Building Your Startup’s Go-to-Market Strategy
Opsgenie was a European SaaS startup with high potential, strong product/market fit and strong technical founders when Tim Danielsjoined the company as CFO. This young but strong startup Tim joined became one of the leaders of its market and Tim had a front-row seat and an important contribution with planning and executing their US Go-to-Market plan. Opsgenie grew from few customers to over 3000+ after they built their inbound and outbound teams in Boston. Certainly, the tremendous value they created got noticed, and Atlassian, an Australian enterprise software giant, acquired the company for $295 million in 2018. At the ScaleX Founders Summit 2019, Tim shared his experience with Opsgenie in his session, “Zero to Hero”.
Go-to-Market, shortly GTM, refers to how you bring your product to the market and your customers. Most of the time as a startup, your first challenge to tackle is finding a product/market fit. However, it’s not solely enough to unlock growth for B2B SaaS startups.
First of all, you need to pick a solid strategy that will push your product into the market. You have to consider complexity, scalability, and cost of your Go-to-Market strategy clearly since there is more than one fit for every product. However, if we were to generalize it, there are four Go-to-Market sales strategies; self-service, inside sales, field sales, and channel model — each one catering to a different product and business model.
Self Service Model
A self-service model is usually adopted by B2C businesses due to their goal of targeting a high-volume-low-cost approach when it comes to sales.
In this model, prospects purchase the products of the company on their own. All of the engagement between the buyer and the seller happens through the seller’s platforms, such as a website or an app.
Thus, companies using this method don’t really require a dedicated team for sales since their platforms act as intermediaries. However, the budget needs to be dedicated to marketing since customer acquisition can only happen through traffic directed towards the company’s platform. Furthermore, the sales process should be as simple as possible so that customers can navigate with little to no guidance. The leading principle of this model is to help the probable customer realize the value offered in your product as soon as possible. Consequently, it’s very common to see shorter sales cycles and higher profit margins due to the low acquisition cost and less human engagement.
Tim offers a more fragmented approach to self-service. He dives into two business models, free-trial and freemium to give you a better understanding.
a) Free Trial
In the free trial business model, you generally give the prospect access to your full product for a predetermined period of time.
The free trial has many benefits for your customers as they can try your product before they buy it. Furthermore, it’s especially great if you trust your product since you allure potential customers in with marketing, hence lower cost due to less dependency on labor. Yet, you leave it to your product to close the sale. If your startup has found its product/market fit, this method would be golden for scaling your sales rapidly.
While having benefits, there are some difficulties that come with this model. Tim emphasizes the importance of user interface and experience since there will be no one guiding your customer step-by-step explaining your product.
“Free trial looks great but you need to be sure about your product/market fit. Because in the free trial, you are at the mercy of the market demand,” warns Tim.
B2C products are a great fit for the free trial model since these products are focused, meaning solving a single problem. Additionally, the product’s capabilities are more compact and easy to use compared to B2B products which often require customer support due to extensive functionalities that result in a complex user interface. Furthermore, no tailored customization needed since it’s generally built for straightforward use.
Spotify and Netflix are great examples of free trial strategy. Both give customers 30 days of the trial period in which the user can access and use every possible feature available in their product. Spotify’s premium version lets the customers create and follow playlists. However, after the trial period ends, the user has to pay to continue using these features. Netflix employs a similar strategy. When a customer starts a TV show, and they like it, they will most likely want to watch the rest of it. However, to continue watching the TV show, they have to upgrade to premium. If you are aware of the strengths of your product, this could be a fitting game plan.
Tim’s strategy with Opsgenie was similar. He explains their approach as following:
“Our product was great and customers were able to see the value and wanted to continue getting alerts and suggestions just like Spotify, so they became paying customers.”
b) Freemium
In the freemium business model, the customer’s access to the product is not limited by time, but the product itself is a stripped-down version of the premium offering. In order to access the full version, they need to pay.
The freemium products can have several different limitations like feature, capacity, use-time limitations, or limited use licenses.
Freemium has an additional benefit to free trial. Unlike a free trial, in which the customer can go after another product before or during the trial period without getting involved in any monetization, in freemium, the company has an active or inactive pool of free users that can be monetized while they use the app or in the future. You can choose to monetize these users with ads and promotions.
The pitfalls of freemium are also similar to the free trial. However, the main difference is that in the freemium model the company has to determine which features to strip out of the full product. It can be difficult to strike a balance between providing just enough value to drive user adoption and providing so much value that there is no incentive for free users to convert to paid.
If done correctly, this model can yield enormous growth, which can be seen in the graph above. Zoom designed their functions immensely well. Zoom is a video conferencing software. It is free for one-on-one and up to 40 minutes of group meetings. They had come up with the 40 minutes after research that indicates 45 minutes as the ideal duration for a video conference.
Zoom’s CEO Eric Yuan explained their freemium model in SaaStr Annual 2017:
“ In our case, we really want to get the customers to test our product. This market is extremely crowded. It’s really hard to tell customers, ‘You have got to try Zoom.’ Without a freemium product, I think you’re going to lose the opportunity to let many users test your products.
We make our freemium product work so well. We give most of our features for free and one to one is no limitation. That’s why almost every day there are so many users coming to our website, free users. If they like our product, very soon, they are going to pay for the subscription.”
The freemium model is a very common practice, especially in mobile apps and games. Angry Birds, Pokemon Go, Candy Crush, Clash of Clans, Tinder and Bumble great examples of freemium models. It is easier for B2C products to go with this method, referencing to the point made above when defining the self-service method.
Every model is not applicable to every company and product or should be well thought through. Baremetrics has an important example here. They introduced a Free plan…and it nearly brought Baremetrics to its demise. Let’s look at what we can learn from Baremetrics’s experience.
Baremetrics is a Saas platform, provides analytics & insights for subscription companies on online payment processing software like Stripe, Braintree. Two-years after the launch of the company, they have started a totally free plan. No time limits and no limits on the number of customers (which was a major segmenting factor for the paid plans earlier to the launch of the free plan). Now, the only limit was on the feature set.
When they started their freemium plan it all went well, until the number of free accounts skyrocketed and created a high burden on technical and operational infrastructure.
“We had over two years to slowly work our way up to the amount of data we were processing before the free plan. We then found ourselves needing to double the processable load in a matter of days. Needless to say, it didn’t work out in our favor.
We were dealing with day-after-day and week-after-week of progressively more complex server and performance issues as we just kept piling on the new free accounts.”
The result; 60 churns because of experienced downtime, delayed data, and inaccurate metrics with also product itself becoming stagnant and buggy.
The lesson here; by nature freemium is to boost high growth and usage but operational and technical scalability should be thought beforehand to handle it.
For instance, Baremetrics did not have the necessary software and infrastructure to support a large number of customers. Freemium was actually successful for them, as they were able to acquire more customers. Technical reasons failed them in the end.
Channel Model
The channel model of GTM is the method when either an outside agency/reseller or distributor sells the product for your company’s behalf.
Enabling this model is harder and can be done in a narrower product range due to its high-cost nature which requires higher price tags to be profitable both your company and your resellers. Especially if you are an early-stage startup, channel model becomes harder since it’s rather troublesome for potential customers to go for your product. This makes your channel partners’ job significantly harder. Yet, we see that this method is utilized extensively in some markets, like cybersecurity. It can be especially valuable when the market is well defined, the deal value is high, and there is significant inbound interest. Many hardware vendors sell through the channel model.
a) Reseller
The reseller method is more complicated as it includes third-party resellers. In this case, the product is sold through resellers.
This method is more sales intensive compared to the previous models. However, it can also incorporate marketing. It is especially beneficial when a massive network of resellers are present. It doesn’t really require a huge salesforce on your part since you leave the sales part to your resellers. Basically, the company rents resellers who resell the product depending on their target region and customers. Furthermore, it is a highly effective method when targeting new regions since it cuts down the time and energy you need to spend in order to understand the market dynamics and culture of the region.
However, it cuts from your profit margins to incentivize your resellers to sell. The resellers, who happen to be the backbone of this method, have strong leverage over you. This limits your playground when it comes to markets and products that could you could utilize this method.
“The reseller model works best when you go all-in on it. Resellers have lots of products to sell, so you need to capture their mindshare and give them an incentive to lean into working with you.”
Tim also advises early-stage companies to be cognizant of the fact that resellers separate the vendor from the customer, which can limit feedback and learning.
Giant corporations like IBM, Salesforce, and Microsoft are the biggest players that take advantage of the channel method. However, they use resellers in regions that don’t seem big enough to make money. Therefore, they mostly use it to gain market share. When they see the market mature enough, they open up their own shop in that region and operate without coinciding with resellers.
b) Partnership
Partnership method, for GTM, means that selling a product through or with ally products/companies.
Partnership is a very difficult method because it requires accurate decision making from the beginning when selecting your partners. Good partnerships can drive significant growth at a scalable rate and can drastically improve brand awareness. Another great benefit of partnerships is that if the company chooses its partners wisely, a partnership can turn into an acquisition.
If the selection of the partner is not done correctly, it can severely impact the business. Tim explains this as;
“Unfortunately, many partnerships don’t achieve the intended level of impact. Even when they do work, splitting up the economics can be tricky.”
While it can turn into an acquisition between partners, in some cases, it can also limit the interest of potential acquirers.
Inside Sales
The inside sales method is selling the product over the phone, email, and/or teleconference using the leads collected by various methods.
This is the second most sales-intensive method of GTM because the team is contacting the customers who showed some interest and gave their information to be reached at. More sales-intensive approaches increase the need for salespeople, thus increasing the cost. Furthermore, it can be hard to manage. The benefits of having an inside sales team are that they can generate demand beyond what inbound sources provide (the marketing side of inside sales is to collect leads), and it can scale almost linearly with increasing the spending (until the market is covered). Since there is a labor dependency in the process, deals can become larger in size as sales reps pick and choose where to invest their time. This can help the company maintain a high growth rate at a scale.
Pitfalls to be aware of are that the inside sales are based on people and what they are bringing into the GTM process. Furthermore, sales teams are difficult to build, hard to manage, expensive, and ramp-up time is long with consideration of the team’s onboarding and training time. Lastly, increased human dependency in processes can lead to uncertainty when it comes to performance.
“If you want to launch an inside sales team and your average deal size is low, you have two choices: raise the deal size, or figure out how to cycle through deals very quickly. The latter is often very difficult.”
— Tim Daniels
Field Sales
Field sales method is selling the product by going to your customers onsite.
This is the most sales-intensive method of GTM, considering it is the salesperson who goes to the customer to start and complete the sales process. It’s beneficial for products that can be sold at high prices, and since there is a possibility of forming a close relationship with the customer, it can help with sales in the future. This method is preferred with mostly B2B Enterprise sales like Salesforce, which has a colossal ticket size and a product that is difficult to integrate and complicated to use.
Downsides of field sales are similar to the inside sales method, but the field sales are generally even more expensive as it includes often higher salaries, travel costs, and long sales cycles. Therefore, the deal needs to be large enough to justify the cost and long sales cycles. Due to these high deal values and long sales cycles, field sales is generally more inconsistent than inside sales. Furthermore, it requires more training since your salespeople act like the face of your company and image.
How to choose the Right GTM Strategy?
Understanding different GTM options are the first step of designing your own GTM strategy, the second step is choosing the right method or methods. However, before even going into the decision, the company should evaluate its access to capital as well, since different products and different Go-to-Market strategies have different capital requirements in the company. A financially wrong decision for GTM strategy can even drift a growing company to bankruptcy. For example, you should know if you choose Enterprise — direct sales model will be high cost and require more investments with longer sales cycles, high cost of field sales, ramp-up times and so on. Tim bases his decision on seven questions hat you can also use in your decision making;
What is the average deal size?
Do you sell to individuals, teams, or entire organizations?
Who, and how senior, is your buyer?
How does your buyer typically buy?
How complicated are the sale and implementation?
How many targets are in your target market?
Is this a winner-take-all market?
Depending on your answers, the best GTM methodology for your particular situation can present itself. Higher average deal sizes allow companies to go after more sales-intensive options and create other opportunities like incorporating channel methods. If your sales efforts are towards enterprises, it is a strong sign that going with a more sales-intensive approach with a dedicated, in-house sales team is an option. However, if the sales are directed towards the junior buyer, it is easier to follow a marketing intensive approach instead of the expensive route of a committed sales team.
Complicating the sales process and the implementation process makes it a requirement to have a sales and account management team. If the target customers in the market are small in number, it is better to approach them personally rather than relying on marketing campaigns. (Assuming that numbers are OK for a business means that a low number of target customers equals to high ticket size.) If the market is a winner-take-all market, it might be wise to go all in to win the market as soon as possible, even if doing so requires elevated spend. Obviously, it is easier said than done. However, combining your answers to these questions and the information given about the methods are a good way to start. After all, the hardest part is to find a place to begin.
Whatever you do, don’t forget that companies are unique and every case is situational. What worked for another might not work for you even though you think you have similar parameters. Remember to stay close to the market and your customers. After all, they will give all the signs of success and failure way before it gets big enough to damage your venture.
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