2024: Year of Focus & Revenue Reacceleration
A year that will make or break companies that are eager/desperate to grow revenue faster
The past two years have been tough for many software businesses. Tech layoffs, spend optimizations, focus on efficiency, and an extremely tough fundraising environment have all caused revenue growth to continue to decline since the peak of 2021.
While it’s been a tough 2 years, there are some potential signs that things are bottoming — YoY net new ARR growth (i.e. revenue growth) is finally not declining!
Software companies are eager to get back to what they know best - high revenue growth.
I bucket software companies into two buckets here:
Companies simply eager to reaccelerate revenue growth. They have low cash burn (or are free cash flow profitable) but want to grow faster
Companies desperate to reaccelerate growth because they are burning cash and need strong metrics to have a chance to raise another round of financing. High revenue growth is critical for most VC-backed companies (particularly earlier stage companies)
The first group can wait for the right time to capitalize on an opportunity to grow faster (if they have the patience) while the second NEEDS growth to pick back up now.
Both of these types of companies can take one of the following approaches to revenue growth reacceleration:
Reverting back to the inefficient spray and pray growth playbook of 2021
Focused and data-driven approach to thoughtfully reaccelerate revenue growth
Many companies only know how to do #1 because that is the only environment they know. While many companies got pretty good at cutting costs in the past couple of years, reaccelerating revenue growth efficiently is MUCH harder.
The “spray and pray” method is somewhat synonymous with the “growth at all costs” mantra - throw a bunch of money at all customer acquisition efforts and watch customers sign up. The problem today is it’s so much harder to acquire customers.
If 2021 was like trying to hit a target 70 yards away with a shotgun, today its like trying to hit a target 150 yards away. You might get lucky occasionally but you will waste a lot of ammo along the way.
Companies can’t expect to revert back to the 2021 ways and expect similar results of growth and efficiency. It will continue to be significantly harder in 2024.
Focused & Data-Driven Approach
2024 will be a year that makes or breaks a ton of companies.
For many VC-backed companies 2024 will be their last chance to reaccelerate revenue growth and improve metrics in order to have a chance at continuing on the venture capital path. If a minimum revenue growth (based on company stage) isn’t there, then VCs just aren’t interested because of how VC math works.
For other companies that may not need the money, they just want to grow as efficiently as possible to continue to scale, grow valuations, and dominate their categories.
The companies that focus and use data-driven decisions will be the ones that thrive in 2024. Companies with this approach will grow revenue faster and more efficiently. To continue the analogy, these companies are ditching the shotguns and using rifles instead. Or they are making sure the targets are close enough where the shotgun will be pretty effective.
The companies that revert to a spray and pray model will build financial plans based on pipe dreams that will likely fail. They will continue to not use data properly so they won’t change course or iterate fast enough and will waste lots of money chasing growth. These companies will likely meet an early demise.
Some companies simply can’t be saved by more focus and becoming more data-driven, but for the ones that have a chance then this approach will greatly increase their odds.
I can’t list everything a company should (or shouldn’t do), but I do have a few general (not comprehensive) suggestions:
Figure out what is the most important thing for 2024.
The main thing is to keep the main thing the main thing. — Stephen Covey
Thoughtfully determine what should be measured
“What gets measured gets managed — even when it’s pointless to measure and manage it, and even if it harms the purpose of the organisation to do so”. — Simon Caulkin
Simple is usually better when it comes to metrics and other data, especially for earlier stage companies. It’s easy to get lost in data complexity.
Get buy-in from all leaders (and other relevant employees) on all of the above. Better yet…get them to think it’s their idea so they own it.
Regularly review what you are measuring and reporting. Is it still driving the right behavior? Is there something better we can measure?
The spray and pray method of revenue growth is not going to work in 2024. It may have worked in 2021 but that is because everything was so much easier then.
Companies that are more focused and use data to make better, faster decisions will significantly outperform the companies that do not. Software companies are eager/desperate to reaccelerate revenue growth in 2024, but how they approach growing will determine their fate.
Good luck to your 2024 revenue goals!