Sales Strategies Amidst Changing Capital Costs in the Tech Industry

Redefining Sales Plans: Seller Insights in the Face of Shifting Capital Costs

A decade and a half of inexpensive capital has ended. The rising cost of capital has changed the map for many businesses in the tech. This has altered the math underpinning most of the big decisions coming from the C-suite. Sellers must now hone their skills to navigate the industry's changing dynamics driven by an increasing weighted average cost of capital (WACC), heightened budget scrutiny, and cost-cutting initiatives.

The challenge, however, is that sellers face a selling environment that many haven’t faced in years, if ever. Effectiveness in this context demands the agility to identify and address the most pressing challenges. Our interactions with businesses in this sector highlight three key trends gaining momentum.

Firstly, companies are now prioritizing profitability over growth. This shift means that business leaders must find cost-effective sales strategies. Secondly, there is a growing emphasis on consolidation—companies are merging and acquiring others, and internally, they are reducing the number of vendors and consultants they work with. Lastly, cost-cutting measures have left managers with heavier workloads, requiring them to demonstrate new skills they haven't been trained for. This demands a higher level of performance and adaptability from everyone involved.

Here, we take a close look at these three and how sales professionals can respond.

Customers are Shifting Their Focus to Profitability Rather than Growth at All Costs

The Challenge

In the past decade, businesses benefited from low capital costs, allowing them to focus on growth strategies that generated significant value. However, the landscape has shifted. While growth remains a goal, there is now a heightened emphasis on profitability. This is due not only to the fact that rates have risen nearly five percentage points in a span of just 14 months. It is also because many companies are no longer spending as aggressively as they did on tech when COVID forced so many to accelerate their digital transformation initiatives.

Research by Alix Partners reveals that 74% of tech industry executives prioritize profitability in the next 24 months, compared to 56% in the past two years. With the Nasdaq's Weighted Average Cost of Capital (WACC) over 8%, leaders are scrutinizing spending decisions and seeking ways to enhance productivity from existing resources.

The Solution

To adapt, businesses are turning to channel partners, recognizing the cost-effectiveness of these relationships in driving sales. Equipping these partners with effective selling skills not only boosts their performance but also demonstrates the company’s willingness to invest, encouraging partners to prioritize the company's solutions.

In this evolving landscape, channel partners need new questioning and consultative selling skills to understand customers' changing needs. Focusing on value, rather than just price and features, helps prevent commoditization and protects profit margins. They also need a way to constantly reconfirm those needs given that so many customers are reevaluating their strategies concerning cybersecurity, AI, cloud, and edge computing. A systematic channel management strategy, coupled with the ability to track and address changing customer needs, better prepares partners for industry changes.

A Focus on Vendor Consolidation Means That Building Consensus for a Purchase is More Difficult

The Challenge

Businesses face the challenge of reducing spending without sacrificing revenue. Many are turning to vendor consolidation to simplify management and gain efficiencies, driven by increased M&A activity in software. Deals increased by 23% in Q2 of 2023 compared to Q1 according to CIO.

However, for sales professionals, rising consolidation complicates their work when they are not part of a customer’s existing vendor ecosystem. Vendor portfolios are already complex even when they are lean. Therefore, gaining internal support for a new vendor is exceptionally difficult. Moreover, consolidation often means that a greater number of stakeholders must approve the buying decision, adding to the complexity of the seller’s challenge. Integrating a solution from a new vendor might be seen as a conflict with the goal of achieving operational excellence.    

The Solution

Sellers must understand customers' diverse needs across stakeholders, ensuring their solution offers a wide range of capabilities –enough to unseat an incumbent or at least find a place among the vendor portfolio. They need to become trusted advisors – or even an extension of the customer’s IT team - because customers want to know that as their needs change, they are working with professionals who can address those new requirements without having to seek yet another vendor. Understanding the complexities of solutions like SaaS, IaaS, and PaaS is crucial. Sellers should map the flow of influence among stakeholders, building consensus within the buying team for successful sales in this intricate landscape. Finally, sellers need to be able to map the flow of influence across stakeholders because winning complex sales means being able to build consensus among the buying team.

Managers Now Carry More Direct Reports Putting a Strain on Their Capacity

The Challenge

In the move to reduce costs, many tech companies have downsized their workforce, leading to a wave of layoffs. In 2023, over 168,000 workers in U.S.-based tech companies, or tech companies with a major U.S. workforce, were laid off. Consequently, managers have had to handle larger teams without adequate coaching support. This lack of guidance has resulted in a significant drop in employee engagement. This means that more sales professionals are reporting to over-burdened managers who might not have the time to coach. A lack of coaching might explain why the ratio of engaged to actively disengaged workers in the U.S. is now 1.8-to-1, which is the lowest it has been since 2013 according to Gallup.

Additionally, in many cases, high-performing sellers are being promoted to manager positions to back-fill new openings. This also creates challenges since the skills required for selling differ greatly from those needed for effective management. These trends have led to high manager turnover of about 13%, the highest of all sectors. This drives costs and is a distraction to profitability initiatives. Put simply, the level of support for managers is not keeping pace with the growth of their responsibilities.

The Solution

Sales managers need a new set of capabilities to promote accountability among salespeople, provide on-field coaching, tailor their management approach for different individuals, oversee the integration of new employees in a hybrid work environment, review sales pipelines effectively, and foster a positive workplace atmosphere. Moreover, they are expected to do all of this without burning out. New managers must acquire foundational skills, such as conducting one-on-one and team meetings, evaluating sales opportunities, and motivating sales professionals, skills that were not necessary in their previous sales roles.

This range of skills is needed because today’s sale is dynamic. Stakeholder needs change. Access increases and decreases. Value drivers fluctuate. This means that the modern sales coach needs to have an equally diverse range of skills. The manager might be one person but they are not one job. Those who are new to a manager role may have never received this kind of training. Meanwhile, those who are not new to the role are now on a different playing field and need to be upskilled.

Finding Success in the Software and Technology Industry’s New Era

The tech industry of today is a decisive departure from the one of the past decade. Those with the agility to flex the right skills at the right time will benefit from what so many others see as an upheaval.

With a renewed emphasis on profitability, leaders must boost productivity by honing agile selling skills. These skills enable sales professionals to position their solutions effectively, making them valuable additions to consolidated vendor portfolios. To sustain and apply these skills in the field, sales managers require a new set of capabilities, ensuring a seamless transition into this dynamic and challenging landscape.

Learn more about how to improve your team’s selling skills in the tech industry with our training program, “Software, Technology, & IT Sales Training.”