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Capital Efficiency and GTM
How should a focus on being capital efficient impact your GTM?
I’m not going to go deep into why investor sentiment has changed and the difference between default alive and default investable. Because this is about Go To Market, not raising funding. But, if you want an interesting thread on it, I suggest you have a look at this one from David Sacks.
Growth to Capital Efficiency
I’m going to assume that everyone agrees there has been a shift for venture-backed companies from a focus on growth-at-all-costs towards growth combined with capital efficiency. In many ways, we’re all boot-strapped now, it’s just some of us have a bigger war-chest than others. What does that mean in terms of your Go To Market?
In good times, it was generally a question of making lots of bets, most of which failed, and doubling down where things were shown to work. The idea was that you needed to try lots of things to quickly learn what did and didn’t work so you could grow as fast as possible, and that was in part why you raised money. In the excellent book Growth Hacking by Sean Ellis and Morgan Brown, they talk about rapid fire experimentation that allowed companies like AirBnB to adapt their go to market and accelerate growth. But realistically, how do you do that at scale today when there is pressure to show greater capital efficiency?
To my mind it’s about raising the bar on what you’re prepared to do. Evaluating what experiments should take priority is based on three considerations:
1. Likely impact
2. Ease of implementation
If something is likely to create a big impact, isn’t going to tie up a load of dev resources for months on end and will be virtually free to promote, then that’s going to take priority over a long-shot, dev-heavy idea that needs to be promoted through paid advertising.
As an example, a company I’m working with started to notice that recommendations were gaining ground as as source of lead attribution. Still small, but growing year-on-year. So a bet they made this year was to work on how to best build a proper affiliation programme and market that to existing customers. They identified something that was proving to have an impact, would involve virtually no dev time and would cost them almost nothing to let their customers know about it.
Then everything else this year is about placing their chips on the things that worked for them in the past (such as industry events), but looking at ways to optimise further. If they can improve on last years’ leads and reduce CAC then they’re winning. This to me feels sensible. Look for strong signals that can give you a reasonable clue that more effort might bring some dividends and then improve the stuff that you know already works.
One final observation. When you are under pressure to grow AND cut costs, the temptation is to stop investing in product and instead pour money into sales and marketing. And while this might provide a short-term boost to growth, longer-term it’s not going to improve capital efficiency. Bear in mind that capital efficiency is the sum of all the money that has been invested and/or loaned to the company, divided by ARR. And the lower the number the better. So if those marketing dollars are blown on customers that aren’t going to get great value from the product, they will churn and your capital efficiency ratio will spiral.