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Double down on retention

The benefits of best-in-class retention are often underestimated! Without a doubt, the best action a company can take to rapidly accelerate towards GTMF is to double down on retention. Below, you can see the results of maintaining strong net revenue retention (in this example, even with no new business).

That’s the power of compounding – upsell and strong revenue retention can underwrite really solid levels of persistent growth.

To contextualise some public company performance, UIPath is a great benchmark for top enterprise sales at 145%, Slack an impressive 125% for a hybrid enterprise/mid-market product, and Smartsheet 120% as hugely impressive for mid-market / SMB.

Not only can great NRR underwrite strong overall growth, it’s also typically a cheaper revenue source than new logos. 

 

The chart below is from a Bessemer Venture Partners survey of 174 companies, showing acquisition costs for renewal and upsell / cross-sell are a fraction of new account acquisition.

BVP example.png

Some general tips to optimise retention:

  1. Work out the common characteristics / behaviours of your best customers 

  2. Nudge user behaviour towards the relevant interactions that correlate with stronger retention 

  3. Clearly & consistently communicate targeted ROI to all customer groups 

  4. Expand usage further than the initial champion with product features or targeted outreach 

  5. Don’t forget to learn from churned customers to avoid repeating mistakes 

  6. Structure thinking around retention optimization as early as possible – both growth and problems compound here!

FURTHER READING /  RETENTION /  SEGMENT

FURTHER READING /  RETENTION /  BVP

Develop clarity of positioning through focus

Highly focussed, strategic positioning is critical to cutting through competitive noise and expanding your client base from early adopters into the mainstream. Software users and buyers are more impatient and overwhelmed with options than before. The average mid-market business with a few hundred employees has over 100 software tools, while top enterprises now average almost 1000!

 

As you can see below, there are many different ways to slice your focus. Understanding the most relevant areas of focus for positioning can also be analysed in a data-driven way. Inputs to this process can include top-down market needs analysis, client interviews, funnel metrics, NPS and retention rates per area. What’s important is the vectors you choose are relevant to your business' strengths!

CUSTOMER SIZE

SMB clients have very different requirements to mid-market or enterprise clients. Few businesses, other than the best horizontal tools, cater effectively to all sizes. What is more common is expanding to a different customer size over time – typically upmarket. Few businesses successfully move downmarket.

DEPARTMENT/BUYER/USER

Outbound/enterprise sales might target individual economic buyers residing within certain departments, while bottoms-up models including PLG target user-led adoption. Focus should be on effectively engaging the set of economic buyers and/or the critical users/teams.

GEOGRAPHY

Many businesses traditionally begun by iterating their MVP in a home country/region. The recent advent of remote-first (particularly with PLG / inbound marketing / SMB SaaS) have flattened the world. But geography remains a key focus area for companies with more localised business models such as proptech, healthtech or vertical SMB SaaS.

PARTNER ECOSYSTEM

In some areas of the software market, channel partners preside as primary GTM gatekeepers (for example, specific areas of cybersecurity). Some businesses choose to focus near-exclusively on this strategy, which has ramifications for both org structure and product design. It's worth noting that focusing on this exclusively can pose a concentration risk.

INDUSTRY VERTICAL

Horizontal software businesses often begin with a view of their Ideal Customer Profile (ICP), which can contain a collection of industry sectors that share similar use cases and value indicators. Clearly, narrower vertical SaaS companies rely on their powerful industry focus to beat generalist competition with their hyper relevance.

TECHNOLOGY STACK

Some companies have dedicated solutions which reside in walled ecosystems, rather than being truly agnostic. This is often relevant in infrastructure (eg AWS vs Azure), collaboration (eg Gsuite vs Microsoft), or with programming languages (eg Java vs C++). 

Effective focus creates true clarity and distinctiveness in your proposition, which is the key to unlocking mindshare and breaking into a wider base of potential clients. Often we see the best SaaS businesses, even broad horizontal collaboration tools, succeed through selecting a compelling set of focus areas that resonate with the competitive advantages of their business.

Clearly the specific strategic focus will be highly company specific, but there are a few general recommendations:

  • As early as possible, be data-driven and strategic about your intended areas of focus. Interview customers, measure NPS, segment financial performance by customer groups, and match evidence with strategic hypotheses on what’s resonating.

  • Align closely with marketing and use brand messaging / content to create both clarity on positioning and distinctiveness.

  • Balance being too narrow to demonstrate laser-focus, with ensuring that there’s a large enough addressable market to go after. And think through sequencing of market entry – it might make sense to build a dataset/product to own one category first, which you can later leverage to speed up entry into an adjacent area with common clients / problems / datasets / etc. This point is strongly emphasised in Geoffrey A. Moore's Crossing the Chasmwhich is seminal reading on strategic positioning.

  • Be deliberate about what sorts of work you will and won’t do for clients. It can be tempting to be pulled into custom development work for marquee clients, but knowing how and when to say no to non-strategic work will improve team efficiency and help solidify your focus.

 

Specialize revenue-generating team roles

The evidence suggests that employee performance improves as a result of an appropriate degree of role specialisation.

 

In B2B SaaS, some individuals have even laid out a roadmap for the precise GTM hires that a SaaS business needs at each stage in their development.

 

We don’t think it’s practical to be quite so prescriptive and mechanical about it, but have seen repeatedly that the following areas lead to superior sales ops performance.

 

The first 3 examples below typically refer to the traditional outbound GTM / sales process. Below we also refer to some of the different approaches required to succeed with new user-focussed (rather than buyer-focussed) GTM approaches, through inbound, product or community led growth strategies.

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Commercial team lines are blurring as many businesses pursue hybrid top down and bottom up GTM approaches, and cross-functional teams become more common.

 

Our advice is to segment your customers into reasonably homogenous core groups, and design tailored GTM processes and team structures around the different acquisition journeys of clients.

As your business scales, it’s normal to see increasing specialisation across different stages of the acquisition funnel, as well as specialisation across ‘styles’ of commercial teams

When specialisation increases, this can create an increased range of natural career paths for higher internal mobility. This is a very valuable spill-over benefit that can have huge cultural positives.

FURTHER READING / REVENUE / HARVARD BUSINESS REVIEW

FURTHER READING / REVENUE / AARON ROSS

 

Right-size the GTM team leads, at the right time

HEAD OF / VP SALES

In a sales-led GTM model, hire your sales leader after your first few AEs have landed sufficient accounts that hypotheses around GTM have emerged. In a PLG model, hire your sales leader when a stream of customers starts pulling you up-market and your product is ready to serve them.

 

Match your new sales leader’s background to your sales motion:

  • Primarily outbound vs. inbound lead generation

  • A highly competitive sale vs. educative sale in emerging product category

  • General ACV range

HEAD OF / VP MARKETING

Hiring your marketing leader alongside your sales leader can lead to a strong partnership. But very strong individual contributors can get you far in marketing. Look for complementary fit with your executive team. If you sorely lack the strategic skills that marketing leaders often bring, and which are crucial for GTMF, it's important to bring that individual in early for market positioning, general analytical commercial thinking, etc.

 

Your marketing leader should index highly across the 2 to 3 sub-disciplines which are most relevant for your GTM approach:

  • Community building

  • Product marketing

  • Demand generation

  • Growth

  • Brand

  • Content

”I’m looking for a great VP of X” quickly followed by ”any advice on what profile I should look for?” is one of the more common questions companies ask us. The simplest advice is to look for an individual who can bring you a playbook for success, but with the curiosity and drive to rewrite that playbook for your company’s unique GTMF journey.

 

It’s important to right-size these leaders. Ideal candidates have just completed a scaling journey similar to the one you’re embarking upon, in the same role. Beyond these rare gems, look for individuals with high potential who have experienced a company achieving GTMF, even if they were, for example, the head of sales reporting into the VP of Sales. Also, we generally see less impressive results from recruits who haven't operated in a company of similar size for over a decade, no matter the logos they have worked for.

While these are the classic roles, you may instead (or in addition) seek out a VP Customer Success, VP Partnerships or a VP Growth depending on your GTM motion and company. Most importantly, it’s absolutely critical that all of your commercial leaders maintain excellent alignment.

 

An alternative is to hire a single CRO or CCO to manage the entire commercial operation. If you do this, look for an individual with previous experience leading most of these functions in a similar environment recently. Similar advice applies: it’s generally preferred to hire individuals who have recently navigated this journey. Very seasoned, experienced C-level hires can experience a bit of a culture shock if dramatically changing company size/stage/trajectory and this can be a key driver of failed hires.

In our experience, often companies who are seeking a ‘silver-bullet’ C-level hire would be better served hiring VP-level individuals first to take the initial steps in appropriately building and structuring the team, working practices, and culture.

Another confounding variable can be geography here. Companies often struggle to determine the right level of early international commercial leaders. Is it better to hire a senior US-based CRO as #1 hire to build the team? Should a co-founder relocate and bring in local Head / VP level individuals? Do you start with mid-level employees in a satellite office and manage remotely? These are challenging questions to grapple with, and often idiosyncratic cultural factors, founding-team dynamics and senior capabilities play crucial roles in determining the best strategy.

FURTHER READING / HIRING SALES LEADERS / JASON LEMKIN

 

At PMF you've proven that customers want to buy your product  - but you might not know yet how much customers are willing to pay for your product.

Mastering the pricing side of the revenue equation is crucial to achieving GTMF. That means ensuring you differentiate pricing plans according to the different value that different customers see in your product.

 

When it comes to SaaS pricing, one size does not fit all - therefore the key is to iterate.

 

  • Appropriate pricing metrics – Companies with GTMF have adjusted their pricing metrics so price scales with value delivered. For example, some companies might start with classic seat-based pricing, but when long-term usage patterns show usage-based pricing might be more successful, they adjust.

  • Pricing differentiated per customer segment – Not all customer segments have the same willingness to pay, nor the same willingness over time as your company’s offering becomes more valuable. Companies with GTMF adjust pricing per segment accordingly.

  • Adjust your prices and pricing plans – Savvy companies iterate pricing at regular intervals: localizing prices, changing price levels, rolling out add-ons, adding and tweaking free trials, adjusting cutoffs between price tiers, and so on.

Definitions:

Value-based pricing: Setting price according to perceived value, as opposed to cost-based pricing or competition pricing. Almost without exception, innovative and ambitious SaaS companies use value-based pricing.

Willingness to pay: The price a prospective customer is willing to pay for a product.

Pricing metric: The unit by which your price increases for different customers.

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Usage based pricing is gaining rapid momentum. OpenView’s Financial and Operating Benchmarks survey says 45% of SaaS businesses are now using this sort of flexible pricing, up from 27% in 2018, and a further 11% will test this pricing mechanic in the next 6-12 months.

Both OpenView and Battery have recently claimed companies leveraging usage based pricing have higher NRR and sales efficiency. While it’s possible this is selection bias or driven by unobserved variables, it’s also possible that implementing this pricing model can lead companies to accelerate like-for-like growth through more closely aligning the pricing model with value.

We believe businesses should carefully consider more closely aligning product value with pricing in order to drive accelerated sales cycles, adoption and upsales; and for many businesses, this could involve experimenting with usage based pricing as part of the proposition. 

Clearly pricing is an enormous topic, and we'll write more detailed content on this topic in the future. For now we'd recommend several excellent pricing resources available, including OpenView’s State of Usage Based Pricing 2021, and Bessemer Venture Partners’ Pricing Course.

Create and iterate tailored pricing models

FURTHER READING / PRICING / PRICE INTELLIGENTLY

 

Invest in scalable demand generation

Companies that have strong GTMF have deliberately invested ahead of the curve in a scalable and predictable top of funnel demand generation process.

 

Early proofs of concept for lead generation in the PMF stage involve short term channels, such as paid digital performance, or hacked community efforts, or founder-led leads.

 

It doesn’t matter if your planned strategic demand gen evolution is product-led, direct or in-direct, inbound or outbound, driven by inside or field sales, or any combination, Increasing the velocity and predictability of leads is crucial for a well functioning GTM function in any organisation.

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What’s important is:

  • Strategic determination of relevant acquisition channels

  • Monitoring conversion metrics, sales cycles, closed/lost

  • Creating performance feedback loops

  • Testing predictability of acquisition channels

This is important to ensure alignment between sales-focused teams and demand gen/marketing focused teams. Lumpy and unpredictable demand gen can really become a problem which hurts performance and team motivation if unchecked.

 

One of the most common reasons for revenue underperformance is insufficient focus and remediation on the sales funnel(s).

It’s good practice to get a deep understanding of the relevant funnels in your business, and be able to pre-emptively work out the numbers of calls, meetings, leads, visits, trials, users, etc. that will result in achieving revenue targets, month-on-month and quarter-on-quarter. 

 

Feedback loops have shortened significantly. A modern GTM stack with appropriately inter-connected platforms from traditional CRM software, through to product analytics tools, marketing insights platforms, financial collaboration software, will be incredibly helpful.

 

Forward thinking commercial teams will be operating several quarters ahead at all times, ensuring that there’s sufficient volume and conversion through all tiers of the funnel(s) today so that future financial targets are hit.

 

Treat onboarding as a differentiator

Software purchasing is becoming increasingly consumerised, and end-users expectations are becoming higher and higher. The psychology of deferred gratification is increasingly challenging to communicate.

 

Quality of onboarding has therefore become a more important cross-functional area of focus, with GTM, customer support/success and product/technical teams often involved. This can be especially challenging in an enterprise where your business needs buy-in from a wide group of users or teams.

 

Deep thought should be given to the relative merits of free trials, demoes, freemium options. What type of behaviour does each drive? Does that align with individual user value? What about cross-team value?

 

The more quickly users/clients can get to their ‘aha moment' the more likely they are to become evangelists, spreading use of the software throughout their organisation and likely increasing the quality of that client.

 

Make it as easy as possible for the first users experiencing your platform to ‘get it’ – ideally Day 0 value. There’s many different ways of doing this, such as structured product workflows to provide an automated relevant onboarding journey (eg Canva's process) or human-centric customer success calls (eg Superhuman's process). Track customer's feature usage and be highly responsive to customer interactions, particularly in the early days.

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Whilst the benefits of world-class onboarding are most often considered for SMB-focussed software tooling, enterprise software businesses shouldn’t shy away from ensuring the onboarding experience is as delightful (or at least as painless) as possible.

SMB software that might be on rolling month-on-month contracts will be able to see very quickly in their retention data whether customer fit and onboarding have been successful. It’s also straightforward to quickly A/B test the impact of onboarding on retention and consequently work out if the strategy makes economic sense.

But enterprise focussed businesses with annual or longer contracts don’t have the benefit of this short-term feedback. Nonetheless the impact of poor onboarding can be even more damaging, as the consequences can appear more dramatically if a few large clients churn a year later.

Regardless of your target customer, we think delivering excellent onboarding is crucial to ensure a solid beginning to the client relationship. This paves the way for a higher quality interaction, and increases your prospects for strong retention and upsell.