Considering your GTM model

Part 2: WTF is GTMF + PLG? Many Journeys to Success

Date Published:
August 19, 2021

In part two of this four part series, Blackbird Partner Tom Humphrey digs into the different GTM models and the factors that guide designing your strategy

Welcome to Part 2 of a four part series on go-to-market (GTM) and product-led growth (PLG), adapted from a recent Blackbird Founder Academy workshop.

In Part 1, we explored the importance of finding go-to-market fit after product-market fit. Now, in Part 2, we dig into the different GTM models and the factors that guide designing your strategy.

The four GTM models

At a high level, there are four core GTM models:

  1. Self-serve: focused on facilitating customers to purchase online without engaging a sales person (typically low cost, simple products targeting individuals or “prosumers”)
  2. Inside Sales: focused on generating leads and closing sales through remote demonstrations by “inside sales” account executives (typically targeting SMB and mid-market customers)
  3. Field sales: focused on closing sales through enterprise account executives, who are commonly industry experts, meet customers on site or at conferences, and guide them through a structured and consultative sales process (typically higher cost, complex products targeting enterprise customers)
  4. Channel Sales: sits across the market spectrum and is focused on enabling sales via third parties. Channel sales has helped some companies to drive rapid and efficient growth. For example, in 2020, 63% of all Atlassian’s revenue was generated through channel partners and, at 15%, it had one of the lowest sales and marketing expense ratios of public B2B SaaS companies.

Some recent market themes related to these models include:

  • Strong push to “the left” - product-led growth has been a big topic (which we will explore in more depth in Part 3) and encourages companies to find more ways to leverage product in the sales, marketing, and success functions. This naturally pushes companies more toward self-serve and inside sales initiatives
  • Lasting impact of COVID - the trending shift from field to inside sales pre-COVID has accelerated with lockdowns and the cessation of in-person sales forums and conferences. This has forced the growth of inside sales as well as innovations to the remote sales approach and tech stack
  • Growth in channel sales - too many companies don’t pay enough attention to channel and in many situations it is an effective option. Channel partners can come in many flavours, including affiliates (eg. Xero rewards accountants for onboarding their book of clients), consultants / solution partners (eg. Atlassian empowers consultants to consult on, customize, and implement their products with customers), distributors (eg. Propeller partnered with Trimble to develop a co-branded Trimble Stratus product to distribute through its network), and managed service providers (eg. common in the cyber security market, where MSPs will often resell products bundled with integrations, services, and maintenance).

So, which model is right for you?

To answer this question, you should think about three factors:

  • The customer: the most important consideration is the customer. In Part 1, we spoke of designing your GTM funnel, the framework for your ideal customer journey. You should focus on how your customers buy, or could buy. We say “could” because you can always innovate on this. For example, when Salesforce launched, the main model was on premium licensing and they innovated the SaaS subscription. When Atlassian launched with Jira, the main model for purchasing was enterprise sales (the model that competitors such as Rally Software replicated), and they innovated self-serve and channel. When Dropbox launched, the main model of purchasing enterprise software was top down, and they innovated the freemium, bottoms up sale. The point is don’t take current customer purchasing behaviour as a given.
  • The strategic advantages: operating in a winner-takes-all market, where speed to data or user scale is a distinct advantage, may also influence the decisions you make. For example, Classdojo spent the first 8 years of its life with no pricing model or revenue to talk of. Only now that they have built a domineering market position in the K-12 sector, and 51 million users, are they turning their attention to monetization
  • The economics: the economic validity of different models is also a consideration. If it costs you $1 in sales and marketing expenses to generate $1 of revenue via self-serve and $2 to generate $1 of revenue via inside sales, and assuming customers via both models are of equal value (in terms of how they behave and retain as customers), then that would likely be a good sign to double down on investing in self-serve.

In the early days, focus is critical and it is generally advisable to invest in one primary model. It can be helpful to study companies whose GTM you admire - look at their website, messaging, and customer flows, review their Linkedin and understand who they hired and when, etc.

Understanding GTM metrics

Determining the best GTM metrics to track for your business commonly comes down to a pretty simple four-ingredient formula -- for your size, you want to be growing fast + efficiently + with customer love. This is ultimately the lens through which investors will look at your business too. For public companies, there is a very strong correlation between sales efficiency, growth, and valuation multiples.

To dig into each of these factors further:

  • Size - is relevant because a 20% growth rate is very different for a $1m revenue versus a $100m revenue company
  • Growth rate - is important because the faster you are growing, the more rapidly you will be adding top line economic value in the coming years
  • Efficiency - is important because this signals how much of the growth in your top line (revenue) you are capturing in your bottom line (profit), as well as how much cash you need to fuel growth. In SaaS, people commonly look at the magic number (newly added revenue / total sales and marketing expenses) and in consumer, people typically talk of LTV / CAC and CAC payback
  • Customer love - is important because companies that don’t have a strong north star metric or obvious signals of “customer love” with the product tend to not maintain focus and succeed. Customer love is often signalled in usage data (such as monthly active users or presentations created, in the case of Canva) or purchasing behavior (for example, repeat purchases or net dollar retention).

Pricing is a key lever

Pricing is commonly overlooked despite being such an important component of GTM. In fact, a Deloitte study found that pricing is the most impactful lever for profit growth - a 1% improvement in a company’s average price has on average a 2-4x bigger impact on profitability than a 1% increase in sales volume or a 1% reduction in fixed or variable costs. So if you are looking to do something to build value, pricing is a great place to start.

Pricing is a topic that deserves its own deep dive (perhaps a follow up series of its own!), but here are a few key principles to think about:

  • Value-based pricing - price to customer perceived value, not actual value (only diverge from this strategy in rare circumstances)
  • Usage-based pricing - is a great way to connect pricing to customer value, but you need a simple and logical usage metric to attach to
  • Constantly iterate - test price changes in market, track your losses and feedback on pricing in your CRM, survey customers (your worst option - what customers say they would do is never as strong as what they actually do)
  • “Goldilocks principle” - offer multiple options with clear and logical feature/value differentiation to segment customers
  • Land & expand flow - align pricing to the natural customer journey (entry pricing and growth levers) to remove pricing as a point of friction upfront
  • Pricing delivery - the delivery of pricing is an art and is as important as the pricing itself
  • Endowment effect - think strategically about how you approach customers on competitive products may adapt your pricing strategy
  • Incentivize upfront payments & long term contracts - give something, for something (discounts for multi-year contracts or paying upfront)Many journeys to success

Many Journeys to Success

A final note to remember is that there are many different journeys to success. Companies can become large "unicorns" through any type of GTM model, from Dropbox's bottoms up, self-serve motion (IPO'ing with 11M customers at an average ACV of $100) TO 2U's heavy enterprises sales model (IPO'ing with just 8 customers at an ACV of $10.4M).

The key, as mentioned, is to work customer-back and determine what makes most sense for your customer’s journey. As Jeff Bezos put it, “we’re not competitor obsessed, we’re customer obsessed. We start with what the customer needs and we work backwards… If there’s one reason we have done better than any of our peers in the Internet space over the last six years, it is because we have focused like a laser on customer experience.”

This content has been developed from our Blackbird Founder Academy, a cohorted program where we help our portfolio leaders to level up, together. Join us for Part 3 here!