How the economic downturn is affecting enterprise IT spending with Shasta’s Ravi Mohan and Apptio Founder and CEO Sunny Gupta
We continue our Shasta Ignite series exploring how companies can manage through crises and economic downturns by bringing together two experienced perspectives: Ravi Mohan, Partner at Shasta and a 25 year venture investor through multiple downturns, and serial entrepreneur Sunny Gupta, who is currently the CEO of Apptio.
Sunny brings a unique perspective to the conversation through his experience of founding Apptio in November 2007. In addition to building and growing the company through the last major financial crisis, Apptio helps organizations transform their IT financial management through planning, monitoring, and controlling IT spend while also helping them optimize to reinvest.
He’s also spent a lot of time speaking with CIOs, over 200 of them in the last 3 months alone, who largely oversee technology spending decisions, and shares these combined insights with us about how they’re thinking about budgets during these times.
Ravi starts the conversation by painting a picture of the current economic landscape and its impact over the coming months.
What’s happening to budgets? What’s happened to them in the last quarter or two and what can we expect in the next 6 months to year?
Gupta first sets the context, “Technology today is powering almost every single business process in the enterprise … we’re in a digital economy.”
Noting how quickly things have changed in just the past few months, he reminds us that at the start of 2020 technology budgets on a global level were expected to rise 4%, though many companies had plans on spending much more, especially those driving digital-first strategies.
Then COVID-19 hit.
“Some industries have been hit harder than others — hospitality, entertainment, travel — but generally we’ve seen a decline in the IT budget. I think the challenge is that you’ve got the top lines disappearing at a pretty fast rate in every vertical, including the technology vertical, which is one of the most healthy verticals at this time.”
Though some of the harder hit industries could see cuts in the 30–35% range, “when you blend it all together, our view is that the technology budget for this year may be on an aggregated basis down by 2–4%.”
Ravi chimes in to note the difference between ‘run the business’ and ‘change the business’ IT budgets. From Gupta’s perspective, broadly speaking, about 60–70% of IT budgets are run the business, with the other 30–40% applied to new innovation. Budgets are now taking a drastic shift towards supporting the end-user and business continuity — which is seeing increased investment.
Gupta points out that while there has been a shift towards accelerating digital transformation as a result of the pandemic, most of those efforts are geared towards mission critical projects that are revenue producing and show quick ROI, noting “the focus on short term value to the customer and hard ROI is so critical during this time.”
Do you see a difference between 2008, 2010, and now?
“This situation feels a lot broader — every region, every enterprise, every industry, every employee, is going through the same experience and has felt some level of impact,” Gupta explains. “In 2008, it was a crisis in a lot of ways driven by the financial services industry — it was more vertical dependent — but overall both have similar characteristics.”
Where are people spending their time?
Gupta admits that he’s been able to get more CIOs in the last two to three months than he ever has before, though there are some false positives to note. “Some companies may think that their top of the funnel looks really good right now because there’s a lot of interest and inquiries. People are spending a lot more time now than ever before on learning and collaborating, but in terms of actual buying and the conversions in the pipeline, I would put a lot more scrutiny on.”
Mohan reiterates that in uncommitted spend, i.e. unsigned contracts,“whatever you thought your sales cycle was, add in two more meetings at the minimum in terms of getting people signed off.” And in terms of committed spend, i.e. renewals, “expect people to ask you for a discount.”
What are the must-have assets companies, especially those between $3–10M ARR, should look to retain so that coming out of this they’ll be well positioned for growth?
Gupta says that first and foremost, it’s important to bring the burn down so you can survive the situation. After that, “anything you can accelerate with your top engineers, because big companies like Google, AWS, and Microsoft are coming after top talent at this time.” It’s also crucial to “double down on your top sales people and retain them,” even if they can’t achieve full quota. This is also a good time to focus on innovation and “really hone in on the product, market fit, and the value proposition of the product.”
Do you agree or disagree with account-based marketing (ABM) during this time?
“100% agree,” says Gupta. That’s why Apptio is oriented around the strategic and enterprise segment, doubling and tripling down on ABM research.
Ravi then offers thoughts on why he thinks efficiency should be dropped from every single value proposition right now. It has to be reworked to
- How can I save you money?
- How can I help you get a customer?
- How can I help you retain a customer?
- How can I save you cash
- How can I provide security?
“If it’s not one of those, why would anyone spend time with you?”
Mohan and Gupta wrap up by discussing culture, further reiterating the importance of reducing burn as much as possible, and sharing his own approach to replanning budget.
Stay tuned for upcoming webcasts as we continue focusing on the most pressing topics and biggest challenges facing startups in a new, yet constantly evolving landscape. Check out the full video below: