ZT20 #006 The Silent Killer of B2B SaaS StartupsJan 05, 2023
These days I spend the majority of my time helping founders understand and build the necessary go-to-market frameworks they need to follow to successfully evolve from founder-led sales; with the key objective of de-risking their startup and in turn setting themselves up for repeatable and sustainable revenue growth.
Figure 1 below, inspired by the likes of David Skok, Pete Kazanjy, Mark Roberge and others, is an example you will be familiar with from following my content:
Figure 1: Phases of startup growth
However, the biggest challenge I continue to face has been getting founders and investors to truly appreciate the gravity of failing to build go-to-market systems and processes in an optimal fashion, and the impact of those accumulated failings.
Historically, rather than knuckle down and analyse what’s holding them back, founders, egged on by equally ill-informed investors, have had a tendency to treat salespeople like cannon fodder. When things are not working out as they expected, they just throw new or additional resources at the problem. And get rid of those that ‘failed’.
It’s an archaic and expensive approach to solving one of the biggest challenges in SaaS: sustainable net new ARR (Annual Recurring Revenue) growth with strong downstream NRR (Net Revenue Retention).
As belts tighten and a focus on sustainable growth versus growth at all costs begins to dominate market sentiment, founders have to find a more cost-efficient way to solve this problem.
I believe it’s the responsibility of those in the know, supposed GTM experts like myself, to make attempts to articulate both the gravity of getting seemingly innocuous elements of the GTM process right, to present a pragmatic way to evaluate that process and to use our expertise to help founders build sustainable go-to-market engines.
Technical Debt as a proxy
This is the scarily accurate ChatGPT definition of technical debt (I made only minor adjustments!):
“Technical debt refers to the cost that a company incurs as a result of using a quick and dirty solution to a problem or a suboptimal approach to software development, rather than taking the time to do it right the first time.
This "debt" accumulates over time and can eventually become a major problem if it is not addressed, as it can lead to technical problems and inefficiencies in the long run.
Whilst technical debt can be thought of as the trade-off that a company makes between short-term gains and long-term sustainability and efficiency, if it’s not paid down it will stymie the company’s ability to scale.”
I think the concept of technical debt can serve as an effective proxy to educate founders about a different but related kind of debt: “go-to-market debt”.
Introducing the concept of “Go-To-Market Debt”
Recently it struck me that the definition of technical debt can be almost directly applied to go-to-market.
Just switch out the words “technical” for “go-to-market” and “software development” for “sales” and you’re pretty much there. And yet, I’ve never heard it presented in this way, or ever heard the term “go-to-market debt”.
Over the last few months, I’ve been socialising the term with founders and investors and how I think about GTM debt to get their feedback, and it has resonated.
And to my surprise, no one I have spoken with had previously heard of the term “go-to-market debt”.
GTM debt explained:
During the early phases of startup growth, the more GTM debt that accumulates, the lower the probability of success or the more inefficient a startup’s path to success.
Figure 2: Phases of startup growth, with examples of “go-to-market debt” alongside
For example, in the idea-market fit phase in fig. 2 above, should a founder fail to accurately map their competitive set, it’s close to impossible to accurately detail the company’s unique selling proposition and in turn close to impossible to accurately hypothesize who their ideal customer profile may be.
These are the foundations upon which the go-to-market motions are built. If founders fail to successfully exit the phases of idea-market fit detailed in fig. 2 they will accumulate foundational debt that will render it much more challenging to achieve product-market fit, the next phase of growth.
If they accumulate primary debt in the product-market fit phase, and they insist on pushing into the go-to-market fit phase (because their investors gave them a $10m series A to do so, for example) they will have accumulated so much foundational and primary GTM debt that they will face an impossible task and will ultimately have to back-track to pay down their accumulated GTM debt or face other costly consequences, including the death of their startup.
The existential threat of accumulating GTM debt creeps up on founders, often unwittingly:
Poorly defined ideal customers… …leads to early-stage customers that are not ideal… …those not-ideal customers don’t see value… …this ultimately leads to churn which negatively impacts the key SaaS metric of net revenue retention (NRR)… …which in turn makes it harder to build a sustainable business and to raise capital, and often leads to premature death.
Paying down GTM debt
Although they don’t know it, most CROs or VPs of Sales joining early-stage startups are doomed to fail, and it has nothing to do with their ability to execute. It simply has to do with the amount of undocumented GTM debt the startup has accumulated.
They’re tasked with scaling a revenue engine that’s missing key parts, and no matter how hard they push their foot to the pedal, the engine just won’t fire on all cylinders, due to the GTM debt.
Investors and early employees are commonly blind to this debt.
As a point of reference, it takes me 4-6 weeks to map GTM debt accurately using my proprietary EMPAP framework (see Figure 3. below) through a series of interviews with startup founders and their leaders.
Figure 3: EMPAP framework used to uncover GTM debt
It’s a “come to Jesus” moment for founders which is initially challenging, however, the outcome is typically what they wanted all along: successful evolution from founder-led sales, sustainable and repeatable ARR growth, strong NRR and a world-class sales org.
The earlier they diagnose their GTM debt, the greater their chances of survival.
I’ll be writing much more about the topic of go-to-market debt throughout the coming weeks, diving deeper into each phase and element of GTM debt that I’ve seen in B2B SaaS startups.
If my concept of GTM debt resonates with you I’d encourage you to socialise it with the #GTMdebt hashtag, and then iterate the concept alongside me and others on LinkedIn and your communities.
Thanks for reading folks.
We’ve got this 👊🏼
#saas #sales #startups #venturecapital #GTMdebt
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