What Tech’s Best Leaders are Doing to Sustain Growth and Profitability During an Economic Downturn

The technology industry is at a critical inflection point in its history as former standards of success are re-evaluated and re-defined. “Growth at all costs” is out—but are the technology businesses that were built according to those rules ready to adopt the new playbook of sustainable growth that prioritizes profitable margins?

We sought an insider’s perspective to better understand how some household name technology companies and leaders are making this pivot. Tuck Rickards, managing director at Russell Reynolds Associates and co-leader of the company’s Core and Growth Technology Practice, says that when faced with a confluence of imperatives—balancing growth and scaling; maximizing efficiency amid more scrutiny of profitability; and making necessary cost adjustments to appease investors and boards—those who have found the most success are turning to tighter operations and a smarter go-to-market approach, and ensuring they have the right leadership team in place.

In a recent survey of nearly 185 technology leaders conducted by Russell Reynolds Associates, nearly two-thirds asserted that optimizing the business portfolio and retaining critical talent are the keys to winning during the current downturn. Another half touted the importance of implementing cost-cutting measures (not including workforce reductions), while simultaneously investing in digital and technologies to boost operational efficiency. “The best internet and technology companies today grew through tough market environments,” says Rickards. “It’s really a question of how you prioritize growth opportunities, and how you get more efficient in everything that you do.” Importantly, “Reaching profitability is not the finish line,” he says. “It’s sustaining growth over an enduring period and making smart investments, while producing more profitable margins.”

What have Rickards’ CEO and board clients told him about how they are pivoting in alignment with these new expectations? “There are two strategies we’re hearing consistently, from both public and private companies, about optimizing their core business,” Rickards says. “One, to tighten up their go-to-market strategy. Companies are connecting the dots between sales, marketing, and customer success by introducing more efficiency, operationality, and consistency to improve margins, yet generate a cycle of enduring growth. That is imperative to being a modern, well-run, efficient technology company.”

The other strategy Rickards and his colleagues hear often is the need to prioritize products that have a clear vision and strategy. “Most companies have had a number of ‘bets,’ where they have a core product as well as multiple adjacent products,” he says. “They’ve had a lot of experiments, acquisitions that they’ve not integrated. There is a huge push from investors around focusing in on two or three things that could be strategic, and very additive.” In other words, these companies are now making more deliberate choices to focus on top-line growth and ROI while putting additional scrutiny on the payoff of riskier long-term plays.

Many of these difficult strategic growth decisions hinge on reshaping the C-suite. Rickards advises clients to ask themselves: “Do we have the right people in place?” Teams that were previously oriented towards “growth at all costs” must now assess every functional leader and ask, “Do our leaders have the right mindsets, skill sets, and dynamic for successfully reinventing our strategic agenda?”

Ultimately, Rickards says, companies must have the right talent “to complement a more visionary CEO, and to get stuff done. That’s where the specific needs are.”

For teams that can be both operationally minded and pragmatic, Rickards says, this economic downturn will impart important lessons, but ultimately be merely another part of the boom-and-bust cycles of today’s market writ large. “The folks who have been through it before, successfully, are not panicking,” he says. “These CEOs know they have to make tough cost decisions, but ultimately view a recession as an opportunity—perhaps not one they sought out, but one that still offers benefits, lessons, and the prospect of reinvention.”

In real time, we are witnessing an evolving playbook for profitable growth as companies wade through this difficult market environment. Ultimately, bold leadership will be required to effectively balance sustainable, profitable growth against key investments in products, processes and people.

Authors

• Robert Alexander is a member of Russell Reynolds Associates’ Technology Knowledge team. He is based in New York City.
• Jemi Crookes leads Russell Reynolds Associates’ Technology Knowledge team. She is based in Washington D.C.
• Tuck Rickards leads Russell Reynolds Associates’ Technology practice and is an Executive Board member at Fast Company. He is based in San Francisco.

This article was originally published by Fast Company.