Valley Nordic S2 E6: GTM for B2B SaaS Startups

We discuss the complexity of Go To Market (GTM) strategies and focus on how Business to Business (B2B) startups with Software as a Service (SaaS) products reach their customers. Common mistakes that founders make and the multiple channels that are used for getting customers to use new products. 

Transcript

Chander Chawla: 0:01

Hello everyone. Welcome back. This is Chander in Palo Alto,

Arne Tonning: 0:05

hello. This is Arne Oslo.

Chander Chawla: 0:08

Are you back in Oslo? Arne, I know you were traveling somewhere. Yes,

Arne Tonning: 0:13

I've just been out doing a presentation for a group of people at an incubator in moss. Norway. Also did a little bit of direct marketing for our podcast. So who knows if there are new listeners out there, and if so, we welcome you.

Chander Chawla: 0:29

Oh, yes, thanks to the new listeners who are joining us for the first time. We are on season two of Valley Nordic. The podcast is about mainly conversations between a Silicon Valley entrepreneur, that's me, and a Nordic venture capitalist that's Arna on how we look at all startup related things differently. One is investor perspective, another is founder, founder perspective,

Arne Tonning: 0:58

and also Silicon Valley versus Nordic.

Chander Chawla: 1:04

Okay, so let's get started. So today we thought about discussing go to market strategy, or how do startups go to market with their product? So it's a very complex subject. It sounds pretty easy, but when you start thinking about it, because of the diversity of you know what the product is. It may be, you know, software, it may be hardware, it may be hardware Plus software. It may be, you know, A, B to C. Product. It may be B to B, it may be B to B to C. It may be marketplace, depends on the stage of the company. So it's highly complex. But let's start with, I don't think there's a general consensus on what does it mean to be go to market. It used to be that, you know, the marketing team did all that the go to market or sales sometimes or but nowadays, especially in bigger companies, post Series A, I would say there's a product marketing function which generally reports to product, or sometimes reports to marketing. They do this product or go to market. So let's start with, you know what it is. So what does go to market mean to you? Arne,

Arne Tonning: 2:36

yeah, so to me, I looked up you know the definitions in preparation for this podcast today. And clearly, as you say, the definitions vary quite a lot, but the way that I think about it, and the way that most venture capitalists think about it go to market, is sort of the processes to get your product in the hands of customers in a successful way. And a lot about it is finding, you know, fast and efficient ways of achieving that. So typically, in it, the go to market itself involves processes from from marketing through sales to customer success. Those are sort of like the core processes that are touched by like the go to market activities themselves, and therefore that's also what you have to plan for.

Chander Chawla: 3:27

So for people who are not used to the new world vocabulary, what used to be called Customer Support is now called Customer Success, yeah, although

Arne Tonning: 3:38

I would view it as somewhat more proactive in that customer support in traditional way, as you wait for the customers to fail, and then they call you and you try to fix their problem, customer success is more about good onboarding and making sure they're successful from from the start, and hopefully getting the maximum benefit and the benefit to the company supplying that product is, of course, that the customers are happier and more likely to stay customer.

Chander Chawla: 4:05

Yeah, you like your boxes are now the customer success. People are doing customer support, so now it has evolved to them being more proactive. But companies don't have a separate organization called customer support that is different than customer success. It's one thing, sure. Okay, so I see it as again, like I it's very different. For example, for a hardware product, you know, getting the supply chain ready, inventory ready? That's part of going to market. But in the software world, you know that doesn't exist. So to me, at a fundamental level, it is you have figured out you know who your customers are. And. And you have figured out what you know, the version of product that they want. So then now, how do you get one, if it's a new product, reach those customers, even without the product. How do you get them educated? Create awareness, you know, get them interested. You know, get getting through the entire cycle of going through awareness to purchase and then, of course, customer success. How do you do that? After you have done your testing and you feel that you are ready? What are the different channels you use? And then you measure, of course, the CAC, or that's customer acquisition cost, which channels are more effective? Basically, different ways to reach to the customer with the information, education and product and the feedback loop that is the customer success. How does that sound? Sure, yeah. So now, because of the complexity of the subject, I think today we should limit ourselves to B to B. SaaS, go to market, which is, I think most of I think you like that space arena, B to B. SaaS, yeah. And a lot of your investments are B to B. SaaS, yeah.

Arne Tonning: 6:26

So I like the space. It's also a boxy space, so boxy space with virtual boxes, so it has a quite well established way of doing things in go to market terms as well. Yeah, yeah.

Chander Chawla: 6:46

So let's today, we'll, you know, stay there within that box, RNAs box. So even within the B to B, SaaS space, let's say, you know, we are, there is a new startup that has done testing, and now they're ready to go to market. How do you know, like, is there a checklist you've seen Arne, how do you know that you're getting you're ready to go to market?

Arne Tonning: 7:19

Well, I think you only know that you're ready to go to market by having, you know, one, having tested the product with some customers, which is more sort of the the validation and test loops and the proof of pilot products and this sort of thing, which is now past us, That's, that's the one thing. So you should have product market fit before you. Well, there are some very various views on that as well, whether you should have product market fit or go to market or if you should parallel process go to market fit. But the traditional way of thinking about it is, you, you have a validated product market fit so you have customers who like your product and who are staying with your product in some some shape or form, in some volume, and then you try to ramp up a go to market plan and process that can replicate getting customers in large volume. But the fundamentals have to be that there's a product that customers like,

Chander Chawla: 8:21

yeah, or at least you have identified one segment of the customers or a few of them that liked it. Absolutely, absolutely, okay, so you have that, and then what do you do?

Arne Tonning: 8:38

Now, I think you know you should preload it before you're like, too far along this, this process, but, but generally, you look at what kind of product do you have and and how does that category of product typically or tie, yeah, the features of the product. How does that translate into, how do similar products get in the hands of customers? So typically, what you look at is, what kind of buyer segment Do you have? How much do they pay? How do they buy it? And then you should find a way accordingly to structure your your marketing, sales and customer success activities, yeah, and I think it also has to be very highly aligned to what is a profitable way of getting it into the customer hands. And then we're back to the, you know, the CAC relative to what the customer is paying. So I think the easiest parameter to start looking at is obviously the, you know, what do you expect customers to pay for this? Because that tells you something about what is a, what is a way that you can get it in the hands of customers in a profitable, yeah,

Chander Chawla: 9:54

yeah. So it's I see, like, how, how I have done it in the past. Fast. And I see that lot of startups don't do that, because many of the startups are you have technical founders, so they I think the general misconception is that, you know, the product is so good that it'll sell itself. So they don't hire a PR agency to do media placements and create awareness of the product. So when you are going to market in this B to B SaaS space, you have to like assuming you've created something new, which customers don't know. So do hire a PR agency. Go to events, get media placements, so and you know, if, in many cases, you may have to get on the Gartner list and IDC target, these analysts have them right. So create journal awareness for the in the segment you're targeting. And you know, it's tricky, because you have to then hire people you know, to support, let's say, the incoming demand that will be generated from this. And it also depends how you segment the market initially, are you targeting just the small, medium businesses the deal size is less than x dollars, or you're targeting big customers, which have long sales cycle, or something else? But I would say generally, start with small. And the process for small usually is, you there. The typical funnel is the and everybody has a different version of that. So if somebody comes to your website that or you meet somewhere, that's a suspect, and then it becomes a prospect, then it becomes a lead, then it's MQL marketing qualified lead, then it goes to sales that become sales qualified lead. Then it becomes an opportunity, then you then they become customer. So that is the typical and everybody has different version of this, but that is the general idea that there's a funnel that you walk people through Arne, you have, like, a more structured way of thinking about this in terms of dollar terms on the customers. Can you share that? Yeah.

Arne Tonning: 12:40

So in terms of dollar terms, a lot of how you can do marketing in sales as well as in customer success, is specifically related to to to the value of the customer per year. So I would say when you're below $1,000 per year per customer in annual, annual contract value. The only likely way of serving that customer is fully automated, online, so So then it, the way that I think about it, it's it's a marketing led customer acquisition, where the customer comes through the website or some other digital property, and marketing drives the funnel to a conversion point. And typically there's some sort of pain. It could be a freemium thing, but a sign up, and if it's paid, which it would have to be for least segment of the market to be an interesting business, the customer sign up with the credit card. And there's also, like, online customers support and this sort of thing. So I'd say for like, the lowest of low, it's marketing led online channel. And so in your process where you have sales that doesn't necessarily actually involve the salesperson, per se, yeah,

Chander Chawla: 14:14

it's a you know, funnel SQL doesn't necessarily mean that the you know, a salesperson is doing it. Many cases it does. But if somebody's just going, you know, online and signing up, then you go straight from, you know, lead to customer. You bypass that,

Arne Tonning: 14:35

yes, but you know, oftentimes it, it takes more than just somebody pops in there and then signs up. Oftentimes, there's like, you know, maybe people need to study features, and there's all these sorts of things to drive companies from, you know, awareness through to conversion, even. Online world. So the steps happen. They just tend to happen faster and with smaller fiction, and you have to automate the process, so to speak.

Chander Chawla: 15:09

Yeah, yeah. So let me share the, you know, the purchase process that the human psychology goes through, and it always happens with in all sales, even enterprise. And that is first step is awareness, when people become aware that this new product exists, then they second step is interest. They get interested in it. Yeah, this is something I can use someday, or I want to learn more. They haven't decided if they can use it. They want to learn more in the interested stage. And third is willingness, when they see it, they learn they do learn more. And they say, this is something I can do, use someday. And then fourth is intent. That's when they decide, okay, I want it and I will get it by this date. And then the last step is the purchase. So you may see, in the B to B SAS world, you get a lot of free trials like so that is kind of combining intent, interest and willingness together, so people understand the product and get to the intent stage. And then you also see sometimes discounts, and that is people who have the intent, but if you give them a deal, they get pushed to sales. So these are some of the tactics that are used, and lot of times I've seen mistake people make is their marketing strategy go targets directly purchase, they don't walk customers through this whole process. But I think that's changing now,

Arne Tonning: 16:59

yeah,

Chander Chawla: 17:02

and any thing you want to add to this, you know, the this part of go to market where you have different ways of getting the customer in, yeah, yeah. I

Arne Tonning: 17:19

think then, you know, the next bracket as as I think about it, we talked about the online conversion. Type of go to market, primarily as as, you know, value of customer goes up. Typically, the level of involvement of people in the loop for sales typically go up. I think the biggest difference is in sales. So the next bracket I typically think about is, is$1,000 per year to $25,000 per year, which, from a sales perspective, 10 tends to be the area where you can profitably do inside sales.

Chander Chawla: 17:56

You want to define RnF, or people who don't know what that means, yeah, so,

Arne Tonning: 18:01

so it means that the the salespeople are inside, they're not on the road to meet, meet customers. They typically are on phone, web conferencing, some other means of meeting the customers. And typically, because of the value per customer per sale. It's not like the you can't afford to have a salesperson or a set of sales people you know spending hours and hours and days with customers. So typically, the direct engagement, from a sales perspective, tends to tends to be shorter, say, like 30 minutes to some hours per per customer. That's like the ideal scenario to convert a customer. So that's, that's the sales angle of it. And I'd say this is more of a sales LED type of of of go to market. But obviously marketing is still important to give leads, right? So it's still important to find a marketing strategy that that generates leads and builds a brand, so so that customers come to you. But you know you also have to attune to marketing to find channels that are appropriate for for your users and audience, you have to make decisions as to you do inbound and outbound marketing, or in inbound or outbound or both. How do you do that so? So ultimately, marketing is still a very important function, even if I view it as a more sales led and you are had people in the loop to make sure customers become customers. Yeah,

Chander Chawla: 19:49

yeah. So it's, I think lot of times, you have to create the best strategy I have found. And in terms of marketing in this space is you create a new category that you get you know, more coverage. It's easier to explain people to people. And if you create the category, then you are the leader in that category by default. And people, the newness excites people. But in broad terms, I see they're basically in the B to B SAS world. There are four channels how you reach the customers. One is the I, I would call, you know, the automatic channel where, or online where, like what you describe, they come to you, they sign up. There isn't much human involvement in that you can automate. You know, they get email updates and leads, etc, but it's basically they on their own, decide to sign up. Second is inside sales, where, you know, people talk to them, walk them through answer questions. Third is salespeople, you know, like enterprise sales process, where somebody goes, gives demos, and you negotiate terms, and it's more complex sales. And fourth is partnerships. You partner with, you know, some other company and sell that as a bundle, or they, or they are reselling your product. They have a sales team, but it's basically partnership. So these are the four at a broad level, ways I've seen then. It depends who the customers are. You know, how big the sale is, how long the sales cycles are? You choose one or more of these methods is, do you agree at a broad level, it makes sense? Arne,

Arne Tonning: 21:52

yes, I think so. I think some some comments along that. I think, I think, you know, the bigger and more complex the product is more complex the channel is for marketing, and the more stakeholders you have to deal with. Likewise, when the value per year goes up above the 25,$50,000 per year, this would vary a little bit with cost level from country to country, but, you know, you typically move to like, more to enterprise sales, with Field Sales, people who go and meet customers and do deals, and it's more a solution sale, oftentimes, as you describe. So I would agree with with you. I think the one, the sort of the fourth dimension that you, you mentioned here the partner sales, or channel sales, or whatever you called it. I think it's the hardest one to put in a box, and therefore also the one that I you know it kind of works for, or it could work for multiple product categories, to be honest, in in the current sort of venture world thinking the channel alternative is less popular, and the reason why it's less popular is that you have less control over that one. It's harder to direct. So say you have like, either an online conversion or inside sales or field sales organization, where it's direct sales approach, assuming your go to market model works, and you put money on it, you can predict it. The Channel Sales is hard to predict because there's a third entity involved, at least the third entity that you don't control, and therefore you can't control the efficiency of that channel, and you don't like to be at somebody else's mercy. So it tends to be, particularly in Silicon Valley, a less popular channel these days. But obviously, sometimes it works really well, and it when it works well at scale, it can actually turn out to be quite an efficient chart.

Chander Chawla: 24:02

Yeah, yeah, you're right. So that's why it's important. You measure the customer acquisition cost by channel, you measure the turn by channel. You measure the revenue by channel. So you have to have a channel specific CLV or customer lifetime view, so you can make all these calculations that RNA just outlined,

Arne Tonning: 24:31

Yep, yeah,

Chander Chawla: 24:32

and that's another common mistake I have seen the When people look at the CLVS or churn generally, or I shouldn't say generally, a lot of times they look at it by market segment, not by channel, distribution channel. So you need both. I'm not saying one is better than the other, but I think you need both. So. Yeah, okay, so now you have, you know, the people are aware. They have. You have done? You have these four ways of getting them. There's marketing strategy. How you educate people, push them, trial promotions, what you know lot of your companies are in this space. Let's first talk about what mistake have you seen that's common in this space, in going to market?

Arne Tonning: 25:39

Mistaken, mistake. I don't know what's hard. I think is, is where, where people struggle tend to be on finding effective and efficient channels, something attuned to the product, and that yields leads or conversions at a good rate and a good cost. I think that tends to be one very clear challenge. Another one tends to be organization of sales and finding people who fit those roles, simply building an effective sales organization that tends to be a second and then too late, seeing the importance of the Customer Success work and organizing that sufficiently well before it's too late, so to speak.

Chander Chawla: 26:38

Yeah, and I would say, I've seen some time, in addition to what you said, sometimes the incentives are not designed correctly for the inside sales team and the sales team or the partnership channel. And you know, in that space, incentive drives a lot of behavior, so you have to test what works, and you don't know. So you know, like you do AB testing in marketing, do AB testing with incentives as well, see what works better. And then you also have to see, you know, inside sales is lot of times high churn job. So what you can do to keep turn low in that space, keeping people excited,

Arne Tonning: 27:29

absolutely, I think, I think, you know, particularly if we look at sort of a middle segment here, in my view, where you have, like an inside sales model, and you have, like prospecting and lead generation through the marketing. That's sort of the bread and butter Software as a Service go to market these days, and there's lots of there's there's like a school of best practice around that, which has sort of been coming up with a predictable, Predictable Revenue book, and can't remember what the follow up Jason lemkin's book is called, and also being touted by the sastra community. And it works when it works, and there's sort of a very sort of structured way of doing prospecting, very clear way of setting up sales teams with sales development reps, qualifying leads and then going to account executives to close and that sort of thing. That structure works really well for a segment of of companies and when they do it well. But even if the methodology and best practices are really well known, finding that talent and retaining it to do these jobs is very hard, just as you say. And the other issue is, of course, if, if you have, like, a slightly odd product that doesn't like fit the mold, so to speak, you have to be somewhat creative about how you do these things.

Chander Chawla: 28:59

Yeah, yeah. And you have to spend, you know, money on marketing lot of times. I mean, there are many creative ways. But, you know, instead of making it depends on the stage of the company, if you, let's say, post series, a you have the money, you know, create a more professional looking video than, you know, just developers doing something on their own, which may work if the product is targeted towards developers to use, but if it's targeted towards, you know, let's say the employees, knowledge developers and knowledge Workers. Let's say non developer workers in the enterprise, then you have to make it look more, you know, sleek or professional. The other thing I found, which is kind of part of go to market and. Or post. Go to Market. You're in the market and you know, you're always releasing new versions of the product. Create like, do user user acceptability testing, or UAT, which I see many companies don't do because they, you know, they're used to just releasing things every two weeks. People follow Agile methodology, so they are sprints that are one to three weeks long, and they just keep on releasing stuff, but do UAT before you release it to everybody, and then create something like a, you know, customer advisory board that you meet regularly with, you know, get their feedback, what new things they want to see, etc, etc.

Arne Tonning: 30:55

Yeah, absolutely. And I think you know, another point is that, I guess, in Episode 19 last year, we talked about marketing and product for for startups. So we shouldn't go into all the nitty gritty details, but I think, I think, you know, the go to market cannot be seen in isolation from the product, and the closer integrated it is with the product, the better it is, and secondarily, on the marketing as you grow, some of your challenge channels may become less and less effective as the volume grows. And also one of the key trends in the world today is that the marketing channels become very, very saturated. So, so I think, I think there's a constant, dynamic fight in in tuning your channels and finding new ones and and better for you know how the world works today, and how you state, state of your business. So you can't, like, find a model today and think that's going to play, you know, for five years going forward without tuning it, it's constant experimentation and improvements and adoptions. Yep,

Chander Chawla: 32:11

yeah. I How do you remember the episode number from last season? I

Arne Tonning: 32:17

checked it because I knew we had talks of some about these topics, wow.

Chander Chawla: 32:21

So this is, you know, very good news. Arne, you may be box person, but you see the interconnectedness of boxes. So I just remembered another common mistake that people make is, you know, especially for what I was calling the automatic channel, or online channel, you drive lot of traffic through, you know, Google AdWords or LinkedIn or Facebook, whatever it is, people come to you through something. And for those channels, lot of times people don't create a separate landing page. So for every search word you have in your, you know, list of Google AdWords or Facebook, you gotta create a separate landing page. So I have done that, you know, experiment many times you can't have, you know, like same landing page for somebody who's coming from, let's say your product is used by retail industry versus somebody from automotive industry. You have to speak to people in their language. So the value proposition for the product has to be in the words that the market segment you're targeting. So that requires you know separate landing page for people to come in. Does it make sense? Absolutely Okay. What else do we want to say about go to market, actually, if I would say for the IT related stuff like, I know it's painful, but it's worth paying these research people, Gartner, etc, because lot of the especially the ones where the numbers are bigger, meaning it's an salespeople sale, and the CIO or CDO or senior level people have to approve it. That's what they look at. You know, they don't want to get fired for getting the wrong lender. So the being in some magic quadrant from Gartner or some other report gives them more confidence in dealing with you. But you get there like you, you don't start there. You start. Small, and then you get to the bigger guys, because they want to see that you are operational, have lot of customers, then they feel more comfortable doing business with you.

Arne Tonning: 35:13

I'm happy to hear that we're now sponsored by Gartner, so I look forward to receive my half of the check.

Chander Chawla: 35:22

I there it's, I don't like that. You know that you have to pay you're a startup, but I've seen how decisions are made. So Okay, the other route is which has just become popular, and I would say last, you know, less than 10 years, is the freemium model and B to B SaaS sales. It just didn't exist before, because the old model was Microsoft create stuff, and it's not really made for normal people. It's made for IT people, and they're going to train you, and you need them to do anything but the popularity of UX or user experience. And this B to B SAS model, or the freemium model, you can give the users product for free, get them excited, get them used to it. And then the enterprise, you know, wakes up, or the IT people, and then they would come and do a deal with you, because they want security, SLAs, etc, because everybody's using it. So that, I think was very clever. You know, Dropbox did that? Slack did that? Zoom, did that, like all these successful companies that followed the same be the freemium model, and B to B, SAS,

Arne Tonning: 36:46

and I would agree with you on that. However, my reservation on freemium would be that that for freemium to work, you have to be have something that has a very, very large user base, if it's sort of a nichey segment, and niche in this context can be quite large. Actually, the mathematics of the economics don't add up so nicely for freemium generally, the conversion to paid version is rather low, and the price points for freemium are generally fairly low, which together, just means that you have to start with a very, very large central user base. So so the

Chander Chawla: 37:37

use you may want to get to the large user base, but you start with the small always,

Arne Tonning: 37:43

I mean, you always start at zero. That's that's per default. But if you look at the companies that's been successful with, with, you know, freemium, they're like Dropbox, which is, you know, storage. It's like Slack, which is message, messaging any sort of thing. These are pretty generic functions that in theory, can touch a very, very large population of users. If you were to make a deal. Management system for venture capitalists, there are so few of those that making that a freemium, uh, makes it unlikely to be a very successful business.

Chander Chawla: 38:27

Yeah, venture capitalists have a lot of money, so they don't need any free stuff. You can charge them if they if they want it, they'll pay for it. Yeah,

Arne Tonning: 38:38

yeah, exactly.

Chander Chawla: 38:41

Okay. So I think we can end here for this specific B to B SAS, go to market. We'll hear feedback from you, and then we can do another segment for B to C, software, B to C hardware, or B to B to C or so. Tell us what you think and what you want us to cover this? And originally we thought we will just cover the topic of go to market, but it's so diverse and both in terms of depth and breadth, that we thought we restricted to B to B. SaaS, companies, yeah, absolutely so please let us know. Thanks for joining us, and we'll see you next week. All

Arne Tonning: 39:28

right, bye, bye, bye.