Product Market Fit: Go To Market Scale
Why this is critical to hiring your VP Sales.
What does the transition from “Product Market Fit” to “Go To Market Scale” actually mean to a B2B Startup? Startup founders need to be able to answer this because getting it right is the difference between hyper growth, slow growth or death of a startup.
It’s crucial for founders to understand what the progression to “Go To Market Scale” means for B2B SaaS and sequence events correctly. At this stage of growth, you’ve probably realized you need a VP Sales to move forward. But what type of VP Sales do you hire? And when? Do you need a sales engine builder, a mechanic to fix the engine or a VP Sales to hire and scale the operation? While you’d assume this is all the same person, this is RARELY THE CASE.
This is the area I spend most of my time when advising startups (VCs call me an interim VP Sales for this stage) and I continue to think that very few founders and investors actually understand why this is such a crucial moment to sequence correctly and even more importantly exactly how to scale through this pivotal stage in the startup life. I see companies with over $10m in annual revenue who didn’t sequence through this phase as well as they could have and it tragically stunts their growth. If the startup has just achieved product market fit, founders often look for a senior VP Sales who has experience scaling later stage or mature businesses. Bad move: they likely won’t have built an engine from the ground up and growth will stall when all the hires they make don’t have a system/playbook to follow. Whereas startups with much weaker Product Market Fit are scaling because they put the proper sales engine in the company in the early days and as PM Fit strengthens it becomes a flywheel of growth.
I’ve written elsewhere about how I view Product Market Fit and you’ve probably read the Super Human post on PM Fit which is brilliant, but I continue to be shocked at how few people understand what to do to scale a B2B SaaS startup after they find PM Fit. In the Super Human article Rahul focused on what I call the Right Now Target Addressable Market: The users who would actually be disappointed if they had to stop using the product. I completely agree with him on narrowing TAM to Right Now TAM and I go about it when advising B2B startups in a slightly different way as B2B is obviously different than B2C. It’s the same principle, but when I’m looking to build a sales powered growth engine, after product market fit is achieved, I look for customers who are buying even more after the initial purchase.
I want more customers who are being upsold, expanding and are creating net negative churn. They are buying more and renewing. Their Life Time Value is difficult to calculate as it’s constantly GROWING.
I don’t want more customers who churn. I like, but don’t want to focus on more customers who renew. I want customers who buy more and more and more. For me this is your Right Now Target Addressable Market. Narrow that down and get more of those prospects into the sales funnel.
This is the first step in building a repeatable and predictable sales/growth engine. Yes there will be other customers who just renew, but we’re not talking about 2xing your business. We’re talking about 3X — 4X — more Xing Year over Year growth. I rarely see these YoY growth multiples continue after the first year or two unless there is a repeatable and predictable engine/funnel/playbook intently focus on the correct TAM.
As Rahul discusses in the Super Human article, the inbound leads can be distracting. They need to be segmented into cohorts that can be valued higher and lower and then only the high value cohort is focused on. This is the customers who will have the highest Life Time Value as these customers who buy more are the least likely to churn. Can we define this list of the Right Now TAM for the Startup? This definition should be a fun sparring topic for leadership, but the buck stops with the definition of this Right Now TAM. It will expand over time, but needs to be narrow when building the engine especially with few resources if you want to get early exponential growth with few sales people investing time on only the best prospects.
If we can all agree on the Right Now TAM, it now comes down to getting more of those customers. The next step is to understand where they are coming from. This is the detective work I like to do. Follow the path back up through the funnel from customer back up through the signed contract, the pricing conversation, the demo or sales meeting and the first contact. Then beyond that up to how they were marketed to or emailed and what prospect list they are on or how that customer was identified at the top of the funnel. Do this with as many customers in the Right Now TAM and there will be at least one lead source to start.
Now we can reverse engineer the process and optimize the funnel to accelerate these Right Now TAM prospects through the funnel from their lead source. As we start to add more of the Right Now TAM prospects into the top of the funnel the bottlenecks emerge and we build playbooks to accelerate the high friction points in the funnel.
Bottlenecks in the sales funnel are the enemy of exponential growth in B2B SaaS.
While bottlenecks are the enemy of exponential growth, they are inevitable as we create more throughput in the funnel. We can change the funnel to route around the bottlenecks or find a way (usually hiring) to eliminate the bottlenecks. A good example of this is high conversion rates from Right Now TAM into sales calls/demos and a high interest level to purchase BUT the prospect needs to be qualified a bit further or setup for a trial by a sales engineer prior purchase or launch. How many sales engineers do you need to hire to ensure this isn’t a bottleneck? Who’s doing that now? How much friction is that causing across the team? Try to foresee bottlenecks or find them quickly when they emerge and agree on how to fix them.
And now you will have another bottleneck. Not enough meetings for the Sales People? You need more SDRs. In the meantime the Sales People are now booking their own meetings and helping interview and train SDRs.
Too many SDRs and the Sales People can’t handle all the meetings? How does you’re recruiting pipeline look? You get the idea. It’s a constant back and forth of optimization and operational excellence in the sales engine. And now when you finally have this figured out, you’re launching another product line for a new customer segment. Good Luck ;-)
But this systemization and bottleneck reduction is the fun part. I started by saying I wouldn’t hire a VP Sales that wants to scale hiring until they or you have figured out the repeatable and predictable sales engine. Some VP Sales know how to build a Sales Engine for GTM Scale, but many do not. Many VP Sales want to hire a lot of Sales People and these leaders think the engine will sort itself out or that the Sales People will figure it out as they go. I always ask what playbook they will use to train new Sales People during the onboarding process to ensure they get ramped up to success with as fast a payback period as possible… and the lack of a good answer is telling that the business lacks an engine and will not achieve its full potential.
Remember the company that has $10m in ARR and doesn’t have this sorted out? They have stronger PM Fit than I’ve ever seen, BUT they aren’t happy with their revenue growth, because they know it could be higher and I agree. So they are intently focused on building the engine for GTM Scale to 3x — 4x — more X annual growth.
So when you have PM Fit and you want to scale, make sure you hire a VP Sales who knows how to build the system for GTM Scale and only once it’s built should you focus on rapidly scaling the Sales Team.
Hang Ten!
