Salesforce’s Benioff on Surviving a Recession: Customer Relationships, “Operational Excellence” | CRN

December 02, 2022, 4:59 PM EST

Salesforce has a playbook for “operational discipline and operational excellence, especially in the face of economic headwinds,” co-founder and co-CEO Marc Benioff said during an earnings call this week.

Salesforce management is in battle mode after delivering mixed quarterly results and the upcoming surprise departure of co-CEO Bret Taylor.

Salesforce co-founder and soon-to-be sole CEO Marc Benioff promised analysts during the company’s earnings call this week — which covered Salesforce’s third quarter of fiscal 2023, a quarter that ended October 31 – that it would continue to focus on improving operating margins.

Remember, Benioff told analysts, that San Francisco-based Salesforce, founded in 1999, has weathered two major recessions before — the dot-com bust of the early 2000s and the Great Recession of the late 2000s. of the 2000s.

“We actually developed our own (recession-era) playbook,” Benioff said on the call. “We really wrote it all down. We talked about what was going on. We knew it would happen again. And we had to dust off some of those plans and figures from 12, 13 years ago, 22 years ago. We’ve turned that playbook by gaining market share and focusing on operational discipline and operational excellence, especially in the face of economic headwinds.

[RELATED: Salesforce’s Benioff: Economy Won’t Get ‘Any Better Anytime Soon’]

Why did Salesforce stock drop? While “the current economic situation is nowhere near as bad as what happened starting in 2008,” Benioff said, he’s always seen Salesforce clients freeze hiring, freeze marketing spend, freeze advertising spend and even reduce the number of employees, including in important service roles. .

“We’re not assuming this economy is getting better anytime soon,” he said. “We just report what we see in our clients, the kind of changes they make when they start to feel those headwinds. We are following our playbook to ensure that we are well positioned to gain market share, to increase our profitability, to focus on our operating margin, to focus on revenue growth and to be able to continue investing, especially when the economy is recovering. …Salesforce is mission critical to almost every Fortune 1000 company because every company becomes a customer company.

Benioff shared his perspective on how businesses survive cutbacks during the call.

“Everyone knows this is the time during a crisis like this that you need to focus on your customers,” he said. “If you have to do one thing, if there’s one essential thing every business needs to do to overcome this, it’s just to make sure they maintain their relationships with their customers. It’s an essential part of getting through this period, and you won’t be successful if you don’t stay in touch with your customers. »

Salesforce shares have continued to decline since the earnings report. The stock was trading at $143.25 per share on Friday afternoon Eastern time, about 10% below the price at market close on Wednesday.

Two investment banks have released positive reports on the company’s expected performance going forward.

While some third-quarter Salesforce metrics fell below Wall Street expectations — including subscription and support revenue of $7.23 billion and billings of $6.2 billion — others metrics are exceeding expectations, according to Wedbush and KeyBanc reports released Thursday.

Metrics that beat Wall Street expectations include Slack revenue of $402 million, total quarter revenue of $7.84 billion, services revenue of $604 million, and operating margin of 22.7%.

Salesforce’s focus on margins may be the result of activist investment firm Starboard Value buying a stake in the vendor, with margin improvements specifically heralded by the company.

The underperforming metrics “signal a stronger-than-expected estimated revenue deceleration for fiscal year 2024,” according to the KeyBanc report. And yet, “despite growing macroeconomic headwinds, we continue to see longer-term secular drivers for Salesforce as a front office digital transformation leader.”

Wedbush praised the adoption of multiple Salesforce clouds with 20% year-over-year growth and seven of 13 clouds whose annual recurring revenue exceeded 50% in the quarter.

Although the report called Taylor’s upcoming departure “shocking,” Benioff is “the heart and lungs of the Salesforce story,” Wedbush said.

The report suggests that without Taylor, Benioff could become “more aggressive in M&A (M&A) in the cloud landscape as more private and public providers struggle in a softer macro backdrop” as Salesforce faces its biggest competitor for market share in the cloud. and collaboration – Microsoft.

Benioff’s comments on the call suggested Taylor was leaving to start a new business. Taylor joined Salesforce in 2016 with the purchase of Quip for $750 million. In 2009, he sold his company FriendFeed to Facebook.

“I know he wants to go and build a third big business,” Benioff said. “And you can’t keep a wild tiger in a cage.”

Salesforce will continue without Taylor, who is leaving Jan. 31, Benioff said. The company has engineers, marketers, product managers, and geographic managers to run the business.

And Benioff opened up the possibility that Taylor might not actually leave. In what may have been a joking moment on the call, Benioff told analysts that “until he (Taylor) walks through the door, don’t worry, I’ll keep trying to continue to recruit him”.