continues to build for profitable growth, companies will have to justify costs associated with Customer Success with tangible results.
3. Focused Indirect Channel Strategy. In a highly volatile environment where existing partners are struggling to define their own growth opportunity, and new types of partners are entering the market, the battle for mindshare becomes prominent. Revenue leaders should follow the Pareto principle by doubling down their investment and focusing on a smaller group of existing partners who are (1) actively evolving their own business models to support XaaS or (2) new partners, including cloud service providers (CSPs), who are opening up new routes to market through integrated solutions or hyper-scale capability. In 2020, companies will need to make hard choices in order to obtain mindshare with the right set of partners.
4. Enable Self-Service across all customer segments and across the entire customer life cycle. Buyer behavior and expectations are changing. Buyers increasingly choose to self-enable (the ability to research an offering, pilot an offering, self-support an offering), as part of their overall customer experience. Customers still appreciate an old-fashioned white-glove customer experience, when it’s necessary and expected; however, more and more they will rely on the internet and other self-service digital technologies to meet their most basic needs. Those vendors that focus on self-service will not only better meet buyer expectations, but also enjoy lower lifetime costs for acquiring and retaining customers.
5. Develop a core competency for “decoding” white space through a better use of process, tools and AI. As XaaS forces companies to think about use cases, simply segmenting and targeting opportunities based upon traditional inputs such as company size, number of employees and industry vertical does not provide enough information to optimize go-to-customer activities. Leading XaaS vendors are already utilizing a variety of data inputs, processes and analytical tools to identify white space opportunities. Importantly, this information can even help inform account planning within existing territories and accounts and provide significant upside to overall performance. The data, tools and processes are now available; GTM revenue leaders just need to take advantage.
6. Create a culture that balances customer and employee experience. Perhaps the biggest threat to driving consistent profitable growth is attracting and retaining top talent. As pointed out earlier, the competition for talent is increasing and skill sets needed within XaaS business models are more advanced. Add to this the changing demographic for sellers and others who play important customer-facing roles and you have a perfect storm. Maintaining competitive pay systems will not suffice alone. GTM revenue leaders must provide an employee experience that provides more existential alignment to the needs and expectations for the next generation. To do this, GTM revenue leaders need to provide a culture that enhances work-life flexibility, focuses on employee experience and rewards thought leadership and learning.

These upcoming trends will be merciless and unpredictable. Are you prepared? Contact us today to discuss these trends or mandates in more detail.
________________________
RELATED RESOURCES

Why XaaS Revenue Leaders Should Care About Rule of 40
XaaS Sales Strategy Study Briefing