The missing step after your tech firm’s revenue starts to slow

If you are a leader in a tech firm, most of the time the financial objective is clear: grow revenue. And there are good examples, writings, and lore that reinforce that premise: the “network effect,” “crossing the chasm,” PE firms focused on revenue and ARR, etc.

But there is a point when the company becomes larger and revenue growth can slow. Many firms look solely at innovation (i.e. the next big thing) to keep that growth going. That can make good sense, but in doing so, those firms miss an equally important step: understanding the business that they have and (in particular) where it is making money.

Mid-sized and large tech firms can unknowingly have parts of their customer and product/service portfolio that are completely unprofitable and worse, are slowing their revenue and profit growth. There are lots of reasons; here are a few examples:

• “Tech debt,” which never is addressed, requiring costly manual work
  Changes in technology platforms, where the new platform is much better, but older customers remain on the original platform which still has to be maintained long after the focus on that platform has waned
  
• Explosion of product ideas, only some of which are successful, yet the ones that don’t do well are never retired
  
• Customers who received a great price – but that price never changed over the years
  
• Customers who asked for (and received) “custom” services for free (e.g. customized products, custom reports, special billing, etc.) – all of which require costly manual effort
  
• Inefficient processes when company was small but growing rapidly in its early phases

Top tech companies act differently: while they are considering the “next big thing” they are also assessing the existing business at a detailed level.

A solid strategic profit project can do both: it can identify your most profitable customers, industries channels and products/services (i.e. the ones you want to grow) while also identifying the areas where you want to make changes – changes that frees up cash, which can be reinvested into growth areas.

A final thought: if you knew that 20-50% of your product/ customer portfolio was unprofitable, would you still go to the board with the same “growth/innovation only” plan, or would you go to them with a comprehensive plan that included both growth and margin improvements? So why aren’t you looking at it now?