In March 2023, three U.S. bank failures triggered a global stock decline and swift regulatory response to prevent further economic instability. At Mperativ we felt the impact of the crisis first-hand. Silicon Valley Bank, our bank of choice, experienced a run on its funds when it sold Treasury bonds at a substantial loss, raising liquidity concerns among depositors and resulting in its collapse.
In preparation for a market slow down and a “cold” venture capital investment period, many B2B companies decided to slash go-to-market dollars and use the funds to extend cash runway. The shift in strategy meant many companies were going to mitigate risk by sacrificing growth.
Three months after the economic crisis, something unusual happened. Despite GTM program dollars being slashed, the sales pipeline continued to steadily grow. The situation led to frustration among B2B CFOs, who started questioning the value of marketing and the money wasted on costly activities like sponsoring events.
As time went on, the growth of the sales pipeline began to slow down. Companies came to understand that money spent on marketing today doesn't have an immediate impact on the pipeline but rather contributes to its growth in the future.
Several months later, a second phenomenon occurred. Many companies began to experience negative net pipeline. That is, gross pipeline retired was exceeding gross pipeline added.
Net pipeline is calculated by subtracting the starting pipeline from the ending pipeline in a given period.
Net Pipeline = Ending Pipeline - Starting Pipeline
A company's net pipeline for a fiscal quarter is determined by the change in its pipeline value during that period. If the pipeline increases, it's a positive net pipeline; if it decreases, it's a negative net pipeline. For instance, if a company starts with a $10M pipeline and ends with $15M, it has a positive net pipeline of +$5M. Conversely, if it starts with $10M and ends with $5M, it has a negative net pipeline of -$5M.
Figure 1 illustrates the critical need for tracking pipeline composition, specifically, pipeline added and retired. As a CMO, I want to understand which market segments have positive net pipeline and which have negative net pipeline.
Figure 1: Net Pipeline Growth by Quarter
Marketing is the steward of growth. In addition to building account/ lead plans for the upcoming fiscal year (e.g. - FY24), it must also forecast the pipeline trajectory for the following year (e.g. – FY25). Essentially, marketing needs to build a game board (as shown in Figure 1 above) that ensures not only hitting the upcoming FY targets, but also having enough ending pipeline to cover the first half of the following year. (Yes. Our job is hard!)
Each quarter, CMOs and CROs should jointly assess the addition of new logo, expansion, and renewals to the pipeline. They should also look more deeply at the retirement of pipeline, such as won, lost, disqualified deals, and withdrawn opportunities. This process aids in identifying obstacles to growth, such as operational, personnel, or market challenges. Our ultimate objective is to maximize pipeline generation while minimizing reductions.
The main challenge in 2023 is establishing a strong and growing net pipeline for B2B businesses. The economic crisis has turned many of these businesses into underperforming "koalas," relying on limited GTM resources and sluggish growth. However, most boards want "grizzly bears," which demands appropriately sized investments to match growth expectations. Pipeline doesn't magically materialize overnight, as the specter of missed revenue targets looms large. I anticipate a flurry of marketing executives engaged in tense discussions with anxious CEOs, desperately scrambling to escape the abyss of the negative net pipeline conundrum.