Is your startup optimized for capital efficiency?
By: Jodi Sherman Jahic
Tags: Startup, Capital Efficiency, Founders, Strategic Planning, Venture Capital

Is your startup optimized for capital efficiency?

(Continued from a prior post on Why Your Go-To-Market Strategy Matters.)

So how can startup technology companies focus their GTM strategies to reduce both their cash burn rates and their fundraising needs? I’m a big believer in the idea that you can never be too narrow or too focused. This means identifying a specific, painful problem and solving it fully for one carefully defined customer group.

There are three operative words here: painful, fully, and one. Let’s pause on each one, since they’re all essential to developing a well-targeted GTM strategy. A good early-stage GTM approach involves deep consideration of these three things:

1. It addresses real customer pain. When I refer to a “painful problem,” I mean something very specific . I’m thinking of the business challenges with the highest stakes for the decision-maker who buys your product. As a result, budgets, compensation, and even the jobs of senior leaders are on the line. Or corporate reputations risk severe damage if painful problems go unsolved — think of large-scale data breaches at credit reporting agencies or PG&E’s woes with customer communications during the most recent blackouts.

OK, as a startup, you’re probably not going to solve the intergalactic problems of PG&E. But it’s all too easy to get overly focused on your own product and its features, and by doing so lose sight of why your customers should care. You see, the truth is that no one really wants to buy from a startup. It’s risky, it’s scary, and it might even cost buyers their reputations or their jobs if things go wrong. The only way to really get customers’ attention is to solve a problem that is so painful that the risk of buying from a startup pales in comparison to the consequences of leaving the problem unsolved — or trying to solve it with solutions already in the market.

If you’re focused on issues of mere convenience or other “semi-painful” problems, the risks of buying from a startup will outweigh the benefits. Your GTM strategy will therefore be far less effective. You may win a few early evangelists, but the barriers to widespread adoption will be high. Your sales will gain momentum slowly, if at all. And you’re likely to burn copious quantities of cash in the process. Usually founders with a strong background in a specific industry or business area like HR are keenly aware of the biggest unsolved problems in their areas.

2. It fully solves this painful problem for your customers. Your solution can’t require your customers to do a bunch of extra work, abandon key systems, or invest significantly in retraining their staff. Those extra steps are huge barriers to adoption, causing long decision cycles and difficult customer onboarding. And while you wait for your customers to navigate those decision processes — you guessed it — you’re burning cash.

Your GTM strategy also can’t leave important pieces of the problem unsolved for customers. You need to understand how your product will integrate with their systems, industry-standard software, and work processes and meet regulatory requirements for their industry. That does not mean that your small company needs to do everything itself — far from it.

But it does mean you have to consider every step of the process for your product to move from your development team into the hands — and hearts — of happy end users. At every handoff, there is a risk of delay. Who will handle those delays? How? A careful, effective GTM approach will have considered the entire journey and offer repeatable answers that fully address specific points of pain for your customers along the way.

3. It’s focused on just one problem and just one customer group at a time. As I outlined in my last post, focusing on multiple industries or customer groups is costly — both in time and money. For all of the same reasons, it’s costly to focus on more than one problem — even in the same industry.

This idea is challenging for many founders. After all, they ask, aren’t we bringing more value to customers when we solve more problems for them? Yet decades of experience and research in bringing new products to market all say “no.” The clearer your value proposition and the more tightly focused it is on a single customer group, the easier and faster it is to identify potential problems and hone your responses. When there are more variables in the equation, it’s harder to solve.

I often hear entrepreneurs declare with pride that their technologies can be applied to many different markets. And surely in the long run, this *may* benefit their companies. But until you have solid traction with an initial set of customers, pursuing a wider array of customer types in disparate industries will likely burn lots of time in customer discovery. And it won’t bring you any closer to good, repeatable answers about how to find real traction with your customers.

When you look at GTM strategies from the customer’s perspective, a lot of this seems obvious. Yet it’s easy to lose focus on your customers when you get swept up in cycles of new product development or the stories that VC firms often want to hear about rapid growth and addressing multiple customer segments at the same time.

Nevertheless, a focused, intentional GTM strategy is essential for containing your costs and connecting effectively with your customers. There are a lot of misplaced fears about being too narrow or not having a total addressable market measured in the billions. But in my experience, a far bigger danger is not focusing your company’s efforts in a thoughtful way — particularly in its early growth phase.

Startups usually die of drowning, not of starvation. As an early stage company, your life raft is a focused, clear GTM strategy.

This article originally appeared at Jodi Sherman Jahic’s blog Alignment. Check out more of her posts on entrepreneurship, venture capital, and capital efficiency at www.alignment.blog.