Building and scaling a B2B SaaS startup is hard. As an executive or founder, your focus splits from developing a product, attracting top talent, and raising capital.
Whether you’re working at a SaaS startup that has a product in the market or are about to launch a product in the market, this article provides tips on how to avoid the most common product growth pitfalls.
Where we'll focus
- How your product growth teams may be trying to run more than one sales model at a time
- Finding gaps between product, sales, and marketing in regards to market segmentation and alignment
- Why your unit economics may not be telling you the full picture of the growth potential of your startup
By the end of this article, you’ll understand how to ask your executives better growth strategy questions to avoid these common mistakes.
Marketing tactics can't fix a weak go-to-market strategy
Many founders, sales, growth, and marketing executives make the mistake of jumping straight into marketing tactics without defining their sales model and GTM strategy. Skipping this step puts your team at risk of running poorly aligned marketing campaigns, sending poor leads to sales teams, setting new marketing and sales hires for underperformance, and ultimately poor sales and marketing unit economics.
To the credit of some executive teams, they’ll pivot after seeing marketing tactics fail and revisit defining parts of their growth strategy they skipped. But these teams often only partially address key growth strategy questions and end up with limited cross-functional alignment.
As B2B SaaS startups, we want to be in the position where we expand on success rather than contracting operations on failure.
Learn how to improve your B2B SaaS growth strategy
Below are three key questions that every SaaS growth team needs to ask themselves to prevent costly mistakes and increase the chances of failure. These questions apply to product, marketing, and sales teams regarding your current go-to-market strategy. So take time with your leadership team to assess where you can improve your growth strategy.
1. Are your teams operating different sales models?
As a B2B SaaS company, your sales model is one of the most significant factors informing your growth strategy. This may seem obvious, but many sales and marketing teams are misaligned on their sales model and have the two teams operating in different models.
B2B SaaS products have three sales models: self-serve, enterprise, and transactional. The main determining factor of your sales model is your average revenue per user and your company’s CAC.
In his “Three SaaS Sales Model” blog post, Joel York mapped the three SaaS sales models in the following way:
Self-Service
Low-priced products (less than $50/mo) with automated customer acquisition, onboarding, payment, and support.
- Sales: None.
- Marketing: Full revenue responsibility, creating awareness, educational content, and automation capable of driving business through the entire purchase process from awareness to close.
- Support: Provides automation and tools for easy onboarding, plus templates and educational content that allow customers to resolve any issues they encounter on their own.
Transactional
A hybrid model with a higher price point ($5k to $25k annual revenue per account) with an efficient semi-automated lead generation strategy and a small inside sales team to convert them into paying customers.
- Sales: Inside sales reps supported by online content and automation, tools, training, incentives, and metrics that enable high efficiency and many transactions per rep.
- Marketing: Feeds highly qualified leads to the sales team to build a pipeline and improves efficiency by removing educational content and automation roadblocks that drive complexity out of the purchase.
- Support: Inside support reps that meet a range of SLAs from limited pre-sale support through premium post-sale support with tools, training, and metrics that enable high efficiency and many transactions per rep, complemented by customer self-service tools, templates, and educational content.
Enterprise
A high-priced product ($50k+ average revenue per account) requires a sales team with long sales cycles.
- Sales: Territory sales reps focused on a narrow set of target prospects directly supported by product marketing and sales engineering resources at a deal level.
- Marketing: High-end marketing that facilitates brand awareness, education, relationship building, and trust, complemented by direct support of the sales team, including telemarketing speeding access to target prospects, and detailed sales tools such as product roadmaps, ROI calculators, etc.
- Support: High-touch support up to onsite issue resolution complemented by educational tools and training tailored to the specific needs of individual customers.
Read Joel York’s “Three SaaS sales models” for more details on each model.
…So, how can a sales and marketing team be misaligned with the sales model?
Your AARPU and cost of acquisition (CAC) define the constraints of the types of sales and marketing tactics that you can run profitably.
Dropbox example
Dropbox is a great example of a self-serve B2B SaaS company. Today the worldwide average annual revenue per Dropbox user is $133.73. With this AARPU it would not be feasible for Dropbox to acquire individual users at SMBs with salespeople because the CAC would be too high.
Dropbox’s original marketing strategy revolved around assigning the marketing team all of the revenue responsibility, leveraging complete automation, product-led growth tactics, and low-cost referral strategies. Dropbox did not have a sales team.
Note: Today Dropbox scaled to the point it can hire enterprise sales teams to target large organizations with 1000s of users to Dropbox. Self-service SaaS companies around the $20m+ in ARR will often explore operating multiple sales models by adding higher CAC acquisition strategies. This is referred to as moving upstream.
Box example
Let’s take an enterprise B2B SaaS example from the same space: Box. Box is a file management software system similar to Dropbox, but Box caters to enterprise clients.
At Box, the sales team is responsible for revenue and they hit targets by sending solution engineers into the field to network and close large accounts. And Box’s marketing team’s main responsibility is to support the sales team with high-end educational content and sales collateral.
Defining your sales model
If you are uncertain about what sales model you are operating, most VCs will be a great resource to help you understand and reassess the sales model you use. They’ll be able to ask you about your current go-to-market strategy and the customer segments you are targeting. Alternatively, you can also book a call with one of our Product Strategists who run this due diligence with clients before any of our engagements.
For B2B SaaS companies looking to scale efficiently and sustainably, having your team aligned on your sales model is the first step in creating a successful growth strategy. Your market understanding will be a key lever in how well you can execute your sales model.
2. Are your teams aligned on a target market segment?
Your team and investors don’t want to continue to hear about a multi-billion-dollar market hypothesis; they want to see real and sustained revenue growth. A key step to making growth real and sustainable is market segmentation.
Market segmentation will define approachable targets for your revenue growth. It’ll also help you understand when and where growth can stall, which is why it’s good to revisit quarterly as you scale your product, sales, and marketing strategies.
Unfortunately, as private company data becomes increasingly more accessible across platforms like ZoomInfo, Clearbit, Crunchbase, Linkedin, etc., growth and marketing leaders are pressured to answer increasingly more strategic questions. And this blurs the line between who is responsible for market segmentation and product positioning.
Closing the gap between marketing and sales teams
Everyone should provide input on your market segmentation for your organization. If every department does not participate in defining the target market segment, you won’t have a go-to-market strategy that aligns with your teams; you’ll just have siloed sales and marketing teams prioritizing their own version of an ideal customer.
Unfortunately, siloed sales and marketing teams lead to signing users and account up that don’t align well with your product, and stretch your product team's resources leading to more technical and design debt.
You can learn more about how to use market segments to protect your team from product and feature bloat with our team.
Market segmentation decisions and analysis
For B2B SaaS companies poised to raise their series A round, there are several ways you can segment your market. To inform your analysis, you can use sales tools like Apollo, LinkedIn, ZoomInfo, industry reports, and/or customer interviews.
Some segmentation approaches are easier to execute than others. For example, firmographic segmentation simply requires good data-gathering technology, while psychographic segmentation asks you to consider the emotions that motivate your customers.
Determine which approaches are best with your leadership team, and don’t be afraid to mix and match elements of each.
Whatever segments you decide to target, VCs will want a clear picture of how your business model will be supported by the revenue potential in those market segments. If you're operating in a market that supports your growth goals, you’ll be able to help your team's alignment by creating actionable market segments.
3. Does your serviceable market scale to venture expectations?
Before checking your market segments for actionability and team alignment, you’ll want to step back to check if your serviceable market can support your growth goals.
Venture expectations are that your business scale to 100M+ in annual recurring revenue (ARR) within a venture-backed timeframe. A common phrase for this growth rate is T3D3: triple, triple, double, double, double.
Christopher Janz at Point Nine Capital wrote a post that has become a standard test for the market-model fit. It continues to be one of the most referenced breakdowns of how to build a $100M company.
Janz wrote:
To build a web company with $100 million in annual revenue, you essentially need:
- 1,000 enterprise customers paying you $100k+ per year each; or
- 10,000 medium-sized companies paying you $10k+ per year each; or
- 100,000 small businesses paying you $1k+ per year each; or
- 1 million consumers or "prosumers" paying you $100+ per year each (or, in the case of eCommerce businesses, 1M customers generating $100+ in contribution margin per year each); or
- 10 million active consumers who you monetize at $10+ per year each by selling ads
Janz also created this graph to illustrate his premise, referencing the common nomenclature salespeople use when referring to account sizes as elephants, deer, and rabbits. Janz adds two more categories, mice and flies, to represent the scenarios of 1 million or 10 million active consumers.
In the x-axis you can see how many customers you need, for a given ARPA, to get to $100 million in annual revenues.
Source - Christoph Janz
We could add even more scenarios to Janz’ breakdown, such as a “whale” category with 100 customers each paying $1,000,000 annually.
There’s more than one way to build a SaaS company with $100M+ ARR. Janz’s matrix is a good jumping-off point to think creatively about various models that best match each segment available in your total accessible market.
Your growth strategy needs to be iterative
Markets don’t sit still. They evolve. Your go-to-market strategy should account for this.
You will need to work with your team to build a process to continually analyze and segment your attainable market. Testing your market segment hypotheses keeps a real-time pulse on how your product meets your market’s needs, how well you are delivering your product, and which channels you have the most success in converting your prospects and users.
Use data to monitor your success. Data will help you understand which messages most resonate with which market segments, how satisfied your users are, and which of your strategies might need tweaking.
When done well, market segmentation provides the foundation for continual improvement across your entire business.
