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BSMS 23 - Product led growth vs. sales led growth
Hunting vs. gathering. What kind of marketing or sales does your company partake in?
In today’s episode, Mike and Stijn discuss product led growth and sales led growth through an illustrative metaphor of hunting vs. gathering.
If huge, high monetary value accounts are elephants (high ARPU), then the executive or relationship driven sales teams are the expert hunters. If low value, but plentiful accounts are berries and low hanging fruit (low ARPU), then the teams that build content and the inbound apparatus are gatherers.
What’s the right go-to-market? How these different strategies of growing your company work and why they work, grievances we often see, and more inside.
Hunting vs. gathering graphic:
Hello. And welcome to episode 23 of B2B SaaS Marketing Snacks. Today, we'll be doing something just a little bit different because I will be doing the intro for today's episode, and as you might've noticed, I'm not Mike. So Mike is actually out on vacation this week. I am his temporary replacement. My name is Richard. I work on the product here at Kalungi, and I've also been behind the scenes on the podcast for quite a while. I've probably edited six or seven episodes. So I’m glad to be here, but today's episode is a conversation between Mike and Stijn as usual. And they're talking about what I will call a mysterious and illustrative metaphor. It is the metaphor of hunting versus gathering in marketing.
And so what we mean by this is really sales led growth versus product led growth and everything in between. So if you imagine a basic graph with product led growth on the left side and sales led growth on the right side, there's also animals and foods on this graph. So foods like apples and berries and so forth are on the left, animals, small farm animals like chickens and pigs are in the middle, and then large animals like cows and elephants on the right. The left is your product led growth, which is the gathering and the right is your sales load growth, which is the hunting.
So if that doesn't make sense yet, don't worry. It's further explained in the episode, and there's a lot of nuance to it. There's many points that we make there, but the graphic actually comes from a preliminary graphic that we've done in Stijn's new book, which is coming out very soon, head to T2D3.pro to check that out. And you can even get early access and take a peek at some of the content that we talk about in the episode. But I will leave a link to the image in the description of this podcast. So if you'd like to actually see the graphic, feel free to check out that link, but without further ado let's get started and I hope you enjoy.
Okay, cool. Hey man.
So today I wanted to, I guess do a little bit of a preview into one of the pieces of content in the book. In one of the chapters, you talk about - the entire book is about a marketing go to market, but one of the things that you talk about as well is how to decide the right sales go to market for your company. And it's one of the best performing pieces of content on our website as well is a blog that you wrote, which is essentially detailing out the differences between a BDR versus an SDR, which is definitely a question that I've gotten with some of the clients that I've worked with about when you're first getting started and building a sales function the same way as a marketing function, who do you hire first? How many of each role do you hire?
And a lot of it is about how you make decisions about where you prioritize your resources based on your product and your market factors. Do you hire more on the product side, maybe more on the content or technical writers, BDRs SDRs. Do you hire a marketer with a more demand generation focus or a marketer who is more focused on content? And then the ultimate question is, are we hunters or are we gatherers?
So I wanted to ask if you could just kind of talk through... you've got a visualization here, which plots all these things onto a chart. And I wanted to see if you could take me through a little bit of what the theory behind that is. It's a big question.
It's actually multiple questions I think, Mike, that are kind of summarized by that hunting versus gathering, but it's really a hunting and gathering sentence. Yeah. Think of a line and all the way on the left, you have extremely small accounts where the customers would pay you 10, 15 bucks a month. And on the other side, you have customers who pay 10, 15 million per year or per month, very, very large contracts. And you'll see that more for example, with big government. So you can almost argue that the sales approach for those spends from what we would like to call product led growth, where there's a zero touch to the go to market, right? People can find, you can sign up, can try, can buy and stay all without having any handholding from a sales or marketing team. All the way to on the other side, all the way tho the four star general, the retired four star general, who's your sales person, because you need a relationship that to sell a $10 million contract or more to, for example, the department of defense. That is really what we're talking about here.
How do you match the type of sales apparatus with your average contract value or the ARPU, the average revenue per unit? And it goes from no sales at all to SDR, BDR, maybe account executives, very senior account executives, all the way to retaining external influencers. For example, a general, when it comes to a defense deal for products that don't require much sales and marketing. The sales are purely relationship driven. We have one client that is actually in the space of selling really large government contracts and they don't need much marketing, really. They don't even need a website to complete the sale, but they do sometimes need some materials to be able to send or just very good quality business cards. So it's a completely different set of tools than when you're a full, automated self service website. It has to have a fantastic try buy experience. Because there is no sales force to even answer a chat on the website and that's just a very different go to market.
And that then goes to the picture in the book Mike, on the left side, you have apples or berries. On the right side, you have elephants or cows and just making sure that you have the right go-to market to match your deal size, your average contract value, your ARPU, is really important. It changes not only what type of resources you invest in but how you train them, how you support them with the right automation tools, content, et cetera. In the case of a software company, the way to think about what type of game or what type of food you're going after... The easiest way to compare that is with the ARPU, the average revenue per unit, either a user or a customer or a device, depending a little bit on how your pricing model works.
That becomes kind of the equivalent of what type of game are you trying to hunt, or what type of food are you trying to grow. And it is really important to know what you are trying to go after before you decide to invest in, for example, buying great seeds, AKA building great content and doing great SEO. Or, investing your time in hiring people who have great hunting skills who understand not only how to throw a spear, but also how to find the right…. To track game, to find where the watering holes are, to understand how to then perform a multi-day hunt, right? Which is also very analogous of a sales process, right? That takes typically much longer when you need to go hunt for something and catch a piece of game versus building some content, people find you online through Google search and they go through the funnel much faster.
I’m trying to understand, I guess I'm trying to think about…. Is it easier to do one or the other, or is it more difficult to do one or the other or do you just need a different set of factors behind your back?
Don't go hire salespeople if the size of your average account cannot sustain that. Don't go build a BDR team if your ARPU is $500 a year. Don’t build an account executive team if your ARPU is $3,000 or $10,000 a year. It just doesn't support it. Our clients, I think, often forget about that. They build sales teams when their ACV doesn’t really support it. Or they don't build a sales team that they need.
For example, a company that sells enterprise procurement processing software and has deal values of hundreds of thousands of dollars per year, they should invest in a very sophisticated sales apparatus.
And if they don't, if they think that inbound is going to do the trick, it's just not going to work. Because the complex sales journey to multiple stakeholders is not going to be serviced by just a little bit of content performance and people filling out a form, right? You need Gartner analyst reports that can support the decision across multiple people. And the other side of this is that when you have less than $10, $15,000 in ARPU per year per customer, ACV. Yeah, you cannot really afford to invest in salespeople. You need to figure out a low friction sales process that includes maybe an SDR or a relatively affordable BDR, but you cannot count on a four or five months sales cycle to sell those for you. If you do then you're never going to be profitable.
Sure. Yeah. It's almost a balance between the level of content that you need too, to help nurture those people through the sale. Think about: the more people are involved in the buying process, the more content you need to speak to each person. You're going to have a technical person, you're going to have a security person who's concerned about their data and their customer's data, and you're going to have someone who's leading the project who's going to be concerned about making sure it actually gets used in the organization. And it's very difficult to have content for all those people. And that's why you have the expert who is the salesperson who kind of becomes that trusted guide for them throughout the process.
There was a, I think it was a tweet, from Jason Lemkin. I've talked about him in the past. He's the founder at SaaSter, he's an investor. He co-founded EchoSign, which was purchased by Adobe in 2011, 2012 I think. And he said that a great sales person is an enterprise buyer's ally, and I think that's true, right? You have to have somebody that's that high touch person that can kind of guide them through that process.
The other dimension is time, right? When you hire salespeople to go after big accounts, also in your planning and in your budget, you need to have the right sales cycle length accounted for. We often see two things that are challenging when we come into smaller software companies. Either they have assumptions of ACV or ARPU that don't match the go to market. Big accounts that they tried to go after with inbound marketing or small accounts, they try to go after with a relatively expensive sales force. Or in their revenue projections, they don't account for the length of the sales cycle. If those accounts are a little bigger and complexer and have multiple people who can say no, and maybe only one person who can say yes.
So I think those are two good reasons to really understand, am I going after a hundred thousand or higher value accounts? And do I have the appropriate go to market and appropriate budget and planning assumptions for that? Or do I go after small accounts that will require a higher volume, a low friction funnel that is low cost? And do I have the right plan for that? And I think that's where this is a very important thing to spend some time on early on in your startup life. What's the ACV and how does that drive the fundamental mechanics of my go to market?
Last thing, I was just going to say, how the product works too. Because there's one scenario where I can see you having a potential low ACV now, but the potential to upsell into a larger ACV, I think of like Slack or Trello. Where you kind of, it's kind of a land and expand approach where you have these large enterprise accounts that started from smaller one or two user accounts. And then by nature of how the product is used, you get more people to add on and eventually you start to hit thresholds. And it becomes a massive account, but I think of how we've used Slack and how we use Trello. I don't think we've ever talked to a salesperson. It's all been…. That's true product led growth, starting with a small ACV and just leveraging a lot of good content and maybe customer success, help articles, documentation, things like that, making it really easy for more people to get on board and turning it into a large account.
Yeah. The only thing you have to be careful there, is that reaching product market fit and having a certain amount of customers that fit the solution at the price point that you're offering it, that still has to really happen by a certain amount of customers buying that product, paying and staying with you, telling others about it. And what you just described Mike is often a very valid scenario for some companies like Slack, but it cannot be used to replace the need to get to actual product market fit and then say, “yeah, but all these customers will become bigger.” But unless you prove that by it actually happening, you have to be very careful. And then there's the other thing that you can argue. This is a little bit of academic discussion, but who actually buys slack? Is it the user or is it the company?
A lot of these tools, they grow so organically that the IT department often, maybe they even want it, but a certain department started using it.
Someone went rogue.
Yeah. And before you know it, they have thousands of users and they were free for a while. And then someone said, “Hey, we actually don't want to lose this data.” And that's of course what companies like Slack know, right. And that's how they drive product led growth. But it does make you then wonder when you think of “what's the right sales strategy, what's the right approach to get more clients like this?” That you cannot really say, “Okay, Because these customers pay $30,000 a month for Slack now, that is the ARPU.” It's really not because that IT department that's now paying the bill did not really make that decision. You still are marketing really to those individuals who you want to not only start using it, but also keep using it.
Right. Anything else on that one?
Well know who you're hunting, what you're hunting and make sure you have the right tools, right? And prepare for the length of the hunt, right? If you're going to find the one animal, that's hard to find, but it's worth it and you might be at it for a while, you need to make sure your plan for that. ABM is a great example, account based marketing. You cannot do it in a couple of weeks. And I've seen many clients spend a lot of money and effort in building the messaging and building lists and starting outreach. And then if they don't get list leads within a couple of weeks, they give up and then...Then don't do it, right? Because it's like hunting elephants. And of course, we're not advocating for any animal cruelty here, but it's just such a great metaphor. But if you would do that you would have different tools. You would plan for a longer hunt than if you're, for example, going to the yard to pluck a couple of apples from the tree, where you know those apples are there, you just have to go grab them. That takes five minutes versus maybe five months to hunt a certain type of animal and get home with something you like.