Zendesk got to 5,000 customers without a sales team.
Unbounce got to 10k customers without sales.
Proposify made it to $3.5M ARR pre-sales people.
Basecamp got to 3 million customers without salespeople.
The way we sell software has changed.
But how?
Traditionally, you would need to book a demo with a sales rep to get a glimpse of what a software solution could do for you.
The whole process revolved around telling consumers how the product could benefit them.
A sales-led go-to-market strategy rewards friction. The faster they filter you out of the funnel, the more time they can focus on helping high-value prospects.
If you're unfamiliar with how the enterprise sales model works, here's the gist:
The first sales call focuses on seeing if you're a good fit. After all, you don't want to waste your time talking to someone who's not a perfect fit for your business. While the second call focuses on the area of the product that is most relevant to your needs. If you're lucky, maybe you'll be able to purchase the solution on the second or third call.
For many organizations, this whole process can take months just to purchase a solution.
The New Way To Sell SaaS
In the world of small business software the product — not the salesperson — does the talking. - Jason Fried, CEO Basecamp
Today, modern SaaS companies are approaching sales in a completely new way.
Instead of helping buyers go through a long, drawn-out sales cycle, they give the buyer the “keys” to their product. The company, in turn, focuses on helping the buyer become so successful using the product that upgrading to a paid plan becomes a no-brainer.
When you compare the two strategies, it really boils down to this...
Do you want to show or tell people your value?
Telling people your value is easy. In minutes, we can whip up a new value prop and make a promise to our potential customers.
But, can we deliver on that value?
Well, that's another story.
You see, when people sign up for any product, here's what's going through their head:
What you promise is the perceived value.
What you deliver is the experienced value.
In an ideal world, the perceived and experienced value are the exact same.
However, for many customers, that experience doesn't quite line up.
For instance, when I was working at Vidyard, my boss purchased Marketo for our marketing automation platform.
From Marketo's website, I got the feeling that the solution was a world-class, easy-to-use platform with a modern user experience. (Perceived value)
When I first logged in, I was shocked. Marketo had an outdated user interface from the 90's and was painfully hard to use. (Experienced value)
As the user, this was what went through my head:
Have you had a similar experience?
I had a hunch you did.
Unfortunately, this scenario is all too common.
It’s one reason why product-led businesses are booming. People want to “try before they buy” and experience your value proposition on their own terms. If you keep your word, it’s one of the fastest ways to build trust and sell your product. If you fail to deliver, your user experiences a nasty value gap.
The bigger your value gap, the leakier your funnel. According to Intercom, 40–60% of users who sign up for your product will use it once and never come back.
That's a lot of people to say goodbye to.
Yet, it doesn't have to be that way.
Companies like Zendesk, Unbounce, and Basecamp have invested heavily in creating an experience that helps users become successful without needing a human to talk to you.
Which begs the question...
How?
The Rise of the User
Read any sales book and they'll tell you to focus on building a relationship with the decision-maker.
They're the ones with the money who can sign off on purchases.
Although that's true, they're often not the ones who use the product.
That is the user.
Most companies ignore the user.
Most still do.
But, here's the real deal.
The decision-maker, although still required to sign off on large, enterprise purchases, can't be bothered with every little purchase her team needs to make.
Does your VP of Marketing really need to sign off on a $29 / per month purchase?
Absolutely not.
An employee might just need to tell the decison maker why they need the solution and borrow their company credit card to make the purchase.
The way we sell has changed.
What's driving this shift in buying behavior
It has never been cheaper to build a SaaS company. (HackerNoon even goes so far as to claim that you can now build a SaaS product with $0.)
However, because of this low barrier to entry, there’s no shortage of competition. As a result, argues Andrew Chen, it’s becoming more expensive to acquire customers. Just take a look at these three channels:
- Facebook: 171% Increase in Cost per Thousand Impressions, or CPM (2017);
- Twitter: 20% Increase in CPM (Q4 2017);
- LinkedIn: 44% Increase in CPM (Q2 2017).
There are other channels, of course, but these numbers hint that, well, marketing isn’t getting any cheaper.
According to ProfitWell, CACs have increased by over 55% in the last five years. During that same period, customer willingness to pay for features has dropped by 30%.
So, on one hand, we have rising costs; on the other, we have a lower willingness to pay. You don’t have to be a financial whiz to understand that this means your expenses go up while your profitability goes down.
If you use the same sales-led go-to-market strategy as everyone else, you risk being disrupted.
Why the Sales-Led Go-to-Market Strategy Is at Risk
If the only way you can sell a product is if someone talks to you, you’re using a sales-led strategy. Even if you have a marketing engine that generates 1,000s of leads for your sales team, you’re not off the hook.
This is because relying on your sales team to make every sale prevents you from helping your users self-educate. Whether you know it or not, you are adding an incredible amount of friction to the entire buying process. It also keeps your CACs high— great sales teams aren’t cheap.
Even while being at risk of being disrupted, these are some reasons why you still might consider using a sales-led GTM:
Pros of a sales-led go-to-market strategy
1. Ability to close high Lifetime Value (LTV) customers.
A main lure of a sales-led GTM is that you can close customers with a high Annual Contract Value (ACV). This sounds great but can often lead to poor revenue diversity, with several customers making up a large percentage of your Annual Recurring Revenue (ARR).
If a single customer leaves, it could ruin your revenue projections and force you to unexpectedly lay off your employees. That said, if you're tackling enterprise first and have a highly complex solution, you may need a high-touch sales model because of the complexities of their procurement process and implementation.
2. Perfect for hyper-niche solutions.
If you have a product with a small Total Addressable Market (TAM), it often makes sense to forgo a product-led model in favor of a sales-led model. One of the biggest reasons is because the quality of the relationships you have with your market will have an outsized impact on how you grow your business. In contrast, the product-led model is built for a large TAM where you can scale rapidly.
3. Perfect for new categories.
When you’re launching a new category, you have to change the way people approach problems. This not only takes time but requires you to educate people on how to do things differently.
As a result, it often makes sense to start with a sales-led approach to better understand the customer’s pain points, objections, and core problems implementing your solution. If you jump too quickly to a product-led model with a new category, you risk a high churn rate because you simply don’t understand what it takes for customers to succeed.
If you don’t have successful customers, a product-led model may amplify the problem. Before you go down the product-led route, make sure you know what goes into customer success.
Cons of a sales-led go-to-market strategy
1. High customer acquisition costs (CAC)
A big downside of the high-touch sales model is that the CAC is out of control, and the sales cycles are extremely long. As you might have guessed, high-touch sales is a leading indicator of CAC.
To make sure the high-touch sales model remains profitable, the LTV of a customer has to be high enough to recoup the investment in acquiring each new customer. To reach that LTV, most sales-led businesses charge their customers a hefty premium. That premium price isn’t because the solution is more valuable but because the customer acquisition model is more expensive.
As Paul Graham, founder of Y Combinator, states, “The more it costs you to sell something, the more it will cost others to buy it.”
In short, a sales-led strategy passes costs to consumers that have no connection to product value.
If you currently use a sales-led GTM, you need to watch out for competitors with a more efficient customer acquisition model. They can steal your market share by offering a comparable product with a more affordable price tag.
2. The customer acquisition model is leaky.
In a sales-led organization, the customer acquisition model has a big leak.
According to SiriusDecisions, 98% of marketing-qualified leads (MQLs) never result in closed business.
One reason this conversion rate is famously awful is that the MQL model has a few hidden flaws:
- It encourages marketers to gate content to hit their MQL goals.
- It focuses on content consumption as a leading indicator of intent.
- The entire process rewards creating friction in the buying process.
As a result, there is often a disconnect between marketing and sales. Should we really be surprised? Does downloading a whitepaper mean you’re ready to buy? Absolutely not.
3. The organizational structure hinders great product development.
According to Elie Khoury, CEO of Woopra, the typical sales-led business structures their team like the graph below:
On the left side, you have your profit centre, which handles your sales, marketing, and customer success teams. On the right, you have your cost centre, which creates the product.
The problem with this organizational structure is that the product is often an afterthought. If the sales team closes a really big customer on the condition of a few product tweaks, well, the engineering and product team have a new project to do.
When your organization leads with sales and follows with product, you’re forced to move upmarket and get on the elephant-hunting treadmill.
And it’s not just my opinion.
Case Study
These are the exact words from the CEO of a company that recently raised a Series C from great investors, is growing rapidly, has strong customer retention, and a top-notch leadership team.
“My biggest regret is that our first customer was $1M ACV. Ever since that first customer, our product, go-to-market, our support model have all been pulled in one direction — high-end enterprise. Our first $1M ACV customer forced us to get on the elephant hunting treadmill, and we’ve never been able to get off it. Our board, our employees, everyone expects us to only go after customers that were as large or larger than our first customer. And I’ve been watching this new competitor emerge that’s going after the same market as we are, except from the low end. They are tiny but growing rapidly. And it’s too hard for us to compete with them — we don’t have the people, technology stack, support model or frankly, the mindset.”
His words reinforced something I have long believed: Truly great SaaS companies are built to be product-led.
Why SaaS businesses are opting to be product-led
“The future of growth belongs to product-led companies. At HubSpot, we realized this a few years ago, which is why we disrupted our own business model before anyone else could.
At the time, HubSpot was still growing 30%-40% per year on the shoulders of our original marketing and sales driven inbound marketing model. Despite the success, we consciously chose to upend what had been working by launching our first freemium products.
Market dynamics and consumer behavior have changed - increasingly consumers expect to use software and extract value from it before buying. To stay relevant over the long term we needed to adapt, or risk “getting our lunch eaten.”
– Kieran Flanagan, VP of Marketing, HubSpot
Over the years, countless SaaS businesses have opted to switch from a sales-led GTM to a product-led GTM strategy to create a moat around their business. This is the same strategy that many respected software companies have adopted, including Grammarly, Slack, and Dropbox.
What makes product-led organizations unique is that they lead with the product across every department, according to Woopra’s Khoury.
Having the product team involved throughout the business allows for product-led businesses to create a seamless customer experience across every department. What makes a product-led business unique is that all teams leverage the product to hit their goals.
A product-led marketing team asks, “How can we use our product as the #1 lead magnet?”
A product-led sales team asks, “How can we use the product to qualify our prospects for us?” That way, we have conversations with people that already understand our value.
The product-led customer success team asks, “How can we create a product that helps customers become successful without our help?”
While the product-led engineering team asks, “How can we create a product with a quick time-to-value?”
Even though the product-led approach can put your business in a great position to dominate your market, it isn’t without its risks.
This is one of the main reasons I’m writing this article. Product-Led Growth isn’t easy to implement. It’s not just giving people the option to try your product before they buy. Your entire approach as an organization needs to shift. Instead of leading with sales and following with product, you need to make sure that every team has a hand in helping each user become successful.
If you can put together a successful Product-Led Growth strategy, you’ll reap some incredible rewards.
Pros of Product-Led Growth
Product-led businesses have an unfair advantage and enjoy access to a dominant growth engine and significantly lower CACs.
1. Dominant growth engine
Product-led businesses tend to scale faster than their competitors in two powerful ways:
- Wider top-of-funnel. A free trial or freemium model opens up your funnel to people earlier in the customer journey. This is powerful because, instead of prospects filling out your competitor’s demo requests, they’re evaluating your product.
- Rapid global scale. While your competitors are busy hiring new sales reps for each region under the sun, you can focus on improving your onboarding to service more customers around the world in a fraction of the time.
2. A significantly lower CAC
Free software also builds a moat around your business in three powerful ways:
- Faster sales cycles: By having your prospects onboard themselves, you can significantly reduce your prospect’s time-to-value and sales cycle. Once people experience the value in your product, the next logical thing to do is upgrade. The quicker your users can accomplish a key outcome in your product, the quicker you can convert your free users into paying customers.
- High revenue-per-employee (RPE): Software was always built to scale well, but with a product-led approach, you’re able to do more with fewer people on your team. Less hand-holding means higher profit margins per customer. Just take a look at Ahrefs in 2019. They have a $40 million ARR business with 40 employees.
- Better user experience: Since your product is built for people to onboard themselves, people can experience meaningful value in your product without any hand-holding.
The benefits of a product-led GTM strategy don’t stop there. According to OpenView, product-led businesses are valued more than 30% higher than the public-market SaaS Index Fund.
What's the Role of Sales in a Product-Led Organization
Sales is the lifeblood of any business.
Yet, some of the fastest-growing software companies employ zero salespeople.
So when do you need to hire a sales team for a product-led organization?
This really comes down to one metric.
Lifetime Value (LTV) of a customer.
Depending on your LTV, you can afford to offer three levels of support.
High-touch - typically reserved for enterprise and complex and /or expensive products that require hand holding.
Low-touch - very common approach for free trial and freemium models that have a high Lifetime Value (LTV).
No-touch - completely streamlined onboarding flow. Often has a low LTV.
Now, do you have to pick one level of support and stick with it?
Absolutely not.
Even though Slack, Dropbox, Unbounce, and Zendesk have sold millions to consumers that haven't once talked to sales, they've added sales reps to move upmarket.
But how they approach sales is still very different than your traditional sales-led SaaS business.
We'll cover the differences in Part 2.
Stay tuned.