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In 2009, researchers analyzed 103 million hands of online Texas Hold ’em poker and made a fascinating discovery.
Across all those games, the player with the best hand only won 12% of the time. The remaining 88% of hands were won by players who made the best decisions.
This means a player's skills - reading opponents, evaluating odds, bluffing, knowing when to fold, etc. - are far more likely to produce a winning outcome than the cards they were dealt.
As Poker Players Alliance chairman, Alfonse D’Amato, put it:
As a poker player, I can tell you that knowing when to hold or fold is not based solely on the cards that are dealt, but a series of decisions based on skill and the actions taken by other players.
As with poker, I believe the best teams in business have the greatest chance of winning, despite the odds of their current hand. And it’s safe to say that many SaaS and tech firms are currently holding a poor hand.
Sales are down.
Churn is up.
Growth is slower.
Higher interest rates, persistent inflation, and geopolitical unrest create an air of uncertainty.
The bottom has dropped out of corporate valuations, both public and private (with a few notable exceptions).
The tailwind of limitless funding… is gone.
These conditions are forcing CEOs to play a game of skill. And many find themselves flat-footed with regard to the strategies and operational execution required to adjust to this new environment.
As Warren Buffett says,
Only when the tide goes out do you discover who’s been swimming naked.
The companies that navigate this tech downturn with skill and finesse will emerge victorious, despite the hand they’ve been dealt.
Several skills will separate the winners and losers in the quarters ahead:
Speed in decision-making
The ability to quickly align around critical decisions will depend on the trust that leaders have built with their team members, investors, and customers. Teams that move quickly to adjust their product roadmaps, partnerships plans, and cost structures will have an advantage over their slower counterparts.
I’ve always found the reversible vs. consequential decision matrix helpful to evaluate the speed with which one can make a decision. The more reversible and inconsequential the decision, the faster it should be made (and with less data).
These decisions should be pushed as far down the org chart as possible.
Focus on people
Set a strategic vision that your people can rally around. Then deputize them to help you achieve it. Coach them and give them feedback so they can continue to grow their careers.
For folks who came into the workforce within the past 15 years, this is their first exposure to an economic downturn. Especially in tech. Now is the time for these employees to gain the valuable experience of managing through constrained budgets.
It seems that remote work is here to stay. So, regular communication with transparency and a sober outlook is crucial. The last CEO I reported to produced a company-wide video update for staff every Wednesday evening from March 2020 through June of 2023. His commitment to consistent communication made a profound impact on our team members during very uncertain times.
Good, old-fashioned execution
Strategies usually don't fail because they are wrong (sometimes they are truly bad, but I digress…). They fail because of poor execution.
Execution is consistently doing things that matter.
Making great hires.
Training people.
Selling the product you have.
Monitoring leading metrics.
Acting on customer feedback.
Coaching.
Tenacious follow-through on daily activities that drive the outcome you’re pursing and the strategy you’ve identified to fulfill it.
Listening to customers and frontline employees
Decisions are far more effective when you understand firsthand what’s happening in the end markets you serve. As an executive, are you settling for surveys and second-hand anecdotes from customers, prospects, and frontline team members?
These are a proxy for true insight.
A hallmark of the Toyota Manufacturing System is genchi genbutsu. Literally translated “real location, real thing.”
It’s the Japanese principle of going to and directly observing a location and its conditions to understand and solve any problems faster and more effectively.
Right now, our chief product officer (and co-founder of Churnkey) is personally interviewing 20 customers. These interviews are yielding insights that are shaping our near term product roadmap and long term platform vision.
As a leader, it's time to roll up your sleeves and get your hands dirty. You need direct, qualitative information upon which to make decisions.
Find profitability
The new buzz-phrase in SaaS is profitable revenue. The days of using endless outside capital to subsidize growth are gone. Most companies need to show a path to profitability.
That means scrutinizing cash burn and paying attention to underlying unit economics metrics; Gross Margin, gross retention, and acquisition costs.
(If you need a primer on these metrics, check out our financial literacy course for SaaS leaders.)
Startups don’t need to throw off 20% EBITDA margin, but they do need to be default alive.
Everyone has to play the new hand they've been dealt.
A novice will certainly win a hand of Hold ’em from time to time. But over the long run the most skilled player wins.
✌️
[1] Thanks to Tim Riesterer of Corporate Visions for surfacing the Texas Hold ‘em research in a talk I saw him give at a private equity go-to-market round table back in 2022.
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