Dear Startup Investor,
Ever wonder how startups find their customers?
Like, how did Google find its first users back in the day?
Or how did PayPal convince people to try its app?
How about Uber?
Well, wonder no more because I’m about to tell you how startups face this challenge.
In the venture capital business, we call this a startup’s “Go-to-Market strategy” or GTM for short. And you need the right strategy depending on the type of product, the price point, and the type of customer the startup is after. It’s not a one-size-fits-all kind of thing.
There’s a famous saying in the business that goes, “startups with the best technology rarely win… it’s the startup with the best go-to-market strategy that does.”
Acquiring customers quickly and cost-effectively is a defining competitive advantage. That’s why I spend a lot of time understanding a startup’s go-to-market plan and how well this fits into their business strategy longer-term.
#1 – Enterprise Sales: When You Have Big Fish to Fry
Enterprise sales (sometimes called direct sales) is, as the name suggests a good fit for selling to medium and large companies. It involves building and maintaining a sales team – from account executives to sales managers and sometimes customer success managers – with one goal in mind: driving new sales and revenue growth in existing accounts.
Each account executive on this team is tasked with building their “book” by going out and finding new prospects for the business and then working to turn those prospects into customers.
This strategy can be extremely effective when set up correctly. It’s how some of the biggest tech companies in the world built themselves up. I’m talking the likes of Salesforce, Oracle, NetSuite and Snowflake.
However, enterprise sales is also a very expensive go-to-market strategy. Sales teams typically have healthy base salaries with significant customer-acquisition commissions.
Given how expensive this approach is, it’s only a good fit for startups selling high price point products… those that cost tens or hundreds of thousands of dollars per year.
For example, at Miso Robotics our starting price for our Flippy 2 automation suite for restaurants is $35,000-plus per location.
If a customer signs a deal for 10 locations, that’s a $350,000+ a year contract for us.
Given these big numbers, we use an enterprise sales strategy and that’s how we’ve been able to secure marquee enterprise customers like White Castle, Buffalo Wild Wings, Dodger Stadium and more.
You can learn more on our crowdfunding page here.
#2 – Digital Marketing: Precision Targeting for Higher Conversion
The rise of social networks like Facebook, Instagram and Tik Tok helped create a whole new go-to-market strategy for startups – digital marketing (sometimes called digital advertising or direct-response marketing).
These new social platforms have networks of billions of users of all ages, demographics and from every country in the world. More importantly, they have granular data about the interests of these users.
On top of this, these platforms also have digital advertising platforms that businesses can use to market goods and services directly to their highly targeted users.
For example, if you’re selling outdoor hiking gear, Facebook allows you to market to users who are part of hiking groups or like hiking pages on Facebook.
Direct-to-consumer startups have used this strategy successfully. Dollar Shave Club, Hims and Stitch Fix are the perfect examples of this.
Digital Marketing helped give us the Customer Acquisition Cost (CAC) / Lifetime Value (LTV) formula for unit economics I wrote about earlier this year.
It gives us exact numbers on how much we spend on ads and how many customers convert, giving us a clear number for CAC.
Digital advertising works well for products where there is typically only one decisionmaker required like consumer products. On the other hand, if you’re selling a product like Miso Robotics, there are multiple decision-makers involved and having an account executive involved helps handhold this group of decision-makers towards making a final decision.
Digital Marketing also works better for low- to medium-priced products, the kind of things you typically buy on Amazon like bags, home goods and utensils.
Digital marketing isn’t a great go-to-market strategy for more expensive purchases in the tens of thousands of dollars, and can have mixed results for selling B2B products in general. At higher price points, the decisionmaker typically likes to have a “human in the loop” to talk to directly about their purchase, ask questions about functionality and negotiate pricing. While digitals might help acquire customer leads in these cases, it takes a sales person to really close the deal.
#3 – Content Marketing: Slower to Yield Results, But Powerful
Another popular go-to-market strategy is using content marketing to drive traffic and new customer growth. At its most basic level, content marketing involves creating useful and valuable content and using search engine optimization (SEO) to rank on the top five or 10 Google search results to drive traffic.
For example, it’s tax season in the U.S. right now (speaking of, my fellow board member Daymond John is hosting a free workshop with his tax expert Tyler McBroom… sign up for that here). Say you’re a high-school student filing your taxes for the first time and you got your first W-9 this year. Maybe you don’t know what a W-9 is and how to use it when filing your taxes.
Let’s say you Google “What is a W-9.” Chances are good that one of the top three results is going to be from TurboTax.
When I Googled this, the second result I was served gave me was this article from TurboTax.
As the high school student reads that article, s/he will realize TurboTax can help him or her file his taxes for the first time, and may end up becoming a customer.
This the essence and power of content marketing as a go-to-market strategy in action.
That’s why companies often use it to complement their other go-to-market approach.
For example, direct-to-consumer startup Hims writes a ton of content on men’s health that helps drive significant traffic to its website (see an example here).
Another interesting example is Sugarfina, a company that is currently crowdfunding. The Sugarfina blog is full of candy recipes, gift recommendations and other useful content that will pop up on all sorts of searches on Google and help drive traffic and new customers to the company.
#4 – Referral and Affiliate Marketing: Granular Control
One of the most powerful forces for growing a business is word-of-mouth. When your customers are helping bring new customers onto your platform by telling them about your service, you know you’ve found product-market fit and are on to something.
Word-of-mouth happens organically, but there are ways to supercharge it using referral marketing.
PayPal famously used referral marketing to much success in the early 2000s. It offered its early users referral bonuses for inviting their friends onto the platform. Initially the company offered you as much as $20 if you signed one of your friends up for the platform. Over time this dropped to $10, then $5 and then was dropped altogether in the end.
These referral bonuses helped supercharge PayPal’s growth and the company grew its userbase to 1 million just two years after it was founded. It hit an astonishing 100 million users just six years later.
PayPal’s incredible success with this referral marketing program has inspired hundreds of startups to follow suit over the years. For example, stock-trading app Robinhood offers you free stock for referring new users, digital bank Sofi gives you $20 for referring a new user and even Google offers you free user accounts for referring new customers to Google Workspace.
It’s not just big established companies that use referral marketing. Even young startups and companies that are crowdfunding are using referral marketing to grow their business. For example, Beanstox, which is currently crowdfunding on StartEngine, has a very similar business model and value proposition to Robinhood. Beanstox also has a referral program where you can earn a $25 Amazon Gift card for up to four customer referrals.
In fact, almost every startup has a referral program of some kind. The major advantage of referral marketing vs. other go-to-market approaches is you can set a cap on exactly how much it costs to acquire a new customer – say $10 or $20.
This gives a startup more granular control of its unit economics.
So, as you can see, how a startup gets its product in customers’ hands can make the difference between success and failure. The go-to-market strategy affects everything, from the unit economics to HR costs and more.
When analysing a potential investment, look deeply at their go-to-market strategy. See if it’s a good fit for the type of product they’re selling, the product’s price point, and the customer segment they’re targeting.
Afterall, without the right go-to-market strategy, there is no future for that startup.
Until next week,