This column originally appeared in Forbes.
The first year of a start-up can be a heady time. A fledgling software company, founded by brilliant engineers, might encounter initial enthusiasm for their product. A few early proof-of-concept trials are converted into sales, and, within a few months, the founders appear to have established a product-market fit. After their first year, the company may have booked $1 million in annual recurring revenue.
Congratulations, you have a successful launch. Now comes the hard part.
Moving from initial success to a rigorous go-to-market architecture that enables year-over-year growth is a transition phase where most technology companies fail.
Dev Ittycheria, the CEO of MongoDB, and a veteran of driving software company growth, believes that the failure to put together an aggressive and comprehensive plan for continuous expansion separates successful from unsuccessful companies. Dev has watched many founders have initial customer success but then falter and have mediocre outcomes, because they undervalued the importance of a strong go to market plan and lacked the needed skills to build it.
Most entrepreneurs starting their first company do not understand this. Indeed, I have watched the failure to cross the chasm from promising launch to durable, high-growth company many times across the startup landscape. Reflecting on what has worked and what has not, three common traits that have distinguished the company that successfully leapt forward into fast and enduring growth: thinking ambitiously; investing in demand generation; and rigorously building sales capacity.
While “ambitious” is frequently tossed around to describe an ideal quality of a successful start-up leader, in practice, it has a real meaning when it comes to GTM planning. Once a founder-led company has demonstrated a product-market success, a shift in mindset and operations has to be the next step. Incremental sales, however steady, are not enough. To set a path towards multi-year growth and attract subsequent rounds of funding, the company leaders must start to envision growth that is several multiples over what they have already achieved. The question is not “where will the next million dollars of sales come from” but rather, “how do we scale our business to 5, 15, and 30 million dollars over the next few years?”
For many founders, this marks an uncomfortable moment. It requires recognition that the engineering prowess and creative product development skills that brought initial success are no longer sufficient on their own. The entrepreneurial thinking that governed the first year of the company must now make room for a rigorous go-to-market strategy.
Anant Bhardwaj, the brilliant MIT graduate who founded Instabase, a pioneer in automating enterprise processes, came to this realization well after the company’s early years of growth.
He was able to get to over $5M ARR sales without any significant GTM investment and that blindsided him. After a strong early start, the company’s sales became unpredictable. Anant subsequently realized he needed to invest in a comprehensive GTM architecture, which led to growth that now continues to scale with strong underlying economics.
In retrospect, Anant believes that he “lost time and opportunity” by failing to build a more robust GTM earlier and now strongly encourages other founders to fully invest in GTM much earlier.
This is a very hard topic for first-time entrepreneurs to get their heads around. In most business environments, growth from $1 million to $2 million over a year would be a sign of success, if not cause for celebration. Yet in the world of start-up growth, the truly distinct companies must set a much higher bar. There are founders who are superb technologists and wonderful leaders. However, unless they are capable of building – perhaps with the right partner – a GTM culture, their full potential will not be realized.
Driving Demand Investment
Inside every start-up company that pursues ambitious goals is an in-depth plan to drive customer demand. This involves some basics around segmenting your market and an understanding of what it takes to effectively generate leads.
But as John McMahon explains in his excellent book, The Qualified Sales Leader, most sales organizations confuse frequent sales activity with deal advancement. Indeed, many early-stage start-ups I talk with do not appreciate the difference between building a pipeline of truly qualified leads and chasing promising hunches. As a result, McMahon concludes, many organizations are built around “hollow KPIs that are useless in accurately forecasting outcomes.”
I share McMahon’s view that only an organization that takes the business of forecasting seriously can develop the right “coverage ratio” between their top of funnel leads and the sales goals they actually want to deliver. That requires understanding who is most likely to become a customer; building a rigorous set of habits around sales calls, result analysis, and cycle time metrics.
None of this has the thrill of launching and refining a product that introduces new features and customer experiences to the market. It is a painstaking and often tedious process that requires thorough attention. Yet it is exactly the kind of demanding work that a start-up founder cannot avoid if they want to take their company to the next stage. Demand investment isn’t just about generating leads. It is a commitment to install a scalable process for generating qualified leads and creating ambitious but achievable forecasting.
Building Sales Capacity
The most distinguishing feature of start-up software growth is that it can be significant and sustained for years. Within a matter of years, the most successful software companies should be expecting to make major leaps in sales.
Like investing in demand, building sales capacity is an intense planning process. It always begins early. Hasan Iman, CEO of Obsidian Security (leader in SaaS security) told me that he starts thinking about what he will need for the following year before the second quarter of the current year is even over. The reality of sales is that it often takes months for sales representatives to fully ramp and become productive. Imam has discovered the reality facing most entrepreneurs driving hyper-growth: they must keep one eye on the immediate business with another on the future they want to build.
This is not merely advance planning. The reality is that every step change in start-up growth requires building out an elaborate ecosystem of sales: market segmentation, geography and territory planning, sales manager recruitment and enablement, compensation and retention, among other elements. Traditionally, SaaS companies could see 15% to 25% attrition in their sales team, and in the current labor shortage environment, growing and developing a sales team well in advance has become one of the top CEO priorities.
Yet driving leaps of growth is more than just demand generation and hiring. At one point, GTM strategy must shift from an obsession with adding new customers to a more nuanced balance that includes a focus on managing renewals and expanding accounts. Unless process and capacity are added to deal with both new and existing clients, a once-soaring company can become a leaky bucket. Very quickly, company leaders discover that their most important metrics are annualized billings (ARR) growth and net dollar retention (NDR). Without a change that includes a focus on not just landing new customers, but retaining and expanding them, it is almost impossible to have high ARR growth and best-in-class NDR.
All this must happen with an industry backdrop where product-led growth is becoming more central. At one time, enterprise software selling meant hiring reps and getting them in front of buyers. Today even companies selling large-ticket software are allowing their enterprise prospects to discover and trial before any sales call takes place. Companies selling smaller ticket software are frequently completing the sale over the web or phone. Whatever the method, no software CEO can afford to ignore how product-led growth is transforming sales. In many cases they will want to invest in a seasoned sales team while simultaneously experimenting with letting prospects learn, evaluate, and purchase products on their own. Building the capacity to do both is increasingly an essential part of strategy.
A Constant Adjustment
There are two realizations every initially successful software entrepreneur encounters. The first, as I have argued, is that the mechanics of a meticulous go-to-market architecture is inextricably linked to company growth. The start-up founder who ignores it rarely makes it past the earliest stages of growth.
The second discovery is that the pressure to plan for growth does not end. The company that has successfully forecast and achieved a year-over-year doubling or tripling of sales is already behind the curve if they have not put in place a go-to-market to exceed sales growth the following years. This is as true for a company that moves from $1 to $10 million in sales as it is for a company that wants to soar past $100 million in revenue. A comprehensive go-to-market architecture is a constantly evolving and reconstructed thing. Yet it is an indispensable and necessary component for durable growth.