Bottom-up or Top-down for Early-stage B2B SaaS Businesses?
Which is best and why?
Whether start-up SaaS businesses realise it or not, they are faced with a decision to make about whether to adapt a bottom-up or top-down go to market strategy. It may be that it’s a decision that is already made for them given the type of offering they have, but in many cases it will require an active choice.
There is a third option, too: which is to attempt both. And in reality, there will always probably be an element of both, but given their very limited resources, companies need to choose a route.
What do we mean by bottom-up and top-down?
Bottom-up generally refers to selling to individual end-users, then graduating to small teams, departments and eventually entire organizations. By contrast, top-down would be where you start with the most relevant senior leader in an organization and that one sales process unlocks everything within that organization that is relevant to your service.
If, for example, you are selling a payroll solution, you would need to sell it at the senior executive level since an individual employee using a payroll system for themselves wouldn’t work. However, a marketing tool could be used by an individual to manage a specific campaign or initiative and if successful could be rolled out across the wider company.
Characteristics of a bottom-up approach
A bottom-up go to market strategy will look different to a top-down one. Specifically we would expect to see the following:
Individual subscribers and smaller Average Customer Value (ACV). Unless you have a very high ticket product, your per seat approach will mean that you may only be charging $20-$50/customer/month.
More reliance on content marketing. The Customer Acquisition Cost (CAC) will be constrained by the ACV. If you work on an assumption that you want no more than a 12 month payback and your ACV is $600/year, then your options for paid advertising are limited (but not completely prohibitive). The best approach would be a combination of the two, but building up a strong content strategy early on will pay dividends over time.
A self-serve, highly optimized on-boarding process. The cost of selling and on-boarding a customer worth $600/year has to be kept low. This means that an easy to understand, straightforward way for customers to try, pay and get started on the service is very important. Instead of a process of an SDR qualifying a lead to Account Executive demoing and closing the lead, you might instead rely on webinars or even asynchronous pre-recorded demos to manage your resources.
Reliance on Product Led Growth strategies. With less resources available to sell person-to-person, your product will need to do the selling for you. It will need to encourage expansion and use your existing users as evangelists. This is no bad thing since it forces a focus on the end user experience, which ultimately needs to be great whichever sales approach you take. At the same time, the product will likely have a one-size fits all approach with very little in the way of customization.
Faster sales cycles. There should be less to consider: subscribing to your service won’t break the bank, the product should solve the problem in an obvious way and the impact for the customer of making a bad decision is much less serious. The decision should really be easy. This is why trial periods can be as short as a couple of weeks.
Development of a highly-automated Marketing Machine. Understanding how to reach customers, how to drive them towards your sales funnel and then automating email sequences and supporting content as they make their way towards becoming a customer.
Lots of customers that you never speak to. You should always talk to your customers, but if your strategy is more about driving lower-value customers, at least to begin with, then a lot of the focus will be about how to find those customers cost-effectively and get them through the process to a closed sale. If you are doing it right and winning thousands of customers, it just won’t be practical to speak directly to all of them in the way you would do if you were selling a much higher value subscription to a CEO.
Much smaller investment in sales and marketing. The skew between sales and marketing vs product development will be more towards product development for a bottom-up approach. This is in part because of the need for product-led growth, but also the expensive long sales cycles, led by highly paid sales people, is less of a factor.
Easier to become predictable and scaleable. When I ran the ScreenCloud sales and marketing function, selling to smaller companies in our early days meant that we could get to predictability and scaleability really fast. This meant that conversations with investors was easier because we could point to real data to show our likely future trajectory.
Higher churn and hitting a plateau. Smaller value customers have shorter sales cycles because the stakes are much lower. But conversely, that also means that their organizations are less reliant on your product and therefore more likely to churn. In fact, if you are relying on either an individual or an SMB to buy your products, you are also more susceptible to people leaving their job or the business closing down.
Characteristics of a top-down approach
Pretty much the opposite is true of everything above:
Your main focus is selling a high value subscription. For this you will need to sell to multiple stakeholders all with different pain points. An IT Director might be concerned with security, whereas the CMO will only care about whether her team can be more targeted with their campaigns. A CFO may be stressing about the rising SaaS budget, whereas the CEO will want to be able to show the board that they are on track to hit their quarterly expansion targets.
Because the prize is bigger, so too will be the amount of investment that you can reasonably expect to make to win it. A CEO is not going to click on a Google Ad and decide there and then to sign up to a $100k+/year subscription. The likelihood is that you will need to get in front of all the decision makers and that might involve a combination of paid media, deep-dive content/white papers/thought leadership, outbound marketing, multiple stages of sales pitches, proof of concept, contract negotiations and more. It may also require investment in your brand. “Nobody ever got fired for hiring IBM”, but you drop a quarter of a million bucks on a newbie that nobody has heard of and it all goes wrong, then your neck maybe on the chopping board. Having a brand, rightly or wrongly, is reassuring to the buyer. But building a brand is timely and expensive.
Top-down sales often involves multiple demos to different stakeholders, with a Q&A session. There may be a need to provide technical data, security certifications, complete a supplier questionnaire and that’s all before the legal team starts ripping your Ts&Cs to pieces.
Customer Success is a critical part of retaining and expanding the accounts. When the ACV is significant, the expense of servicing the client will be much more justifiable. Professional Services will also doubtless come into play. This is both good as a source of revenue, but bad in that it can become a distraction: the gross margins will be way lower than SaaS and the revenue will be non-recurring meaning that it won’t contribute much in terms of future valuations for investment and acquisition.
Sales cycles are much longer for all the reasons outlined above. It makes understanding the sales cycle, the pipeline coverage and the sales stages ever more important. Hiring against a prediction of $Xmillion in new revenue next quarter, given the sales cycle, means that leading indicators such as the size of the pipeline will become way more important than the easier to predict 14 day trial to conversion motions that you see in bottom-up sales.
The need for a highly automated marketing machine doesn’t go away (unless your Total Addressable Market is only a handful of customers worldwide in which case automation is probably not the name of the game). The automation is actually more sophisticated as the approach will vary depending on the personas you are targeting and other cohort information such as size of company and vertical market.
I started my tech career in digital consultancy. One of the appeals that me and my two co-founders saw in moving from being a consultant to having a SaaS business is that we wouldn’t be subject to the whim of our clients. Instead we would have loads of clients and if one or two were being unreasonable then it wouldn’t be a cause for losing sleep. With top-down sales, you come full circle — well, almost full-circle. Big clients need the support and individual understanding that an agency client would demand. Speaking regularly to customers and prospects to genuinely understand what their business challenges are, their voice and their frames of reference is what makes the difference at this level.
Top-down sales and marketing means that the percentage of spend will inevitably skew more towards sales and marketing. With bottom-up sales, sales people may be really just holding prospects’ hands as they trial the software, with top-down the sales process is more involved and often takes place higher up the decision-making funnel. With bottom-up the sales team will get involved when a potential customer reaches out and asks for help or further information and the selling may be pretty surface level. Top-down needs people to generate and qualify leads as well as to close them. Sales people in enterprise sales are often very well paid and work on significant commission structures. They will need to have a deeper understanding of the technology behind the product as well as a thorough insight into the particular pain-points of the various stakeholders they are selling to. The whole process takes longer and it certainly costs more.
The challenge for all SaaS businesses is to develop a predictable, repeatable and scaleable sales strategy. With bottom-up sales it is easier, cheaper and faster to achieve this. But if you’re still looking to scale to $100m in ARR, you’re going to struggle and probably plateau way before you reach $100m. Why? Because getting to $100m in ARR if your ACV is only $1,000/annum, would mean you’d need 100,000 customers. Not impossible, but tough going. And when you consider that smaller customers are more likely to churn, you might need to win more than double that before you hit $100m. By contrast, if you are routinely selling >$100k ACVs, then you “only” need 1,000 customers. Achieving the same predictable, repeatable and scaleable strategy at the enterprise level is harder and takes longer. There is less data to work with to begin and the higher the ACV, the more dependencies there are and the less predictable the outcome.
But the big upside is, because the size of the investment, the will of your customers to make it a success will be stronger. The inconvenience of ripping a system out again, especially as end-users start to rely on it to do their job (aka ‘the ‘stickiness’ of a product), makes churn less likely. Look at any SaaS company’s metrics and it will undoubtedly show an inverse relation between size of ACV and % churn. The only caveat to that is if you are a top-down SaaS business with only a handful of high-ticket enterprise customers, then if anyone churns that can have a sudden and significant impact on your ARR and your growth numbers. This is especially true where you have one or two customers delivering a significant majority of your SaaS income.
So which should you choose?
As I said, in some cases your product may choose for you. But if your product could potentially do both, I would recommend firstly not trying to do both: you need focus. In the early days, focus on bottom-up. Use your limited resources to get the basics right and rely on word of mouth and internal evangelists within those larger organizations to get your product adopted wider within the business.
That’s not to say that you turn any enterprise deal away, but recognise that it could end up being a massive distraction both in terms of time and resources, but also in terms of your product roadmap. Use it instead as a learning opportunity: see what the larger businesses want and where your gaps are.
As you get larger, you probably will need to figure out how you start to win bigger contracts if your ambition is to grow to somewhere north of $10m. When you decide to really push for this will depend on the market, your product, your current understanding of your customers and your stage of investment.