Editor’s Note: This post is one part in a series by OpenView founder Scott Maxwell on go-to-market strategy design. Read his previous posts to learn:
- The key to market clarity
- Why focus is everything
- How you can apply the tools of design to your market strategy
- When you should start designing your go-to-market strategy
- The 4 C’s of effective go-to-market strategy
Once you’ve identified the best customer segment to target, it’s important to consider how you’ll attack that segment.
In the SaaS world, the prevailing wisdom seems to be that smaller, emerging businesses can (and maybe should) fuel initial growth through a freemium or low average sales price (ASP) models. Then, they introduce premium features or options over time, allowing the business to grow existing monthly recurring revenue (MRR) or target bigger buyers.
I’m not so sure that strategy is really as attractive as it looks on the surface.
A freemium model or low ASP may give you access to a larger pool of customers who are easier and cheaper to acquire, but that approach can also be very difficult to scale to enterprise segments. The reason? It’s often harder to re-design a simplistic product to meet the complex architectural needs of big businesses than it is to water down a sophisticated product to meet the less complex needs of smaller buyers.
Of course, that doesn’t mean that starting with big customers and scaling your product down for smaller buyers is the only way to go.
If, for instance, smaller businesses or lower value customers better align with your product’s value proposition and can help you achieve deeper market penetration initially, then that route makes a lot of sense. For years, that’s exactly what successful businesses like Constant Contact and QuickBooks have done, and neither company has deviated from that small customer strategy despite achieving profitability and scale.
That said, even if your go-to-market strategy is to target smaller customers, I would still suggest that you keep an eye on the product functions that matter most to bigger customers and establish a strategy to implement that functionality over time. Ultimately, doing that will make it much easier to scale your product if your go-to-market strategy shifts in that direction.
Why Size is Just One Part of Segment Focus
Of course, size isn’t the only way to distinguish your target customer segments and it’s certainly not the only thing you should consider when deciding where to focus your energy.
You might also explore prospective segments’ geography, industry, or system infrastructure when determining which one makes the most sense to target during the expansion stage. Each of those dimensions can result in higher or lower MRR, higher or lower churn, and higher or lower upsell, and all of those factors will influence your ability to drive efficient growth.
The lesson here is that you must take time to be more thoughtful and strategic about how your SaaS company plans to approach growth.
Should you target a whole market at once or build a presence and competitive advantage in a number of smaller segments and build from there? Does it make sense to aim at big companies first and bite the customer acquisition cost (CAC) bullet, or do smaller companies give you a better chance of achieving traction in a particular segment?
The answers to those questions will depend on your business model and strategy, of course, but they’ll universally provide much-needed segment focus and reveal the path your business needs to take to drive effective growth in the expansion stage.