Determining when to start marketing and sales for your startup begins with assessing the stage of development you are at. Be honest and ask yourself whether you have product-market fit nailed. Of course, I hear you say. But take a closer look. Are you really clear about the problem you are solving for your prospective customers and who they are?
I am asking so persistently because experience tells me that founders are prone to rushing into the sales and marketing stage too early. As a pre-seed VC, I see mostly pre-seed pitch decks of startups that are still at the pre-product market fit stage. There is nothing wrong with that. In fact, all startups have gone through that process. However, if you are at that stage, you are not yet ready for a sizable marketing investment.
Despite that, I see a lot of startups that are still working out product-market fit but are planning to invest €500,000 in marketing and sales during the next 12 months. That is a dangerous move. Not only are you unlikely to produce sales that justify this level of spend. But by wasting this amount of money, you are hurting the financial position of your startup.
That money could have been used to define product-market fit clearly. Resist the urge to start marketing and clarify who you will be selling to first.
Proving your business case
How many early customers does it take to prove your business case? Not as many as you think. This may be news to you, but to raise a seed funding round you do not have to have A LOT of revenue. This is a quality-over-quantity game. At this stage, potential investors are not yet looking for volume of sales.
They simply want to see that a handful of clients are keen to give your solution a try because they want their problem to be solved. You have read this right - you can literally nail enough clients to prove a business case by sending five messages on LinkedIn as a founder. Think of the time and cost savings: sending these messages will only take a few minutes and cost virtually nothing. This is a big difference compared to the €500,000 above.
So, what happens if your LinkedIn outreach does not generate any interest? Well, that is a valuable lesson in itself. Granted, you may have contacted the wrong people. More often, though, a lack of interest is a sign that your SaaS product requires a fundamental change. You may even need to pivot and change direction entirely. Whilst that is not the outcome you were hoping for, it is still better to know sooner rather than later and start changing direction.
Where to focus your sales efforts
Assuming your LinkedIn outreach went well, what should your next step be? Rather than setting out on a substantial marketing campaign, what you really should focus on is securing a few – say three - paying clients.
Make sure these clients are representative of your ideal customer profile (ICP) and work with them as closely as possible. The optimal scenario is this: you and your team sit at the client's office and build your solution together with the client’s team. That may sound like a strange approach, but it is the safest way of learning everything there is to know about your clients and what exactly their needs are.
Yes, it sounds counterintuitive, but some of the most successful startups I know were built this way. Not only does this allow you to build outstanding solutions, but you can also prevent big problems by doing it like this. Plus, think about how little sales effort it takes to get three clients. Those clients can be sufficient to prove your business case to prospective investors, and they cost you next to nothing in sales and marketing efforts.
A full-blown marketing and sales campaign would have wasted, time, effort, and funds better spent on refining product-market fit.
What about product-market fit?
So, what about product-market fit? Product-market fit is the degree to which your product satisfies your market demand. Great product-market fit is based on understanding what your customers need now and anticipating what they may need in the future. Based on that, you build and refine your value proposition. Once you have moved past these initial steps, you can start building credibility with customers by working closely with them on future iterations.
At the beginning of this article, I said that there is little point in launching large-scale marketing and sales activities before you have truly nailed product-market fit. Can you sell your product before you are clear on its product-market fit? Yes, you can, and you may even be successful initially. But it will not yield the long-term results you are looking for.
This brings me to another issue that I see a lot as a VC. There are thousands of startups with an annual recurring rate of €1,000,000 that have excellent sales reps on their staff. Those sales teams have been able to sell a product even without a product-market fit. At first, their figures look great, but this initial success rarely lasts.
Within a few months, customers realize that the product is not actually solving their problems. As a result, customer churn is high with clients canceling or downgrading their subscriptions mid-term. Making up for a high level of churn will cost more and require more time than defining proper product-market fit would have required.
Another consideration is how less-than-ideal product-market fit and high levels of churn affect product development. In this environment, any development becomes a slave of a massive list of features. This is something I call the “Frankenstein of features.” It can work for a little bit, but it does not take you anywhere in the long run because your startup’s numbers look so bad that you cannot get fresh funding. And few startups can grow without securing additional funding.
What can you do? There is really only one solution. You need to tear the whole thing apart to solve the fundamental issue of lacking product-market fit. It will not be pretty for a few weeks or months until you can re-group. At that stage, your startup is definitely not ready for an injection of venture capital, even if you are managing to pay the salaries for a team of 15. My goal is not to scare you. What I want to do is open your eyes to prioritizing what truly matters for your business at a given point.
Your next step
If you are recognizing yourself in this scenario, do not panic. Another thing that is true for founders is that everyone makes mistakes. The goal is to correct your course as soon as you can see that you are going in the wrong direction.
So cut down the unnecessary marketing and sales costs from your early-stage plan and focus on building a great product together with your clients. The more insight you can gain into your clients’ needs, the better. These insights will allow you to build something that targets customers’ pain points precisely and becomes successful in the long term because of that.
My point is simple: if you have a clear understanding of how to get to €10,000 monthly recurring revenue (MRR) you have a much better chance of completing a great seed funding round. No matter which country you are in right now, most are facing a challenging economic situation. As a result, access to funding is becoming more difficult if you haven't validated at least early-signals of product-market fit.
Investors are looking more closely at the startups they consider backing to avoid a misstep. In addition, some of the leading investors are expecting startup founders to achieve more with less money. That means there is simply no room for spending hundreds of thousands of euros on marketing a product you are not 100% certain will succeed.
Spending time to ensure real-world clients are interested in your SaaS solution is a solid investment in the future of your company. Investors continue to look at growth, but they are no longer happy to back growth at all costs. Instead, they are looking for founders to make prudent financial decisions, assess their priorities regularly, and spend their money responsibly – all while driving sustained growth of the company.
If you manage those steps, your time to launch a big sales and marketing campaign will come sooner than you think, and it will be a true contributor to sustainable growth.