In today’s market, companies need to think differently about their overall approach to company health — the “growth-at-all-costs” model adopted by many companies over the past few years is no longer creating the same results as the way the market determines value shifts, Chris Cabrera, founder and CEO of intelligent revenue service Xactly, said. The Los Gatos, Calif.-based company uses technologies such as predictive analytics to help companies create and implement revenue plans or improve sales performance.
“I think everybody that was in that growth at all costs model is just facing the reality that the market doesn’t value those companies the way they used to,” Cabrera said.
Businesses and their financial leaders facing economic headwinds must reconsider the way they think about their firms’ growth strategies in the current market. Companies such as software-as-a-service (SaaS) entities may be used to thinking about growth by using what is known as the “rule of 40,” for example, a growth metric popularized in 2015 which states that when adding a software company’s growth rate and profit margin, the combined total should exceed 40%, according to a 2018 report by Bain & Company….
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Making the switch to a more balanced model is a good correction, he said — the belief is that hopefully, “smart leaders will not view this as a pendulum swing,” because building “a balanced rule of 40 business, having a business that has a balance of growth and profitability is a much healthier business in the long run,” he said.
“I’m hopeful that companies will make the shift for quality and stay there and not try to chase the market and…just focus on building quality businesses,” Cabrera said.
For CFOs and other executive leaders, the key to making the shift to a more balanced growth and profitability model is focusing on building “quality revenue,” he said — meaning they need access to key information.
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