Just because you have successfully launched a product does not mean there is a repeatable sales model. If you confuse customer interest in your product with actual market demand, you will run out of money within 12 months.
The evidence-weighted operating system replaces theoretical models related to business operations with a rigorous, evidence-based system that is tailored to the needs of early-stage software companies.
You will have a clear understanding of the following: how to determine the kill criteria for your product, the economics of each unit sold, and the types of channels to test before generating revenue without impacting your runway. Building a strong go to market strategy for tech startups requires this level of precision.
How to Build a Go-to-Market Strategy for Tech Startups
Many startup teams view their market entry as a simple advertising campaign. They build a product, guess who their customers are, and spend vast sums of money on paid advertising drives or outbound email campaigns.
The failure of this approach is based on the erroneous assumption that product-market fit occurs prior to generating real revenue from the marketplace.
True go-to-market strategies for technology companies are based on evidence only. No major operational decision should be made without evidence pointing to that decision, made from either a customer signal, an economic model, a measurable experiment, or a retention outcome from the channel used.
If you cannot point to hard data that validates your operational decision-making, then you are making uninformed decisions at the expense of your investors.
For founders, there is a significant opportunity to create a clear logic for decision-making early in the company's development. If you determine that the average contract value (ACV) of your product is low and the end user has purchasing power, you will need to test for product-led growth (PLG) or self-service models.
If you determine that your ACV is high and your product requires complex implementation, you will need to rely primarily on a sales-driven growth strategy led by your founders.
When the person making the purchase and the person actually using the product are not the same person, it is very important to create a process that addresses both sides in order for it to be effective and for both parties to be able to continue using the product.
It is not worth acquiring customers if they will immediately stop using the product after signing up. Top-of-funnel metrics provide no value if activation does not work.
If your retention data shows that you may need to stop using the current method or change your ideal customer profile (ICP), you need to create explicit kill criteria for both methods.
How to Find Your Target Customer Before Coding
A common mistake early-stage startups will make is trying to define their target customers too broadly. For example, saying that "B2B SaaS companies" makes up your ICP is too broad.
You should narrow down your target customers to find buyers that have a problem that is so pressing that they are actively looking for a solution right now.
Target Number of Interviews for Problem Validation
Before coding or spending money on advertisements, it is important to establish the validity of your target market by conducting prospect interviews. Your goal is to determine whether there is a specific pattern of pain that exists among prospects.
A founder may have completed 24 interviews. However, if only seven prospects identify the issue as urgent, those seven would be considered as your true ICP. The remaining 17 would be considered false positives.
When conducting interviews, you should ask the prospects how frequently they experience the issue, how willing they would be to change their current workflow, and whether or not they would be willing to do a pilot program.
Use caution and refrain from accepting polite interest as evidence of validation. You should be looking for prospects that are frustrated with their current product and are willing to invest both time and money to resolve the problem as soon as possible.
Setting Rules for Abandoning Bad Markets
Defining your strict kill criteria for your ICP is crucial to ensure that you have proper guidelines for when to abandon a potential customer base.
A prospect that has identified and agreed that the problem exists but is not willing to allocate either budget or resources toward a pilot of the solution should be considered as having an unqualified and non-viable ICP hypothesis.
Do not attempt to scale your marketing and sales efforts toward an audience that will require extensive effort and work to get to the free version of your solution.
Define strict qualification criteria for your ICP based on learnings from your interviews. If you determine that small businesses cannot afford your solution, you should remove all companies that are below a defined revenue threshold from your ICP definition.
For example, rather than trying to qualify all SaaS companies under your ICP definition, you can narrow your definition to: "European B2B SaaS companies with between 20 and 100 employees where there is a dedicated revenue-operations manager."
Choosing the Right Go-To-Market Strategy for Tech Startups
The way in which you deliver the product will depend on how much the product costs, how difficult it is to set up, and who actually executes the contract.
While product-led growth strategies are an effective way to acquire new customers, they can only work under the right conditions. Product-led growth works best when the user is able to quickly access the core value of the software, and thus pay only small incremental costs for services, when the consumer has or has significant influence on the purchase decision, and when the product can effectively handle its own marketing, sales, and onboarding without human contact.
If your startup's monetization efforts are in a weak state and there are high numbers of user sign-ups, but there are no conversions to activation events or payments, you don't have a functioning product-led growth model. The activation event is not typically just the creation of an account.
Activation for a data tool could be defined as linking the initial data source and creating the first report. If a user does not achieve this goal, you cannot recoup the costs associated with the acquisition of that customer.
Managing Enterprise Customers and End Users
Due to the size of most large corporations, selling to them creates significant delays. Even if the end user loves your product, delays in procurement, IT security, legal, and budget approval will slow down the sales process. You need to factor this into your sales strategy.
Enterprise prospects will require single sign-on (SSO), audit logs, data processing agreements, and extensive security questionnaires even before procurement will consider opening their checkbook for your product.
With a pure self-service model, you will not be able to sell to enterprise accounts. However, with a sales-driven approach led by the founder or an early account executive, they can help guide the enterprise's internal champion through the approval process.
Tracking Pricing and Unit Economics
As a founder, it is critical to know how long it will take for the gross profit generated from a new customer to cover the total cost of acquiring that customer. This is called the customer acquisition cost (CAC) payback period.
According to historical benchmarks studied by For Entrepreneurs, the estimated median payback period for SaaS companies with greater than $2.5 million of revenue is around 18 months.
Keep in mind that this is a late-stage benchmark and not intended to be a blanket target for early-stage startups. A low-ACV PLG-based product should not have the same payback targets as an enterprise platform that sells for $250,000.
Rather, segment your expectations for each product by ACV, length of contract, gross margin, and complexity. This is how you build a resilient go to market strategy for tech startups.
Your Step-by-Step Market Entry Plan
You cannot test everything at the same time. To facilitate a disciplined rollout, it is important to have a sequential timeline in which each phase has a particular output structure before you can continue onto the next phase. View this as your operational calendar that you will follow.
In the first two weeks, concentrate solely on the prospect interview and conduct an alternative analysis. As an output of this phase, you will document an ideal customer profile (ICP) hypothesis and a problem evidence log (PEL).
You are looking for patterns where multiple prospects use the same ineffective workaround methods and reveal the exact same urgent problem. If you do not see this pattern, you should not proceed.
Once you see the urgent problem from the prospects, the next phase will consist of testing messaging, positioning, and pricing language before identifying buying triggers over the next two weeks.
In this phase, you should develop a message matrix and also track objection logs as your output. You will know this phase is complete when all prospects can easily articulate the value of your offering without requiring the founder to spend 20 minutes explaining it to them.
You may only conduct channel testing if your messaging is sharp. You can run one or two channels simultaneously. Your output from these experiments will be a channel test report (CTR).
From this report, you will evaluate if you achieve a consistent number of conversations or a number of activated users whom you have identified as qualified. If a channel produces cheap leads but is not producing qualified opportunities, shut that channel down immediately.
Founders must perform manual closings on all pilot customers and early customers and cannot outsource this responsibility to junior sales reps. Your output from this step should include sales notes that provide insight into the thoughts of the founder during the closing process.
It should also include an onboarding checklist that provides the foundation upon which to build an onboarding plan that has survived the test of time.
It is critical that prior to bringing on additional sales staff, the creator of a startup company understands the sales process from A to Z, and can replicate it effectively and consistently.
Measuring How Fast Customers See Value
Once users have signed up as customers, the next step is to spend all your effort working with them on implementing the product. To do this, you should measure the amount of time it takes for a user to get to the point in the process of utilizing the product when they realize the full value they paid for (the "point of value").
At this point, you will be able to measure the time-to-value for your customer. If it takes too long to reach the point of value, then your ability to retain customers will be severely impacted.
When to Scale or Adjust Your Strategy
In the third and final phase of the early execution cycle, it is important to examine your CAC assumptions, signals of retention, and general quality of the channel through which you are selling.
You will write a formal memo with your recommendations as to whether to invest further in the motion as is, or make a major change to the ICP, or stop the motion altogether. You should only create scale when the economic situation represents a positive mathematical outcome.
Financial Rules for Scaling Your Startup
You will want to set performance metrics distinctly by the stage of your company (pre-scale vs. post-scale).
Performance at the pre-scale stage can look drastically different than performance metrics for companies that have gone through the growth stage, and you will need to establish formulas to track performance accurately.
Gross and Net Revenue Retention
Acquiring customers means nothing if your customer base churns at an excessive rate and destroys the revenue stream. According to the SaaS Capital Survey, the median NRR for private B2B SaaS companies is 101% while the median GRR is 91%.
For companies that have an ACV that exceeds $250,000, the median GRR is 95%. These statistics are primarily dictated by the length of a contract.
Multi-year contracts have a median net revenue retention (NRR) of 103% and a median gross revenue retention (GRR) of 94%, whereas monthly contracts are at 100% NRR and 89% GRR.
To calculate NRR, take your initial monthly recurring revenue (MRR), subtract churn and contraction, add expansion revenue, and divide it by your initial MRR.
To calculate your GRR, simply ignore expansion revenue. NRR and GRR will indicate whether or not the problem your product solves is going to be a long-term issue for that customer.
Customer Acquisition Cost and Payback Periods
It is essential to know exactly how much it costs to acquire one dollar of revenue. To calculate your CAC, divide your total sales and marketing costs by the total number of new customers you acquired in the period you are measuring.
To calculate your CAC payback period, divide your CAC by the monthly gross profit for each customer. Implementing this tracking is mandatory for any successful go to market strategy for tech startups.
For example, if a distribution channel costs $5,000 to acquire a customer but that customer is only generating $100 of gross profit per month, then your payback period is 50 months.
For an early-stage company, a payback period of 50 months is not something you can afford to have. You should stop paying for acquisition until your activation and retention rates are above the minimum required to recover your CAC in a reasonable period of time.
Common Problems and How to Pivot
A strategy may seem great on paper until it is tested in the real world. You need to be ready to pivot the execution model based on the specific roadblocks you encounter.
Failures After a Beta Launch
Your beta was successful, and you have early adopters who are showing interest. However, your activation and conversion rates are inconsistent across all of your customer acquisition channels.
This indicates that the way you are branding your product and the way your customers experience your product are misaligned. You should stop all generalized advertising and get feedback from your customers who are not converting to your software so you can determine where in the process they are abandoning it.
Correct the product flow before investing further funds into advertising.
Expanding into New Countries
Your product does well in your home country, but when you expand into other countries, the results are flat. There are large discrepancies in language, regulation, channel access, pricing expectations, and trust amongst consumers when doing business across borders.
You are not able to take the original strategy that worked in your home country and simply copy and paste it into a new country.
When entering a new country, you should treat it as a brand-new startup and go through the initial prospect interview stage in order to determine who your ideal customer profile is in that market. This resets your entire go to market strategy for tech startups for that specific region.
The Final Rule for Scaling
Do not scale your distribution channels simply because they are generating traffic cheaply or have high top-of-funnel activity. You should only scale if the same ideal customer profile, message, and activation event occur consistently enough to support a profitable economic model.