Prioritizing organic growth as debt service burdens ease and more capital becomes available is likely to be a good long-term strategy.

Companies have spent the last three to four years protecting against downturn by focusing on operational efficiencies. Based on economic indicators, it could finally be time to pivot and plan again for organic growth.

In this GrowthBit, we’ll share the advice we’re giving companies on how to pivot from a cost control mentality, make calculated bets on the growth side of the equation, and determine when the right time may be to execute on those planned bets and investments.

Then vs. now: From “cash is king” to a “growth” mentality

Over the past three to four years, the combination of a tougher selling environment, heightened churn, higher interest rates and other market factors created a “cash is king” mentality among SaaS companies in the lower middle market. However, this didn’t appear to be isolated to the lower middle market. We had advised companies to prioritize operational excellence by optimizing spending, improving unit economics, and enhancing efficiency in service delivery to help maximize profitability and related cashflow.

Now, we are seeing indications that the economy and inflation are under control, with interest rates expected to decrease over the coming year which could lead to a better selling environment. However, factors such as tariff policy and the inflationary impact could impact the forward interest curve. But regardless of how drastically rates rise or fall this year, we believe prioritizing organic growth as debt service burdens ease and more capital becomes available is likely to be a good long-term strategy.

What was once a 30% growth company might now be a 15% growth company given increased churn and slower new customer acquisition.

A redefinition of growth: First movers could see advantage

The definition of growth has been changed over the past couple of years given the shrinkage in the economy  – what was once a 30% growth company might now be a 15% growth company given increased churn and slower new customer acquisition.

In order to try and close that gap, you need to understand what calculated bets and investments you are willing to make. We advise thinking through this now, discussing them with your board and ideally have your investments on organic growth built into your annual operating plan this year.

Immediate execution may not be necessary or warranted, but having a well-defined strategy and stakeholder buy-in positions you to invest in growth ahead of the curve.

Balancing risk and readiness: When and how to invest in organic growth

There is an inherent cost to investing in growth, but for lower middle market companies, growth is an integral part of the thesis. The core question is not “if” but “when”: How soon will you be in a position to see sales increase? And what is the best way to fund that activity?

There are both qualitative and quantitative questions that can help lead you to determine those investments. Qualitatively, look inward and ask yourself questions such as:

  • What are the dynamics of our business and the market we operate in?
  • Are our products must-haves or nice-to-haves?
  • What is happening to our customers and their industries?
  • How efficient is our go-to-market motion?
  • What type of bet do we want to make on ourselves and the economy?

The quantitative dimension can be determined using metrics such as the magic number, (balance between your sales and marketing spend and the acquisition of net new revenue) or CAC (customer acquisition cost). In our experience, if your magic number is between 0.6 and 0.8 then you’re likely in a promising position to ramp up sales and marketing spend to double down on growth. In general, you don’t want to restart the growth engine until you’re sure it can run efficiently by containing the cost of that growth.

Restarting growth is not like flipping a switch. It takes time before the plan you set in motion results in more sales and revenue.

3 focus areas: Start with customer success then marketing then sales

Restarting growth is not like flipping a switch. It takes time before the plan you set in motion results in more sales and revenue. We suggest focusing first on your core go-to-market functions—customer success, then a combination of marketing and sales—to help optimize your return on investment.

1. Customer success: Look for expansion opportunities

We recommend starting here, as focusing on retaining and expanding relationships with existing customers is one of the most cost-efficient ways to help drive increased revenue, especially during challenging periods for new customer acquisition. Your customers have shown they value your offering in a time when they too were likely facing budget constraints and scaling back spend elsewhere. Prioritizing your current customer base can help to ensure stability while uncovering expansion opportunities with minimal investment, whether your focus is cost control or scaling.

Consider refining your customer success function, measuring customer health and establishing a customer segmentation strategy to help minimize churn and maximize expansion revenue.

2. Marketing: Double down on what has worked

If your company generates the majority of its leads through inbound marketing, you’ll want to make a significant investment in top-of-funnel activities. For marketing specifically, investing in growth is not the time to try a bunch of new things. Instead, take a critical look at the channels and campaigns that have worked in the past and generated effective ROI, and double down on those. Be wary of making significant fixed-cost investments that have longer payback periods (e.g., trade shows and conferences) until you’ve seen early signs of success through more flexible and variable channels (e.g., paid advertising, webinars).

Note: Marketing spend lends itself to agile approaches, which can be advantageous as you recalibrate. For example, if you’ve decided to focus on new logo growth, identify the levers that have worked in the past, re-apply them, and monitor the outcomes to ensure they’re delivering expected results. Be ready to pivot spend to other marketing channels if you are not seeing the intended impact.

3. Sales: Be clear on projected goals before over hiring

If the majority of leads are sales-generated, you’ll want to allocate a higher proportion of the growth investment in ramping up your sales function. That could mean focusing on new territories or splitting up existing territories differently. In this case, you’ll need to factor in realistic lead times: it typically takes at least four to nine months to ramp a new sales rep to full productivity, making this an inherent bet. Consider where you expect your growth to come from (e.g., Enterprise vs. SMB) to inform your hiring plan and ideal candidate profile.

Note: If you choose to invest in sales, revisit your commission structure ahead of time to ensure it’s designed to incentivize growth without inflating your customer acquisition cost. It can be challenging to make these changes in real time or further down the line.

This approach, often called “hiring behind growth,” helps to scale efficiently and realize revenue before making additional hires to meet actual demand.

Don’t abandon cost control

Don’t lose touch with these practices as you gear up for growth. One of the few silver linings over the past few years is the efficiency gains and cost savings companies have generated by bringing greater rigor to the goal of conserving capital. Make the growth investments you need to but be conservative.

When considering investments in sales and marketing hires, it’s important to balance growth ambitions with discipline. While initial investments in revenue-generating roles may precede revenue realization, we believe you should avoid over hiring. Delay adding support or professional services roles until your growth initiatives deliver results. This approach, often called “hiring behind growth,” can help to scale efficiently and realize revenue before making additional hires to meet actual demand.

Here’s the bottom line.

The economy is showing signs of turning around, and mid-market SaaS companies as well as other companies are seeing new opportunities to invest in growth. The time to think about what that looks like for your company is now, because first movers will see an advantage that could pay off in the coming years. Re-examine your customer success, marketing and sales functions and have a thoughtful, board-approved plan at the ready so that you’re prepared when opportunities for organic growth appear on your horizon.