Too many businesses create ideal customer profiles (ICPs) around basic criteria such as job title or employee numbers, when they really should go much deeper to identify the customers they need. For example, Kelly and Rich may both be CIOs of similarly-sized companies, but Kelly is always up for new ideas and believes being first to a new product can give you a competitive edge, while Rich is more of a laggard and is slower to buy. You want your ICP to be more like Kelly and it’s important to find indicators that demonstrate this.
When I was CRO at an e-commerce solution, for instance, our ICP targeted people who used the newer Shopify platform (rather than the older, more traditional Magento platform) as we figured that if a prospect was using Shopify, they were likely to be more open-minded to new tech giving them a higher propensity to buy our solution. You can find out pretty quickly whether you are on the right track with these assumptions. Follow ‘build, learn, measure’ and don’t be afraid to change your mind if you need to.
Based on the work of Andy Raskin, I put together a five-point matrix for articulating your value proposition in the context of a paradigm shift. This is about identifying a big change in the world and helping your prospects recognise that change as the earth-moving event that it is. When you’re talking to potential customers, start at the top and work your way through:
What is the big change in the world?
Inside the big change, who is going to win and who will lose?
What is the common thread that joins the winners? What do the winners understand that the losers do not?
What do you need to do to win in this new world?
What is the evidence that you can make this new world work for them?
The key here is that instead of pitching your product’s features and benefits to your prospect, you’re explaining what the world looks like and setting out a framework. If you do it well, your customer will agree with your framework, identify the pain and vow to be a winner rather than a loser. That’s when you can move on to a pitch.
Moving from Series A to Series B is about adding scalability to predictability. Here are three metrics that Series B investors look for to prove scalability (and you need to know):
CAC to LTV ratio – The sweet spot is between 3 and 5. If it’s lower than three, you’re either spending too much or not selling enough. If it’s higher, you’re probably not investing enough.
Sales Velocity – This equation lets you see the value you are generating daily, weekly and monthly. It enables you to identify problems, which you can then jump in and fix.
The Magic Number – This helps to measure your sales efficiency. The Magic Number measures the output of a year’s worth of revenue growth for every dollar spent on sales and marketing.
There are hundreds of different metrics you could monitor, but you’ll just end up getting lost and no one will pay attention. Focus on the ones that matter most to you.
I think this is the most common mistake companies make between Series A and B. Picture this: you’ve raised Series A and you’ve given some quite aggressive growth projections to your investors. Then, inevitably, things slow down and you find it hard to get to the next phase of traction. Most founders I see think they’ve got a problem with sales, so they redo their playbook or even fire their sales leader.
Now, it may be a sales problem, but often there is some underlying strategic issue - such as product-market fit, differentiation or category design - that isn’t quite working. Remember that sales are an outcome, not an input. Identify the deeper issue behind your problem before you start looking at sales.
Often, I see leaders overestimate where they are on the path to scalability and fail to understand where they are on the cycle. This can lead to many different pitfalls. For example, I talked in the last section about fixing the wrong problems when things go wrong, but another common mistake is hiring salespeople before you have sufficient demand. As a result, you have expensive salespeople kicking their heels and performing the role of an SDR. They eventually get annoyed and leave, which brings down morale.
What’s more, if your post-Series A journey is about proving predictability, post-Series B is about taking that predictability and transforming it into scalability. For example, if you add two more people to your sales development team, do your results rise in line?
Be realistic about where you are on the cycle. Follow the ‘build, learn, measure’ hypothesis from the Lean Startup methodology and make changes in small increments.
Selling in most startups is about demonstrating a paradigm shift: you either offer something entirely brand new, propose a new twist on something that’s been done before or take something that’s been done before into a new market. However, people are generally allergic to change.
Startups and scaleups therefore need to present their prospects with a new way of seeing the world, one in which, if they don’t get on board, they’ll be left behind. Far too often I see startups pitch the features and benefits of their product like it’s the 1970s when they should be showing prospects that they are challenging a status quo that is no longer tenable, identifying the prospect’s pain point (it could be a pain your prospect doesn’t know they have yet) and articulating it properly so they are compelled to take action.
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