News - June, 2022
Achieving go-to-market fit is critical for the fast and sustainable growth of your company. The tricky part is that what worked in the past will not fit for the entire life of your business. Drawn from his experience as a SaaS investor, Roland Dennert, Managing Partner, explains how to achieve optimal go-to-market fit at every stage of growth. This article summarizes a workshop given by Roland at the SaaStr Europe 2022.
Choosing your go-to-market weapons
What you want to hunt determines the weapons you choose. When determining your SaaS go-to-market strategy you should first consider the achievable customer Lifetime Value (“LTV”) of your product. This will tell you what your Customer Acquisition Cost (“CAC”) target must be in order to achieve profitable, sustainable growth. Once you know the CAC you can afford, you can decide what go-to-market strategy you should opt for to hunt for clients.
Firms committed to a low CAC should focus on small and medium sized businesses and apply their sales resources judiciously. At this stage it’s better to prioritize low touch or no touch self-service sales, and reach clients through content marketing, ideally with a strong virality factor. A go-to-market strategy based on inbound sales balances with a short sales cycle.
When operating at a medium CAC level, you can pursuit somewhat larger clients, typically small enterprises, using an internal sales organization. A sales VP and a team of development representatives will help to develop a more extensive sales cycle to ensure a closer relationship with clients and hence deliver a higher LTV.
A high CAC budget allows you to address large enterprises, with a sophisticated, high touch sales team of experienced and qualified individuals who take the client through the long sales cycle needed in this environment.
At any LTV, go-to-market fit must be characterized by a clear, tactical sales model, with a repeatable go-to-market playbook which reaches clients effectively. Resources must be used carefully to ensure the maximal LTV.
Adjusting go-to-market according to positioning
Maintaining a stable growth rate involves growing the new Annual Recurring Revenue (“ARR”) as the company gets bigger. In developing your product from Minimal Viable Product of the early days to a more powerful, broader solution, the Average Revenue per Account (“ARPA”) should increase. Higher ARPA should translate in a growing LTV. And the growing LTV, at least for some of your customers, allows you to afford larger CAC. At this point, you can add more arrows to your quiver, using higher cost go-to-market approaches in pursuit of bigger game.
Graph inspired by Christoph Janz of Point Nine
In Cipio’s portfolio, we have seen many successful applications of this strategy. One notable example involved a successful, high growth company, which relied purely on inbound sales. The New ARR began to plateau, and growth slowed. The company introduced a new, higher value “Enterprise Plan”, and by recalibrating the go-to-market to reflect the potential for a higher CAC target, growth picked up again.
For another company the plan involved clarifying the ideal customer profile: moving away from the lower-end SMB positioning which had begun to generate an unfavourable LTV/CAC ratio, and with the use of a new outbound sales team reorientated our approach towards higher value clients. The higher touch approach allowed the company to invest in product features according to the demands of larger customers. This grew both ARPA and LTV and rebalanced the LTV/CAC ratio in the company’s favor. The end result was more investment, leading to faster growth.
Finding go-to-market fit is not a one-off exercise but a recurring process:
1. Choose your initial target market: The right go-to-market strategy must operate at an acceptable CAC for the achievable ARPA and LTV.
2. Add more arrows: Growing ARR and increasing ARPA and LTV must be undertaken proactively. Bigger game requires higher touch sales! Adjust your ICP.
3. Start over: Don’t be afraid to rethink your strategy. As your product reaches maturity, the right CAC will change, and so should your go-to-market strategy.