Most big software as service (SaaS) companies have a combined sales-driven model and product-led growth as their go-to-market strategy. However, what works great for big established players, usually kills young startups.
In a sales-driven model, a company relies on a sales team to reach out to and onboard clients. In product-led companies, clients discover and implement solutions without speaking to a company representative. Let us find out why startups cannot have the best of both worlds.
It all boils down to the client’s size. The e-commerce market is huge. In 2021 it was 4.9 trillion dollars. It is forecast to grow by 50 percent over the next four years, reaching about 7.4 trillion dollars by 2025, according to Stephanie Chevalier of Statista. However, this market includes big players like Amazon, small mom-and-pop e-shops, and everything in between.
Product-led growth is a preferable strategy for the small and medium-sized business (SMB) market. In this market, the average deal size is lower. The average e-shop in this segment spends from 30 to 700 euros monthly on onsite personalization, e-mail marketing, and other SaaS tools. As a result, these SaaS companies cannot afford a sales team to onboard customers.
On the other side of the spectrum, some e-shops spend 2,000 euros on a standalone loyalty solution. Companies of this size prefer talking to a sales representative. The deal size and annual contracts allow SaaS businesses to have a specialized sales team to close deals and stay profitable.
And it is not only about the price, but it is also about the product. A company that sells ten items daily is far less demanding than online moguls selling thousands of items. As a result, the choice of the go-to-market strategy stems not only from economic viability but from the customer profile.
The key to any startup’s success is clearly articulating its Ideal Customer Profile (ICP). In turn, the ICP defines the go-to-market strategy. Thus, if a startup chooses enterprise clients, it has to develop an enterprise-grade solution and opt for the sales team to find and close the deals. Accordingly, if a startup goes for a mass market, they need a simple, cheap, and reliable solution that its clients can quickly implement. Going for both is not an option for an e-commerce enablement SaaS with annual recurring revenue below 20 million euros.
“The winner in the market is not the one who applies effort here and there but focuses efforts on the most promising area”
However, once a company reaches this threshold, the growth slows down. Product-led companies see their biggest customers graduating to more advanced products. Simultaneously sales-driven companies find it more difficult to source new leads that fit their ICP. At this stage, companies take deliberate action to adopt a hybrid approach.
Product-led companies invest in advanced features and a sales team to upsell and retain their biggest clients. Soon enough, they built a track record of enterprise sales and expanded their scope to include enterprise-level customers. By then, the SaaS company usually has dedicated product teams for SMB and Enterprise.
Similarly, sales-driven companies launch lite versions of the product and leverage their brand power and existing pipeline to onboard SMBs without efforts from the sales team.
As a result, successful startups always start with either product-led or a sales-driven model because startups have to focus all their resources on a specific market segment. However, as the companies grow, accumulate more resources, and see opportunities in the adjacent market areas, they often evolve and adopt a hybrid model organically or through business combinations and mergers and acquisitions (M&A).
An actionable takeaway is to execute any strategy step by step. Like startups zero in on their ICP, big players implement a hybrid approach when their growth decelerates. The winner in the market is not the one who applies effort here and there but focuses efforts on the most promising area.