1.1      TRADITIONAL GROWTH MODEL

If we depict a 2-axis diagram with revenue and volume most companies wish to achieve high volume/high revenue. Conventional growth can take decades, with an incremental, single digit increase in revenue year over year.

 

Figure 1  Trajectory of traditional growth taking decades of incremental growth

 

Traditional companies avoid high volume/low revenue growth since this is a risky proposition. Imagine running a high volume business and you are making a loss because your supplier is going out of business. You suddenly are making a loss per product and at a high volume.

 

Figure 2  Traditional technology companies avoid high volume low revenue business

1.2     RAPID GROWTH MODEL

In a rapid growth model, companies travel the route of volume first. Rapid growth companies will “buy” their way into volume. Volume can be measured in users, logos, subscribers, usage, seats etc. Most traditional companies do not have deep enough pockets to fund an investment in growth over an extended time. Therefore the main focus becomes speed.

 

Figure 3  Start-ups pursue high volume/low revenue based on rapid growth (Freemium)

 

Many companies acquire this volume at high speed by “giving a service away for free”. This speed is measured in months to years vs. decades like the traditional model. To fund “Rapid Growth” for early stage companies, Venture Capital is brought in. Once high volume is achieved, the rapid growth business switches to monetization: a moment in time often referred to as a pivot of the business model. The service is more expensive; “free” features now require payment, surge rates, premium packages, and so on.

 

Figure 4  Importance of Pivoting of the business (raising prices)

 

Pivoting the business model and having your customer base adjust to the new model takes anywhere from days to months. As the business becomes profitable, it is key for your investors to cash out as the promise is high. Often this means your company getting acquired by a larger company. If the business stands on its own feet it is headed for an IPO. This explains why Growth and Speed are joined at the hip. We refer to this as Rapid Growth.

 

1.3     GROWTH EXPLAINED

Figure 5  Same revenue growth (ARR) year over year causes slow down growth

 

At the start of business a customer acquisition team grows revenue by $1M year over year (New ARR) whilst the renewals come in at 100%. As the new acquisition/renewals team steadily performs in the following years the growth reduces from 100% to 50%. This example depicts a common misunderstanding of growth: If you keep growing at the same ARR you are slowing down your growth rate.

 

1.4     GROWTH POTENTIAL

Figure 6  Understanding Growth Potential

 

Software products with an OpEx (SaaS) model experience exponential growth due to a variety of factors;

 

1.      An increase in Online Spend

B2B customers are increasing their online spend.  Previously they may have only spent $1,000 when buying a SaaS service online. Now the services have matured where buyers are spending 20x in online services is relatively comfortable. In person meetings are no longer required.

 

2.   An increase in Market Size:

Every seller now operates in a global marketplace with 10x more buyers, and buyers more accustomed to buying from remote providers.

 

3.  A compressed Sales Cycle

Today’s B2B customers buy a lot faster than ever before. They no longer are buying for a solution 12-18 months from now, but rather they are shopping for a solution to solve an immediate problem.

 

Table 1  How the numbers add up

1.5.1    PRODUCT/MARKET FIT AND THE IMPACT OF SALES HACKING

One of the most recent trends is the use of “growth hacking”. Growth hacking is a process of rapid…

Figure 7  Early stages of growth

 

Stage 1 Find Product Market Fit and test out Go To Market plans

This is the moment that a mature product is in a market with plenty of growth potential. This is one of the hardest to do in a market where innovative solutions are launching constantly and markets are never constant. However, founders are often passionate and well equipped in dealing with this situation.

 

Stage 2 Identify the Launch Window

One of the most common mistakes following product/market fit is when the fit is achieved and the company waits too long to scale to meet the market potential and misses the launch window. You often recognize these companies as #4, #5 of the list of alternatives with only a sliver of market share. Due to the increasing pace of innovation the launch window is shrinking from 18-36 months to 9-18 months.

 

Stage 3 Execute a proven GTM plan

The third and final hurdle to hit rapid growth is to execute the right Go To Market plan, often attributed to growing sales. It is the least understood topic, due to lack of education. Success of Executing the GTM is not measured in growth rate [%] or revenue [ARR] but rather against the growth potential.

 

Case In Point

In 2015 Randy had grown sales from $800k in ARR to $4M in ARR. A formidable feat celebrated with a new round of funding. In 2016 Randy was on track to grow the business from $4M to $6M with a big deal that could take it close to $7M. Randy was let go in July. Why?  In 2015 Randy had kept pace with the growth in the market. However the growth accelerated substantially in 2016.  Competitors were increasing their market share and Randy was falling behind.

Experimentation across marketing/sales channels, to identify Product/Market Fit, is the most effective and efficient way to grow a business. The challenge is that these organizations are primarily looking at the result, not using metrics to measure effectiveness and efficiency needed to scale the business. This growth of monthly recurring revenue (MRR) or annual recurring revenue (ARR) help in the short term, but do not provide insights on how to actually… This results in a simple plan to get to $10M. Do 10 x the plan that got us to $1M.

 

Keys to growth you have to identify during Product/Market Fit

  1. WHAT is the value proposition that prioritizes the solution offered
  2. WHO is the audience that has a real problem and is willing to take action
  3. HOW to get to the audience with the real problem in an efficient and effective way
Figure 8 Impact of sales hacking visualized

 

Due to the lack of measuring effectiveness and efficiency, the failures are also amplified by 10x. This means there is no real growth which results in a lower valuation of the company, and the firing of the sales leadership. The replacement sales leader lacks the context of the growth hacking results and blames this on poor sales execution of the sales people. The sales leader starts hiring new people… and with it the downward spiral continues.

 

Case In Point

Many SaaS companies can demonstrate the ability to get to $1M in ARR by pursuing 10,000 prospects with the “hack” of high frequency email chains to setup demos. However as these companies quadruple their sales teams they scale failure. This mimics tuna fishing with a fishing trawler using fine nets that destroy an entire ecosystem to catch a single tuna.

 

REFERENCE: The Impact of Sales Hacking by Jacco van der Kooij

1.5.2      LAUNCH WINDOW

So how do you know when you are in a launch window? There are three clear tell tale signs.

 

Figure 9 Tell tale signs of being in the launch window

 

PRICE GOES UP

Instead of $24,000 in ARR you start winning clients at $48,000 ARR. This is indicative that you offer real value, and that your customers start to understand the impact of the value on their business.

 

WIN-RATE INCREASES

Win-rate is measured as the number of Sales Qualified Leads needed to win one deal. Instead of winning 1 out of 4.8 deals you now win 1 out of 3 deals. This is indicative of a stronger position in the market.  

 

SALES CYCLE DECREASES

The Sales Cycle is measured between SQL and WIN stage. For example the average sales cycle is now 71 days instead of 84 days. This indicates your customers are prioritizing your solution.

 

What do all of these have in common? These are data points that when entered correctly, and Interpreted correctly can be leveraged to make a data driven decision.

CASE IN POINT Common situations

 
  • One of our client’s database showed a single $200,000 annual contract (ACV) Enterprise deal with a 270 day sales cycle among dozens of $12,000 ACV deals with 28 days sales cycles.
  • An untrained sales manager gets a lead (SQL) and following a discovery call disqualifies it. Two months later the same lead re-enters and a new opportunity is created – the deal closes in a matter of weeks. The lead now is categorized with a shorter “sales cycle”
 Both examples indicate you need to a) segment your data, and b) keep it clean 

1.5.3    GTM EXECUTION

To meet the growth potential a Go To Market (GTM) plan is imperative.

Figure 10  When funding is used to scale growth

 

In this case we use the world’s most common GTM plan: to achieve $30M. Do more of what you were doing 🙂 . E.g. to get to $30M do 3x what got you to $10M. As you can observe in the figure below, even when we grow the sales time by 3x, and they perform admirably the scaling still remains a challenge.

  

Figure 11  When funding is used to scale growth

This is commonly experienced in companies who depend primarily on an “outbound” approach. They find out the hard way that tripling the sales team, and tripling the activities does not triple the result. What is required is a more modern GTM model that has layers of revenue.

 

1.6     SCALING YOUR GROWTH

To avoid a scaling problem you have to think of your revenue as if it has layers.  An example below in which we:

  • Added regional teams to increase market coverage
  • Launched an additional service to uplift the price, and drive upsell / cross sell
  • Pursued a bigger market also known as moving upstream

Going after bigger deals is not just taking your best sales people and giving them a list with bigger companies. This requires that you segment the market, and develop a new GTM plan for that market.Figure 12  Layering of revenue.  Each layer may need a different GTM strategy