Rocket GTM 🚀 - Avoid these mistakes on the road to $10M
Rocket GTM 🚀 - Avoid these mistakes on the road to $10M
8 ways to fail on the road to $10M
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Know your stage or die ☠️
One of the worst mistakes you can make with your go-to-market strategy is doing the wrong thing at the wrong stage.
Every go-to-market has distinct stages. You must know the objective of each stage, which actions are crucial, and which actions will kill you.
You cannot do everything at once, so how do you know what to do?
💻 Product Market Fit
As soon as you start building product you must focus on finding product market fit. This stage is crucial. It requires a certain mindset and set of behaviors. Mess it up and risk losing everything.
What is product market fit?
There is a ton of information on product market fit, so I'll let you Google it. But these are three which are common:
Sean Ellis: When 40% of your customer base says they'd be very disappointed without your product - PMF survey method.
Marc Andreesen: 'Product market fit means being in a good market with a product that can satisfy that market.' - vague and hard to know.
Mark Roberge: Product market fit is when you have a strong and repeatable way to acquire customers, while showing a strong propensity to retain them. Retention can take a long time to measure so you'll need leading indicators / proxies of retention such as product usage linked to value creation. For example, 'Slack: 70% of customers send 2,000+ team messages in the first 30 days'. Acquisition success can be measured by the win-rate % on deals closing and overall ability to create pipeline, i.e. is the market interest in what you have to say?
Okay - so now that's cleared up, what mistakes are common in the product market fit stage?
❌ Mistake #1: Monetizing for sales, not for learning
The goal of the product market fit stage is to create value, not capture it.
A crucial mistake is to focus on investing in acquisition before building a product that creates a ton of value for customers.
Why does this fail?
If you're too focused on capturing value you aren't focused on learning during the sales process. You'll try to close the deal over asking important follow up questions that can help you master customer behavior.
Being starved of this information in the early days is deathly. How could you possibly build a market winning product if you don't understand your customer?
Every action in these early stages should be to maximize learning and ensure the product creates real value for customers.
Do not try to capture value until you are sure to create it repeatably.
To ensure you are building the right product I recommend reading Steve Blank's '4 steps to an epiphany' where he outlines the Customer Development process to building and iterating into a product market fit.
There are four steps in the customer development process:
Customer Discovery
Customer Validation
Customer Creation
Company Building
Monetizing product is necessary to validate your business model and understand whether your product creates enough value to purchase, but be careful not to focus on monetization to achieve sales targets.
In the product market fit stage monetization should be used to aid learning, not extract value.
❌Mistake #2: Building product in search of a market
Products shouldn't search for a market, markets should choose their product.
Many people build a product that solves an isolated problem. Once the product is built they go out in search of a market to sell to.
Just like putting the cart before the horse, building product in search of a market creates products that nobody cares to buy.
Products don't exist to solve isolated problems. Products exist to achieve outcomes.
Start from your audience and workwards to product:
Who is your target audience
What outcome do they want to achieve
What problems prevent them from achieving it
What product can you build to solve those problems and help them achieve a desired outcome
Top tip: Search your ideal buyer persona in LinkedIn Job search and look at their 'key responsibilities' and then ask yourself "what problems prevent them from achieving these goals?"
Product in search of a market is also one of the reasons why international expansion can be so challenging.
Often there is organizational and product debt.
Product is normally designed to execute the vision which works in a core market, but that product market fit may not carry over to a new market.
The inability to build or iterate product for a new market can mean sales teams force the product upon the market in the hope that PMF is the same without truly learning what new outcomes they desire.
So should you start from scratch every time you go into a new market?
No. It's okay to start with your existing product and search for the market that fits at first.
You never know, you might be lucky.
But you must be constantly looking out for potential misalignment with the new market's desired outcomes and ensure you're adapting accordingly.
❌ Mistake #3: Thinking product market fit is a singular event
When people ask,
"how do you know you have product market fit",
the common answer is,
"you know when you know".
Unfortunately, that is often not true.
Product market fit doesn't just happen over night, in many cases it's a slow and gradual transformation that happens over tons of iterations on product, messaging, segmentation.
Each iteration gets you one step closer to PMF until the flywheel is turning in full force.
Your goal is to move the needle of product market fit from 'weak' to 'strong'. Even though you will likely acquire customers without a strong product market fit, it will be more costly, slow and painful than a strong PMF.
Your goal is to make incremental changes while keeping burn low.
Product market fit is also evolves over time.
You may start with a niche market that has a population of 5,000 companies. By the time you acquire 5% of that niche your product may have evolved to enter a new segment or go up-market, opening up another 3,000 companies.
However this time, your new markets may have different needs and desired outcomes, thus your product market fit will need to evolve again.
✅Top resources for the Product Market Fit stage
Four Steps to an Epiphany - Steve Blank
The Lean Startup - Eris Ries
0-PMF - Andrew Chen a16z
The Science of Scaling - Mark Roberge ex-CRO @ Hubspot
The Secret of Hyper Growth Startups with Tae Hea Nahm
💸 Go To Market Fit
What is Go To Market fit?
Contrary to popular belief, the mantra 'build it and they will come' is also not true.
To win big you must build your product and master distribution.
There are countless examples of great products that never succeeded because they couldn't get distribution right.
As Peter Thiel puts it:
“Most businesses get zero distribution channels to work: poor sales rather than bad product is the most common cause of failure. If you can get just one distribution channel to work, you have a great business. If you try for several but don’t nail one, you’re finished.” - Zero to One.
Excellent product used to protect companies against the competition. But now the time to ship product has fallen drastically making it easier and quicker to ship product.
Product is no longer a differentiator. Product has become commoditized.
Distribution is often the single biggest differentiator between a unicorn and a dud.
Go To Market Fit is all about mastering distribution. The goal is to generate repeatable and predictable revenue.
So what could go wrong?
❌Mistake #4: Thinking PMF is the only thing that matters
Marc Andreesen once said:
"The only thing that matters is getting to product/market fit". - 2007 Stanford
But he's wrong.
Yes, its incredibly important and without it you won't get very far. But only thinking about product market fit is an error.
Brian Balfour (ex-VP Growth at Hubspot) explains that to scale to $100M, in a timeframe quick enough to attract VC funding, you must master the Four Fit framework:
market <> product fit
product <> channel fit
channel <> model fit
model <> market fit
Product market fit is just one of four keystones.
You can check out Brian's essays here to read more on these four elements, but I'll recap them briefly below.
Product <> Channel fit:
Products are built to fit channels because channels don't fit around products.
Each channel has a different dynamic and certain product characteristics will do better in certain channels.
For example:
Outbound sales: The harder it is to explain the value proposition of your product the more likely you'll need a sales team, viral channels don't do well for complex products for example.
Viral channels: work well with products that have a quick time-to-value, you'll see this more present in product-led-growth companeis like Notion or Calendly.
Paid search: captures existing demand rather but doesn't create demand well. Therefore, it works in a highly defined market with search terms that have high intent behind a purchasing decision. It may work less well for a new product category, where customers aren't familiar with the new category name. Drift wouldn't have paid to compete on 'conversational marketing' in the early days for example.
Shark Tank: Is great for consumer products because the show is watched by millions of consumers on TV. Even if entrepreneurs don't get invested they get massive exposure. Hence why you don't see much B2B SaaS on Shark Tank.
Channel <> Model fit:
Does your business model fit well with your distribution channels?
To answer this you'll need to know:
The CAC (cost of acquisition) of each channel: free trial, paid ads, outbound sales, viral marketing have different costs associated.
The ARPU (average revenue per user) of customers coming from each channel: $0 (free), $100, $1000 etc.
Your ARPU must justify the CAC of each channel.
Therefore, the business model you have and ARPU you can get will have a large influence on your methods of distribution.
For example, if you product is too complex it will require an outbound sales team (channel) to acquire customers. Your business model must have a high ARPU to justify the costs of hiring a sales team, typically suited for contract sizes over $5k / year.
Model <> Market fit:
Finally, your ability to generate revenue from customers must take into consideration the size of the market.
Check out the below graph: there are five ways to build a $100M SaaS business.
The bigger the ARPU the less customers you need to get to $100M revenue.
$1M contract size needs 100 customers to make $100M revenue,
$100 contract size needs 1.000.000 customers to make $100M.
You have to ask yourself:
What ARPU can we expect?
With this ARPU is there a big enough market to reach our business goals?
Remember, not every business needs to scale to $100M (just VC backed ones). If you're a bootstrapped business you can take advantage of niche markets that VC backed companies wouldn't get funded to capitalize on.
❌ Mistake #5: Ignoring things that don't scale
During the Go To Market Fit stage you should be in 'test and execute' mode.
You need to optimize for speed and learning.
Be scrappy. Get **it done.
You do not need to do things that scale. In fact, you should probably prioritize channels and activities that don't scale because your larger competitors can't make use of them.
For example, back in 2018 when I was getting the UK market going for Spendesk I was trying to convert the first 50 customers. I'd created a segment that represented our ideal customer profiles and made it my goal to tick every one of them off my list.
I ordered 50 gold envelopes off Amazon, put a Spendesk card, a polaroid of myself, and a hand written note inside and went to London to hand deliver them one by one.
On the second day I just delivered my last letter, I was met with hostility by the receptionist, but managed to deliver the package anyway. I remember grabbing a coffee afterwards thinking "wtf am I doing..."
Then I got this message about 5 minutes into my coffee!
This conversation led to the largest deal I'd ever closed and the exercise generated an entire month's worth of pipeline!
Do things that don't scale while you still can.
❌Mistake #6: Focusing on too many or too little acquisition channels
Once you've got product market fit you want to get your product in the hands of as many customers as possible.
It's tempting t think that the more acquisition channels you have the better.
But this isn't always true. Particularly in the $1-$10M phase.
$0-1M revenue: You want to prioritize testing lots of channels in quick, dirty experiments. Going broad enables you to gain maximize exposure to learning. The goal here is to find a good acquisition channel, by testing many.
$1-10M revenue: During this stage you actually want to choose fewer acquisition channels. Narrow your focus and focus on the one or two channels that worked in the $0-$1M stage. Not all channels can be used to scale to $100M, but most can get you to $10M. In addition, the $1-$10M is often around Series A-B, at this stage you can still get away with imperfect unit economics while you prove there is a market.
$10-$100M: What got you to $10M won't get you to $100M. You'll need to begin diversifying your acquisition channels, grow your product capabilities to scale into new markets and try new segments. Here the goal is nail doing scalable and healthy unit economics. You're on the road to rapid growth and eventually profitability.
❌Mistake #7: Applying pressure to a blunt knife
Accelerating before you have a razor sharp product market fit is a deathly move.
I wrote about this extensively in a previous newsletter here.
Blunt knife requires more pressure which leads to bad things:
🎯The sales team have zero margin for error in losing deals, even top performers yield mediocre results
🌵The top of funnel dries up, the CEO puts pressure on the CMO to deliver more MQLs (marketing qualified leads)
🤷♀️The CMO lets lower quality MQLs pass through to sales in order to hit her number
📉Sales team get lower quality leads causing them to lose more deals and conversion rates take a dive
😢Team morale in sales & marketing slumps
💔 Poor performance leads to more pressure being applied
♻️The cycle continues
You have have initial traction and an acquisition channel that's working, but be careful of a blunt knife. Weak product market can kill you slowly.
Remember PMF is on a scale of weak to strong.
Sharpen your blade before applying pressure.
✅Top resources for this stage:
Crossing the Chasm - Geoffrey A. Moore
8 killer acquisition channels - yours truly :)
Traction - Gabriel Weinberg (CEO @ DuckDuckgo)
Scaling the revenue engine - Tom Mohr
❌Mistake #8: Optimizing pricing for top line revenue instead of market share
In between your Series A and B rounds you'll need to prove to investors that you can make money, but don't make the mistake of optimizing pricing for revenue over market share.
Optimizing for revenue too early is like squeezing a lemon for it's juice instead of growing lemon trees.
Did you know:
The cost of acquisition per dollar of revenue from a new customer is $1.18
The cost of acquisition per dollar of revenue through an upsell is $0.28
The cost of acquisition per dollar of revenue through a referral is $0.13
New customers cost a lot so the desire to charge more is tempting.
But..
The value of each new customer is really in the future upsell.
It's far better to focus on gaining market share through competitive pricing and reduce friction in the buying pricing. Once you have market share you can then squeeze out revenue on the back end through upsells.
$0-$10M price for market share, not top line revenue.
If you've got this far, thanks for reading!
See you next week
💜
📝 Key Takeaways
On the road to $10M avoid these eight mistakes.
❌ Mistake #1: Monetizing for sales, not for learning
❌Mistake #2: Building product in search of a market
❌ Mistake #3: Thinking product market fit is a singular event
❌Mistake #4: Thinking PMF is the only thing that matters
❌ Mistake #5: Ignoring things that don't scale
❌Mistake #6: Focusing on too many or too little acquisition channels
❌Mistake #7: Applying pressure to a blunt knife
❌Mistake #8: Optimizing pricing for top line revenue instead of market share
Want to learn more?
Check out the below.
🔎 Learn more about go-to-market strategy
💻 Free resources on my website — www.alfie-marsh.com Unleashing the power of go-to-market design to launch and scale your startup.