B2B SaaS Marketing Snacks Podcast | Kalungi

BSMS 61 - How SaaS investors spot high marketing growth potential

Written by Brian Graf | Aug 29, 2024 11:56:29 PM
 
 

As a SaaS investor, how do you predict how fast a company will grow?

You need to know if you're looking at a rocket – or a tugboat – in terms of potential speed and growth. What are its chances to expand fast in the market? Can it really take hold and nail a niche?

In Episode 61 of the B2B Marketing Snacks podcast, we talk through the factors to look for in a company that show it is primed for exponential marketing growth.

This is relevant for: 
• Investors doing due diligence on a software company target
• Leadership, employees or job applicants looking at their own company

Learn how to spot the hidden potential a company has from a marketing perspective. You will know if you should invest your priceless time, effort and capital into a company. Or, if you should search somewhere else!

B2B SaaS Marketing Snacks is one of the most respected voices in the SaaS industry. It is hosted by two leading marketing and revenue growth experts for software:

B2B SaaS companies move through predictable stages of marketing focus, cost and size (as described in the popular T2D3 book). With people cost being a majority of the cost involved, every hire needs to be well worth the investment!

The best founders, CFOs and COOs in B2B SaaS work at getting the best balance of marketing leadership, strategy and execution to produce the customer and revenue growth they require. Staying flexible and nimble is a key asset in a hard-charging B2B world.

Resources shared in this episode:

ABOUT B2B SAAS MARKETING SNACKS
Since 2020, The B2B SaaS Marketing Snacks Podcast has offered software company founders, investors and leadership a fresh source of insights into building a complete and efficient engine for growth.

Meet our Marketing Snacks Podcast Hosts: 
  • Stijn Hendrikse: Author of T2D3 Masterclass & Book, Founder of Kalungi
    As a serial entrepreneur and marketing leader, Stijn has contributed to the success of 20+ startups as a C-level executive, including Chief Revenue Officer of Acumatica, CEO of MightyCall, a SaaS contact center solution, and leading the initial global Go-to-Market for Atera, a B2B SaaS Unicorn. Before focusing on startups, Stijn led global SMB Marketing and B2B Product Marketing for Microsoft’s Office platform.

  • Brian Graf: CEO of Kalungi
    As CEO of Kalungi, Brian provides high-level strategy, tactical execution, and business leadership expertise to drive long-term growth for B2B SaaS. Brian has successfully led clients in all aspects of marketing growth, from positioning and messaging to event support, product announcements, and channel-spend optimizations, generating qualified leads and brand awareness for clients while prioritizing ROI. Before Kalungi, Brian worked in television advertising, specializing in business intelligence and campaign optimization, and earned his MBA at the University of Washington's Foster School of Business with a focus in finance and marketing.
Visit Kalungi.com to learn more about growing your B2B SaaS company.
 
 
 

Episode Transcript:

Brian Graf: Hi there, and welcome to episode 61 of B2B SaaS Marketing Snacks. I'm Brian Graf, I'm the CEO of Kalungi, and I'm here again with Kalungi's co-founder, Stijn Hendrikse, who's a serial SaaS marketing executive and ex Microsoft product marketing leader.

Today, we talk through what factors you should look for in a company to indicate if it has a potential for marketing growth. Say you're an investor doing diligence on a company or even an executive or an employee that's looking at your own company to gauge how fast it can grow.

You'll want to know if you're looking at a rocket or a tugboat in terms of speed and growth, looking at the areas we discussed in this episode, we'll give you that certainty.

We'll allow you to quickly determine how much potential a company has from a marketing perspective, and we'll let you know if you should invest your time and capital into the company, or if you should search somewhere else, let's get into it. Okay. Stijn, thank you again for joining today. We have a good, good topic.

I think this one is something that a lot of people do. Either early stage founders and or executives are asking, but also we're almost zooming out a little bit into the world of investment and basically taking a look at a company from the outside and understanding if there is a.

A good potential for growth if whether you're a new executive coming into a company or an investor looking to buy a company or even just want to take a step back and look at where you are it's really important to see if if your company has a strong potential for growth and then how and if you can invest in that in that growth going forward so again we come into an area where you have a lot of you experience and you've seen a lot of different variations of this, but really wanted to kind of open the question to you of what do you look for in a company when you're trying to understand how viable it is going forward?

What, what are its chances to really expand in the market? And take hold or nail a niche. Maybe let's just start there and see where the conversation goes.

Stijn Hendrikse: We often call this due diligence. Or an audit, an audit when it's more in the specific marketing context or go to market context.

And we encounter this both when companies say, Hey, how do, how can we grow? How can we find partners to grow? Hey, whether it's an agency or executives coming in, usually people want to know what the state of affairs is? So that's an audit. And then in my work, I'm also usually involved in diligence on investments?

Whether it's a more of a private equity late stage. investment or something that's much earlier, you usually want to kind of know what you're, know what you, know what you got. And then dig a little into the go to market. So for that, there is a really nice kind of journey that we looked forward to. Is a company at the MVP stage?

Have they really reached product market fit? Have they reached product market fit in one market or in multiple markets? And then have they shown an ability to scale? And I think Brian, we could kind of dive into, based on the journey and kind of three, three parts of the, of the audit ones, kind of what's the state of the market that you're in?

Right. Is there room to grow? And all those types of questions. And then the second is kind of what type of go to market does the market warrant? If you sell things that cost a hundred bucks per month, you have a different go to market kind of options versus when you sell something that you can charge thousands of dollars per month for.

And then the last factor would be how do you then actually turn that go to market motion, that strategy. into the actual ARR growth? Which is a combination usually of retaining your clients, monetizing them and the clients. And I think, yeah, diving into those three lenses might be, might be good. And then also maybe the last, and we'll go deeper again a little later in the conversation, but when I do diligence, you usually also want to validate a growth thesis.

Like if an investor comes in and they say, Hey, we think this company has potential to do more. It's often a function of. a new strategic direction? Maybe an expansion into a new market, doubling down on an existing market. So that would be the question there is, is the, is the strategy that we think will support that new go to market, that expanded go to market, that pivot in some situation.

Is that viable? Do we understand what that strategy looks like? And that's going to be detailed a little more later. And then the second question would be, can we actually afford to, to go down go to market strategy and that goes back to the question that's also often in the audit, is the, is the go to market motion compatible with the market that you're in?

So, full circle? That sounds good to go through it like that, Brian? Yeah, itBrian Graf: sounds great. And I think just to, to your point, a lot of, to take it from the investment perspective, there's so much of this that would never show up on a, on a balance sheet? Or on a P& L that's so critical to look at?

Because as an investor. Or even again, zooming out to, if you're an executive looking, just looking at revenue growth. Or even MQL numbers as they raise or lower are not going to give you the level of detail that you need to really know the potential of this, of the company that you're working with.

Right. So asking the questions, you know, around those categories that you just mentioned, I think is really critical and gives you a much better indication of, you know, do we have a shot at this? Can we, can we really scale this thing? Or. Is this, have we, have we already kind of reached our potential from a marketing perspective?

So let's start with, let's start with the market. When, you know, when you're looking at a company, when you're doing diligence, say, you're looking at a company, what are the, what are some of the indicators that you look at from a market perspective to show potential?

Stijn Hendrikse: So first you look at, is the market itself at a certain stage of maturity?

Right. If you think of the amount of players in that category, you first look, is there even a category that's named? Are there some of the analysts that could start with the more strategic analysts like Gartner, et cetera?

Capterra, SoftwareAdvice, there's many of them, G2 Crowd. Is there any kind of indication that this category is at a certain level of maturity? Because the number of players that are in the category, that the category has a name, that there are a certain level of reviews of this category? And, and we already see maybe some, some players are the clear leaders and others are kind of just trying to disrupt the category.

So getting a sense of the market maturity, sort of looking outside in a little bit first. How many of the competitors that you see in that category are you actually encountering? It's kind of a confirmation if you actually understand what category you're in. And then if you encounter them, do you win, do you lose?

What does that tell you? But kind of just call the situational awareness a little bit? Where are you in that external market?Brian Graf: And with that, that does quite a few things? But that would tell you or us? What market strategy should they be using? If it's a competitive market, maybe that's a, that's a niche down and carve out a situation where you really, you need to find a gap in the market?

And start to exploit it. So, and so. Seeing if that is something that the company is doing is critical, or if it's a, on the other end of the spectrum, an immature market, then it's all about, I would be looking at, is the company really establishing a market for itself? Is it creating a category?

Is it educating its audience? Does it have an audience on its capabilities and why basically pulling them out of stasis, why do they need to change? Those would be the areas that I think about. What do you think about market size? How do you, how do you. Look at if, if a company even is targeting the size of the market to support its business goals.

Stijn Hendrikse: Well, it goes a little bit to your earlier point. If you have decided that in a mature or an existing category, your strategy is going to be to differentiate yourself, to nail a niche, so to speak, to go after a smaller part of the market that has unique needs that you are uniquely positioned to cater to it, to solve for.

Then your question on how big is the market, or how big should it be, becomes really about how do you define that niche? If the category has a certain size, maybe it's large, and we usually call that the TAM? The Total Addressable Market. It's really important to understand what SAM really is.

What part of the market can you actually service? And this really means, literally Can you actually service in, as in, do you have the language support? Do you have the ability to onboard customers? Do you, do you have the packaging and the pricing aligned with how those customers in that part of the market buy?

So what part of the market can you, can you service? And then but less here, maybe relevant that maybe we, we talk about that a little bit in the Go-to market motion section, but what part of the market do you want to serve, which is going from Sam, the serviceable addressable market to the sum, the serviceable and also obtainable part of the market and obtainable really is, is often a, is a matter of choices that you make?

You have limited resources. Not only limited time, but, but you have only so many people on the team. You have so many dollars too. to, to, to run ads or to build content? And all those things will restrict you in how much, even if your serviceable addressable market is very big, how much of that market you can actually really focus on?

So what part of the market can you obtain? But again, let's park that for now, because that's more of a, when you have your go to market decisions to make? Are you really clear? Or where you, where you spend those scarce resources. But back to your question, how big? So what is the serviceable part of the market?

Not the TEM, but really what's the SAM? The only way to actually, I think, define that in a way that's useful for a software company is to actually write down the ICP, the ideal customer profile. That is often a very good definition of the serviceable addressable part of the market. Sam, write down a very specific ICP.

And of course, the only way to know for sure that you can actually serve the market if you also have a lot of clients that fit that ICP profile? So do you actually have a real beachhead that you've established? So that's how I would start, Brian. And then. Answering your question with actual numbers becomes more of a math exercise?

If you know that this is the type of ICP, these are the filters? They have to be in this type of industry, they have to have this size, they have to be in this part of the world? Then it's a question of, can you get the data or can you source or, or even manually, you know, gather the data to, to answer the question of how many potential suspects or prospects are out there.

Brian Graf: It's a fantastic point. Whenever I've, Entered a company and been doing diligence trying to set up marketing. That's one of the first questions that I ask is have you established an ideal customer profile and if the answer is no then that's usually where we need to start because That informs all of the well a lot of what we'll talk about in the future of this episode But everything that we've talked about today?

How big is the market? How mature is it? What is the market strategy? Have you started using it?

Stijn Hendrikse: Yeah, I mean, the word ideal is so, ideal is kind of the difference between Sam and Sam. Honestly, Sam could be your customer profile, just describing a lot of the customers that you have been able to service? So that's your serviceable part of the market.

And then when you go from Sam to Sam, where you say, Hey, what part of the market can I realistically provide? Okay. And given limited time, limited resources, then the word ideal will vary, really help you.. It tells you, okay, if I could, can service all these points, which one I want to service, if I can service a smaller number.

Brian Graf: Absolutely. What do you think about, this is kind of market based, but kind of not? Half and half. What do you think about product differentiation when you're looking at a company?

Stijn Hendrikse: The assessment of your ideal customer profile. Okay. It's of course based on where you have had success. So if you, if you believe that customers who pay you and stay who also maybe are telling others about you, they stay and say so to others, you can argue that that's a great litmus test for is your provisioning good enough?

Are you unique, special enough for those customers to, to be a good fit? I would start there. Product differentiation of course is a little bit in the eye of the beholder. Every customer will have their own favorite feature or their own favorite reason why they do business with you. Some have nothing to do with the product.

It could be about the experience or someone they know with your company, reputation you have, maybe working with others. So there could be all kinds of reasons why you win. But if the product is a, is a big part of Part of that and your capabilities, the features that you have, your maybe your adherence to certain policies or ability to do something in a certain language, then you would find that out by creating that ICP because in the ICP it would say, Hey, these are the requirements for a customer to be ideal because they usually fit what you uniquely offer.

Brian Graf: Yeah, very true. And also just, I think, if you can match those two things together, it creates your niche? That is your niche. And if you can do that well, then that sets you up for a lot of success in the long term. I've been in a few companies where I've just seen, I've seen the competition.

I started to do competitive research? I've established the ICP. I've looked at the product differentiation. I start to have our unique selling propositions and then I'll start to look into competitive research? And looking at what else is out there in the market. And I've just seen companies that are competitors that just haven't put a bunch of time and effort into marketing?

Would you consider that an indicator of future success? And if so, how, and if not, why?

Stijn Hendrikse: Yeah, on the one hand, it's very powerful when a company reaches product market fit without having to buy business? Buy attention, etc. It's just a great product, a great solution for a problem that customers really are experiencing.

They are very problem aware and they find you and they love what you do. Of course, that's also a reason why a market or a category might be under, under penetrated by players who could maybe sell even more if they make more cash. Are those customers aware of the problem? And, drive great sort of outbound demand generation.

They're not just doing demand capture, but you, you start doing demand generation. And I think that's where a lot of customers who are either part of a diligence process or they're reviewing what to do with their go-to market where they are being met by someone like us? Because they basically say, we think there's more to gain here.

There's a lot of potential, and we haven't realized that and what if we could do some more marketing or sales or other go to market levers To capture that upside.Brian Graf: Absolutely. I think you know that vein? I think they are coming probably rarer, but still still exists where if you look at some of the market you see that either the the incumbents just haven't haven't staked a claim for themselves yet effectively in the market or even that there's you know, you can look on a tool like Ahrefs or or SEMrush that there's just a lot of keywords that relate which basically means that the market is searching for a solution on this on your topic or your industry that don't have high competition that do have You High relevance and high traffic?

That is a fantastic tactical way to see that, Hey, there is, there is demand here that isn't being filled? And my company can, can go in and fill that relatively easily? With a straightforward path.

Stijn Hendrikse: Yeah. The problem, of course, is that when you're in a mature market, it's kind of like putting a bow on the whole audit part of the market situation. If you're in a mature market, it also means that the leaders of that category might be suffering from some incumbency challenges?

The incumbent, of course, has a leader's advantage, their ability, the existing clients they can learn from, and they can make their products better because of that, et cetera. But they also suffer from what's called the innovator's dilemma.. Previous success may prevent you from being incented to constantly innovate and to change the rules of the game.

And, and that's why there's an option to disrupt the market like that? If you come in and you sort of say, Hey, what worked yesterday might not be what's needed tomorrow. And I think that's where these, This audit process, of course, it's such a powerful combination to look both at the market situation and think of incumbents who are leaders in a category, both as a challenge, but also as a real opportunity, because they might not be as focused on the thing you could go do to drive growth.

Brian Graf: Yeah, absolutely. And then, you know, taking it all the way back to the ICP? Understanding what their, the personas and the ICP and their needs are. And understanding the market and where it is, what needs it's filling. Allow you to see, is there a gap where I can basically outperform my competition from a product perspective or even underperform.

And just be cheaper and more approachable. You don't need to have the enterprise product to stake a claim in the market.

Let's move on to. You know, looking at this through the lens of the different go to market motions that a company could have, because that does start to change the way that you look at things slightly? The three that we typically like to use are sales led growth, marketing led growth, and product led growth.

And of course there's hybrids between the three, but let's just stick with those three for now. What do you typically look for? Let's start with sales led growth in a sales led growth type of company to show. Either that they have initial success or that there is an opportunity for, for investment and growth.

Stijn Hendrikse: This is really important I guess, shaking the tree part of the audit process. You encounter a lot of early stage companies. that have overinvested in a relatively expensive go to market? If you have been in growth mode, and especially if you've raised capital before, it's very easy to say, hey, I can just outsell or out market my peers and be successful long term.

The problem, of course, is that in a, in a maturing market, There's the cost of doing that will go up. Custom acquisition costs will go up in a market where there's more people betting on the same Google ads, or there's more people vying for the same organic search positions, et cetera. So when you walk into a situation where there's an actual sales organization that needs to get paid salary, that will take commission or another form of variable pay, in addition, maybe to marketing being the only source of growth, because the sales people expect leads to be handed down to them instead of.

generating their own funnel. Before you know it, those costs are pretty high. So the first part of the audit is really is your ACV, your average or annual contract value, or even better, your ARPU, your annual average revenue per user or per unit if you don't price per user, is that able to sustain not only the CAC, the customer acquisition cost, but also the cost to serve these customers long term.

And we have a couple of rules of thumb? But, but if you, I'm just making these numbers up now, but they're in this kind of range. But if you're paying your users, you're sorry, if your users pay you, your customers pay you a couple hundred dollars per month, maybe only 20, 30 per month, it's very hard for you to ever make money if you need to do actual selling to get those clients?

If you have one sales confrontation, and usually it's more than one, there's an SDR call, and then maybe there's another. Initial sales assessment, sales discovery call, another call to do some form of a demo or proposal. Before you know it, you're two, three calls in and, and this process has already cost you a couple thousand dollars.

If your customers only pay you a couple thousand dollars per year, you're never going to make that back? Unit economics, as we like to say, are just not going to be able to scale. So that's why I think, especially when you see an organization being sales led, but that's their main go to market motion.

But you have to be extremely, it's a very quick audit part, you have to be extremely focused on the size of the typical client and how that size can grow over time is going to be able to Support the go to market strategy.Brian Graf: Yeah, that's a fantastic point and honestly even just doing that alone catches a lot of Strategic misses I think in my from what i've seen to your point?

You can look at things like you know Your ltv lifetime value to cac customer acquisition cost ratio or even just to make it simpler You can look at your payback period for customers? And understand, basically take a look at once I land this customer, how long is it going to take for them to pay back the cost that I put in to get them and give you an idea?

If it's going to take longer than say a year? Your customer success and your product must be really good to be able to make sure that that's going to work.. And if not, then you have to start asking yourself questions. I've also seen it where executives and founders can almost get trapped in a bad go to market because.

The costs are too high? They're, they're, they're spending too much to acquire their customers, but they are acquiring customers. And they'll see the numbers start to go up and they'll see the revenue start to go up and there, but they're seeing their costs expand, almost increasingly. And they say, okay, I just have to get more revenue.

I have to get more revenue. I'm going to pour more money under the, onto the revenue fire.. And it can be a really vicious cycle and very hard to break. So it's really important as you're saying. To take a look at that early and understand. What goes to market does my customer acquisition costs and cost of service actually support and am I.

Am I using that now or do I need to have a change in strategy?

Stijn Hendrikse: Yeah, and this audit is usually a couple of questions? What's the typical size of a client? Has that been growing over time? Are there easy ways to raise, to make that cost go, the ARPA go up? Are you discounting a lot? Can we stop doing that?

Have you not raised your price in the last couple of years? And should we?. Are you paying your sales team, maybe commissions that are not necessarily reasonable? Are we, can we cut those a little bit? So there's all these ways to immediately address if you find some quick challenges there, and I think that's an important part of the audit that also is not that big of a lift.

Brian Graf: Once you kind of identify that, that sales led growth is say the go to market strategy, I feel like I've seen a couple indicators that, that. Show that something like marketing could benefit and like and grease the wheels, I guess of that new revenue engine And some of those things that I've seen are say like a long sales cycle sales cycle that seemed longer than what the the average Contract value should support or say inefficient funnel?

There's just a lot of drop off from In ideal customer profile prospects from the start, you know, the top of the funnel down to the bottom, or even just the sales team complaining that leads are just too cold. When they come into the sales conversation and have to kind of nurture them manually as they go down.

Is there anything else that you've kind of seen in terms of a more like once we, yeah, once we've established that sales led growth is the way that would show you, you need to dig in with marketing.

Stijn Hendrikse: Yeah. I think what's really important in the marketing and sales funnel, they are integrated in a modern SaaS company.

There's no way you can, you can have the marketing fund really stop at any point and the order sales fund almost cannot start early enough. What do I mean by that? If the marketing lead gets handed over to sales, it becomes a sales qualified lead and then it turns to an opportunity, et cetera. At all those stages, marketing should still first of all help with nurturing and having great sales support and material sales, enablement, almost everything.

I Which you still have to learn from every conversion that doesn't convert or every conversion that requires more one off pieces of content or an answer to a certain, to a certain objection.. All that is constantly part of marketing. And then the other way, I mean, sales can start so much earlier than when they get, And as a leader, they can do a lot of their own sales development by using the network understanding what kind of audiences are there doing LinkedIn research and all that is of course, really also part of the marketing funnel.

So I think my first inclination I'll say in an audit is to see how much funnels are overlapping and you want there to be overlap. You want these teams to work really closely together. Ideally, both teams are incented partly on their, on each other's goals? So there's a reason for sales to care and marketing to care that things convert, you know, deeper in the funnel.

So the audit should really look at, at that, whether these teams are potentially too much siloed because that's a, that's completely unacceptable. And then there's just the, are they doing the belt and suspender work? Is sales filling in everything in the CRM system, because that's not something they do to get their bonus or their commission.

That's part of the job. That's why they get their salary. Is marketing caring enough about leads that they hand over to ask what happens with them? And if they didn't convert, why?? And how they could constantly improve that and make sure that the sales team has the best materials possible to support conversions, et cetera.

So I think those are areas of the audit. Maybe they didn't, don't jump away from the spreadsheet, but they're really important to dig into.Brian Graf: Yeah, sales and marketing alignment, particularly in sales led growth is critical. I do think that I've also worked with this. Maybe this is an easier audit, but with companies that have found success and maybe even product market fit with just minimal marketing investment in something like a sales led growth strategy, and just because they have a good product fit.

And they have a sales team that can go out and get leads. But, you know, usually in those scenarios, I like to look at, you know, if it's something where the company's brand isn't that well known in the market. Or the sales team is having to kind of scramble and create custom assets every time that they're selling.

That shows me that there is a solid. Need for marketing? And if marketing can kind of support the brand and support the sales cycle? It can, it can really start to scale their sales efforts. It basically can, can facilitate faster sales cycles, higher close rates. And just higher success, just making the most out of the sales team that they currently have.

Stijn Hendrikse: Yeah. And it goes back to the definition of sales and the market is not as sharply kind of divided? So then. You have a company that's growing without a large or maybe a marketing team at all. Usually what it means is they're doing what we call demand generation and less demand capture. Demand generation is still of course for a large part marketing related?

The salesperson who's building their own pipeline is just really, really good at the early stage of the pipeline. They know where to find prospects. They know how to find a new list. They understand how to go after, how to do the outreach. That's what they use for that email, the phone marketing tools?

They track things. They have maybe a. description and LinkedIn that makes it easy for them to manage leads? The leads in their pipeline. Those are all, you can argue they're just as much of a sales as marketing tactics. They're just being done by, by a group of people who are maybe called sales, but you also need good content?

There's no way demand generation by a sales organization works without having a couple of good lead max. That's why I was having good calls for that. What does that really mean? You have a good value prop. You have something to say. You probably have some customer testimonials. All those things are not necessarily sales or marketing.

They're just proving that there was always a combination of those things. And when you find a sale, let's go to a market that's working. It usually means they're in a category where you need to do demand generation, and you have the team in place who's able to do that, whatever they're calling themselves.

And then when you have an organization where the sales team is much more passive, and when it comes to funnel creation, it's usually because you're in a very heavily market in a market that's very heavily depending, better or wrong, on demand capture? So you typically see both sales and marketing have basically agreed that the best way to grow is to make sure that you, you, you, you are found by everybody who's already looking for a solution?

Or typing something into Google, SEO, SVM, being at a certain event where people maybe visit your booth? All those things are forms of demand that capture that, and those are typically the environments where a sales organization would say, Hey, we don't have enough leads. You know, the market is not doing their job because we think there's more demand out there.

That we're not capturing.? That's typical. And of course, when you're in early stage companies, those are not healthy discussions if they go like the way I just described. So what you really want is that between demand capture and demand generation. You have the balance and both marketing and sales personnel are doing their parts in both because both need both disciplines.

Brian Graf: That's a really good point. I think two things there. One is that particularly on the demand gen or the demand capture side of things? A company that depends on that. Almost needs to be in that competitive market? For that to work? There needs to be existing demand to capture?

But then also I really liked your point that whether or not they have a marketing team, if the, if the salesperson is going out and generating a demand, they're doing marketing, they're just called the salesperson? So whether or not you have a marketing team, you're likely still investing in marketing.

Just through a different set of people.

Stijn Hendrikse: Yeah. And it all depends on how you define those two terms, marketing and sales. But sales is usually some form of, there has to be an actual opportunity. Someone has to have said, I need a certain solution and I'm in the market and there's a time connected to my needs.

And then of course the salesperson's job is to turn that into you being picked as the one that they buy from. And everything before that is usually called some form of marketing or business development.Brian Graf: What do you, what do you think about? Marketing led growth. So this means that the average contract value probably comes down a little bit.

The speed of sale increases? And the volume needs to increase. To get to your corporate goals. But what do you look for in those scenarios that show potential for growth?

Stijn Hendrikse: Yeah. The essence of marketing led and sometimes also a little bit of customer success led is that you basically don't have the ACV, the typical value per customer.

To support actual sales conversation. So you need to have a leverage model and marketing and customer success are your biggest levers when it comes to using people, people, resources to influence deals at scale, a large volume of your pipeline. And one customer success resource person could build the full onboarding playbook and make sure that a lot of those onboarding processes actually happen.

One marketer can run a campaign that generates multiple leads? There's not a one to one connection. The total contribution is much more than one to many. Both customer success, when you think of. Upselling, cross selling, referrals, et cetera, and marketing when it comes to more the net new funnel generation or new leads, new opportunities going into the pipeline.

So when you have an earlier stage company and there is a lot of market making to do? Your customers are maybe not there, demand generation as we like to say. And your ACV is relatively small, a lot of that will have to happen by the marketing function. They'll have, whether it's a sponsorship or being in a certain community where you think your target audience is, showing up and you have conversations about their day to day work and you're, you're trying to drive awareness.

Then your go to market, if dependent on demand generation, will require marketing to do that because your ACV just doesn't support sending individual salespeople, for example, to an event like that, to go meet with people one on one.Brian Graf: Yeah, you definitely can't go target, at this ACV, you definitely can't go target each person individually?

It can get prohibitively expensive fast, to our earlier conversation. I think You know more tactically, some of the things that I've looked for, especially in an audit, is just looking at the funnel and understanding, well, hey, do they have visibility into that funnel? That's a key, that's a key point.

But also how, you know, of that funnel, how much of that is actually organic people coming and finding you of their own volition versus you paying for ads, going to events, you know, and going out and capturing that demand yourself. Also, just looking at the funnel conversion rates, are people, again, on the inbound side, Self selecting down, down the funnel into a sale, or are they having to be kind of dragged and hooked and crooked down?

I've also looked at a lot of them. I've seen a lot of companies that have marketing in place, but maybe haven't put the time and effort that they need into positioning and messaging? Where they, they just come in with a little bit, they're a little generic. They talk about themselves a little bit too much?

And they just aren't communicating the value that they should be to their ICP and to their niche? And so they come off a little bit general and just aren't effective. And then I think I see things like that in combination with, say, a high retention rate once people come in the door or a high customer referral rate.

That tells me that the product is resonating with the customer base? And they have fit, but just haven't really been there. Pushed hard enough on the marketing side? They haven't created, they haven't created the thought leadership, haven't created the messaging and channels to, to really capture the demand that they need, but they do have the fit?

That the product, the hard part, is almost done from the product side. And now they just need to communicate that to the market.

Stijn Hendrikse: When you look at marketing-led growth, it is often something that really is useful in the earlier stage markets, when the market still needs making. But when a market or a category matures and you have a lot of established players, marketing led growth becomes also very expensive.

And it becomes much harder to really grow because it's just about the redistribution of the pie? There's no, the market itself is not growing. And redistributing customers in an existing market is costly... Customers don't like to switch. So there's usually a high switching cost, which means you have to do a lot of convincing for a customer to switch.

And then you're competing for the highest places in the auction, when you think of paid clicks and sponsorships and all that. So as soon as categories enter the territory where Captera and G2 Crowd, et cetera, win all the organic search positions, because they have all the competitors, they have these marketplace and all these review websites, it becomes more and more questionable.

And especially in an audit, you can look for this. Questionable if a typical. Marketing approach to your go to market head, demand generation, but even demand capturing, you think of capturing the demand that is going through some of these online marketplaces, becomes very expensive? And often hard to do.

Brian Graf: And the more competitive the market gets, the more expensive it will get? And so You've talked about this in previous podcasts and blogs but it can, as you start to reach that point, it can be really important for you as a company to start looking at, do I take my product and push a differentiation strategy?

Where do I, again, outperform the competition in a certain area? Which allows my contract size and my ACV to go up, which supports a higher go to market strategy or more in depth go to market strategy. Or do I go and disrupt, and find a gap below the current market that isn't being serviced, that allows my service to be much cheaper, but then also allows me to have a high volume play that's much more like a product led growth.

But again, it's a tough decision to make, because the timing of that is, is critical, and I'm sure In that scenario, your marketing lead growth is technically working. You're driving numbers, but your costs are starting to increase. So you really have to have a lot of foresight and be looking at these metrics a lot, if you're going to make that decision effectively.

Stijn Hendrikse: Let's yeah, that was kind of the second. Part of the audit? Figuring out your go to market is compatible with your value proposition, the price point that you're selling at, and basically the unit economics of the go to market.Brian Graf: Which is a big conversation for the executive team, but it's critical?

Putting that decision off doesn't help anyone in the long run. Let's talk through product-led growth really quickly. Is there anything Anything else that you would look at? Again, basically what this means is that your ACV is now down even further? To a point where the sale is really low friction to them, and you know, somebody can basically self select their way into purchasing the product and onboard themselves?

This can all be done without human intervention, ideally. What are some of the things that you look at in a PLG company that show that it's for growth?

Stijn Hendrikse: Both product led growth and sales led growth are things that become increasingly important in a mature category. Partly because what we just talked about, that marketing led growth becomes harder to sustain and too expensive.

The problem of course with product led growth is that there's only room for a couple of winners in that sort of go to market model. Because it's usually the one or two providers of the best user experience that are most connected to how individuals discover new solutions without being sold something or being marketed to.

It's very unlikely that there are many players in one category that are going to win that part of what's called the go to market race.. So when I look for, when I'm auditing a company that is banking on a product led growth strategy, I kind of want them to be in the number two, three spot or something like that in that kind of product led growth ranking.

Is the number seven and they were just able to create a great product led growth motion mechanically. They have the content, the product is able to do it. They have a couple of clients who've enrolled through that. That doesn't mean they're going to win? Because this is a little bit of a numbers game.

There's a flywheel effect.. So unless you are able to show that in that product led growth motion, you can be one of the top dogs, it's going to be hard to really invest in a company that hasn't provenBrian Graf: that. That's a great point, actually. And that, I feel like a lot of people don't fully appreciate when they're building a product led growth strategy.

Is that, and tell me what you think about this, but is that just because the customer acquisition cost is low does not mean that marketing investment can also be low? It's just that the volume is so high that it creates a low customer acquisition cost. Basically, to put it more in layman's terms, you still have to spend a lot of money on marketing?

And what you're saying is either The company needs to already be a leader in, in the category? They already have brand awareness. They already have an established market and audience? And they can, they can use leverage that basically to create a product led strategy, or they have to invest significantly.

Significant amount of time and money to create the thought leadership, the channels, the ad spend? To build that audience quickly, to be able to generate that volume. You almost have to, to know that you're going to be in the red for marketing for a significant portion of time, basically paying to grow through a product led growth strategy.

It's not. I wouldn't say that it's a strategy that you can kind of nickel and dime to start, and be successful at, but I want to get your thoughts on that as well.

Stijn Hendrikse: Yeah, it goes to another problem, that when a go to market is hard, and hard usually is similar to expensive, then things like product led growth just sound so sexy?

If we can just do that, it will be cheap, will it be easy? And the other version of this is Partner Channel, figuring out how to get a leveraged model. through a partner channel that will do the selling and the marketing and maybe the servicing for you. And now we don't have to invest all this money in, you know, creating the market and getting the leads and all that.

The problem with both product led growth and partner led growth is that they require a significant amount of success up front and usually investment. Product led growth, when you do an audit and people are thinking that that is the model, it's usually either because the product is just a really good product, And the way people buy and the type of solution they're looking for and how they encounter pain.

Or it's because you're going after small clients, SMBs, small means of business. And this is just the only way to make the economics work. If that's the reason to think you need product led growth, you've got to really, really be careful. Because getting and I, Of course, I ran global marketing for small and medium business at Microsoft and, and I did many startups after that were kind of going after that market.

Small and medium business only starts to work if you get to like 100, 000 clients? They don't all have to pay, but you need a lot of users, a lot of clients for those flywheel effects to start working. And getting to 100, 000 clients usually means you have to invest a lot in market making.

Not everybody needs a Superbowl ad, but think of it a little bit like that? You need to have a lot of, you have to have deep pockets to get your initial go to market going. And after that, those unit economics can become fantastically profitable, but they will not be for a while if you have to, if you have to start still there.

And since I brought it up, A partner that grows a little bit similar, not necessarily Superbowl ad analogy, but to become, to have an effective, well working partner channel, you need, you need partners who also want to partner with you. And if you say, Oh, if you declare yourself partner friendly and you're going to recruit all these partners and you want to sell, you want them to care about you, you want them to sell your solution.

And not only when the customers ask. For it, but because they're trying to sell it, they have to care about you. So you have to be either completing their solution, they will not be able to serve their clients without your solution, or you have to pay them a ton of margin or you have to allow them to do something easier, better, cheaper, faster than they could without you.

Right? So any of those three things, this is hard.. And, and, and especially the middle of the second one, the margin costs a lot of money. So yeah, always products like growth sounds extremely sexy and cool. Same partner models, but they are not easy to do. And they're very expensive often to get started.

Brian Graf: Yeah. And to your point on the, on the partner led growth. At that point, you're basically making your part. You almost need to have a partner ICP. You need to be solving, unless you're going to, you know, pay an exorbitant amount to have them care? You're going to need to be solving their problems.

It becomes almost a little bit less about the end customer and more about the partner. Yeah, now you have to market to them. You have to figure out if you have a sales led roadmap, which means you have to hire a whole bunch of partners. Come one of yours, build a partner recruiting team. Or it's more of a marketing led growth, which means you have fantastic ICP, great value prop, and you know how to find those partners through content, through marketing.

It's all the same, basically, as when you would have to go find, you know, end customers.Brian Graf: Yeah, and then, you know, on top of the customer support that you would have to have, you need to have partner support where you're enabling the partner to sell, giving the materials, giving the support.

So it's not without its cost, but can be effective. Let's touch on the three levers. I think we've covered a lot of ground here, but let's touch on the three levers of growth really quickly and see if there's anything that we missed. So, you know, the three levers of growth that we like to think of when we're thinking about B2B SaaS growth are how do you win new revenue?

Through marketing and sales. How do you retain it through customer success? Engagement, and then how do you monetize it via, you know, land and expand strategies back to engagement? Maybe its Price increases, et cetera. How do you look at companies when you're going through diligence or an audit from this lens and, and understand potential.

Stijn Hendrikse: Well, the reason you did it in that sequence is because when you're coming in with Kalungi, of course, often there's a marketing need specifically, but. When I do diligence, when I'm looking more from an audit lens, I want to work my way back. Yeah, do you actually get more over time from your existing customers?

The monetization point, because unless you're able to grow your existing lines, which basically is a proof point that you're adding value, that you're able to build a sustainable SaaS business, because SaaS is a combination of two assets? Software and subscription. And software is, of course, the fact that you're selling something that doesn't, doesn't cost you anything to produce?

After you've, you've written the software once, you don't need it, you know, you don't have any cost of goods after that. But the other asset is just as important. It means that you want people to pay you forever, for a long time. And for that, of course, you need to add value again. Okay. Like I can't see it now.

Let me just see this. Okay. I see. Let me see. So let's see this. I can see. Okay. Yes, that's the problem. And then what I say is, and I can't see it now. So, let's take a look at this. This is a Cloud. And it's making any changes that are required for what you are doing. Get referrals from them.

So that's the monetization part and, and growing maybe your revenue because you can do a price increase without your customers running out the back door.. That's all about monetization. So I look there first, because unless you're able to monetize at least a certain amount of your customers, you're gonna probably have a hard time retaining all of them.

Right. And that's the second part to look at. Things like churn.. Are you able to retain clients? There's kind of two churn, I guess, windows. And one is, it needs a little bit of a different approach than the other. The first is what happens in the first couple of months after you sign up a new user or a new client.

Because this is more of a function of, are you able to convert the excitement and you're selling them on your value prop to them actually experiencing the value prop. And the magic of product growth, for example, is that that happens really fast? It happens sometimes in seconds or minutes. But if you're not doing product and crowd, if it's more marketing or sales, you still probably need a couple of days or weeks or sometimes months for customers to actually experience the value that they were selling.

Right. So, to do good retention, that is a critical part of the journey, but high churn numbers there don't necessarily have to be bad. They are usually a reason to look a little deeper. But if you have a lot of churn in those first kind of onboarding weeks or days of a new client, it could also mean that you're just not keeping clients that are going to be hard to serve as long term anyway?

churn at some point, or maybe be a huge burden and have a high cost to service for your customer success team. So churn in that first period is one number, and then the other is churn after customers have experienced value? When they've at least, you've proven that the value that you sold them was there?

And they like it, and they went through that onboarding period to experience that total value. Any churn after that is basically bad? If it's not a function of the market you're in. If you're in a small business market, maybe there's a certain amount of customers who just go out of business over time.

It's nothing to do with your software. But once you've accounted for that, any other churn there is a reason to sort of ask yourself, is my value, just like I'm asking my customers to keep paying me, am I keeping, am I, do I keep providing the same level of value? Is my product maturing? Is it getting better over time or is it getting better at least.

Staying at least on par with what the competition has to offer. And then most importantly, am I doing what these customers expect on a consistent basis? If there's, you know, service level issues? If the product is not always available? If there's interaction needed with your team and that interaction is not great.

Those could all be reasons for customers to churn. So that second window, you know, after the value created, it's an extremely critical part of the audit. And you absolutely want to see two churn numbers. You want to see both revenue churn, because that's a good indicator, of course, of the business, the state of your SaaS business economics, but then also logo churn.

You want to really look at those separately. You can hide a lot of revenue churn by doing good account expansion? Often then when you have the confinement number, you see things like negative churn. And that's all very healthy because it's good. That's how you look at the finances of your company.

But it's also good to look at logo churn to kind of see, Hey, how am I doing keeping individual customers that maybe we're happy at some point and that I want to look first. And then the last part is, you know, once you've done that, now it's time to, of course, spend a lot of money to get more customers?

But, you don't want to do that unless you are able to keep them and to grow them. So customer acquisition and demand generation or investing more in demand capture is usually really good. Third thing I look for, also in the audit, it's not where I start, it's where I finish.Brian Graf: Yeah, I think that's a great way to look at it?

On the monetization side of things? You're basically asking, is my product sticky enough to warrant people to pay me? Not just pay me with their time, but pay me. And is it sticky enough for them to survive and want to keep coming back after a price increase? But basically the question that's asking there is, are they continually getting enough additional value from the product to warrant both of those things?

Paying for it and even paying more for it. On the retention side, is it, does my product solve my customers real problems and do they actually need it or use it? And then to your point on that early churn, am I bringing the customers in the door?. Even if, even if the marketing and the sales pitch work, does that actually match the product that what the product delivers for the ICP that you're targeting?

And then of course, on the, on the marketing and sales side? Do I have an efficient demand generation and capture machine? That's connected to the product's value? And, and successfully can nurture a company or a prospect all the way down to close. In a repeatable scalable and positive ROI way.

Those are kind of the general avenues to look And with that, we'll wrap. Thank you so much for your time, Stijn.

And to Adriano Valerio for producing this episode and the Kalungi team for helping us make this whole thing work. And of course for choosing to spend your time with us as a reminder, all the links we mentioned in this episode can be found in the show notes.

And if you want to submit or vote on a question you'd like us to answer, you can do that at Kalungi.com/podcast. Every time we record, we take one of the top three topics and jam on it.

Thanks again.

 

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