Venture growth and how to find it

One of my clients posted the below user growth chart on LinkedIn the other week. I’m sharing it here with permission. While I did consider titling this post “case study”, the point here is that there’s growth and then there’s venture growth.

Lots of founders–myself included, when I was an early stage founder–sometimes don’t see what real, venture-worthy growth looks like and instead chase venture money for perhaps the wrong reasons. This company has already chosen the venture path, but choosing the venture path is a choice.

Growth numbers from top VCs

Emergence, the leading SaaS venture fund, posts top decile stats on enterprise SaaS companies every once in a while. Even though this chart is from 8 months ago, I think it’s telling. 1200% ARR growth is pretty insane. So is CAC payback of just 5 months.

Usually the big number everyone shares for venture funding is “T2D3” or that your revenue in the first five years needs to triple, triple, double, double, double. But as you can see from this chart, when you’re starting out 12x might be the next 3x.

The kind of growth you want

Venture style growth starts like the chart at the top. And it keeps looking like that chart for many years. Not just up and to the right, but really mostly just up. If you don’t have that kind of growth, and haven’t raised venture yet, you are probably best served by doing everything you can to find that growth before you do. A helpful way to break down that problem is to separate it into product market fit and go to market (GTM) fit activities.

On product, you first need to have some kind of product market fit (PMF). There are other posts on that, by me and other people, so I won’t get into it here. In short, people have to want what you’re selling, find it useful (ie keep using it after they start) and maybe even like it so much the recommend it to others. None of those are trivial to achieve, but they are necessary.

If you want an extreme example, think about Facebook’s early PMF. Within 48 hours of going live, 75% of Harvard students had signed up. That is insane. And they were using it ~2 hours a day. No amount of sales or marketing gets that level of adoption.

The catch? If you’re a B2B company, PMF is not enough. I’ve worked with plenty of companies whose initial growth has stalled because they didn’t have their GTM figured out. Just because your product is great doesn’t mean anyone has heard of it, let alone considered using it or actually given it a try.

Getting GTM right for growth

You need at least one working channel for GTM to be considered working. What is a channel? A channel can be any way of accessing customers–cold emailing, LinkedIn posts, outdoor billboards. Anything.

For example, Proactiv®, an acne medication popular in the 1990s, had a great product long before it became popular. Dermatologists Dr. Katie Rodan and Dr. Kathy Fields created it, and went to pitch it to Neutrogena to get get a licensing deal. Neutrogena was the market leader in acne both by sales and volume. Instead of getting a deal, they were told dismissively that “you ladies would look great on TV”. Perhaps that was their ah-ha moment: they started doing infomercials.

Turns out, they did look great on TV. Those infomercials worked so well, they never needed to pursue other channels. Instead they dialed in the infomercials by bringing in celebrities who happened to use their products–and who resonated with their teenage target customer. Britney Spears, Jessica Simpson, Justin Bieber, Adam Levine all appeared in their ads. Top tier celebrities by any standard–but beyond top tier for their target market (remember, this was in the 1990s).

It took a few years, but Proactive displaced Neutrogena as market leader in both sales and volume (with much higher margins, with a premium price point and having cut out the distributors and retailers). It reached over $1 billion in annual sales. Because they found one channel that worked.

How can you find your channel?

The best companies experiment intentionally. By focusing on your ideal customer, and their actual behaviors in the real world, and by being realistic about the buyer’s journey (for your product, in your industry) you can be thoughtful about which channels to try.

For example if you’re targeting aircraft manufacturing executives, think about what they do all day. Are they on X (formerly Twitter)? Probably not. Do they read industry magazines? Maybe, but probably not. Do they attend major industry conferences? Absolutely.

By narrowing your experiments based on your understanding of your ideal customer, you can then test those different channels. What’s critical is to do the tests well. Otherwise you’ll get bogus results.

Doing the tests well means hiring the right people, whether consultants or full time, to run the experiment. Would you watch a YouTube video to figure out how to produce a Super Bowl ad on your iPhone, or would you hire an agency that’s done it before? Sounds nuts right, but companies do that all the time with $20k/mo Google, Youtube or LinkedIn ad budgets.

It also means resourcing it properly. You might learn something from spending $5/day in Google, but not much and not quickly. If you limit your concurrent experiments you can contain your budget–but make sure each one is resourced enough to be successful.

Resources include time. By time-boxing experiments you can remain disciplined and not waste time on channels that do not work. For example, I spent 6 months producing a podcast. It was fun, some people liked it–but it did not do well on any metric I cared about or expected it to. So after 6 months I pulled the plug. That said–I didn’t give it only 2 episodes. Some things need time to catch on or for you or your team to figure them out. Every once in a while something hits immediately. But usually a significant amount time is required.

I find that running 3 to 4 channels at once is possible, even with a very small team. More than that even with a large team means mistakes are made–mistakes big enough to cast doubt on the whole experiment. After all, if you’re a founder you have a business to run, product to ship, funding to raise, and lots of other demands on your attention both professional and personal. Too many experiments leads to worse than waste–it can lead to the wrong conclusions.

Channel interplay

Some channels work really well with other channels as compliments. For example, attending conferences can be very productive for some types of businesses. Adding email and LinkedIn outreach before a conference can 2x or 3x the value of attendance. Whether you’re inviting prospects to see you speak on stage, or to meet at your booth, or just to meet on the floor, you’ll raise awareness and not just be a stranger. Be careful here: there are lots of ways to do damage with any cold outbound campaign. I’m working on a way to do it right.

The same can be said for running social media advertising alongside social media paid ads. It seems obvious but frequently founders think of them as totally separate initiatives. Mixing Google retargeting in can also be very effective, as someone who clicks over from a social ad or post can then be retargeted all over the internet. Though–be careful here; retargeting can be a total money pit. Google will find a way to show a near infinite number of impressions to people who may have visited your site but will never buy.

Some channels that worked well before begin to work less well. Influencers is an interesting one. For several years it was under appreciated by major brands, and people built massive businesses through it. Now there’s a whole market for influencer posts and the arbitrage is largely gone. An impression through an influencer might perform better than a regular paid ad–but you will pay dearly for that performance.

Until you find your channel

It’s tempting to seek out venture capital before you’ve found PMF and go to market fit. If you’ve already raised, you might need to. While you can’t ever shrink your way to growth, it’s worth mentioning that raising without a working channel is a very risky strategy. Best case, lots of dilution but you eventually find your way. Much, much more likely case is dilution, founder fatigue, upset investors, and eventually such a big preference stack from all of that investment that it’s not worth continuing.

Until you find your channel, stay lean and focus on finding your channel. That means the whole company–not only sales and marketing, but also product and engineering to the extent they can help. If they can’t help, and your product meets your customers’ expectations, it’s worth considering trimming down so that you can focus your very expensive venture money on resources that will help you find channels that work. You can’t shrink your way to growth, but you also can’t just keep building features nobody really wants to find growth either.

Once you find your channel

First, congrats! When you find your channel, it may be time to raise venture capital (or, more venture capital). Usually at the beginning things accelerate pretty quickly, charts look like the one at the start of this post, and you will get a lot of excitement from investors–in part, because of the numbers. In part, because you’re probably pretty excited, and it can be contagious.

But know that both product market fit and go to market fit are moving targets. You can find them and then lose them. Competitors enter the market, whether startups or adjacent behemoths. Buyer tastes or needs change. In my case, conferences were working amazing–and then the pandemic shut down conferences. So even once you find your 1-2 channels that work, it’s important to keep the experiments going. Focus most of your resources on what works, but keep trying new things.

What, did someone tell you this gets easier? Well, this is awkward…