“The 5 Cs” — An Operating Framework for High-Growth Start-ups
Five operating principles that I’ve seen all high-growth start-ups apply.
For venture-backed companies, the clock to the cash-out date is always ticking. Growth requires funding, and for more funding, venture investors expect a company to hit certain growth milestones.
The outcome is almost binary.
- Hit the milestones, and investors will line up, making it a competitive round.
- Miss the milestones and growth expectations, and fundraising always become a prolonged and painful process, with lower valuations and more dilution.
I experienced that first-hand, when we had to raise our Series A for intermix.io in early 2020. We had just completed a massive product update, with less than a month of (promising) metrics to show.
But COVID-19 had frozen up the venture markets, except for the fastest-growing companies. We were looking at a seed-extension, with a much lower capital raise and therefore much higher dilution. In the end, we decided to sell to a private equity firm that specializes in buying profitable SaaS companies that don’t fit the traditional hyper-growth venture model.
Actually selling the company was an outcome that the vast majority of seed stage start-ups don’t accomplish — but it certainly wasn’t what he had in mind when we started.
Lessons learned from the winners
Our exit made me look deeper into what the hyper-growth companies get right. Well-known “start-up household names” like Drift, Outreach, Slack, Plaid, Stripe, etc. But also companies less-known to a broader audience yet amazingly successful in their markets, like Zuora, Snowflake, ScoutRFP, theSkimm, DocSend and Front.
For starters, they all operate in big and fast-growing markets, and iterate fast to keep their product-market fit alive. Their products also provide economic lift to their customers — more revenue, more growth, more productivity.
There was also a pattern of being backed by some of the greatest VC companies out there — for example Sequoia, Andreessen Horowitz, Index Ventures, Lightspeed, Menlo Ventures, Accel, S28 Capital and Uncork Capital.
These funds fall back on decades of venture and founder operating experience. One of the huge benefits of getting backed by these funds is drawing on their massive experience in dealing with successes and failures. As a founder with my own share of both under my belt, it’s what made me me dig deeper into how the fastest-growing companies execute, and their operating principles.
When I started this post, my goal was to formalize the findings into a simple operating framework.
Not the next “growth hack”, not a set of tactical recommendations, not a “do these 10 things” type of post.
Rather, a common set of principles that founders can apply when building their company, no matter what stage, no matter what industry.
This post is about five operating principles that I’ve seen all high-growth start-ups apply.
I call those operating principles “The 5 Cs”.
“The 5 Cs” of High-growth Start-ups
Here are the five principles that I’ve seen high-growth start-ups apply. They may apply them to different degrees, at different stages — but the more mature they become, the more rigorous they apply them.
- Category — nail your niche. High-growth companies approach their markets with a conversation about a new category, a “new way” of doing things — not their company’s product. Instead, the product is positioned as the catalyst to participate in the new category. What matters is creating and owning the conversation about the new way of doing things, not so much naming the category. Coming up with the actual label comes later, and crystallizes as a result from the various conversations.
- Community — build your audience. As the conversation about the new category picks up pace, high-growth companies offer a curated place for the “believers” in the category to communicate and collaborate with each other. Forums, online events, conferences, Slack channels, etc. The community is not limited to customers, but existing customers act as brand ambassadors. They lend credibility and create bandwagon effects for the company’s brand.
- Content — tell your story. High-growth companies infuse story telling into their content. They create a narrative of change, with a user-centric perspective. The key change is the shift to the new category, where the winners master the shift, leaving the losers in the dust with their “old way” of operating. The change drives urgency to act — “why me, why now?” — and the narrative positions the product in the context of winning at the new game, with storied from existing customers as the credible proof.
- Customer — activate the journey. High-growth companies have a precise understanding of the ideal persona for their products. What drives them, what keeps them up at night, what defines personal success. They know how to use an abstract but actionable persona description to find prospects, recognize intent, and activate the customer journey. They build out a series of touch-points as prospects make the transition from being completely unaware of the change, over believers in the category, to first-time users of the product.
- Conversion — track your metrics. This is where all the customer-centricity and community efforts pay off, when you convert prospects to customers, and customers to brand ambassadors. High-growth companies are religious about tracking conversion metrics at every step of the customer journey. They master the transition from founder-led sales to building their first sales team, find the right distribution channels, and document and standardize all sales & marketing activities into a playbook so they can scale the company from the first $1M to $100M in ARR.
How to read this post
This is a long post. If you read it in one shot, you’ll probably need 20-30 minutes. If you really want to go deep, and explore the links, it’s probably 1–2 hours.
Below is the full post. But before you start reading — consider the red button right below 👇
[C1] Category — nail your niche
Your category is important as it determines if you’re selling into a line item of an existing budget (an existing category), with a well-documented buying process on your customer side, or if yours is more of an evangelical, value-based sell because you’re building a new category.
It pays to be a category creator
Why is creating a category so important? Turns out that category creators experience much faster growth and capture much higher market share and valuations.
The analysis found that 13 companies that created their categories accounted for 53% of incremental revenue growth and 74% of incremental market capitalization growth over those three years.
An analysis by Play Bigger Advisors, a company that specializes in helping start-ups build their category, finds similar results. Play Bigger invested into building their proprietary dataset that includes every U.S. VC-backed tech company founded since 2000, through today.
With Category Kings taking more than 70 percent of the total available market cap in their space, there is little room for the number two, three or four player. It is no longer good business to be a me-too also ran or earn a participation ribbon for third place and beyond.
It pays to be a category creator!
Selling into an existing category
When you’re selling into an existing category, you’re competing against the incumbents. You’re selling a better mousetrap, and that’s not really a position you want to be in.
To be successful, you need to re-segment the market, narrow down on a specific niche, with a specific customer who has a specific need, and then serve that need. As a result, your addressable market gets smaller and smaller, and odds are you have to go through a huge effort to convince your customer to replace whatever solution they’re using today.
Yes, you can still make it, and there are enough examples where it has worked in the past. Platform and technology shifts offer a good window where you can come in and beat the incumbents at their own game. But overall — expect it to be hard, because people are pain avoiders.
The perceived pain of having to go through an effort of buying your solution and replacing the old one will likely be much bigger than the perceived gain of deploying it. It’s not worth it in the customer’s mind, the fear of loss is much greater than the uncertain upside from the gain.
Brand and differentiation from building a category
If you’re a start-up at the beginning of the journey, it’s a fair to ask why not just “build it and they will come”, and figure out what category you’re building later?
The answer is differentiation and brand recognition, which allow your start-up to stand out in a noisy world. The category is bigger than your company — and if you’re the company that created the category, then you become associated with it.
If you’ve ever seen one of the “landscape” type of slides that lists all the logos of companies operating in market segment, you know why differentiation and brand matter. How in the world will customers discover you if you’re just one more logo on that chart?
It’s impossible for you to stand-out — unless you of course create your own category.
Categories work because it’s how human the brain works. It’s like a filing system. Go into a supermarket, and you’ll see signs with categories above each aisle. Within the aisle — you got the brands. Shop for salt? — “Morton’s”. Ice cream? “Ben and Jerry’s”. Toothpaste? “Colgate”. Yogurt? “Chobani”.
We use categories to discover all the different products, services and brands. And if you’re a founder, you can turn that around to your benefit, and associate yourself as the leader in that category.
Here are four recent examples for category builders — ScoutRFP, Drift, Gainsight and Outreach.io.
ScoutRFP — “Sourcing and Supplier Engagement Platform”
Even in a crowded market, you can start building a category by carving out your own little niche. That can be a differentiated product that may just solve one problem in the very beginning, but with the potential to grow much larger. The point is that you nail the solution to that problem, i.e. you “nail your niche”, working backwards from your customer’s needs.
Take the example of ScoutRFP, started in October 2014, acquired by Workday for $540M in November 2019. The procurement market — which ScoutRFP operates in — is full of tools. As the ScoutRPF name indicates, they started with the “RFP” part (“request for proposal”), which they found despite all the tools out there was still a manual and spreadsheet-driven process. That was the key insight and potential start to build a category.
The two co-founders Alex Yakubovich and Stan Garber had no background in procurement. So they started with a blank slate, and interviewed 300 procurement professionals — that’s how they got that key insight.
Is finding, reaching out and interviewing 300 procurement professional who are complete strangers hard work? Absolutely.
But it’s that hard work that helped Alex and Stan to find their niche, and take that as the start to build their category, the “Sourcing and Supplier Engagement Platform”. And you can see from their headcount trends on LinkedIn how they’ve delivered predictable growth until their acquisition, quarter over quarter.
Drift — “Conversational Marketing”
You may have heard about Drift, in the early days a chatbot tool for your website to capture leads. Then with workflows to keep prospects engaged and convert them.
“Why buy Drift?” you may think as a buyer, since there are many successful chat tools out there, with other companies that had already nailed their offerings. Drift was just one more player in the “product marketing” category.
But Drift knew that ahead of time, so founder / CEO David Cancel and Dave Gerhardt, the first VP of Marketing at Drift, created the category of “Conversational Marketing”. That’s when things really took off.
And of course, they also wrote the book on “Conversational Marketing”.
Gainsight — “Customer Success”
Gainsight is another example. “Predictive analytics for customer churn” was the category the analysts wanted to shoehorn them into.
Quite a mouthful, and obviously that didn’t work. So they created the category “Customer Success”, and things took off.
The CMO at Gainsight at the time was Anthony Kennada, and sure enough he documented his experience at Gainsight in his book “Category Creation”. You can list to an abridged version of what’s in the book on the Sales Hacker Podcast.
Outreach — “Sales Engagement”
Software for sales reps is an incredibly crowded and competitive space. If you’re the VP of Sales, and you’re asking for budget to buy a tool for your sales reps, what sounds better and makes you sound more in control of your team’s destination?
“I’m buying a tool for outbound emails”, or “I’m empowering our team with a sales engagement platform”?
You probably picked “sales engagement platform”, and sure enough that’s the category Outreach owns, the most successful prospecting software out there.
Creating the category turned the company around from almost bankrupt to market leader.
Goes without saying, founder and CEO Manny Medina co-authored a book called “Sales Engagement”
How to get started with your own category
You probably noticed how all the category builders have written a book. That’s part of the plan, but there are lots of other tactics that are not as time-consuming as writing a book and come much, much earlier on.
When you talk to category creators, they will tell you how the actual category label was never obvious, that it takes time, and that customer pull them into that direction. You don’t build your category by talking to analysts or conducting “vision workshops”, etc. — customers lead the way.
So now that you know you need to build your own category, what do you do? Two places to start, read up on what Anthony Kennada and April Dunford publish.
To get a blueprint for articulating and building your category, I recommend reading and listening to Anthony’s book, “Category Creation”. It’s the most in-depth and prescriptive framework out there.
April Dunford goes much more into detail with the actual product positioning. Her website has tons of resources, and she’s also written a book on successful product positioning with “Obviously Awesome”.
Besides their books, you’ll find plenty of free podcasts with Anthony and April on the web.
[C2] Community — Build your audience
Once you have your category, you need to start building a community around it, with the people active in that category. The goal here is to build a marketable audience, and turn fans of the category into your customers.
As both customers and people interested in the category engage with each other, you become part of the conversation, giving you a huge competitive advantage. A recent article in HBR covers the strategic benefit of communities.
Most articles, incl. the one by HBR, take the narrow view that a community only consists of customers.
I think that view misses out on a huge opportunity. I think you should include anybody who believes into the category into your community. Because when the time is right, they’ll pick your product over the competition.
Customers vs. Community
Don’t confuse your community with customers. In fact, not everyone in your community will be a customer. Your customers are a sub-segment within the community. They work within the category, and just happen to be users of your product. More so, your competitors may even be part of the community!
That may sound very confusing at the beginning.
But think about it — in classic enterprise software, you have a 3:1 “pipeline coverage” ratio, e.g. for each successful transaction you need three “opportunities”. That means three “qualified” customers will trial your software, and only one of them will buy. The two others will fall by the the wayside.
At that point — do you want to put these two be some “cold” lead in your CRM’s “nurturing queue” and blast them with emails that they don’t read anyway? Or would you rather have them in an active conversation in your community, where your customers hang out, discuss industry problems, but also champion your product?
I would assume it’s the latter.
Also — the people in your category may just not be ready quite yet for your product. They may still be in the evaluation phase, they may not even have a problem yet, but are thinking about it. So what better way to offer them a place where they can learn from others? And just like that, you become part of that early conversation.
How we built a commmunity at intermix.io
So what exactly is a “community”, and how do you build it?
I don’t think there’s a single answer for either, rather a common way to think about it. Your community is a set of people who share a common interest in your category and engage in a common forum.
Here’s an example how we built a community of analytics engineers at my company intermix.io that my colleague Nikola Sokolov wrote.
The tl;dr is that within a quarter, we build a quality-controlled community of 700+ engineers with 30% daily active users, engaging in deep, technical conversations.
To build the community, next to our own customers, we reached out to the people who had signed up for our weekly newsletter, attended one of our events, or started a trial. We looked at the emails we had assembled over time as an opportunit, and something to fall back on to begin.
Then, we were super selective with who to let in. We followed a simple formula:
Audience Quality > Engagement > Reach
We invited the most qualified people first, focused on building engagement among them, and prioritized that over reach and adding more people. It’s that simple.
We started with 10 people only in our Slack community, and then only added a handful of people every week in the beginning, whenever we felt a conversation could benefit from more participants.
Yes, I know you want that counter of total members to go up faster. But rather, focus on the percentage of daily active users and the volume of conversations among them. At some point, your members will start proposing inviting others, and that’s when quality organic growth kicks in.
Once we had a good size audience (200+), we hosted 45-min AMA sessions in Slack with product teams from the cloud platforms (Amazon AWS, GCP. etc.). That added value to both sides — our community, and the platforms.
The community could engage directly, in real-time with the AWS product managers, something they couldn’t get anywhere else. The AWS product teams got incredibly valuable, honest feedback from the community on product usage and their needs.
Word spread, and that attracted more people. So all of the sudden, we found ourselves in the middle of a two-sided platform, where a community of users engages with the platform providers. And we were right in the middle of that flywheel!
Creating a flywheel — the bandwagon effect of a community
Unless you’re a marketplace or social network, true network effects, where increased usage of a product leads to a direct increase in the value of that product to its users, are hard to achieve.
For SaaS companies — your ability to scale is typically limited by the size of the sales team you can afford, and the deal volume they can handle.
- You’ve got a CRO, who has a handful of VP of Sales to cover specific regions.
- Each VP runs a team of Account Execs (AE) who cover the accounts in the territories.
- Sales Development Reps support the AEs do the prospecting and qualification.
There are eight hours in a workday, and whatever deal volume they can handle in those eight hours, for a quarter — that’s your limit.
Yes, I know, your customers are “delighted” when they use your software. They talk about it on Twitter, and you get free word of mouth marketing. The data you collect is a moat against your competitors. And so on…
But if you’re really honest about it, and if you’re like most SaaS businesses — those things are wishful thinking at best. Every new customer is a mini sales cycle.
And the longer that sales cycle, the more effort it takes to get people into your company’s orbit, and the more time, effort and money your sales and marketing teams have to spend on meeting their goals.
Compare that to building a community. A community can bring network effects to your product, in the form of “bandwagon” and other “social” network effects, i.e. shared language, believes and technology usage.
NFX, a venture firm, has developed a framework for the different types of network effects.
In short, with a community around your category — you’re creating platform- and network-effects that extend the reach of your company’s brand much beyond of what your marketing and sales team can achieve by themselves.
A “Two-funnel Effect” — come for the community, stay for the tool
As you’ve built a community, don’t make the mistake to consider your community as a source of leads. Remember — they came for the category, not for your product.
The goal of the community is to win the hearts and minds for the category, not for your product. The kiss of death for your community is to send in your sales people and prospect every new joiner for a potential “opportunity”.
But if you’re not supposed to sell to your community — how do you turn your community members into prospective users of your software?
That’s an entirely different funnel, aka the “two funnel effect” — a funnel for your community, and a funnel for your product. There’s a gap between the two audiences, and you have to find a way to bridge that gap.
Bridging the gap between two funnels
So why is there a gap? Many reasons, but just like not everybody who comes to your website is ready to buy, not everybody who joins your community around the category is ready to buy.
- They may be new to the category and are here just to learn.
- They may lack budget, and / or executive buy-in.
- They may not yet have the problems that your product solves.
- They may not even be aware they have a problem!
Here’s a snippet from an interview with Anthony Kennada from his time at Gainsight that I think sums it up perfectly:
You have a lot of people that are like completely bought in that say, “Hey, Gainsight is doing us a service. They’re championing the profession. They’re sort of blazing the trail. We’re not ready for software yet. We’ll get there, but man, we love Gainsight.”
Also I would just add that dynamic as marketers that are really focused on early stage content marketing, focused on building awareness and industry, that it’s also on us to be able to deliver software, in many cases, to the right customers that are the subset of that industry.
They’re not going to do it just because they like you. They’re going to do it because you’re able to deliver some type of product value and demonstrate that at every year, every day, for the lifetime of the relationship.
So you have to look out for signals that show how your community wants to engage in a conversation with you about your product.
The way we solved that problem at intermix.io was by adding a dedicated channel #intermix to our community, where we would offer Q&A and support. Everywhere else in the channel — you’d never see us promote our product. We would never say “oh, our product solves that problem, just go ahead and sign up for a trial.”
Rather, we would always show a way to solve a problem w/o using our tool. Yes, doing it on your own is more cumbersome, slower, etc. and you may also be dealing with the “I can build this in a weekend”-syndrome — but you have to let people come to their own conclusions…
I know many people now think I’m crazy as I’m writing this. Don’t sell your product? Yes, because I truly believe you have to give into the community before you take.
And then people will come to you. They will think “this is my flock, these are my people, they understand me.” That’s what happened to us, community members started signing up for trials, and asking for demos.
The key to make that happen is to add value yourself — be authentic, show that you understand the space, and go to great lengths to help people. Establish yourself as an authority in the category, convince with thought leadership and problem solving, not with pitching and selling.
And in most general terms, that’s the way to bridge the gap and the two funnel effect — thought leadership, with technical depth, in the context of big hairy industry problems.
And that’s the 3rd “C” — Content.
[C3] Content— Tell your story
[Heads up, long chapter, as there’s so much to cover! Story, sales decks, personas, content, brand…]
Alright, so you now have a feeling for the “big hairy industry problems” that your customers have.
And so for most startups, the knee-jerk reaction when selling is to fall into the trap of applying a “problem → solution” framework.
That hardly ever works, unless you’re really dealing with a customer who has a very painful problem.
But typically that’s not the case. Customers can always get along with some other tool or hack. And as we saw in the technology landscape above, there’s a plethora of tools and competing services, in any vertical. The number of logos is the level of noise you’re dealing with.
And there’s always the “do nothing” option, keeping with the status quo — and in my experience, that’s always your biggest competitor, not some other software that has 80% of the features you have (or vice versa).
And so coming to the table with a “pain → solution” story, maybe sprinkling in some of the great features your product offers to solve specific pain problems — it doesn’t work.
Why?
That’s because people don’t buy solutions to problems.
The Problem with the Problem / Solution Approach
For starters, nobody likes to be told they have a problem. I can’t think of a worse way to start a conversation than telling somebody everything that’s wrong about them.
Yet that’s how most sales conversations seem to start, looking at the cold pitches I receive in my inbox. I can literally see the cold email template copied from somewhere on the web — “we solve the problem of [insert big hairy problem], and I’m sure if you’re like others in [insert prospect’s industry], you can relate to that…”.
Nope, I can’t.
So what do people buy then?
People buy change.
Why?
Change gets people attention. And when there’s change in your world, you need to change.
That’s because there’s usually somebody who benefits from the change (the one who acts), and somebody who looses (the one who sticks with the status quo, who doesn’t act). Change creates winners and losers. You pick which bucket you want to be in. Just ask Blockbuster how they feel about Netflix today.
Wrapping your product into a story
So to get your buyer’s attention, you have to paint a narrative where the world around your buyer changes, giving your buyer a strong incentive to react and adjust.
To stand out, telling a story works, because people will remember a story, but they won’t remember a list of features / benefits. It’s the difference between creative a descriptive positioning (“here are all the great features you will get!”) vs. a narrative positioning (“the world around you has changed!”).
The narrative approach helps the buyer understand why they need you. Stories build trust by sharing situations that everyone in your category faces. Change occurs, and they need to put in an effort to address that change.
You have to tell a story where your customer is the protagonist — not your product.
How stories cater to how the brain processes information
You may think that you’re acting completely rational, based on data and facts.
But that’s not how it works. Turns out that most of us make decisions from the emotional parts of our brains, an evolutionary trait that we inherited from our ancestors.
There are three parts of the brain:
Neocortex: the part of the brain that most people have in mind when they hear the word “brain”. It’s the smart part, linguistic, problem-solving part.
Limbic brain: The “midbrain” understands social situations (status), and makes us care about others, with feelings like love, sadness, respect, etc.
Reptilian brain: The brain stem, also called “croc brain”, since it resembles and works a lot like a crocodile’s brain. It regulates automatic functions like breathing or heart rate and is also responsible for reacting to threats, processing “fight-or-flight” choices that our primal ancestors had when faced with danger in their environment.
The neocortex is what makes us humans superior processing engines. It allows us to drive a car, listen to a podcast and drink a coffee all at once.
That requires a lot of energy, and to make the processing more efficient, before information makes its way to the neocortex, it gets filtered by both croc brain and midbrain.
- The croc brain is the first gate. It will react to change, decide if it’s a threat, or safe to engage with. It also decides if the information is novel and worthwhile to pass on, or something it has already seen and can therefore safely ignore.
- The midbrain will verify social status of the person that’s presenting. Is that person credible, of equivalent status, and therefore ok to engage with? Or is the person needy, desperate and nervous, and therefore better to ignore?
- The neocortex finally will analyze your information in detail. The less energy it can spend on processing your information, the better, and so therefore any message should be fast, simple and visual.
A story targets all those areas of the brain, and checks each box along the way by guiding people to identify with a situation. A story lets a customer sit back, relax and understand the value of your product via your story.
And then within the story, your “new category” becomes the “new game” that winners are playing. Andy Raskin has laid out that approach many times over here on Medium.
The five elements of a convincing story
If you follow what Andy publishes, you’ll know that a convincing narrative includes five elements.
- [Change], also [Name the Enemy] Name a big, relevant change in your buyer’s world that gets in the way of their happiness.
- [Stakes], Show how that change will create winners and losers, with a strong “why now” that shows the inflection point and the incentive to act.
- [The promised land] Tease the promised land, and how the winners operate in a “new game”, leaving the “old game” behind.
- [The catalyst] Introduce “magic gifts” (your product and its features) that helps overcome obstacles and gets the winners to the promised land
- [Proof] Present evidence how your company has helped the winners, i.e. case studies and customer testimonials.
That’s the framework, and you need to apply that framework to your category and your product.
I hope you can see by now how things are coming together, because you can leverag the “Cs” we’ve covered so far (category, community, content) in your story.
- The croc brain reacts to the change in your story, decides based on the stakes that it needs to act. The new category creates winners and losers!
- The midbrain understands that you’re the category leader. That means you have credibility, and what you bring to the table (your product) is a viable option. You’re ok to engage with.
- The neocortex analyzes the facts. Your product is easy to understand, and is a credible option that helps the customer on their journey, since you have strong customer case studies and a big community.
This stuff works, it’s Cognitive Science. Let’s show you some proof and make it real by looking at a few story examples.
Storytelling and sales decks
One way to deliver your story is your sales deck.
While the primary purpose of a sales deck is to inform an external audience (your prospects), it’s as much of an internal tool. A strong story works as much on your sales team and your entire company. The same story should be adopt in all of your marketing materials (website, landing pages, etc.).
You won’t be able to prescribe every single word your sales reps and employees will say in their emails, video conferences, phone calls, conferences, etc. Neither should you. You hired them because they’re good at what they’re doing. But with a strong sales deck, you will give them one consistent framework and narrative they can all follow, so your whole company sends a single message.
Let’s look at a few examples.
DocSend
Let’s start with some hard numbers. I pick DocSend, because it’s the tool that many teams use to deliver a sales deck. DocSend also provides the analytics that tell you which pages were viewed for how long.
DocSend obviously drinks their own champagne, and they used their own product to track the analytics when they changed their sales deck from a feature-based message to a story.
“We were throwing our prospects into decks with 16–20 slides and asking them to study our product’s features” — DocSend
In their feature-based deck (left), less than 40% of people made it halfway through the deck, and only 17.5% made it to the last page. In their story-based deck (right), 65.4% of all prospects clicked through to the last slide, with a new deck that’s actually two slides longer.
Zuora
Zuora’s sales deck is probably a classic by now if you’re here on Medium. But first, look at their website from March 2009, via the Wayback Machine. You can tell that a “classic” enterprise marketer must have been at work, leading with analyst reports.
CEO Tien Tzuo changed that, and shifted to the narrative approach.
The big, relevant change in Zuora’s deck is the “shift to the subscription economy”, with a shift from the old game “ownership” (where customers buy a product with a one-time transaction) to the new game “usership” (where customers subscribe to an ongoing experience).
To win the new game, you need to flip your business model on its head, from selling a product to selling a service. That of course requires a subscription billing service, which Zuora happens to sell.
Zuora’s story changed the game, and they IPOed on that story. Tien, as the CEO leads by example, you’ll hear him talk about the subscription economy everywhere — earnings calls, investor meetings, etc.
And did I mention he wrote a book about the category?
Uberflip
Uberflip enables marketers to create digital experiences with content for every stage of the buyer journey. Uberflip struggled with their aggressive approach that called out existing approaches “flawed” (i.e. telling the prospect everything that’s wrong about them), and then pitch their features.
They changed their messaging to a promise, and wrapped that promise into a story.
We didn’t change our product. We changed the story, […] now it’s about a big shift in the world, and that’s driving urgency. It has taken us from being a nice-to-have to literally hearing prospects say, ‘Holy shit, I need this.’ — Randy Frisch, CMO Uberflip
So there you go — a story works.
If you have a marketer that tells you otherwise, and wants to start pitching your company with awards, your investor list and magic quadrants — run into the other direction.
Creating buyer-centric content
My most-hated piece of customer-facing content is the 1-pager for a product. It’s what product owners love creating, but again it’s about THEM not the CUSTOMER.
Ever heard a prospect say “Great, please send me a 1-pager after this call so I can socialize with my team!” That’s another way of saying “sorry, but no sorry.” You’ll never hear from that prospect again.
We’ve learned that the story needs to be all about the customer’s world. Consider the Zuora deck, with 25 pages. The first time you’ll ever hear about Zuora’s subscription billing platform is on page 20. That’s 20 pages about the customer’s world, and only 5 pages about Zuora! 80% about the customer, and 20% about the company.
But that’s not enough.
The content needs to resonate with your actual buyer, AND the people your buyer needs to get into the boat (people across engineering, product, marketing, sales, finance, etc.). The “change” therefore needs to affect all of them, not just your buyer.
Different stakeholders in the buying process are the key reason why the “pain — solution” approach doesn’t work.
Your core user might feel the specific pain your product is solving. But everybody else in the company doesn’t. And that means they don’t care.
They. Do. Not. Care.
Yet they are part of the decision-making process to buy your company’s software. And that’s when you run into obstacles, long sales cycles, or even missed deals that started out in the most promising way.
So let’s look at how to solve that problem.
First, there’s an industry-specific angle. I’m a big believer in always starting with an industry, especially when you’re a horizontal solution. There’s always an industry-specific angle you can find. In their 2016 “Subscribed” (their annual conference) keynote deck, Zuora does this nicely by showing how various industries are affected by the subscription economy. Even toilet paper!
Second, you need to cover each persona. Zuora does this by showing how each function and team in a company is affected by the shift. If you go through the deck, you’ll see how they have a very specific narrative for each persona.
Also consider MedCrypt, a company that helps medical device manufacturers build security into their products. That requires buy-in from a lot of different people. In their sales deck, MedCrypt covers the change for the different personas very nicely.
In short, find the angle to publish industry-specific and persona-specific content. You don’t need to cover every single industry and persona, the number of possible combinations of course gets too large. But have a high level perspective, and then drill down into the 2–3 combinations that are most likely to benefit from your product, test the results, and iterate from there.
“Walk the talk”, or “Drink your own champagne”
It’s not enough to just publish content for your audience. You also have to show how you use your own product internally, and how you apply the principles you preach to your own company. You need to walk the talk!
The best way to do that is on your corporate blog, and then many companies these days also have a podcast. It doesn’t matter what industry, market or function you’re in — you have to write! And I’m a strong believer in having the entire company write, with the founder(s) and leadership leading by example.
A few examples.
- The Drift blog and podcasts (yes, plural, they have more than one!) are full of product marketing lessons learned, incl. how Drift has changed their own internal operations over time.
- Cloudflare, Segment and Heap have amazing corporate engineering blogs. No vague, high-level fluff optimized for SEO keywords, but deep, technical posts about their own infrastructure.
- Ahrefs is a must-read blog for all SEO / SEM practitioners. Tim Soulo (CMO @ Ahrefs) regularly blogs about what they do internally to consistently rank #1 on Google for certain keywords.
You have to write. Your whole company has to write. And your content needs to be of high quality, authentic, with no fluff / BS.
A strong brand
Ever wondered why the fonts and colors on your website are different from your product? It’s because design is just an afterthought.
I’ve never understood that. It doesn’t take much to align, and to choose one consistent style that applies to all assets. I mean, if you can choose between something that looks like a hodge podge of colors and fonts, vs. one consistent style and experience — why would you choose anything besides the latter?
Next to your story, your brand is the one asset that helps you stand out. Invest into your brand from Day 1! And your brand is more than logos, typography and colors. It also encompasses your values and your culture.
If category winners have one thing in common — it’s that they have one consistent style, brand and tone of voice across all their product, engineering and marketing assets. They communicate their values, and live by them.
A few examples of brand books and style guides, I picked Mailchimp, Zendesk and Stripe. You can see how they’re dedicating entire sections of their website on brand identity, design systems, tone of voice and culture.
(You could argue that “Culture” is the 6th C!)
Mailchimp
Zendesk
Stripe
So as you can see, brand matters! Yes, these are all multi-$B companies already, but they all started small from the very start. It doesn’t take much to find a great designer and get at least logo, typography and fonts lined up from Day 1.
A final word on story, brand and content
Alright, that was a long chapter. A few words of caution before we move on to the next C.
With the story, the trap to fall into is to shoehorn your story into these existing sales decks, and follow a “copy/paste” approach. I’ve seen companies copy the Zuora deck pretty much slide by slide, just replacing Zuora’s brand for theirs, and making it “We nove live in a [insert the company’s industry] economy”.
That won’t work.
You have to invest the time to build your own story. I find it much harder to tell my own story vs. doing it for others. As founders, we’re so in the weeds and in love with what we’ve built.
Work with somebody like Andy Raskin to develop your story, and hire a great designer with who you can collaborate to create your scalable design system. There are great indie designers available e.g. on Upwork to help you create your own first brand book at at reasonable price.
It’s worth the money.
[C4] Customer — Activate the journey
We talked about how people interested in your category may join your community, but not buy your software, because they’re just not ready for it.
So the logical question to ask is when is it the right time? To answer that question, we need to understand the journey your customer is on when they search and discover your product. Why are they searching, and what are they hoping to find?
You have to work backwards from the customer, put yourself in their shoes, and figure out the path they took to find your community, your website, your product. What do they do once they find you? How do they signup, what happens once they’ve signed up?
In short, what is their intent when they engage with you?
The key here is empathy, to really understand what they’re unique situation is, what they’re trying to learn, what the problem is they’re trying to solve. Armed with that understanding, you can build an experience around that.
Focus on the user journey
You will have heard of the terms “marketing funnel” or “pipeline marketing”. Go do a Google image search, and you’ll find tons of consultancy-ish images of user funnels that don’t really help. If anything, you’ll be more confused. What looks fancy on a powerpoint slide is often zero actionable.
The purpose of creating a user journey is that you can define distinct steps and processes that you can then automate. You need to operationalize the journey, and reflect it in your marketing automation systems and CRM.
When you come that point, that’s usually where hell starts, because you went through this long and winding process to create a fancy user flow, and now you’re dealing with implementing it across a bunch of these disparate systems that capture data in some silo — but no action, no results, no intelligence — and no customers.
The flaws of a classic marketing funnel
Classic marketing suggests there’s a funnel with distinct stages, e.g. “awareness → consideration → purchase → renewal”, and so forth.
Then you structure activities around that funnel, like product releases, PR, trade-shows, calendar events, etc. The goal is to create a wide top of the funnel and “move them through the pipeline”. At every stage a subset of your prospects convert, and you end up with a percentage of your total audience as customers. Wash, rinse, repeat.
There are two problems with that approach.
- You are structuring activities around your company, not your customer.
- The classic framework suggests a linear decision making process that in reality doesn’t exist.
If we’ve learned anything so far, it’s that you need to live in your customer’s world, and not the other way around. If I come to your website (awareness) and download a whitepaper (consideration) — that doesn’t mean I’m ready to buy and you can throw a bunch of emails at me suggesting a “quick demo” of whatever it is you’re selling.
You can’t assume they’re “qualified” to “move to the next stage” based on one touchpoint. The first touchpoint is just the start of a conversation.
A better model for a customer-centric approach
User journeys don’t look like funnels — they look more like a bunch of hourglasses lined up. The funnel narrows and widens, and your prospect is not necessarily looking to buy, but rather looking for assistance.
Today’s buyers have endless possibilities to inform themselves before any sort of purchase. They may first consider the category, then look at a few brands, download / read educational content, decide not to act and rather try a DIY approach to solve their problems, realize that it doesn’t work, start over with the research, etc.
Your opportunity is to be there during that journey, and influence the outcome. Your goal is to be the “last brand standing” when it comes to the decision.
Start with something simple that you can document and reflect in your systems. Let’s look at a basic framework called “P.I.E.”.
- Persona: Who they are.
- Intent: What they show interest in.
- Engagement: How they interact with your company.
It’s a simple framework you can to use to build, deliver and measure your customer journey and create a stellar buying experience along the way.
Persona — what’s driving your buyer?
Your persona is the anchor point of your marketing and sales efforts. A crisp persona definition allows you to understand where to find them, how to talk to them, the value you can provide, etc.
A persona definition IS NOT a basic demographic description like “male, 24–36 years old, college degree, annual income between $120-$150K”. A persona description like that is zero actionable. Yes, demographic information is part of it, but falls way too short. You need to be much more detailed.
I think one amazing example of creating and marketing to a persona is theSkimm, with founders Carly Zakin and Danielle Weisberg
theSkimm started as a daily newsletter, as a trusted source of information, and has evolved into a “membership for living smarter” (there’s your community and category all at once…).
During Drift’s Hypergrowth conference, Carly and Danielle spoke how they built theSkimm around one specific persona — the “Millennial Woman”. Read this very detailed description that I typed up from the video.
“While information is not gender-specific, we focused on marketing to this specific audience, the Millennial Woman. It’s well-documented that she is out-earning her male counterparts, in paychecks and degrees. She’s actually getting a seat at the table, slowly but surely. She’s actually becoming a legislator now, she’s the key voting block. She’s the household decision maker.
On the flipside, she’s facing unprecedented burdens, she’s buried in student debt, she’s making less than her parents proportionally at this age. Despite all of this success, she is still struggling to buy her first home, her parents are going to be her dependents, as well as the children she’s having later in life, and she probably won’t have social security.”
I don’t even know where to start how great this persona description is.
It’s detailed, lays out the socio-demographic factors, and the personal successes, aspirations, fears and struggles. I have a strong visual in my mind of who the Millennial Woman is.
From there — you can go wide, with so many different topics of interests for content creation. Education, career, finance, real estate, family planning, parenting, retirement, etc.- you name it. Then — you can go deep on a per topic basis, e.g. the different stages of buying a house, from picking a realtor, getting a mortgage, and steps to close on the house.
The detailed persona allows me to find the audience-specific angle for all these different topics. With a crisp definition, I can also go look for partnerships with companies that cater to the same audience.
It’s that level of detail you need to have for your persona(s), in order to be able to market to your audience. Write it down, and make sure everybody in your company lives and breathes that persona.
Will you need more than one persona? Maybe.
But as you can see in theSkimm’s case — one can be enough! There’s a difference between who your content is relevant for, vs. who you’re marketing to. Your Persona is the one you’re marketing to, but you may very well also address others as a side benefit. For example, turns out that 20% of theSkimm’s audience is male.
The point is that you keep it simple at the beginning. Harry Brignull published a detailed post on how to run an empathy and user journey workshop.
Intent — understand a customer’s journey to your product
When prospects engage with content in your category, at some point they’ll send a verifiable signal that they intend to buy a product like yours. That may be a trial, with high product engagement. But even before that, when they’re doing their research, they leave little breadcrumbs on the web when they consume content that indicate how they are in the market for a solution. Clicks, downloads, survey responses, etc.
So how do you understand that user intent? The short answer is “with data”.
There are other definitions out there, but I like to look at intent data across four generic categories:
- Ground Zero is product engagement data. How do your customers use your product? What tasks do they simplify by using your product? How often do they return, how many sessions a day, how long is each session? And so on… Tools like Mixpanel, Amplitude and Heap help you answer that question. I also include surveys and interviews in this category. Ask your customers why they signed up, why they purchased, why they renewed. How would they feel if tomorrow they couldn’t use your product anymore? Getting a combined view of reported and actual usage gives you the full picture to answer the question to “why our product?”
- First party intent data comes from properties that you own and control, and that you use to market your product. Your website, email newsletters, and the instrumentation you use (think analytics, marketing automation, reverse IP lookup, etc.). It tells you the journey your users took as they found you, signed up and tried your product, when they clicked on the “buy now”, “demo now”, “chat now” button, etc. The tools in this category can be identical to “Ground Zero”, but also tools like Google Analytics and Segment. Then you have tools that reveal anonmyous webtraffic, like Leadfeeder, Hubspot, Drift and Clearbit.
- Second party intent data comes from platforms where you curate a presence, like review websites (e.g. G2 Crowd, Capterra), social networks (e.g. your company pages on LinkedIn, Facebook, Yelp, etc. depending on if you’re a b2b or b2c company, but also public GitHub repositories). These platforms offer analytics and lead capture products for your own property but also for the category in general.
- Third party intent data comes from providers that aggregate data from publisher networks, industry websites, surveys, etc. TechTarget is such a well-known publishing network — they require an email / login to read their content. In other cases, providers capture traffic from multiple networks, and analyze it for surges in buying intent for your category, like Bombora and 6sense, by company. For b2c, there are services that help you create (email) audiences from Facebook or Instagram, based on their interests and activity, for example Instagram Influencers Club.
Intent data shows what type of content people at companies are searching for and consuming, not just limited to your website. That’s a signal of possible “intent” based on their current interests relative to historical data. Max Shash has a full list of companies that provide intent data.
Engagement — work backwards from your best customers
With intent data you don’t have to wait until a prospect comes to your website. Yes, your own website is where you should start to understand behavior and intent of your visitors. But there’s data out there that allows you to identify, reach and start a conversation with your persona before they come to your website.
So now that you understand intent, you can start providing the assistance we mentioned earlier to your buyer. It’s time to reach out and engage, a sales engagement platform like Outreach can help to “industrialize” your campaigns.
Work backwards from what you know about your best and most engaged customers — why they came, why they keep using your product, for what purpose. From there, you can understand the journey they took to find you. Write the right content for the right step in the journey.
Map the user journey
That’s the point when you can start creating a user journey map. There are two types. Retrospective maps are typically used to plot a current process, based on your research, interviews, etc. Prospective maps are great for new products, where you start with a hypothesis about how you expect users to behave.
And coming back to the fancy slides from the Google Image search for “user journey map” — they are just really a big table, with two dimensions. The horizontal axis maps steps through time, the vertical axis has themes for analysis, such as content, actions, pain points, etc.
That’s when your systems come back into play. How do you automate this journey? What content do you serve? What are the metrics you track? When do users convert? With this type of framework, you can start tracking your activity and marketing progams, and correlate that with user engagement.
Harry Brignull published an in-depth post on how to run a workshop to create a user journey. Jennifer Clinehens wrote a beginner’s guide to create a customer journey map.
Looking for a specific example? The approach of mapping the user experience works in all sorts of situation. One unexpected example is mapping the user experience of intruders when they’re trying to hack into your system.
Yes, bad actors attempting a cyber attack go through a user journey, too.
Consider Microsoft’s “Attack Matrix for Kubernetes”. Kubernetes is an open-source system for building “containerized applications”. Companies use it to build their software applications in a much faster way. It allows distributed teams to work independently from each other on different features. I won’t bore you with the details, just consider that like with any new tech, Kubernetes also offers new ways for security attacks.
Microsoft addressed that problem by falling back on their knowledge base of known tactics and techniques involved in cyberattacks. The map shows the nine major tactics used by attackers to achieve different goals.
The matrix above contains the nine tactics. Each one of them contains several techniques used by attackers to achieve different goals. Geared with that understanding, security teams can now create an understanding of the signals involved in an attack, and establish adequate detections and mitigations.
And then check out the related thread on HackerNews, the particular comment in the image below.
The comment by “freehunter” shows how the framework is used to discuss industry-specific threats, define security content, and talk to customers about their pain points in a common framework.
Boom.
To implement your user journey map, chances are that you have to re-think and restructure your existing SaaS systems. You can get amazingly far by building a stack that consists of stitching together free tools, or the free tier of paid tools, before you shell out $$$.
Build a customer-centric culture
Mapping out the user journey and building a fancy tech stack around it with metrics is not enough.
You have to live it. The whole company has to live it.
That means talking to customers, listening to their feedback, rotating everybody in the company to work in support, documenting what you hear, etc. Mathilde Collin writes how her company Front implemented such a culture.
If employees connect with customers and hear actual stories — everybody in the company will understand how customers experience the product. That in turn puts into perspective what everybody is working on and why.
For example, Front collects customer feedback from their publicly available product roadmap, makes everybody work in support, and once a week hosts a customer spotlight session.
Conversion [C5] — Track your metrics
At some point, all the customer happiness and community high fives have to pay off.
You need to bring in revenue, at a growth rate sufficient to attract more funding — unless of course you’re profitable. Either way — “nothing happens until somebody sells something” as they say.
I wrote about the 3 metrics that matter to raise your Series A (and well beyond that)
- ARR: Grow revenue and the # of logos
- Lead velocity: Grow the number of leads that help your deliver ARR and logo growth
- Net Dollar Retention: Your total revenue minus any churn (loss of logos, downgrades) plus any expansion revenue from existing customers.
In addition, we’ll look at customer acquisition cost (CAC) and lifetime value (LTV).
Working backwards from the customer
At no point in your journey can you lose sight on understanding WHY your customers are buying you, and why they renew. A sale only happens if the customer feels there’s a value exchange. The elusive product/market fit is a moving target, and not a static thing. Markets mature, competitors catch up, and buyers’ needs change.
There are only two ways to find out if what you’re building delivers value:
- you talk to your customers
- you look at product engagement data
If you just assume — you’ll likely get it wrong. And then no matter where you are in the journey — at your first sale, or breaking the $10M ARR barrier, these two ways will always hold true.
Your first $1 ARR — “Founder-led Sales”
The first $1 of repeatable sales is the hardest, in particular when you’re a one-person sales band. By “repeatable” I mean actual revenue that you brought in from a complete stranger — not the friends at start-ups who want to help and buy your service.
I’m a big believer in looking at customers as “humans” and engaging in a conversation with them — vs. treating them as “leads”, “logos” or worse “MQLs” that you need to push down a funnel. Yes, there is a process involved, but I think the minute you start looking and treating your customers like a metric that you push through a process, you lose. Rather — you try to walk in their shoes and take them on a journey where at each step you add value and help them solve a problem.
It’s working backwards from the customer — what their roles are, the situation they are in, the tasks they need to complete, defining the steps they took to find you, and understanding when, how and why they engaged with you, and what they’re expecting from you once they talk to you and start using your product.
Defining that journey is your first sales motion. And it’s on the founders to define how that first sales motion works. It’s “Founder-led Selling”, a framework that Peter Kazanjy developed and formalized. Peter also wrote a whole book about Founder-led Selling!
The slide above is taken from Pete’s deck on Google Slides (he keeps adding content), go check it out!
You don’t need to have a sales background to go through that process — more important is analytical rigor, working with data and filtering out the false positives as quickly as possible. Going through that process — it will teach you selling skills!
Consider Colette Nataf and her experience in building LightningAI, and “stumbling into product / market fit”. She had grown the business to ten customers, but then churn kicked in. Back to start. A punch in the stomach. But here first three customers had commonalities — and building on those commonalities, coupled with ongoing experiments, she found her growth trajectory.
“The important thing to note is that we leveraged our success with smaller customers to find systems and sales processes that would allow us to scale — and land the big clients: enterprises.”
In the early phases of a start-up, your first customers buy YOU, the founder(s), as much as they buy the product. And I think therefore humanizing that buying experience makes sense. For example, LighningAI’s website has a section where you can book a demo directly with Colette. I mean, who would not like to talk to the person that started the product / company?
The issue with that can be that people may confuse you with a consulting business, when you’re really just a founder who is obsessive about your company’s customers. And then obviously, as the founder, you can’t do that forever. In fact, if anything, as a founder you should remove yourself from that process as fast as possible, and hand it over to somebody else.
Don’t outsource sales
Handing over selling your product is only possible if you get the early sales motion right yourself, otherwise you’ll risk wasting a tremendous amount of time and money.
Yes, sales is hard. But you have to do it. And while there are many out there that promise you the opposite, no agency can solve this problem for you. It doesn’t work, you cannot outsource your sales.
Let me repeat that, you cannot outsource your sales.
You need to do it yourself. It’s ok to get coaching, training, and hire advisors who have done it before to help you build your process. But the actual work, you need to do it yourself.
Do not make the mistake of hiring an agency to help with outbound sales. And same holds true for (most) SEM and marketing agencies (i.e. for paid acquisition and SEO), except for a few great individual consultants.
I’ve seen this go wrong so many times. It all of course sounds so great at the beginning— they charge by “sales activity” (e.g. emails, calls, LinkedIn requests, etc.), and how how for a given time-frame, they can deliver “100x the sales activities to fill your pipeline” vs. you doing it on your own, “at 20% of the cost of a sales rep”. They have a “proven process”, and “many results delivered” as show by all the great logos on their website. Of course, they also “leverage AI”.
If it sounds too good to be true, it probably is.
I’ve seen how some of these agencies work, and that made me swear that I will never be one of their customers. Unlike your sales reps — they are not incentivized on revenue. Their agency gets paid either way. “Hey — we’re just getting you traffic, leads and first calls. Converting them is your problem.”
As founders, you have to ride your own sales rodeo.
And that means you cover the process end-to-end, from lead gen, over selling, to customer success, as shown in the chart below. One big box that has your name written all over it.
And then document each and every step of that process — it’s the beginning of your very own sales and marketing playbook.
Scaling Sales
In a lot of Series Seed and Series A funding decks, you’ll see a slide that shows how part of the proceeds will be used for “scaling sales”.
When you ask what that means, the answer comes typically down to something along the lines of “hiring an experienced VP of Sales who comes with a book of business” and then that VP will “hire a team of sales development reps” and also “overprovision the team for aggressive growth”.
Turns out that approach rarely works, unless you have your founder-led sales motion figured out, with a clear process, goals and metrics. Looking at data compiled by Chris Orlob at Gong, a platform for revenue intelligence (I can sense a category here, btw…), the average tenure for a VP of Sales has declined from 26 to 19 months between 2010 and 2017.
I don’t have data to back this up, but I hear anecdotes from VCs that it’s even shorter now, in some cases below a year.
It’s the same picture for sales development reps. The average number of reps who attain their full quota (i.e. the amount of new logos and revenues they’re expected to bring in) has been on decline and is below 50% now.
Unproductive sales teams are both a huge cash cost and opportunity cost.
A cash cost because you’re paying reps that are not producing. An opportunity cost because non-producing reps means slower top line ARR growth, which means less money back into your operations.
It’s a massive triple-whammy that shortens your runway, puts profitability into a far distance, and decreases your chance for follow-up funding. Ugh.
So how do you fix this? The answer is to hand over the parts of the sales process that you’ve figured out to your first rep, and take that work off the founder’s plate. There are two ways to approach that.
The first option is to hand over the “front-end” of the process, where the rep does the lead gen with the appointment setting / trial-setup, and the founder takes over when there’s an actual opportunity to sell.
The alternative and second option is to add a customer success rep and / or solution architect at the “back-end”. If you’re not 100% sure yet that you’ve nailed the early part of the customer journey, this is a good way to free up your time. What I also like about this approach is that you can make publishing content and writing documentation a part of the job description. Every time there’s a new customer success story, a question, or a lesson learned — have them write a blog post or a new piece of documentation.
If you look at Pete’s deck(s), he also outlines the steps beyond the first initial hire.
I realize these are conceptual answers. But it’s a blueprint that can help you to get it right. My recommendation is to read up on everything that Pete publishes, and connect with other founders about how they mastered the transition from founder-led sales, ideally the ones who are just slightly ahead of you.
To get you going, Heavybit hosted a session on the transition from founder-led sales with the co-founders of Algolia, HashiCorp and LaunchDarkly that I recommend you watch, it’s evergreen content. Edith Harbaugh (LaunchDarkly), Armon Dadgar (Hashicorp) and Nicolas Dessaigne (Algolia) go into details how they mastered the transition.
The reason why the early phase of Founder-led Sales is so important is because it’s where you have all the lessons learned that help you jumpstart you efforts to build out your own Five Cs.
And if you are the founder are not the one learning those lessons, and iterating — who else is?
Building momentum — lead velocity and traction
Let’s take a look at lead velocity, and the channels that get you distribution.
There’s the saying that the world will beat a path to your door if you build a better mousetrap. That also seems to be a common pattern among first-time founders, with a strong belief in the power of their product to attract users.
Unfortunately, that’s not true.
Few companies are like Dropbox, Slack, or Stripe, where the user experience is so magical, or the economic uplift so great, that adoption is almost viral.
Even for them — if you read up on the stories of the early days at those companies — adoption was a result of the hard work of the founders that built an ecosystem of early power users around that product, and nailing a distribution channel that helped them find those power users.
You have to think about distribution from before Day 1 — if you don’t believe me, ask any second time founder.
You may have read Peter Thiel’s “Zero to One”, where he writes:
“Superior sales and distribution by itself can create a monopoly, even with no product differentiation. The converse is not true. No matter how strong your product-even if it easily fits into already established habits and anybody who tries it likes it immediately-you must still support it with a strong distribution plan.”
In short:
Distribution > Product differentiation
Usually for every business there’s a single best channel for getting distribution. Yet most (first-time) founders gravitate towards the channel they’re already familiar with and try working with that.
And that’s the mistake.
A distribution channel is not a starting point. It’s a function of your product, its target users, where they hang out, and what incentivizes them to act.
So how do you get distribution? Here’s a simple formula to think about that problem, taken from Jim Lattin at Stanford, via Dave Bailey in “The Secret Formula for Go-to-Market”
Distribution = Ecosystem Participants + Incentives
Ben Horowitz summarized that statement into a simple formula in his post “Distribution”, and I’m slightly expanding on that concept.
f(p, t, i) = c
Your channel “c” is the output of your distribution design “f”, with product “p”, your target “t”, and their incentives “i” as inputs.
Ben’s original post didn’t include the “incentives”, which I think are a crucial piece. People climb over walls with the right incentives.
Staying in the 5C framework of this post, the good news is that with your Community you already have a strong ecosystem where your customers hang out. It’s a place to start for understanding what drives them.
Consider Stripe, and how they built distribution around their developer community.
They started their private beta within the YC ecosystem, expanded to other developers, launched a global developer competition (“Capture the Flag”), and co-operated with other developer-focused companies and networks.
Ross Simmonds has the full break-down of Stripe’s distribution strategy all the way from 2010 to 2020 in a thread on Twitter.
For a structured approach on finding the right channels that fit your distribution design, I recommend reading up on “Traction”, a book published by Gabriel Weinberg, DuckDuckGo’s founder. In the book, he lists 19 channels you can use to get traction. While you place your order, you can read Gabriel’s list of 78 take-aways from “Traction”.
Don’t confuse the book will a well-documented list. The point of the book is that you have a structured approach to generating ideas and testing the different channels if they are a fit.
Building pipeline that delivers high Net Dollar Retention
Alright, so let’s assume you’ve nailed the found-led phase. You found a channel that works, and you’ve already hired your first mini sales team with a BDR. They’re killing in, bringing on new customers.
The issue is that you don’t know if you’re acquiring the right type of customers. In the early, founder-led selling phase — the founders can be so good at selling, you might acquire false positives as customers. That means customers buy you for the wrong reasons. Which means they’ll churn at the first best chance, like in LightningAI’s example above.
The counter-intuitive insight: Revenue can be a bad indicator for success. And that’s a problem, because the first question you of course will get is “how fast are you growing revenue?”
By just looking at revenue, you may be ignoring trouble brewing underneath the surface. Yes, you want revenue growth. But consider that revenue is an outcome of value creation, which is a function of product engagement. Lack of product engagement means churn, and by the time a customer churns, it’s too late. If you have runway for 24 months, and customers start churning 12–15 months into that period, you’re toast.
In addition to revenue growth, you need to look at the quality of that revenue growth and the pipeline that’s fueling it. Product engagement is a leading indicator of success.
Mark Roberge, former CRO at Hubspot, frames quality of revenue growth as a function of product engagement in the initial quarter of the customer relationship, the so-called “aha moment”:
“What do you know in the first 30 or 60 days of your product usage that becomes your aha moment? Can you measure it? Is it correlated to your unique value proposition?”
We can go back in time, and see how break-out companies defined their “aha moment”.
With a success metric for your product’s “aha moment”, you now have a binary outcome:
- When a new user reaches the “aha moment”, the correlation to long-term value is huge.
- When a new user doesn’t reach that aha moment, we’re looking at a flaky customer and high risk of churn.
To state the obvious, you need more aha-moments in your pipeline, and the key to measuring that are cohorts.
Mark Roberge held a great talk on how to measure progress with monthly cohorts, coupled with a step-by-step guide on how to build out a marketing and sales process around that cohort. It’s the “real product market fit”.
The good news is that product analytics tools like Heap, Mixpanel and Amplitude have out-of-the-box functionality that make it easy to define and measure your customer success metric, and create your monthly cohorts.
Mark recommends using using the cohort slide as “Exhibit #1” in your board deck, and now you can have a productive discussion around what’s working and what’s not, and how to fix it.
Build a process with your sales & marketing playbook
As you grow from founder-led sales into building a sales org, you need to document and formalize your sales and marketing process.
This is where your sales playbook comes in. We talked about the journey your customer is on when they search and discover your product, and how we measure conversion. With that knowledge, you can build your stages in your CRM around that, vs. using a generic “MQL, SQL, opportunity, customer” type of framework.
These playbooks used to be the proprietary assets of the Valley’s CROs, their “secret sauce”. I think those days are long gone, building that playbook is table stakes.
Rather, I think today’s successful CROs differentiate themselves by using a data-driven approach to see what works and what doesn’t, with a well-documented process. Lots of a/b testing across your entire tool chain. And then coaching their reps on messaging and working with their customers, identifying and tracking the right signals to understand when your customer is ready to buy. The magic happens with goals, metrics, analytics and process.
I think a great example for that is the GitLab public sales and marketing playbook, or “Handbook” as Gitlab calls it. The Handbook is entirely public, with every imaginable detail under the sun. Sid Sijbrandij, co-founder and CEO, operates Gitlab on a “website-first” and “handbook-first” approach. I visit their handbook frequently for inspiration.
Of course that playbook was built over some 10 years — and the best way to build yours is to start now.
Wrapping it all up.
Whoa, long post, I’m glad it’s done. If you’ve made it all the way to here, thank you for reading to the end!
But there you go, a bunch of lessons learned from others wrapped into a single framework.
- Category — nail your niche.
- Community — build your audience.
- Content — tell your story.
- Customer — activate the journey.
- Conversion — track your metrics.
If you’re a founder reading this, and you’re looking for help with fundraising and executing your own 5Cs — shoot me a note on LinkedIn.
I also publish a weekly newsletter “Finding Distribution” on Substack. Click the link below to subscribe👇
