Salesforce’s Benioff On How To Survive A Recession: Customer Relationships, ‘Operational Excellence’
Wade Tyler Millward
Salesforce has a playbook for ‘operation discipline and operational excellence, especially in the face of economic headwinds,’ co-founder and co-CEO Marc Benioff said on an earnings call this week.
Salesforce’s leadership is in battle mode after delivering mixed quarterly results and the surprise upcoming departure of co-CEO Bret Taylor.
Salesforce co-founder and soon-to-be-sole CEO Marc Benioff promised analysts on the company’s earnings call this week – which covered the third quarter of Salesforce’s 2023 fiscal year, a quarter that ended Oct. 31 – that he will continue to focus on boosting operational margins.
Don’t forget, Benioff told analysts, that San Francisco-based Salesforce, founded in 1999, has withstood two major recessions already – the dot-com bust of the early 2000s and the Great Recession of the late 2000s.
“We’ve actually developed our own (recession-era) playbook,” Benioff said on the call. “We really wrote it all down. We talked about what was happening. We knew it would happen again. And we had to dust off some of those plans and numbers from 12, 13 years ago, from 22 years ago. We’ve turned that playbook into gaining market share and focusing on operation discipline and operational excellence, especially in the face of economic headwinds.”
Why Did Salesforce Stock Fall?
While “the current economic situation is nowhere near as severe as what happened beginning in ’08,” Benioff said, he has still seen Salesforce customers freeze hiring, freeze marketing spending, freeze ad spending and even reduce employee headcount, including in important services roles.
“We’re not assuming that this economy gets any better anytime soon,” he said. “We’re just reporting what we see with our customers, the kind of changes they make when they start to feel these headwinds. We are following our playbook to make sure we‘re well-positioned to gain market share, to increase our profitability, to focus on our operating margin, to focus on the growth of our revenue and to be able to continue to invest especially when the economy recovers. … Salesforce is mission critical to nearly every Fortune 1000 company because every company is becoming a customer company.”
Benioff shared his take on how companies survive down economies during the call.
“Everyone knows that this is the time, during a crisis like this, that you need to focus on your customers,” he said. “If you need to do one thing, if there‘s one critical thing that every company has to do to get through this, it’s just to make sure they maintain their relationships with their customers. It’s a critical part of navigating through this time, and you‘re not going to be successful if you don’t stay connected with your customers.”
Salesforce’s stock has continued to fall since the earnings report. The stock traded at $143.25 a share Friday afternoon Eastern time, about 10 percent lower than the price at market close Wednesday.
Two investment banks issued positive reports on the company’s expected performance for the future.
While some third quarter Salesforce measures fell below Wall Street expectations – including subscription and support revenue of $7.23 billion and billings of $6.2 billion – other measures exceed expectations, according to Wedbush and KeyBanc reports issued Thursday.
Measures that beat Wall Street expectations include Slack revenue of $402 million, total quarter revenue of $7.84 billion, services revenue of $604 million and a 22.7 percent operating margin.
Salesforce’s focus on margins may be a result of activist investment firm Starboard Value buying a stake in the vendor, with improving margins specifically called out by the firm.
The poor-performing measures “signal a steeper than expected” estimated fiscal year 2024 revenue deceleration, according to the KeyBanc report. And yet, “despite growing macro headwinds, we continue to see longer-term secular drivers for Salesforce as the leader in front office digital transformation.”
Wedbush praised the adoption of multiple Salesforce clouds growth of 20 percent year over year and seven of the 13 cloud growing annual recurring revenue above 50 percent during the quarter.
Although the report called Taylor’s upcoming departure a “shocker,” Benioff is “the core hearts and lungs of the Salesforce story,” Wedbush said.
The report suggested that without Taylor, Benioff could get “more aggressive on M&A (mergers and acquisitions) in the cloud landscape as more private and public vendors struggle in a softer macro backdrop” as Salesforce squares up with its main competitor for market share in cloud and collaboration – Microsoft.
Benioff’s comments on the call suggested that Taylor is leaving to start a new company. Taylor joined Salesforce in 2016 with the $750 million purchase of Quip. In 2009, he sold his company FriendFeed to Facebook.
“I know he wants to go create a third great company,” Benioff said. “And you can’t keep a wild-caught tiger in a cage.”
Salesforce will continue on without Taylor, who leaves Jan. 31, Benioff said. The company has engineers, marketers, product managers and geographic leaders to keep the company going.
And Benioff opened 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 out the door, don’t worry, I’m going to keep trying to keep recruiting him back.”