For SaaS companies that are ready to scale and jumpstart their growth, there’s one very important question that must be answered first.
How do you decide where to go to market?
Chances are, most of your key stakeholders from investors to board members (sometimes even spouses) will have an opinion. Recommendations may be based on past experience, market research, gut feeling, or early sales.
Before you decide where to place your marketing dollars and efforts, consider this fact-based approach: Focus, fit, and feasibility. The three Fs.
To know what share of the market you can claim, it helps to know how big the market is in the first place. For that, look at the Total Addressable Market (TAM), the total amount of money being spent in your certain category.
At first, TAM may look like an impressive figure. But the only way you’ll be able to access all of it is if you’re the only player in the category, and are able to market to the entire world. Which brings us to Specific Addressable Market (SAM).
SAM is typically less than TAM. Your specific addressable market may be limited by the fact that you can only service a part of the market. For instance, your SaaS solution only integrates with a certain ERP system. That rules out prospects that are on another system.
That leaves you with SOM, your specific obtainable market. SOM will be less than SAM. It’s where your SaaS rubber hits the B2B road. It represents the portion of the market you can sell to right now, a function of your time and resources.
There may be a big addressable market in Europe, but without a team that sells there, you can’t take advantage of it. SOM is driven by how many people you have that can really do the work, make the sales calls, do the demos, install the systems today.
Feasibility answers the question: Where do you want to play that gives you the best chance of winning?
Let’s say your SaaS solution automates the procure-to-pay process. It may be perfect for any number of vertical industries such as healthcare, oil and gas, financials, and more. But with limited resources, you can’t market to everybody, so you decide to first establish credibility in the financial sector.
Within the financial vertical market are a number of sub-verticals: banking, insurance, private investments, real estate, government, and others. The easy thing to say is that banking is the biggest sub-vertical, so that’s the area to focus on. But banking may not be the most feasible for your service.
At this point, you need to look at your current penetration in these markets. Where do you have the most customers? Where do you have case studies or testimonials that give you instant legitimacy? That would make for the easiest and quickest sales?
Think of an X-axis that represents market penetration or position. It’s a percentage defined by your annual recurring revenue (ARR) per sub-vertical divided the SOM ARR. Those sub-verticals with the greatest market penetration and the best market position go furthest to the right on the axis.
In our example, our market presence—and the higher feasibility for success—increases from private investing to banks to insurance.
It’s always better to establish yourself as a leader in a very specific sub-vertical within the industry than to try to cater to the entire industry as a whole. Doing so allows you to improve the quality of your service, develop industry-specific features, and empower your sales and marketing team to get faster traction.
It may be feasible for you to market to a number of financial services sectors. After all, you have established credibility within several of them. However, some will be a better fit for you than others.
One way to zero in on the best fit is to create a Y-axis to complement our penetration/position rankings. The Y-axis is a relative ranking that reflects any number of fit criteria: technological, competition, and complexity for example.
The technological fit could be how well does your solution integrate with systems that most customers in these sub-verticals are using. Competition would reveal how crowded the marketplace is with similar products. Complexity could be standard integration versus customized or multiple decision-makers or layers of approvals. For instance, government agencies may have more decision-making levels to overcome for a final sale than an entrepreneurial private investor.
By looking at where the various sub-verticals fall in relation to each other in the four quadrants defined by our X and Y axes, you can see where the most promising opportunities are for going to market.
Those sectors where we have the best existing penetration coupled with a better technological fit or fewer competitors would take the highest priority. Sectors could be ranked and marketed to in order as resources allow. Doing so gives you the best possible chance for go-to-market success.