Cutting R&D to Grow GTM Spend : Is it Happening Across Software Companies?
During?Office Hours with Lee Kirkpatrick, Lee recalled managing a startup through a downturn. The business cut R&D spend to conserve cash. By prioritizing sales & marketing, the company successfully lengthened runway to increase revenue, which eased the subsequent fundraising.
I wondered if a similar pattern existed in the public software markets. Actually, the opposite is true: software companies spend more on R&D (research & development) & less on Sales & Marketing (S&M) as a percent of revenue today than six years ago.
I suspect it’s because of PLG motions.
R&D as a percent of revenue across all public software companies increased from 24% to 28% in the last six years.
The trend is consistent & apparent across all quartiles.
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I categorized these companies by their primary motion: sales or product-led. Sales-led companies have oscillated around the 25% mark.
However, PLG companies are a different story. Starting in 2017 when the data is richer, the PLG companies increased R&D spend from 27.5% to 33%.
Sales & marketing costs as a percent of revenue are down across both PLG & Sales-led companies.?The sales efficiencies of the second-half of Covid?are apparent especially in sales-led businesses.
It’s curious that sales efficiency has been declining at the same time as S&M spend as a percentage of revenue has fallen. Perhaps it implies declining growth rates across the industry, but it’s worthy of closer inspection. The last three quarters show a trend reversal to increased spending, however.
There’s no doubt from this data PLG companies spend more on R&D to grow.?Carilu Dietrich & I chatted about this during her office hours. Atlassian followed this model to great success inspiring an increasing number of software companies to follow suit.
Because of their larger balance sheets & ability to raise capital in the public markets, public software companies spent more on R&D rather than less.
451 Ventures | Wellzai Farms | Regenerative Agriculture | Artificial Intelligence and Robotics | Ethical AI Evangelist | Farmer
4 个月The debate over prioritizing GTM or R&D during tough times often feels like a false choice. A sustainable approach requires balance and a culture where both work together seamlessly. As Alex Salkever rightly points out, overinvesting in R&D without a growth strategy leaves even the best products unnoticed, while focusing only on GTM without a great product leads to unmet expectations and blame when sales fall short. Cutting R&D entirely during downturns is shortsighted—innovation fuels future growth. Today’s tech-savvy buyers, expect solutions that not only solve problems but integrate seamlessly. Without continuous investment in R&D, even the best GTM strategies can falter. As Zac Hurst suggests, the lines between R&D and GTM are increasingly blurred, with customer-driven feedback loops shaping both. Which means that every member of the company, from engineers to marketers, should act as a salesperson, amplifying product awareness and driving its adoption. This is where the concept of PLG (Product-Led Growth) shines. Integrated AI tools can transform customer feedback into actionable insights, aligning GTM, R&D, and product teams to build solutions that essentially sell themselves. Isn’t this the ultimate promise of PLG?
Product Leader and Advisor
2 年Doesn't this come down to capital efficiency of PLG through viral loops? Margin is higher than the people and ops heavy sales motion.
GTM Strategy | Commercial Due Diligence
2 年I think you might be missing the “why” here. Buyers across the board have become more “tech savvy” in the last 10 years. Gone are the days of “take someone out to dinner and win the business”. This has forced tech companies to change. Buyers are more discerning and more aware of what is needed to solve a problem. Sadly the days of charming an enterprise customer to pick a lesser solution are pretty much over. This has happened at a rapid clip. Engineers are now vetting solutions and without a minimum set of features (APIs/security, whatever etc) you won’t move forward. So what can companies do? More R&D. I think companies have been forced to level up to meet buyer expectations that did not exist 10 years ago.
AI | Product Dev., Strategy & Research | 3x Founder CEO/CPO | Professor | Board Advisor | StartUp Coach | Fractional CPO
2 年DuPont came to dominate their market b/c any extra cash they had during the depression was spent on R&D which put them way ahead of the curb when WWII broke out & Dupont had the technology & methods to supply the military. Had they held back on R&D, their tragectory would have been vastly different.