How to Design a Go To Market Strategy for Your Startup
The term Go To Market (GTM) is used to describe the design that shows how your product will get to customers. How will customers learn about your product, how will you position your product against competitors, how will sales objections be overcome, how will customers pay for the product, etc. In most startups, the GTM strategy can be as important, or even more important, than your product design. At the very least, your GTM design will almost certainly influence your product requirements and thus the product design itself. For these reasons, it is essential for startups to develop a GTM plan early – certainly in parallel with product development if not before.
Too often, startups ignore GTM strategy development until it is too late. There can be many reasons for this delay. The startup might be overly focused on technology, have too much faith that the product will sell itself, believe that marketing starts after the product is developed, or just lack the skills needed to accomplish this key task. Whatever the reason, ignoring the GTM strategy is almost always fatal. According to a study by Entrepreneur Magazine, nearly all failed startups reported a lack of GTM strategy as a primary cause of the failure. If you are not spending at least some energy on determining your GTM strategy, you will likely suffer a similar fate.
Developing a GTM strategy and testing its effectiveness does not have to be complex. What follows is a step-by-step process that almost anyone can follow.
Marketing First, Product Design Second
In today’s world, you cannot divorce product design from marketing. Markets are expanding and fragmenting at an ever-increasing rate. Customers no longer accept products that are close enough – they expect a product that exactly fits their needs.
Developing a product without understanding the market is like trying to tailor a suit without first measuring the person who will wear it. There are no perfect products unless you first define the ideal customer who will be using the product, and this requires studying and testing the market – also known as market validation. Even, or especially if you consider yourself an expert in the market, market validation is a fundamental step that should not be skipped.
The point is, the elements of the GTM plan need to be largely in place long before any product is designed. Too many startups focus on “getting a prototype built” with no regard to the design of the GTM plan. This is one of those fatal mistakes startups make all too often.
The GTM Goal
The goal of any GTM strategy is to find a process that creates the lowest Customer Acquisition Cost (CAC). Selling anything costs money – things do not sell themselves. The CAC is the cost to acquire a customer – how much, on average, does it cost to sell one unit or find one client. You can find the CAC by taking all of the cost for sales and marketing (including all people’s costs) and dividing by the number of units sold during the period.
You may think that you can build the product for $10 and sell it for $100. However, if it costs $200 to sell it, you will have a problem. Knowing the CAC is just as important as knowing the unit cost/COGS (Cost of Goods Sold).
The strategy has a huge impact on this CAC. Just as the unit cost for a product is largely determined by the conceptual design for that product, the GTM design sets most of the CAC. Sure, you can tweak and probe a bit at the margins during the execution stage, but you will never have the kind of leverage you have during the design stage – especially if you are also free to tweak the product at the same time.
Who Should Design the GTM Plan
It is important to note that most people do not work, and have never worked, in a startup – they work in an established company where the GTM strategy was designed long ago. It is likely that the people who did the GTM design have long disappeared, or forgotten what happened. Most sales and marketing people work on tweaking the tiny bit of leverage left in the execution of this strategy – they have no idea how to create a GTM strategy from whole cloth. Most will assume that whatever GTM strategy their company uses is the “right” one for your startup. This is one of the reasons why large companies can be so easily disrupted by startups. They focus on the minutiae of execution, assuming the world will go along unchanged by technology. The startup, having no such limitation, is free to experiment and create new GTM strategies.
The point is, although there are lots of sales and marketing experts out there, few are going to be very helpful to a startup. It is difficult to completely outsource the GTM plan. At the very least, you need people on the team who have some appreciation for the differences between doing marketing in a startup and doing the same thing in a big company. Do not make the mistake of hiring someone with an impressive list of big company experience. This experience will almost certainly lead to failure.
In most markets, there are at least five degrees of freedom around which one can develop their GTM strategy:
- Mass Market vs. Targeted Market
- Channel Sales vs. Direct Sales
- One Size Fits All vs. Mass Customized
- Two-Sided vs. One SIded
- DIY vs. Turn Key
Mass Market vs. Targeted Market: Will the product appeal to a very large and broad set of buyers, or will there be a very narrow and targeted set of buyers? A mass market will require one type of product – one that appeals to everyone, but likely does not do any one thing well. A targeted market product will do one or two things really well and leave some features for others to fulfill.
Channel Sales vs. Direct Sales: Some products can be sold through a channel partner. A channel partner is a company who is already selling to your ideal customer, but not in competition with your product, and has agreed to sell your product as well.
One Size Fits All vs. Mass Customized: A mass customized product is a product that can be bought/ordered in a great variety of configurations, as compared to one size fits all. Automobiles were once mass customized – you ordered a frame from one company, the body came from a coachbuilder, the engine from another company, etc, etc. Then along came Henry Ford with his famous “you can have any color you want as long as it is black.”
Two-Sided vs. One-Sided: A company that serves a two-sided market is one that has two different types of customers: the suppliers and the end-users. They do not own the means of production. They simply connect the suppliers with the end-users. Uber and Airbnb are examples of companies with two-sided markets.
DIY vs. Turn-Key: DIY (Do it Yourself) is a strategy often deployed to save costs or to appeal to customers with special interests. Home Depot is a DIY alternative to hiring a contractor/tradesman. Many startup incubators offer lab space with all the equipment you need but none of the engineers.
Keep in mind, these are just five common degrees of freedom one can play with to develop their GTM plan. There are many more. Also, the definitions above describe the ends of a continuum. Being in the middle is also a choice.
It is important to understand that most “GTM experts” do not see these five attributes as being “degrees of freedom”, but rather attributes of the market itself. They will say that such and such a market IS a mass market. Again, this is a big company thinking. Existing vendors and customers believe this is a true statement and thus act accordingly. The real value of a startup is that it can imagine a market that is different – and execute a plan that creates this difference.
For example, until Uber (or Lyft), every expert saw the taxi market as one-sided. Uber imagined a different world where there was both a supply and a demand that needed a way to frictionally connect with each other.
Go To Market Planning:
Eisenhower’s quote: “planning is everything; the plan is nothing” is particularly true with startup GTM strategy generation. Creating a GTM in a startup is a continuous effort from day one until at least the point of profitability. However, it does follow a process:
Step 1: Hypothesis
Step 2: Model
Step 3: Test
Step 4: Go to Step 1
Hypothesis: First, let’s start with the assumption that a startup is not going to compete directly with an established player in the market. It’s a startup with limited resources. Competing directly with an established company with a brand, cash flow, capital, a distribution channel, etc. is not likely to lead to success. Therefore, copying the GTM strategy of an established player is not a wise choice.
Creating a new GTM strategy starts with an understanding of the degrees of freedom in the market and which may be necessary – see above. By relevant, we will lower the CAC. It’s helpful to list these degrees of freedom on a whiteboard and collaboratively discuss the relative cost and value that each brings to the end-user. Those with high cost and low value are ripe for change.
Next, list any (and all) ideas on a whiteboard. During this phase, it is helpful to suspend judgment. A good rule is that any purpose presented can be added to, but not criticized – no matter how weak or out there it may sound. Having a trained facilitator during this phase of development will increase productivity.
Once all the idea is listed, some form of analysis can be done to rank the most promising ones. However, keep the list intact – until a hypothesis has been tested, it cannot truly be rejected.
Modeling: Most sales and marketing plans make use of the “funnel” analogy. At the top of the funnel are lots of potential customers who may buy your product. This potential customer journey through the funnel until a few get to the bottom – now they are real paying customers. The analogy is not perfect because many potential customers leave the funnel – may be a leaky funnel is a better analogy.
Each stage of the funnel generally has a definition and a name. At the top of the funnel, we might call them Cold Leads and the definition may be “an ideal customer who has viewed a marketing message.” Some of these cold leads may move to “Warm Leads”, which means having a two-way conversation. This goes on and on until they become a customer.
There are always more potential customers at the top of the funnel than the bottom. There is a process to move potential customers into the funnel and from one part of the funnel to the next. These processes cost money and each movement takes time and has a conversion rate (the percentage of people that move from one place to the next).
Modeling is nothing more than defining each stage of the funnel, the time it takes to move from one part of the funnel to the next, the cost to move them, and the conversion rate for each part of the funnel.
A model may look like this:
Stage of Funnel CR Weeks Cost
Cold 0.3% 1 $20ea
Warm 2% 1 $40ea
Hot 10% 4 $80ea
RFQ 20% 2 $160ea
Customer 50% 3 $320ea
From this model, we can calculate the cost to get one customer (CAC):
We need 333 prospects to get one cold lead per week – or $3,333
We need 50 cold leads to get one warm lead, or $1,000
We need 10 warm leads to get one hot lead, or $800
We need 5 hot leads to get one Request For a Quote, or $800
We need 2 RFQs to get one customer, or $640
CAC = $6,573.
On average, it will take 11 weeks to go from prospect to customer.
Of course, this is a model, and it is only as good as the assumptions in the model. We will work on testing the model next.
Models are good for determining what to test. Testing costs money, and so we only want to test GTM plans that have a high probability of being the lowest CAC. Modeling a GTM strategy is a good way to compare different GTM strategies.
To determine the cost of a specific phase of the funnel:
- Determine the process
- Decide how many man-hours this process will take
- Multiply the man-hours by the rate this person will cost, not make. Use a burned rate, not a salary
- Add any other cost: advertising, IT, etc.
For example, if our processes for getting prospects are:
- Research companies that could be ideal customers and create a list
- For each company, find the decision-makers and influencers
- For each person, cold call them or email them
From this process:
- Company research 5 min @ $0.50/min = $2.50
- Find people 5 min @ $0.50/min = $2.50
- Cold call 5 min @ $1/min = $5
- The total cost to get one person in the funnel = $10
You can download a GTM Modeling Template on the Finish Line PDS website.
The Test: Each stage of the GTM plan (part of the funnel) can be tested. For most parts of the funnel, if not all parts, you do not need a product – although you may need a rendering or an MVP (Minimally Viable Product). Once you have a hypothesis on the GTM with the lowest CAC (from the models), you test, or validate, the model with actual testing.
For example, say you think you can use a direct sales model:
- Run PPC campaigns
- PPC ads point to the website
- Website educates customers
- The website has a “Buy Now” feature
Your hypothesis says that the PPC will create a CAC of $50 as follows:
- PPC @ $5 per click
- 10 Click make one sale
You create a rendering of the product (or a photo of the MVP) and build this picture into the website.
Create the PPC campaign with a small budget – maybe 500 clicks per week budget – which is a $2,500 weekly budget.
If you get 50 “Buy Now” clicks on your website, then you have validated your CAC of $50 per sales.
If you are not yet ready to actually sell a product, you can simply have a message that appears after clicking the “buy now” button that says: “Sorry we are out of stock, please leave your email.” Or, you can have pre-sales (check with a lawyer first to make sure you comply with all regulations).
Of course, this is just one example. The actual test you run will be dependent on the actual GTM plan you are trying to test, the product, and where you are in the product development process.
Refinement: In all likelihood, you will need to tweak your GTM plan with each model-testing iteration. You may even have to test many different GTM plans before you discover the correct one for your market and your product. It is even possible that you will have to implement several as some GTM plans “saturate”. Saturation simply means that pouring more money into the plan does not produce a corresponding increase in sales. For example, you may find that buying $5,000 worth of PPC ads only increases sales 10% over buying $2,500 worth of PPC ads.
Conclusion: Designing the GTM strategy for your startup is just as important as designing the product. Additionally, the GTM strategy may mean the product requirements will need to change. Designing a GTM plan is a simple process, but it does require a lot of work. Many startups fail because they discount the importance of the GTM plan, or they put off the development of the GTM until it is too late. If you’re a startup that is not spending significant resources (time and money) on the GTM development, you may want to consider re-allocating these resources.
About the author: Steve Owens, Founder, and CTO of Finish Line Product Development Services has over 30 years of successful product development experience in many different industries and is a sought-after adviser and speaker on the subject. Steve has founded four successful start-ups and holds over twenty-five patents. Steve has worked for companies such as Halliburton and Baker Hughes. He has experience in the Internet of Things, M2M, Oil and Gas, and Industrial Controls. Steve’s insight into the product development process has generated millions of dollars in revenue for start-ups and small businesses.
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