How to Stay Out of the Startup Graveyard and Scale

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The path to scalability is littered with failed startups. GinzaMetrics CEO Ray Grieselhuber offers advice on making your company a success story, instead of a cautionary tale of early-stage promise unfulfilled.

Navigating the path from early stage to growth is a make-or-break moment for any startup. Ray Grieselhuber, co-founder and CEO of SEO and content marketing platform GinzaMetrics, recently sat down with OpenView to discuss the keys to that transition (listen to the full interview here), and how a major requirement is keeping your company out of what he calls the startup graveyard.

Establishing the Right Customer Acquisition Model

For many SaaS companies, the shift in focus from searching for the right product/market fit to scaling execution and ramping up growth typically corresponds with a shift in the organization’s sales model, as well. In the case of GinzaMetrics, Grieselhuber explains that in its early days the company was focused on acquiring customers entirely via inbound marketing. Once they started gaining traction, started seeing upsell opportunities, and hit a certain volume of customers, however, it became clear they needed to formalize and build out their sales function.

Getting to that kind of tipping point is a terrific milestone for startup companies, but for many, it’s unfortunately also the beginning of the end. Building out your sales function can help you sign up more customers than ever before, but it also adds to the cost of acquiring them. Unless it can balance out that cost by raising prices or otherwise adding revenue to compensate, a startup is printing itself an express one-way ticket to ruin.

The Startup Graveyard

Click to enlarge.

To stress the danger that high customer acquisition costs (CAC) can pose to young companies, Grieselhuber points to the work of SaaS expert and blogger Joel York. York plots SaaS sales models on a graph with price on the Y axis and the cost of acquiring and retaining customers — which corresponds with the complexity of the model — on the X axis. “On the low end of each axis, where it doesn’t cost much to acquire customers and you’re not charging them very much, you have a self-service model,” Grieselhuber explains. “That’s where we were early on, relying completely on inbound marketing and leads.”

The next stage up and to the right is the transactional model, where you start seeing salespeople at the very least in closing roles. “You can still rely very heavily on things like content marketing and SEO to fill the funnel,” Grieselhuber advises. In fact, that can help keep you from having to spend spend a lot of money on lead research and lead generation.

“Nine times out of ten, when I look at other Saas startups out there, the number one problem I see happening is they’re simply not charging enough money.”

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Ray Grieselhuber, CEO and co-founder, GinzaMetrics

At the upper right quadrant of the graph is where you find enterprise solutions with both high prices and high complexity. The sales process for acquiring a single customer can take months (or even years). These companies have in-the-field sales reps taking people out in an effort to sign big annual contracts, as well as a support team, professional services, and everything else necessary to serve high-maintenance customers.

As long as your price and/or your revenue rises along with your company costs, you’re golden, Grieselhuber explains. The lower-right quadrant of the graph, however, is what he calls the startup graveyard. Companies with complex products and prices too low to cover acquisition and retention costs are doomed — and the road to the graveyard is crowded. “Nine times out of ten,” he says, “when I look at other Saas startups out there, the number one problem I see happening is they’re simply not charging enough money.”

Grieselhuber does offer a ray of hope for CEOs approaching the growth stage for the first time. Some companies are able to move up the price and complexity axes smoothly as they develop. His own company, GinzaMetrics, is one such scenario in which account maturity offered more opportunities for up-selling as customers saw increasing value and opted for a higher level of service.

3 Tips for Staying Out of the Startup Graveyard

1) Keep Your CAC Low for as Long as Possible via Inbound Marketing

To steer clear of the road to ruin, keep your CAC low — particularly for a self-service sales model. “Before you look at adding sales, concentrate on things like web marketing, obviously SEO, content-marketing, and other low-cost inbound tactics,” Grieselhuber suggests. It’s even a good idea for companies that are operating in a transactional model with higher prices and costs to focus on an inbound strategy. “Often, the quality of your content marketing efforts are going to be the only thing that really differentiates you.”

2) Before You Hire Anyone in Sales, Make Sure You’re Targeting the Right Prospects

If your company reaches a point on the price axis that justifies an investment in outbound channels, then you can begin building a sales team and a lead generation machine. Even then, Grieselhuber says, your sales strategy needs to be “focused and targeted at the right people.”

3) Keep Things Simple, Organized, and Invest in Automation

In order to keep your costs in check, keep your sales process simple and organized, work toward maintaining clean customer data, and invest in automation for a product that requires as small a support team as possible. “On the back end,” Grieselhuber says, those factors “really have a big impact on your overall ability to deliver quality at a lower cost of acquisition.”

How have you managed to balance out your CAC? Share your ideas and experiences in the comments below.

Photo by: Leo Laporte

  • We created relationships with Industry Associations and created revenue sharing opportunities with them, so that we can access their membership at a very low cost.

  • Developing strategic relationships can create the leverage you need to get new customers with a reduced CAC. If done well, you can defer the direct sales costs and also mitigate downstream services costs like support calls.

    You can focus on keeping the product development and maintenance releases tight vs. developing and funding internal resources. The goal would to get to the sweet spot of the price/ complexity graph.