Why do most startups fail?
Sometimes it’s a product or market issue, or sometimes it’s an unforeseen circumstance like Covid-19. Still, 3 of the top 5 reasons involve go-to-market execution. You can’t execute on anything without a plan, which is where the disconnect begins for a lot of companies.
Most companies have a finance plan that includes the usual expectations for overall revenue growth, churn, gross margin, and expenses to drive projected unit economics and net burn.
With this, there are a few challenges using the finance plan to operationalize go-to-market presents:
However, the biggest challenge with the finance plan is that it doesn’t show the pipeline metrics needed PER REP to hit the overall revenue number.
Why is this important?
Not only does it allow you to check that the per rep metrics are attainable (most mid market AE’s can’t do 5 demos a day!), it also gives sales leadership the key drivers that teams should focus on to hit the finance plan.
At Stage 2, we call these Leading Indicators of Unit Economics (LI of UE). The LI of UE illustrates the prospects / opportunities needed, not revenue, so that you can build a consistent process that aligns to market opportunity and optimizes for standard deal sizes, not whales. If reps are hitting these monthly metrics consistently, you should be on target to hit your Unit Economics goals, which are lagging indicators in the plan.
The Leading Indicators of Unit Economics are:
This example shows that an AE at this company needs to close 4 deals a month at $10,000 at a cost of $4,900 per deal. To do that, they need 16 qualified opportunities and 160 accounts to prospect with their outbound GTM strategy. Sales and Marketing can now agree on how they will generate accounts and opportunities, and the sales leader can measure how they are pacing towards these numbers on a daily basis.
When you agree on your LI of UE across the company, you can use these in conjunction with your Leading Indicator of Retention as your gauge or speedometer to continue to invest in marketing and headcount. If you are hitting both your Leading Indicators of Unit Economics and Retention, keep hiring and investing. If you are missing one or both of your Leading Indicators, fix the problem before adding more expense that will throw your unit economics out of whack.
The biggest mistakes companies make at this stage are adding AE headcount, increasing conversion rates or increasing pricing in the model to make the GTM plan match the finance plan. The challenge is that these changes are made without testing or having stable Leading Indicators. It’s fine to agree on where you should invest to drive improvements, but make sure you test first before you include it in the plan.
Here’s a cheat sheet for when you should add improvements or headcount into your GTM plan:
What good is a plan if your entire team is not laser focused on hitting it?
If you write down your LI of UE on an excel sheet and then never revisit them, you are missing the entire point of building a GTM Bottoms Up plan. At any time, everyone on the GTM team should know how many deals a rep should sell a month, how many qualified opportunities they need, how many accounts or leads need to be touched, etc. Here are a few steps to ensure operationalizing is achieved:
Here’s the LI of UE example I used earlier, but with a weekly breakdown. This AE now has a weekly actionable plan of starting outreach to 40 new accounts, holding enough discovery calls to get 4 qualified opportunities and closing 1 deal.
Another benefit of using LI of UE to drive pipeline is that it keeps AEs balanced on quantity AND quality so they are not relying on that one big revenue deal in their pipeline to close.
This is the process we use with new portfolio companies to develop their GTM strategy and Leading Indicators, as well as measure performance. Now you can use the GTM Bottoms Up Model as your cheat sheet to developing a plan for success in 2022 (and beyond).
If you have feedback, suggestions, or questions, please add to the comments or reach out directly.