What differentiates a walking dead startup from a successful high growth rocket ship?
The walking dead. A business that often delivers consistent single digit growth year on year that becomes a ‘lifestyle’ business over time. That’s great if that’s what you want to achieve but if you really want to get funding to scale and achieve a global ambition, the expectation will be that you have a plan to become a scalable high growth rocket ship.
But just because you have the best product, doesn’t mean you will be successful. Just look at the classic VHS vs Betamax example. Betamax was videotape format created by Sony that enabled people to record their favourite programmes and rent pre-recorded ones, which was launched shortly before VHS. Betamax was far more superior in terms of quality and features but it never took off because they didn’t partner with enough hardware companies to flourish compared to its competitor VHS. VHS became the global standard until it was replaced by DVD in the 1990’s. The illusion of product market fit.
We know starting and growing a successful B2B business is hard. Our startups customers tell us that their priority when achieving a successful series ‘A’ funding round is to hire a sales leader for two reasons. Firstly, since founders are not career sales people, they want to remove themselves from the sales process (and rightly so). Second, this first hire usually comes with a good contact book that can get you some great logos and start you journey to growth. Since the initial sales processes are likely very unstructured, the first logos require a lot of learning but often repeat to get a few more. This may be enough to get you to your Series B funding round which drives new sales hires that repeat the same process to win more and more deals.
At the early stages, it can become too easy to fall in to a trap of building custom code level products for each of your customers, so you end up developing over complex deployments that are hard to support, very costly to maintain and don’t scale to meet the needs of other customers easily. This is an illusion of product market fit, and because you focus too heavily on building custom solutions, you fail to deliver on your roadmap promised to your existing customers and churn will inevitably start. In this state, you have pivoted because you are now only focusing on the custom products deployed to existing customers. You appear successful, but actually you are now on a path to the walking dead.
We see scale-ups overly focus on getting new leads rather than up-selling or cross selling to existing customers to understand if the product is providing impact to their business. Successful B2B startups stay focused on customer needs by building new products and features using a customer led product roadmap and learning to optimise the sales processes by shortening the sales cycle. We see a big trend that many B2B Independent Software Vendors (ISV’s) are now replatforming their software offerings to SaaS because it removes the need for code level customisations and deployment complexity. For customers, the ownership of the software deployment shifts from themselves to the vendors, vastly reducing the cost by removing undifferentiated heavy lifting of on-premesis installations. For the vendors, this improves margins extensively since all deployments remain standard as the customer takes ownership of all configurations on the system. It also provides the capability to collect data centrally and use machine learning to drive further improved experiences for customers.
What differentiates a walking dead startup from a successful high growth rocket ship?
It is rare to witness SaaS transformed ISV’s or B2B Saas native startups grow at velocity without help. By creating and adopting a partnership strategy as early as possible can usually be a huge differentiator of success over time, whether your product is the best in class or not.
- Startup Phase:
This is the pre-product market fit stage and is all about solving real customer problems using technology and experimenting with a complementary business model that appeals to a broad customer set. Customers tell us that it’s important to have a market leading technology platform such as AWS and to commit to this partnership for the long term. One tool to help with the early stage is to leverage infrastructure technology partner programs like AWS Activate to fund early experimentation that helps accelerate developer cycles and gets you to product market fit quicker. AWS Activate is a program for early stage startups to help with early experimentation by offering funded startups with credits to reduce the cost of innovation. It’s critical to choose an infrastructure technology provider with a long track record of success, a broad set of cloud enabled applications to minimise development costs and significantly reduce the heavy lifting during this vital early stage of your business.
Experimentation with sales models is also a critical consideration at this stage, with the goal to know who your customer is as quickly as possible. If the focus is on volume and low cost of sales, zero in on a model for that. UK based data transformation growth stage company Matillion ($60m raised) is a great example. A key factor in Matillion’s ability to achieve a level of scale that most founders only dream of was finding the right partner to team up with. And in this case, that partnership was with the AWS Marketplace. “Given that many of our customers are Redshift users, this partnership gave us instant access to a targeted, global customer base, a low friction launch, and a simplified billing and collections process, with AWS handling much of the work” said Matillion’s CEO Matthew Scullion in a recent talk on stage at Saastock in Dublin in October 2019.
If your focus is on lower volume, high value however (e.g. such as many complex ERP type solutions) you should focus in on experimenting with a sales process that satisfies dealing with multiple stakeholders to drive customer success.
- Scale-up phase:
In the scale up phase, the focus changes to scaling the business and customer base. A Series ‘A’ raise at this point helps sustain growth for a time as a startup now expands its offer to new customer segments or geographies. In most cases, adoption will reach its natural saturation point, so we need a new growth engine to take the company to the next level.
There are critical enablers of growth that are well documented, such as picking a large enough market and also creating a model that is simple and easy to capture the value devivered to customers. What isn’t well documented is driving rapid adoption by putting customers first, such as delivering a customer centric product roadmap that aggregates all of your customer needs, avoiding complex code level customisations that win lighthouse logos. For enterprise focused Saas startups, winning high profile customers is critical, so our successful scale-up customers tell us that API’s are the most scalable and economical way to drive integrations that can extend the product beyond its capabilities. This allows customers to build in those and integrations themselves or use consulting parters to help.
It’s at this point that we see successful companies scale up their commercial strategy and use it as a lever for accelerating sales in the most efficient and effective way.
Tools that can help with this are:
Sales Process: Start executing by building and evolving sales processes that can provide scalable software procurement and fulfilment mechanisms with the goal to shorten sales cycles. Historically these have been through 2 or 3 tiered partnership model that scales by using local expertise to penetrate specific geographies or explicit vertical markets.
Marketplaces: For a more cost effective solution, using marketplaces such as the AWS Marketplace can help sell your product to deliver scale across markets and reduce barriers to adoption by providing simplified software procurement and software fulfilment mechanisms.
Customer Success: High performing software companies understand that closing deals is actually the starting point of the customer journey. They stop delivering a product and start delivering a service for customers by adding a customer success team as early as possible to help drive renewals and reduce churn risk. They design teams to reduce the cost of acquisition by adding the capability to up-sell and cross-sell using well designed sales motions. Startups should be building sales models that can include 3rd party technologies at this point.
- Growth phase:
Many companies will hit either a natural market-size or market-share limit to their core product or service. Few companies grow without investing in new offerings to support additional customer needs in adjacent markets or vertical segments. For example Amazon started out as a bookstore but quickly moved in to selling CD’s and DVD’s and evolving from there. Evolving your technology in to a platform either by extending via API’s can drive additional revenue streams and create your own partner ecosystems. Amazon’s seller business, the AWS Marketplace and AWS customer G2 are good examples of successful global platforms.
At this point how does partnering GTM at scale work?
Popular marketing sell-with motions include marketing tools such as jointly funding customer events and co-published case studies. Joint sales motions include sharing common pipeline and attending sales calls together to help meet broader customer needs but also help drive new opportunities to accelerate sales cycles on both sides of the partnership. These are more bespoke sales engagements at first since there are a lot of unknowns, so it needs commitment from both sides to build a robust playbook that enables a repeatable scalable sale motion over time. We are seeing scale-ups with the most customer success, hire a dedicated partnerships leader that a takes ownership to build and drive this playbook.
Partnerships that aligning resources across multiple business functions will also help scale the sales process and drive customers success strategies. Leaders and executers of the sales motion on both sides should be matched where possible. For example, technologists such as solution architects need to work together and be trained on each others technology. Proof of capability can come in the form of technical competencies through certifications that endorse the strength of the partnership and give the customer the confidence that their needs will be delivered by the partnership and provide a solid return of investment.
By Jonno Southam, Venture Capital Business Development Lead for Amazon Web Services.
This was posted in Bdaily's Members' News section by Amazon Web Services .