Market positioning for startups – focus, focus, focus

I was on a call yesterday with an inspired and talented management team.  As we walked through the deck, one point particularly struck me as I listened to their well-honed pitch.  The company was trying to boil the ocean and do everything for its customers.  While it was great that the team seemed to understand the market and the problem that their customers had, I must say that I started to lose interest by the fifth differentiating feature of the product/service.  One slide really highlighted the problem for me – it showed a feature list of 10 features and then showed 3 different competitors who were either already well established public companies or well funded startups that only offered 30% of what this angel-funded startup would offer.  In my mind I was wondering how an angel funded company could go-to-market against companies with billion dollar market caps or with $30mm of venture funding which were highly successful because they were incredibly focused on a subset of problems that this start-up was trying to solve. I know, I know, I always like entrepreneurs to think big but that must be balanced with how a startup goes to market.

You see, it is always hard for a startup to enter a market with an end-to-end product positioning as most customers expect large companies to cover this territory.  What most customers expect from startups is innovation and breakthrough offerings, not end-to-end solutions.  Going back to the call, my humble suggestion was for the management team to complete their beta test with their handful of customers and figure out which 2 or 3 features were the most compelling and differentiated offerings with respect to their competition and market.  They should then plan their go-to-market strategy with a more focused approach that emphasized a new and innovative offering instead of a "we do it all for you" approach.  In the long run, if successful, the startup could always add another feature or two as they grew their customer base but keeping the message simple early on is imperative to drive a successful product launch.

When to ramp sales

While 2009 was a tough year, I must say that it was nice to see a number of our portfolio companies have blow out 4th quarters for bookings and growth.  Despite that, I am still taking a cautiously optimistic approach to 2010.  There are still conflicting reports on the growth of the economy and it is unclear whether Q4 was the release of some pent-up demand of if it will be more indicative of sustainable new spending on technology.

Either way, I would like to caution those start-ups out there who are looking to aggressively ramp up their sales based on a great quarter (more on this from a post in 2006 on when to hire a vp of sales).  Yes, it is imperative to keep the momentum building but before you get too aggressive with your growth plans make sure you can answer all of these questions about your go-to-market strategy:

1. Do we have a clear value proposition and know which market we are selling into and who we are selling to in the organization?

2. Do we have the right product and are our customers satisfied? – selling is one thing but if the product has serious issues in production then ramping up sales could put a severe strain on the business moving forward

3. Are our sales repeatable or one-offs which means lots of customization of our product on every deal?

4. Is our quarter based on one or two lucky huge deals or based on a broader swath of customers?  Do we have a continually growing sales pipeline or did we run it dry for a big Q4?

5. Do we have a solid understanding of the full sales cycle from lead generation from marketing to the closing of the sale – it is important to get good metrics here to make sure that marketing is spending wisely and targeting the right areas of the market to build the pipeline.  You need to feel confident that if you spend more on marketing, you will get more leads which will lead to more sales.

6. How can we build a more leveraged sales model through resellers, partners, or OEM relationships – you can't do this without answering #1 above.  If you are solely reliant on direct sales then think long and hard about how to add more leverage to the model

In short, if you can answer these questions and the data and anecdotal evidence from the field points you in the right direction, then by all means ramp up your growth.  If you can't answer all of these questions in a highly positive light, then cautiously ramp your sales.  Too many times I have seen portfolio companies get overexcited about their growth prospects and then realize the product is not ready for primetime or that the pipeline has run dry and subsequently the startup overspends and needs to go through a layoff.  Overhiring and then cutting back can be quite negative for morale and can also be a huge cash drain and distraction for management.  Just remember to take a step back and do some analysis before you bet the company's future based on a good quarter or two.