Jason Lemkin explains that B2B software budgets are at record highs, but CIOs have finite funds and are forcing cuts elsewhere to pay for AI. One mid-eight-figure company lost $1.5 million in monthly churn when CIOs cut a non-mission-critical AI tool to fund another AI app, showing how budget pressure is reshaping which vendors survive.
Chapters
It's just such an odd thing when overall B2B software budgets are at a record size and accelerating, plus 15% at hundreds of billions of revenue according to Gartner. And folks that have product market fit with AI B2B are growing like crazy. But at the same time, it's not free. People think that CIOs have infinite budget. They don't. There's a little bit of elasticity, but at the end of the day, companies only have so much revenue and they only have so much profits and they can only apportion so much of that to software and IT. And so it's not all free. And when they're giving this money to these hot AI companies, they're cutting it from everybody else. They are cutting it from everybody else. And if they're not— and if they're not arguing with you on renewals, and a lot of folks have felt it, it's worse. They're calling up vendors and saying, we're just cutting back this year. We're just— and if you guys haven't ever been at it, in my brief tenure as a VP at Adobe, it was pre-AI, but I lived it as a VP at Adobe. And you'd go around the room and you'd say there were human layoffs and there were app layoffs. Okay. And everyone at the boom of cloud wanted more apps and they'd say, fine, but everyone go, every single VP in the room, give me 1 or 2 to cut. You'd have to cut 1 or 2. And it's still happening. It's just done more from the top down at the CIO level. So if you're on the bubble, if you're an attachment to a CRM that you don't quite need, right, this is where, you know, So many folks, you know, Outreach and SalesOps struggled and Gong took a lot of this market because Gong built everything. And but one of the things Gong did is they stole budget from SalesOps and Outreach and other folks, right? They stole it. And see, going— it's already happened for this calendar year, but CIOs and others have gone around the room and said, give me an app, give up an app, or give me two if you want to add one extra. You want to add a couple of apps, I'll find you. But you got to give up two. You got to give up two. You have 100 like marketing tools. You need 100. Maybe 96 is enough. And, and, and I, I find even in my own investing portfolio, I just got an investor update yesterday of a pretty successful company that's partly through its AI transition. They're at mid-eight figures in revenue. They had $1.5 million of churn last month, $1.5 million of churn last month from happy customers that, you know, no CSAT issues. No other issues. They literally said just we're cut. They're cutting apps next year. We're an attachment. We're an attachment to CRM. We got cut. And the CEO, who I love to death, failed. They failed as a team because they didn't get above the cut line. Now, they didn't lose all their customers, but they lost to— that's a $1.5 million last month. Not because it didn't work. It wasn't great and not because they didn't have AI in it, but because the two CIOs just went around the room and that was the one that got cut. It was great to have. But not mission critical, and it got cut to make room for another AI app. In fact, one that's also speaking at this event. All right.
