Many experts agree the global economic outlook for 2023 is a mixed bag of less inflation but also very slow, if any, growth. And while some experts say the U.S. might narrowly miss a recession, other regions like Europe may not be so lucky.
What does this cautious outlook mean for organizations seeking success in the new calendar year? Like the past couple of years, this isn’t a time to sit idle while you wait and see.
Since the onset of the COVID-19 pandemic, everyone has had to manage persistent economic uncertainty. One of the greatest challenges finance teams face is determining where the economic bottom might lie and how to capture revenue share best once things improve — all while being strategic with investment until that positivity returns.
To toe this line, the following four primary strategies have served our team — and organization — very well.
When COVID-19 shut the world down, demand for most things — aside from toilet paper and face masks — slowed, and some companies chose to slow their technology investment. Yet the pandemic put businesses in a unique position as transactions shifted online and digital transformation became mission-critical.
Rather than halt technological advancement, now is the time to ramp it up. A modernized technology stack allows decision-makers to garner more granular, timely insights and track trends. Armed with this kind of data, sales and marketing teams can optimize their processes for greater efficiencies, they can better tailor their messaging to appropriate audiences, and can offer the right price for the right product at the right time.
As your organization leans wholly into technology, you will want to ensure it’s being used to its fullest potential for the lowest cost. One way to do this is by establishing a cross-functional team of finance and cloud ops to examine infrastructure costs to support both your internal teams and customers.
If you operate significant resources in public cloud infrastructure, your FinOps team can also properly assess the pre-buy programs and usage-based components of your plan. Future commitment purchases can provide stability and additional cost savings if done correctly.
We did this at our organization, and the work done by our new FinOps team resulted in an increase in gross margins of more than 200 basis points. They also deliver ongoing insights into the technology the organization relies on to allow for informed decision-making in the future.
While not a new strategy by any means, a bottom-up build approach to budgeting always pays off in uncertain economic times. The approach is straightforward — shift more dollars to where you see the biggest bang for your buck. For us, that has been a continued investment into the customer success team and our partner program.
Supporting existing customers is always critical, but it’s particularly so in times of slower growth. At the same time, investing in new partnerships helps to increase the value you bring to current relationships and is another way to keep the foundation strong while you wait for the tide to turn and new customers to come in.
Who doesn’t love a good scenario plan? Being prepared for all potential outcomes in a given year, in advance, alleviates decision-making difficulties that can happen mid-year.
A few years ago, our team ramped up this exercise by implementing regular, quarterly re-forecast planning cycles across the leadership team. Team scenario planning has helped us align the full executive team, allowing individuals across multiple functional areas to participate in resource and capital allocation. The process has been invaluable in helping identify which levers to pull and when.
Try to align levers to forward-looking KPI benchmarks as often as possible to alleviate conflict and align your team to “performance-based” investment. For example, hiring your next account executive in Europe, the Middle East, and Africa once your pipeline coverage ratio grows to a specific level creates an unemotional financial benchmark tied to an increased likelihood of growth.
We can’t know for sure what this year will bring, but if the last few years have taught us anything, it’s the importance of remaining nimble. As the economy evolves and macro-events of epic proportions spin up around us, your ability to pivot quickly is what will separate you from others. Modern technology, a data-first strategy, bottom-up budgeting, and continuous planning with all stakeholders are important tools for success.
Dayton Kellenberger is CFO of Vendavo.