If you're at home and you want a drink of water, what do you do? If you're like most people, you grab a glass, walk over to the nearest sink, and turn on the faucet. You don't grab a map, chart a course to the nearest waterfall, hop on a plane, and then charge into the jungle with gallon drums strapped to your back. Although the waterfall can produce water a lot quicker than my faucet, it's not a very convenient, practical, or reliable source of water for me. This is not a particularly difficult concept to understand for most people when it comes to quenching their thirst. However, when it comes to developing a Go-To-Market (GTM) Strategy for their business, most founders opt for the waterfall approach instead of just drinking from the faucet. Let's take a look at some of the common mistakes founders make when developing a GTM and how to avoid them.
What is a GTM Strategy?
When most founders are questioned on their Go-To-Market, the first thing they talk about is the HOW. How am I going to get my product into the market? Direct Sales, Channel Partners, etc. Although the "how" is important, simply answering this question by saying "direct sales approach" is completely unsatisfactory to most investors. The big mistake founders make is not enough focus on the WHO you are trying to sell to. For example if you are selling a software product that can only support 50 enterprise licenses at one time, then your GTM better be for companies that will have 50 users or less. If, in this same example, you priced your product based on your desire to sell to large enterprises with 1000+ users then your GTM will be totally misaligned. A good GTM focuses on the size of the customer, their pain points, and how much they are willing to pay to solve those pain points. The how you are going to sell to them is always secondary.
Don't Go Chasing Waterfalls
Now that we understand what a good Go-To-Market Strategy entails let's go back to my earlier analogy where founders try to chase the waterfalls. Suppose for example you have a piece of Health Tech software that you want to sell to hospital systems. It may be tempting to go after Mayo Clinic, New York Presbyterian, and Duke Health. After all, those companies have a lot of money and whatever problem your trying to solve, they probably have it at a larger scale than anyone else. Not to mention those logos would look very good on the traction slide in any pitch deck. These larger companies are the waterfalls, and there are some major problems with chasing after them.
The first problem is that the sales cycles on larger companies are very long. It could be 12 to 18 months to actually close a deal with them. Does your company have 18 months of runway in cash? Most don't. Even if you can play the waiting game, larger institutions often give startups multiple hoops to jump through and the standards they set are very high. You might have to do 2 or 3 pilots to even get your product considered and if any of them don't go well, you're out. You also might have to make specific customizations to your product, which take time and could burn out your development team. Lastly, and most importantly, the people you are pitching your product to in a large company probably don't work in the specific area you are targeting and won't understand the pain point you are trying to address. Going back to the hospital example, let's say your product automates workflow for nurses and eliminates a manual process. If none of the administrators you are pitching your product to have ever done they job, they might not understand how valuable your product actual is and pass on you right there. It is absolutely amazing to land a contract with one of these waterfalls, but the reality is that most of them chew up startups and spit them out.
It's OK to Drink from the Faucet
Although large, cash flush companies can be appealing to startups, a far superior strategy is to go after the smaller more convenient players. Instead of selling to a gigantic hospital system, maybe target smaller private practices. They may not be a huge cash cow, but you can probably sign a contract with them pretty quickly (no pilots) and there is a good chance you will be talking to someone that knows exactly how annoying the pain point is you're trying to address. Get a handful of these under your belt and you will have an impressive stream of recurring revenue that will be very attractive to investors. Remember, it's ok to drink from the faucet, who cares if no one has heard of any of your customers. You will have the financial strength and the results to back up your GTM strategy. The below slide gives a great summary of what a solid GTM looks like:
Summary
The Go-To-Market Strategy is one of things that prevents most startups from receiving investor funding. Startups often aim too high and target large companies with long sales cycles and needs beyond the capabilities of their current product. A much better approach is to target the smaller players and build up financial strength that will be more appealing to investors. Just remember when you are thirsty, drink from the faucet and not the waterfall. If you need any help building a great GTM strategy into your financial model or pitch deck, reach out to InfleXion Point Advisors. We are happy to help!
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